SEZ developers eligible for exemption under N/N. 50/2008-CE retrospectively, duty demand and penalty set aside

CESTAT Bangalore allowed the appeal regarding retrospective application of exemption N/N. 50/2008-CE (NT) dated 31.12.2008 for supply of exempted goods to SEZ units and developers. The revenue objected that exemption was only applicable to goods cleared to units, not SEZ developers. Following jurisdictional HC precedent and Division Bench decision, the tribunal held that supplies to SEZ developers are eligible for exemption. The demand for duty, recovery of Cenvat credit, and penalty were set aside as unsustainable.

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Issues: Whether Notification No. 50/2008-CE (NT) dated 31.12.2008, providing Benefit to SEZ can be considered as having retrospective application.

Analysis:
1. The appellant, engaged in the manufacture of goods, cleared armored cables to developers in a Special Economic Zone (SEZ) without payment of excise duty, treating the clearance as export and availing Cenvat credit on duty paid inputs. An objection was raised by the respondent regarding the exemption applicability, leading to a demand of Rs.26,44,431/- under Section 11(A) read with Rule 14 of Cenvat Credit Rule 2004. The appeal against this order was dismissed by the Commissioner (Appeals), prompting the present appeal.

2. The appellant argued that Rule 6(6) of Cenvat Credit Rules 2004 applies to supply of exempted goods to both SEZ units and SEZ Developers as per Notification No. 50/2008-CE (NT) dated 31.12.2008. Citing a judgment of the Hon'ble High Court of Karnataka, the appellant contended that the retrospective application of the Notification is settled. The amendment clarified the scope of exemption to include developers, aligning with the SEZ Act, 2005. The Tribunal's decision in Sujana Metal Products Ltd. case further supported the retrospective nature of the amendment.

3. The Department argued that the amendment to Rule 6 of Cenvat Credit Rules, 2004, effective from 31-12-2008, was only prospective, citing precedents emphasizing plain language interpretation and absence of specific provisions for retrospective effect. However, the consistent policy of providing concessions to SEZ units and developers warranted retrospective application, as per Supreme Court dictums. The Tribunal upheld that Rule 6(6) applies to both SEZ units and developers, supporting the appellant's position.

4. The AR reiterated the authority's findings but was countered by the appellant's reliance on Universal Comfort Products Limited case, where it was held that the exemption under Notification No. 50/2008-CE (NT) applies to developers only from the date of the Notification, not retrospectively.

5. After considering the arguments and precedents, the Tribunal held that the supplies made by the appellant to SEZ Developers are eligible for exemption, rendering the demand of duty, recovery of Cenvat credit, and penalty unsustainable. The impugned order was set aside, and the appeal was allowed with consequential relief, if any as per law.

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