2026 (2) TMI 7 - AT - Central Excise

Special Additional Duty on EOU domestic clearances should follow effective customs duty rate, preventing higher recovery than on imports.

Special Additional Duty liability on domestic clearances by export oriented units should be measured by the effective customs duty rate so that recovery ... Liability for special additional duty (SAD) - Effective rate of customs duty - Exemption under section 5A of Central Excise Act, 1944 - Special Additional Duty (SAD) - Entitlement u/s 5A - EOU domestic clearance rule - Value Added Tax (VAT) exemption condition - Net Foreign Exchange Positive (NFEP) - HELD THAT:- The distinguishment of levy on domestic clearance by ‘export oriented unit (EOU)’ from normal clearances of excisable goods is built on the premise that duty foregone should be made good on goods that are not exported; ‘aggregate duties of customs’ is intended precisely to that end. There is no plausible cause for discriminating between standard import and exempted imports standing on identical ground, as far as domestic clearance of goods manufactured from such imports are concerned, on rate of duty; furthermore, ‘additional duty of customs’ equal to excise duties are available for offset as credit in standard import by domestic manufacturers in much the same way as domestic procurement which ‘export oriented units (EOU)’ cannot avail of. The recovery of duties on domestic clearance should, therefore, not be more than that chargeable on like article when imported into India and to be passed on to buyer as credit of duties. Furthermore, the restriction in section 5A of Central Excise Act, 1944 is not a taxing provision for charge of standard rate of duty on ‘export oriented unit (EOU)’ but an exemption limiting the duty chargeable on domestic manufacturers for such clearances; it is intended to ensure that ‘export oriented units (EOU)’ do not shelter behind it to circumvent the special levy charged on them under section 3 of Central Excise Act, 1944. There is neither logic nor law to support that proposition that it applies, and to the extent utilised in goods cleared domestically, to raw materials and consumables that were permitted exemption under notifications intended specifically for such units. The decisions cited above affirm the claim for effective rates of duty adopted by the appellant. There is no dispute of the contention that the goods cleared by the appellant are liable to ‘value added tax (VAT)’ and that it had only been temporarily deferred owing to transaction being stock transfer; on sale, the goods would be subject thereto unlike in central excise levy where clearance is the point of assessment. Thus, the impugned order does not stand the test of law and is set aside to allow the appeal. Issues: Whether the appellant, an Export Oriented Unit (EOU) making clearances to Domestic Tariff Area (DTA), was correctly held liable to pay Special Additional Duty (SAD) and to be denied the benefit of effective/custom-notification rates (and exemptions under section 5A) instead of being assessed at the effective rates of customs applicable to imported like goods.Analysis: The question turns on the proviso to section 3(1) of the Central Excise Act, 1944 which directs that duties on DTA clearances by EOUs be determined equivalent to aggregate duties of customs leviable on like imported goods, and on the scope of exemptions under section 5A of the Central Excise Act, 1944. Authorities cited establish that where customs or excise notifications grant exemption or effective rates for imported goods, the same effective rates apply in computing duty on DTA clearances by EOUs rather than imposing full tariff rates; the levy of additional duties (including CVD/SAD) must reflect exemptions available to imported goods and Notification 23/2003 s condition regarding VAT exemption is satisfied where goods cleared in DTA are not exempt from VAT by the State. Precedents and statutory scheme demonstrate that recovery on domestic clearances by EOUs should not exceed the duty chargeable on like imported articles and that effective rates must be allowed where applicable.Conclusion: The denial of effective/custom-notification rates and imposition of SAD at full tariff rates was not sustainable; the appeal is allowed and the impugned order setting aside benefits is set aside, permitting assessment at effective rates and relevant exemption treatment in favour of the appellant.