Clarificatory Cenvat amendment protects SEZ developer clearances from credit reversal, interest and penalty for the prior period.

Supplies from the Domestic Tariff Area to SEZ developers were treated as exports under the SEZ Act, 2005, and the SEZ was deemed outside the customs territory of India for authorised operations. The substitution of Rule 6(6)(i) of the Cenvat Credit Rules, 2004 by Notification No. 50/2008-CE(NT) was held to be clarificatory, so the benefit extended to clearances made before 31.12.2008. Accordingly, credit reversal under Rule 6, together with the related demand of interest and penalty, was unsustainable for clearances to SEZ developers for the prior period.

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Issues: Whether the demand of credit reversal, interest and penalty in respect of clearances made to SEZ developers for the period prior to the amendment to Rule 6(6)(i) of the Cenvat Credit Rules, 2004 by Notification No. 50/2008-CE(NT) dated 31.12.2008 was sustainable.

Analysis: The issue turned on the effect of the amendment by substitution made to Rule 6(6)(i) of the Cenvat Credit Rules, 2004. The legal position was examined in the light of the SEZ Act, 2005, under which supplies from the Domestic Tariff Area to a Unit or Developer are treated as exports and the SEZ is deemed to be a territory outside the customs territory of India for authorized operations. The amendment inserting SEZ developers was held to be clarificatory in nature, and therefore the benefit was available even for the period prior to 31.12.2008. On that basis, the clearances to SEZ developers could not be subjected to reversal under Rule 6 or consequent demand under the Central Excise Act and Cenvat Credit Rules.

Conclusion: The demand, interest and penalty were held unsustainable and the assessee was entitled to the benefit of the amended rule for the prior period.

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