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 does not exceed duty chargeable on like imported articles; where exempted imports stand on the same footing as standard imports for domestic manufacture, there is no justification to impose a higher levy. The exemption for export oriented units serves to limit duty on domestic clearances rather than to create a taxing basis to evade special levies. Additional duty credit available on standard imports must be treated comparably, and value added tax applies on sale when stock transfers are converted into taxable sales.

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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.

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