Exemption for stock transfers and limitation disclosure defeated the duty demand on merits and as time-barred.

Notification No. 23/2003-CE was held applicable to stock transfers from a 100% EOU to its own DTA units because mere non-liability to VAT on such transfers did not amount to a State-granted exemption from sales tax or VAT. The demand on merits was therefore unsustainable. On limitation, regular returns and letters informing the Department of the clearances and the exemption claim showed disclosure of the relevant facts, so invocation of the extended period was not justified. The demand was consequently time-barred, and the impugned order was set aside.

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Issues: (i) Whether the appellant was entitled to the benefit of Notification No. 23/2003-CE for stock transfers to its own DTA units where VAT was not leviable; (ii) Whether the demand could be sustained by invoking the extended period of limitation.

Issue (i): Whether the appellant was entitled to the benefit of Notification No. 23/2003-CE for stock transfers to its own DTA units where VAT was not leviable.

Analysis: The applicable notification grants exemption from SAD in respect of clearances from a 100% EOU to DTA only where the goods are exempted by the State Government from sales tax or VAT. On the facts, the clearances were stock transfers to own units and were not subjected to VAT because such transfers were not sales transactions. The absence of VAT liability on stock transfers did not amount to a State-granted exemption from sales tax or VAT. The notification was therefore held applicable, and the Revenue's reliance on a case involving actual sales tax exemption was found inapposite.

Conclusion: The appellant was entitled to the benefit of Notification No. 23/2003-CE, and the demand on merits was unsustainable.

Issue (ii): Whether the demand could be sustained by invoking the extended period of limitation.

Analysis: The appellant had regularly filed returns and letters intimating the Department about the clearances to its DTA units and the claim of exemption. In these circumstances, the Department was held to have been informed of the relevant facts, and the invocation of the extended period was not justified.

Conclusion: The extended period of limitation was not invocable, and the demand was time-barred.

Final Conclusion: The impugned order was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: For availing exemption under the notification, mere non-liability to VAT on stock transfers does not amount to a State-granted exemption from sales tax or VAT; when the assessee has also disclosed the clearances to the Department, the extended period of limitation cannot be invoked.

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