Whether Additional Duty exemption can be claimed if the goods are cleared from SEZ to DTA on stock transfer basis
An exemption is given from additional duty of customs levied in lieu of Value Added Tax (‘ADC’) leviable under Section 3(5) of the Customs Tariff Act to the goods cleared from the Special Economic Zone (‘SEZ’) to Domestic Tariff Area (‘DTA’). However such exemption is not applicable if such goods, when sold in DTA, are exempted by the State Government from payment of sales tax or value added tax (‘VAT’). The intention behind this exemption is to avoid double taxation, that is, to avoid levy of both customs duty and VAT.
Recently a Circular No. 44/2013-Customs dated 30-12-2013 has been issued with respect to the aforesaid exemption wherein it is observed that in the case of clearances from SEZ unit to the DTA unit for self-consumption i.e. in the nature of stock transfer, no sales tax / VAT is leviable. The circular goes on to say that as no sales tax / VAT is leviable on the stock transfer, ADC is payable and the benefit of exemption shall not be available.
It would be worthwhile to reflect upon the judicial precedent on the issue of stock transfer from SEZ to DTA. In the case of M/s GE India Industrial Pvt. Ltd, the Advance Authority ruled that goods stock transferred by the SEZ unit to its DTA unit would be eligible for exemption from the payment of ADC. It was observed in the ruling that the said goods were not exempted by the State Government from payment of VAT and that in case of stock transfer the inevitable conclusion was that VAT which was a tax on sale of goods within the State could not be levied on stock transfer.
Thus it appears that the circular has been issued by the Board without appreciating the law laid down by Supreme Court in the case of Peekay Re-rolling Mills that exemption can only operate when there was a valid levy, for if there was no levy at all, there would be nothing to exempt. Thus, in terms of the Supreme Court decision as stock transfer from one unit to another does not constitute sale in terms of VAT laws, the question of levying VAT does not arise and in case where there is no levy at all, there would be nothing to exempt.
It is a settled position of law that notifications are subordinate legislation and statutory in nature, the interpretation of which are in the domain of Court. So far as the clarifications/circulars issued by the Central Government are concerned they represent merely their understanding of the statutory provisions. In this case, the understanding expressed in the circular appears to be flawed as it equates stock transfer with self-consumption. There would be no denying that if the goods stock transferred are for subsequent self-consumption in the transferred unit, the ADC exemption shall not be available as ultimately no sales tax/VAT would be paid on it.
It may be worth mentioning here that the ADC exemption is also provided to the goods cleared from Export Oriented Unit (‘EOU’) to DTA subject to the condition that the said goods cleared to DTA were not exempted by the State Government from payment of Sales tax/VAT. Thus the exemption provided for clearance from EOU to DTA is similar to that provided to clearance from SEZ to DTA. In this regard, Directorate General of Export Promotion has issued letter No. DGEP/EOU/29/2012/1018, dated 29-7-2012 wherein it has been clarified that in the case of finished goods cleared from EOU to DTA as stock transfer, if exempt from payment of Sales Tax or VAT, the ADC shall be leviable at the prescribed rate. The said letter seems to suggest that if the goods are exempt from sales tax or VAT then ADC shall be levied. Since there is no levy of VAT on stock transfer the reference to exemption is to be construed as exemption to the goods in the State where they are stock transferred.
In this context also, attention may be invited to a recent decision in the case of M/s VVF Ltd-vs-CCE, Belapur wherein it was observed by the Mumbai Tribunal that goods manufactured by EOU unit and stock transferred to DTA were entitled to the benefit of exemption of ADC.
Till now, similar circular has been not been issued for non-availability of ADC exemption in case when a stock transfer is made from EOU to DTA. Thus it would be interesting to see whether the interpretation given in the Circular pertaining to clearances from SEZ to DTA is going to result into a similar circular for clearances made from EOU, which would be contrary to a judicial precedent in the VVF case or are the stock transfers made from EOU going to be kept on a different footing from stock transfer made from SEZ.
About the Authors :- The authors are Prashant Deshpande, Senior Director, and Parth S Shah, Deputy Manager, Deloitte Touche Tohmatsu India Private Limited.