Excise exemption for scrap in free trade zone linked to relief from additional customs duty on like goods.

Scrap or waste arising in the Kandla Free Trade Zone and cleared for home consumption was treated as eligible for exemption under Notification No. 16/83-C.E., issued under Rule 8(1) of the Central Excise Rules, 1944. The stated principle is that an exemption from central excise duty for like goods also extends to the corresponding additional duty of customs on imported goods. On that basis, the commentary states that the scrap was not liable to countervailing duty and the short-levy demand was unsustainable.

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Issues: Whether scrap or waste material arising in the Kandla Free Trade Zone and cleared for home consumption was entitled to exemption from additional duty of customs under Notification No. 16/83-C.E., and whether such a notification under the Central Excise Rules could operate to exclude countervailing duty on imported goods.

Analysis: Notification No. 16/83-C.E. was issued under Rule 8(1) of the Central Excise Rules, 1944 and exempted scrap or waste material arising in the course of production in the Kandla Free Trade Zone from the duty of excise leviable under Section 3 of the Central Excises and Salt Act, 1944, subject to the conditions stated in the notification. The demand for short levy proceeded on the premise that this exemption could not apply to additional duty of customs. The governing principle applied was that an exemption from excise duty granted by a Central Excise exemption notification also serves to exempt like imported goods from additional duty of customs. The reasoning was supported by prior decisions holding that the excise exemption and the customs additional duty liability are correspondingly linked for like goods.

Conclusion: The scrap cleared for home consumption was entitled to the benefit of Notification No. 16/83-C.E., and additional duty of customs was not leviable. The demand was unsustainable.

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