2025 (8) TMI 250 - AT - Central Excise

Amendment to Rule 6(6)(i) of Central Excise Rules Applied Retrospectively to SEZ Clearances Before 2008

The CESTAT Bangalore allowed the appeal, holding that the amendment to Rule 6(6)(i) of the Central Excise Rules via N/N. 50/2008-CE(NT) dated 31.12.2008 ... Disallowance of credit of duty and the demand of the same under Section 11A of Central Excise Act, 1944 read with Rule 15 of Cenvat Credit Rules, 2004 - clearances to SEZ developer for the period prior to amendment to Rule 6(6)(i) of the Central Excise Rules made vide N/N. 50/ 2008-CE(NT) dated 31.12.2008 - HELD THAT:- It is found that the issue is no more res integra and in the judgment of the Hon’ble High Court of Karnataka in the matter of Commr. of. C. Ex. & S.T., Bangalore Vs. Fosroc Chemicals (India) Pvt. Ltd. [2014 (9) TMI 633 - KARNATAKA HIGH COURT], it is held that 'amendment has to be construed as retrospective in nature and the benefit of Rule 6(6)(1) as amended in 2008 has to be extended to the goods cleared to a 'developer' of a Special Economic Zone for their authorized operations. Therefore, we do no see any merit in these appeals.' The Respondent is eligible for claiming the benefit of N/N. 50/2008-CE(NT) dated 31.12.2008 for the period prior to 31.12.2008 for the clearances to SEZ developers, therefore the confirmation of demand along with interest and imposition of penalty in the impugned order is unsustainable. The impugned order is set aside - Appeal allowed. ISSUES: Whether the disallowance of cenvat credit on inputs used in manufacture of goods cleared without payment of duty to SEZ developers prior to amendment of Rule 6(6)(i) of Cenvat Credit Rules, 2004 is tenable.Whether the amendment by Notification No. 50/2008-CE(NT) dated 31.12.2008, which included SEZ developers within the ambit of Rule 6(6)(i), has retrospective or prospective effect.Whether the manufacturer is required to reverse cenvat credit or pay an amount equivalent to 10% of the value of exempted goods cleared to SEZ developers prior to 31.12.2008 under Rule 6(3) of Cenvat Credit Rules, 2004.Whether supplies to SEZ developers without payment of duty qualify as 'export' under the Special Economic Zones Act, 2005 and consequent applicability of cenvat credit rules. RULINGS / HOLDINGS: The disallowance of cenvat credit and demand of duty on clearances to SEZ developers prior to 31.12.2008 is not tenable as the amendment by Notification No. 50/2008-CE(NT) is clarificatory in nature and the inclusion of SEZ developers is to be read as if it was there from inception.The amendment substituting Rule 6(6)(i) is 'clarificatory' and must be construed as if the words 'to a developer of the SEZ for their authorized operation' were originally part of the rule, thereby including SEZ developers within the scope of Rule 6(6)(i) from the beginning.The manufacturer is eligible to claim the benefit of Notification No. 50/2008-CE(NT) dated 31.12.2008 for clearances to SEZ developers for the period prior to 31.12.2008 and thus is not required to reverse cenvat credit or pay 10% of the value of exempted goods under Rule 6(3) for that period.Supplies to SEZ developers without payment of duty are 'exports' under Section 2(m)(ii) of the Special Economic Zones Act, 2005, which overrides other laws and exempts such supplies from central excise duty, thereby impacting the application of cenvat credit rules. RATIONALE: The Court applied the Special Economic Zones Act, 2005, particularly Section 53 deeming SEZs as outside Customs territory and Section 2(m)(ii) defining 'export' to include supplies to SEZ units and developers.The Court relied on the clarificatory nature of the amendment by Notification No. 50/2008-CE(NT) dated 31.12.2008, interpreting Rule 6(6)(i) of the Cenvat Credit Rules, 2004 as if the inclusion of SEZ developers was originally intended.Precedent from the Hon'ble High Court of Karnataka in Commissioner of Central Excise & ST, Bangalore Vs. Fosroc Chemicals (India) Pvt. Ltd. was pivotal, holding that the SEZ developer was always included within the ambit of Rule 6(6)(i) by virtue of the SEZ Act overriding other laws.The Court noted that the amendment was brought by way of 'substitution' to clarify existing law rather than to impose a new obligation, supported by Government circulars and legislative intent.The Court also considered the finality of the issue based on subsequent judicial decisions and the dismissal of the appeal before the Hon'ble Supreme Court, indicating settled law.