Clearance of goods to a SEZ unit would not amount to export for the purposes of Rule 5 of CENVAT Rules

Brief: Tiger Steel Engineering India Pvt. Ltd. (the assessee) is registered with Central Excise Department for the manufacture of pre- fabricated steel buildings, falling under Chapter 94 of Central Excise Tariff Act, 1985. The assessee also avails of the CENVAT credit facility under CENVAT Credit Rules, 2004 (CENVAT Rules). From 1 January 2007 to 30 June 2008, the assessee cleared its finished goods, namely, pre- fabricated building without payment of Central Excise duty to a unit located in Special Economic Zone (SEZ) under a letter of undertaking. These goods so cleared to SEZ without payment of duty were regarded as exports and accordingly, the assessee filed six refund claims in respect of the unutilized CENVAT credit under Rule 5 of the CENVAT Rules.

The refund claims filed by the assessee were rejected by the Original Adjudicating authority and on appeal to the Commissioner (Appeals), the order of the Adjudicating authority was set aside by concluding that the supplies to SEZ units amount to exports for the purpose of Rule 5 of CENVAT Rules. The Department has filed the present appeal against the said order to the Customs Excise & Service Tax Appellate Tribunal (CESTAT).

Citation: CESTAT decision in the case of Commissioner of Central Excise, Thane-I Vs. The Tiger Steel Engineering (I) Pvt Ltd (2010-TIOL-1256-CESTAT-MUM)

Court: CESTAT, Mumbai

Contentions of the Assessee

• The term export is not defined under the CENVAT Rules and Central Excise Act, 1944 (the Central Excise Act), hence the meaning of the term export should be understood as defined under the SEZ Act, 2005 (the SEZ Act).
• Under the SEZ Act, the term ‘export’ has been defined to include not only the physical export of goods and services outside India, but also supply of goods and services from the domestic tariff area (DTA) to a unit / developer in the SEZ and therefore, the DTA supplier is entitled to refund in case where goods are supplied to SEZ units.
• Board Circular No. 29/2006-Cus.,dated 27 December 2006 read with instructions No. 6/06 dated 3 August 2006 issued by the Ministry of Commerce and Industry to the Chief Commissioners of Customs and Central Excise suggests that supply of goods to SEZ units are considered in the nature of exports for purpose of Rule 5 of the CENVAT Rules.
• Circular 6/2010-Cus dated 19 March 2010 clarifies that rebate of excise duty paid could be claimed on goods supplied from DTA to a SEZ under Rule 18 of the Central Excise Rules, 2002 (the Central Excise Rules). Hence, supplies from a DTA unit to SEZ unit can be deemed as exports for the purpose of Rule 5 of the CENVAT Rules.
• In the case of Commissioner of C. Ex., Ludhiana v Self Knitting Works 2007 (220) E.L.T. 926 (Tri. – Del.), the CESTAT has laid down that deemed exports are to be treated as exports for all purposes.

Contentions of the Department

• Meaning of export for the purpose of Rule 5 of the CENVAT rules has to be understood in the ordinary and natural sense i.e. ^„taking goods physically out of India to a place outside India^?.
• The benefits available to a DTA unit supplying raw materials or capital goods to SEZ units are limited to the extent specified in Para 7.9 of Foreign Trade Policy (^„FTP^?), which deals with the entitlements for supplies from DTA to SEZ.
• In the absence of any express provision under the SEZ Act / Rules for refund of unutilized CENVAT credit, the benefit under Rule 5 will not be available to a DTA unit supplying goods to a SEZ unit / developer.
• Board^’s Circular No 29/06 does not touch Rule 5 of the CENVAT Rules and hence, in the present case it cannot be relied for the purpose of claiming refund of unutilized CENVAT credit.
• Decision held in the case of Self Knitting Works is not applicable to the present case, since there was no supply of goods by a DTA to SEZ in the said decision.
• The Hon^’ble High Court decision in the case of Essar Steels Ltd v. Union of India 2010 (249) E.L.T. 3 (Guj.), holds that export duty cannot be levied in respect of goods supplied by DTA to SEZ as export for this purpose should be physical export out of India.
• Deemed exports cannot be treated at par with the physical exports as held in the case of BAPL Industries Ltd. v. Union of India – 2007 (211) E.L.T. 23 (Mad.) by the Hon^’ble Madras High Court.

Observations of CESTAT

The following observations were made by the Bench of the Hon’ble CESTAT –

• SEZ Act is a special statute enacted by Parliament to benefit manufacturing units in Special Economic Zone, the various provisions of the SEZ Act are considered as vehicles which convey such benefits to SEZ units. In this respect, the definition of export under the SEZ Act is a deeming provision as it purports to designate as export a transaction which is not recognized as export under the Customs Act.
• Export as defined under Section 2 of the SEZ Act purports to be an export by that unit just as an import^? as defined under the Act purports to be an import by the same unit.
• Deeming provisions under the SEZ Act / Rules are exclusively for the benefit of SEZ units. The DTA unit, by the mere activity of supplying goods to SEZ unit, cannot claim any complementary benefit on the strength of the deeming provisions of the SEZ Act / Rules. Benefits, cannot be claimed by the DTA unit unless it is expressly provided for under the Central Excise Act / Rules there under.
• In the absence of a definition of ^„export’ under the Central Excise Act, the Central Excise Rules or the CENVAT Rules, one should look for its definition under the Customs Act. The fictionalized definition of ^„export’ under the SEZ Act cannot be looked for as it purports only to make the SEZ unit an exporter. The term export used in Rule 5 of the CENVAT Rules, stands for ^„physical export’ out of the country, as envisaged under the Customs Act.
• CESTAT decision in the case of Self Knitting Works is not in accordance with the purport of the law inasmuch as the said decision followed an earlier decision of the Tribunal which pertained to 100% EOU. The policy provisions relating to 100% EOU cannot be applied to SEZ units, for which there is separate statute and a body of rules.
• Board^’s Circular does not provide clarification on refund of accumulated CENVAT credit on inputs used by DTA in the manufacture of goods which are supplied to SEZ units.
• The assessee has not brought any evidence on record to show that the adjustment of the accumulated CENVAT credit is not possible. Only when such adjustment is not possible that the refund of the accumulated credit in cash can be considered.

NF