2007 (4) TMI 99 - AT - Central Excise

Cenvat/Modvat - Revenue contended that goods supplied by appellant during the impugned period in SEZ and Rule 57 AD(4) was not applicable and hence amount of 8% was payable along with interest and penalty - Held that revenue contention was not correct and set aside

Summary

Issues:
Denial of amount under Rule 57AB(2) of Central Excise Rules, 1944 for exempted finished products supplied to a Special Economic Zone.

Analysis:
The issue in this case revolves around the denial of an amount equal to 8% of the total price of exempted finished products under Rule 57AB(2) of the Central Excise Rules, 1944. The appellant, a manufacturer of printed cartons, availed Cenvat credit without maintaining separate accounts for inputs used in the manufacture of exempted and dutiable finished products. A show cause notice was issued, demanding the 8% amount for goods supplied to a Special Economic Zone (SEZ) as Rule 57AD(4) relaxations did not apply to SEZs. Both the adjudicating and appellate authorities confirmed the demand. The appellant argued that until 27-3-2001, Kandla SEZ was technically a Free Trade Zone (FTZ), entitling them to Rule 57AD(4) benefits.

The appellant contended that the change in nomenclature from "Kandla Free Trade Zone" to "Kandla Special Economic Zone" did not affect the applicability of Rule 57AD(4) benefits. They argued that geographically, both zones were the same, and the SEZ designation did not alter its FTZ status. The appellant relied on legal provisions and previous judgments to support their claim that clearances to the SEZ should be treated on par with clearances to the FTZ, entitling them to benefits under Rule 57AD(4). The appellate tribunal agreed with the appellant's arguments and set aside the impugned orders, allowing the appeal.

The tribunal emphasized that the geographical area of Kandla FTZ and Kandla SEZ was the same, and the SEZ designation did not negate the FTZ benefits. The tribunal noted that the power to designate areas as FTZs for Central Excise Rules lies with the government, and the SEZ designation did not change the FTZ status. Therefore, clearances to the SEZ should be considered equivalent to clearances to the FTZ, granting all benefits applicable to the FTZ. The tribunal found the earlier orders erroneous and illegal, setting them aside and providing consequential relief to the appellant as per the law. The appeal was allowed, and the judgment was pronounced on 20-4-2007.