Can SEZ unit claim exemption from CVD when cleared to DTA based on an Exemption Notification issued under Section 5A of CEA’1944 although when there is specific bar under Section 5A for SEZ units?
Petitioner is a manufacturer of excisable goods in SEZ which is engaged in exports as well as domestic clearance to DTA subject to certain conditions. Section 30 of SEZ Act states any goods cleared from SEZ to DTA shall be chargeable to duties of Customs including CVD. But what if the same goods are exempted from whole of the excise duty vide Exemption Notification under Section 5A of CEA’1944 manufactured by local manufacturers. Will the same exemption notification applicable on SEZ?
As per the judgement of The Hon’ble Gujrat High Court in the case of Roxul Rockwool Insulation India Pvt Ltd vs. UOI [28th November,2014], the petitioner being a SEZ unit, though would ordinarily have the liability of payment of CVD on its clearances to DTA. But in view of the fact that local manufacturers are exempt from payment of excise duty vide Exemption Notification u/s 5A of the said Act, the petitioner cannot be saddled with such duty liability. Basically, CVD is imposed to balance the excise duty burden of the local manufacturers, and when the local manufacturers have no such liability in view of the exemption notification, the SEZ unit cannot be saddled with the liability of excise duty component in terms of CVD.
It would be pertinent to note that now all the issues relevant to SEZs are governed by the Special Economic Zones Act, 2005. The provisions were amended after enactment of the SEZ Act and currently Section 3(1) provides for levy of a duty of excise on all excisable goods which are manufactured in India, excluding goods produced or manufactured in SEZs. The reference to the goods manufactured in SEZ is omitted. Section 5A continues in the same form unamended. Thus, giving power of exempting duty of excise on any class of goods & the proviso continues to state that such exemption would not apply to any goods manufactured in free trade zone or SEZ and brought to any other place in India, unless specifically so provided. Emphasis shall be supplied that corresponding amendments have been made in Section 3 of the Central Excise Act exempting SEZ units from payment of central excise duty & merely because no amendment is made in Section 5A of the Central Excise Act, a liability which does not arise out of a charging provision cannot be fastened.
Thus, the entire legislative scheme has undergone a change by introduction of SEZ Act and the changes made in the Central Excise Act in this regard. As discussed earlier, legislative intention emerging is that a SEZ unit will have to liable to pay CVD, if the local manufacturer of like goods is exempt from payment of whole of such duty. Section 5A of the Central Excise Act, 1944 continues to contain a reference to a Special Economic Zone in the proviso providing that any exemption granted by a notification under Section 5A would not apply to any goods produced or manufactured in Special Economic Zone and brought to any other place in India. Thus, this omission to omit the reference to Special Economic Zone from said proviso of Section 5A appears to be a legislative oversight.
Aditya Singhania & Nischal Agarwal