Special Additional Duty on EOU DTA clearances turns on VAT liability, while destruction-related duty issues were remanded for fact-finding.

Special Additional Duty on clearances by a 100% EOU to sister concerns in the Domestic Tariff Area was held to depend on whether the goods were liable to sales tax or VAT under Section 3(5) of the Customs Tariff Act, 1975; the Tribunal followed the Larger Bench view that a stock transfer description and a State sales tax or VAT exemption do not by themselves defeat the central levy, so the demand was upheld on that issue. For expired tablets, capsules, raw materials and remnants destroyed in the factory, the Tribunal found the factual record incomplete on customs permission and the timing of the destruction request, so it remanded the duty demand and connected limitation questions for fresh examination by the original authority.

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Issues: (i) Whether clearances made by a 100% EOU to sister concerns in the Domestic Tariff Area on stock transfer basis attracted Special Additional Duty when sales tax or VAT was not paid. (ii) Whether duty was payable on expired tablets, capsules, raw materials and remnants destroyed in the factory premises and whether the matter required remand for fresh factual examination.

Issue (i): Whether clearances made by a 100% EOU to sister concerns in the Domestic Tariff Area on stock transfer basis attracted Special Additional Duty when sales tax or VAT was not paid.

Analysis: The applicable exemption under Notification No. 23/2003-CE depended on whether the goods cleared into the Domestic Tariff Area were exempted by the State from sales tax or VAT. On the governing interpretation of Section 3(5) of the Customs Tariff Act, 1975, the levy of Special Additional Duty turned on whether sales tax or VAT was leviable on the goods, not on whether a particular transfer was described as a stock transfer. The Tribunal followed the Larger Bench view that exemption granted by a State did not alter the central levy where the goods were otherwise notified for Special Additional Duty.

Conclusion: This issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether duty was payable on expired tablets, capsules, raw materials and remnants destroyed in the factory premises and whether the matter required remand for fresh factual examination.

Analysis: The Tribunal noted that destruction of scrap, waste or remnants was governed by the Foreign Trade Policy provisions relied upon in the record and that destruction with permission of Customs authorities could have duty consequences different from destruction without proper permission. However, the record was incomplete on whether permission had been sought and whether adequate time had been given to the department to act on the request before destruction took place. The Tribunal therefore held that the factual foundation for deciding the duty demand and the related limitation aspect required further examination by the original authority.

Conclusion: This issue was remanded to the original authority for fresh decision on the duty demand and connected factual aspects.

Final Conclusion: The appeal succeeded only to the extent that the destruction-related demand required reconsideration, while the challenge to Special Additional Duty on DTA clearances failed on merits.

Ratio Decidendi: Special Additional Duty on DTA clearances by a 100% EOU is determined by the statutory levy on goods liable to sales tax or VAT and is not negated merely because the clearance is styled as a stock transfer or because a State grants exemption.

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