100% EOU denied CVD exemption under Notifications 6/2006-CE and 12/2012-CE for non-conventional device parts

CESTAT Bangalore held that a 100% EOU was not entitled to CVD exemption under Notifications 6/2006-CE and 12/2012-CE for parts used in non-conventional devices, confirming demands for CVD and SAD with interest for normal period only. However, the appellant was granted BCD exemption under Notifications 25/1999-Cus and 24/2005-Cus based on consistency with previous orders. Extended period of limitation and penalty were set aside. Matter remanded for recomputation of CVD and SAD demands for normal period.

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The core legal questions considered by the Tribunal in these appeals are:

i. Whether the appellants, being 100% Export Oriented Units (EOUs) manufacturing Solar Photovoltaic Modules and related products, are entitled to exemption from Basic Customs Duty (BCD) under Notification No.25/1999-Cus dated 28.02.1999 and Notification No.24/2005-Cus dated 01.03.2005;

ii. Whether exemption from Countervailing Duty (CVD) under Notification No.6/2006-CE dated 01.03.2006 and Notification No.12/2012-CE dated 17.03.2012 is available to the appellants, and consequently, whether exemption from Special Additional Duty (SAD) is also available;

iii. Whether the extended period of limitation is invocable and penalty is imposable on the appellants for the alleged duty evasion.

Issue-wise Detailed Analysis:

1. Entitlement to exemption from BCD under Notification No.25/1999-Cus and No.24/2005-Cus:

The appellants, as 100% EOUs, imported raw materials and inputs duty-free under Notification No.52/2003-Cus and availed exemption on indigenous inputs under Notification No.22/2003-CE. However, upon clearing final products to the Domestic Tariff Area (DTA), the Department denied the benefit of these notifications and demanded duty. The appellants claimed alternative exemption under Notifications No.25/1999-Cus and No.24/2005-Cus.

The Commissioner and Commissioner (Appeals) in certain appeals had allowed the benefit of these notifications, observing that the appellants had substantially complied with the conditions prescribed under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 (IGCRDMEG Rules). The Tribunal noted that the procedures followed by EOUs are akin to those followed by non-EOUs under the IGCRDMEG Rules, including proper accounting, bonding, and monitoring of duty-free imported goods.

The Commissioner's order for appeal No.E/20140/2016 explicitly held that since the appellants substantially complied with the procedural requirements and there was no allegation of non-compliance, the appellants were eligible for exemption under Notifications No.25/1999-Cus and No.24/2005-Cus. This position was reinforced by a Circular from the Directorate General of Export Promotion clarifying that EOUs following EOU scheme procedures substantially satisfy IGCRDMEG Rules requirements and are thus eligible for such exemptions.

The Tribunal, applying the principle of consistency and uniformity, set aside the impugned order denying the benefit of these notifications for the period April 2013 to September 2013.

2. Entitlement to exemption from CVD under Notification No.6/2006-CE and No.12/2012-CE and consequent exemption from SAD:

The appellants sought exemption from CVD on parts and raw materials procured locally and imported, used in the manufacture of Solar Photovoltaic Modules, classified as non-conventional energy devices under the relevant notifications. The appellants contended that their products fell under the exempted categories listed in List 5 of Notification No.6/2006-CE and List 8 of Notification No.12/2012-CE, which provide exemption from CVD without conditions for non-conventional energy devices.

However, the Tribunal referred to its own earlier decisions and authoritative precedents, including the Supreme Court's rulings on strict interpretation of exemption notifications. It was held that exemption under these notifications is available only for parts consumed within the factory of production of such parts for the manufacture of goods specified in the relevant lists. The Tribunal cited a previous order where exemption was allowed only for parts manufactured and consumed within the factory, and denied for parts procured externally.

Further, the Tribunal observed that the legislature's intention was clear and unambiguous in limiting exemption to parts consumed within the factory, as evident from the specific language of the notifications. The Tribunal relied on the Supreme Court's judgment emphasizing that exemption notifications must be strictly construed, and ambiguity must be resolved in favor of the revenue.

Applying these principles, the Tribunal concluded that the appellants were not entitled to exemption from CVD under the said notifications for parts procured externally. Consequently, since the appellants were not exempt from CVD, exemption from SAD, which is contingent upon CVD exemption, was also not available.

3. Invocability of extended period of limitation and imposition of penalty:

The Department had invoked the extended period of limitation and imposed penalties on the appellants for alleged non-compliance and duty evasion. The appellants challenged these on the ground that they had substantially complied with the procedural requirements and that the demands were not sustainable.

The Tribunal, following its own earlier decisions in the appellants' case, set aside the demands for extended period of limitation and penalties. It held that since the appellants were eligible for exemption under the alternative notifications and had substantially complied with procedural requirements, the imposition of penalty and invocation of extended period were not justified.

Significant Holdings:

The Tribunal succinctly held:

"The appellants are not entitled to the benefit of exemption Notifications No.6/2006-CE dated 01.03.2006 and No.12/2012-CE dated 17.03.2012 and demands relating to CVD and consequently SAD, with interest are confirmed on this count for normal period."

"The appellants are eligible to the benefit of Notifications No.25/1999-Cus dated 28.02.1999 and No.24/2005-Cus dated 01.03.2005."

"Demand for the extended period and penalty imposed are set aside."

The Tribunal emphasized the principle of strict construction of exemption notifications as laid down by the Supreme Court, stating:

"Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification."

"When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue."

Further, the Tribunal highlighted the legislative intent discerned from the language of the notifications and the necessity to give effect to the clear and unambiguous wording, rejecting any liberal or purposive interpretation that would extend exemption beyond the stated terms.

The Tribunal remanded the matter to the adjudicating authority for computation of CVD and SAD with interest for the normal period, modifying the impugned orders accordingly.

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