2013 (5) TMI 460 - HC - Central Excise

Cenvat Credit - Supply to SEZ - Amendment to rule 6 - whether retrospective or prospective - Held that - The Assessee had supplied goods from the domestic tariff area to a developer and it is to be treated as an export in view of sub-section 2(m) of the SEZ Act. In case it is treated to be export then all benefits as given to export under any other law should be given. Rule 6 of the 2004-Rules is titled obligation of a manufacturer of dutiable and exempted goods and provider of taxable and exempted services . It provides certain obligation on the manufacturer of such goods. The Assessee is one such manufacturer. It not only manufactures dutiable goods but exempted goods as well. 2004-Rules as initially envisaged provided benefit to the goods cleared to a unit in SEZ only and not to the developer though under the SEZ Act the position of the developer as well as the unit was one and the same they were in the same class, entitled to the same treatment. This appears to be an inadvertent omission. It appears that the aforesaid mistake was realised by the Government and rule 6(6)(i) of the 2004-Rules was substituted by the following new sub-rule & after substitution of rule 6(6)(i) by the Amended Rules, the discrimination between the developer and a unit in SEZ has been obliterated. Both stand in the same footing. It is now in consonance with the Article 14 of the Constitution of India. It is settled rule of interpretation that rule or notification takes effect from the date it is issued and not from any prior date. However, Justice GP Singh in his book Principles of Statutory Interpretation 12th Edition, 2010 at page 1021 observes that a rule, which is not in terms retrospective, may have retrospective operation because of the retrospective operation of the enactment in respect of which it is made.So is the case here. The substituted sub-rule 6(6)(i) of the 2004-Rules should have retrospectivity in order not to discriminate and to be in consonance with the nature of excise duty. Thus the rule is clarificatory, corrects an obvious mistake, removes discrimination, and provides correct legal principle. Its prospective enforcement would leave it to be suspect at the touchstone of Article 14 of the Constitution. Considering this aspect it is proper to hold that the substituted sub-rule 6(6)(i) is came into force from the date the 2004-Rules were enforced. The Excise Duty is imposed on the manufacture of the product that is to be consumed in the country whereas a customs duty is imposed on the product that is manufactured within the country but is to be used outside the country ie exported as well as manufactured outside the country and brought into the country for use ie imported. The amended rule is merely clarificatory, corrects an obvious mistakes, removes discrimination between developers and units in special area zones. It merely clarifies or explains the existing law of providing non-imposition of excise duty on goods that are held to be export under the Special Area Zone Act. The substituted sub-rule 6(6)(i) is enforced from the date the 2004-Rules came into force.

Summary

Issues Involved:
1. Retrospective application of substituted sub-rule 6(6)(i) in the Cenvat Credit Rules, 2004.
2. Treatment of goods supplied to SEZ developers as exports under Rule 6(3)(b) of the Cenvat Credit Rules, 2004.

Issue-wise Detailed Analysis:

1. Retrospective Application of Substituted Sub-rule 6(6)(i):

The main question in this appeal is whether the substituted sub-rule 6(6)(i) in the Cenvat Credit Rules, 2004, has retrospective effect. Initially, sub-rule 6(6)(i) exempted goods cleared to units in SEZs from the application of sub-rules 6(1) to 6(4). The amendment in 2008 expanded this exemption to include goods cleared to developers of SEZs. The adjudicating officer rejected the Assessee's claim for exemption under the amended sub-rule, holding it to be prospective. However, the Tribunal allowed the appeal, holding the amendment to be retrospective.

The court analyzed the nature of excise duty, which is traditionally imposed on goods manufactured for domestic consumption, not on exports. The SEZ Act treats supplies to SEZ units and developers as exports. The 2004-Rules initially discriminated between units and developers in SEZs by not extending the same benefits to developers. The amendment corrected this discrimination, aligning with Article 14 of the Constitution, which prohibits discrimination.

The court concluded that the amendment was clarificatory, correcting an obvious mistake and removing discrimination. Therefore, it should be applied retrospectively from the date the 2004-Rules were enforced.

2. Treatment of Goods Supplied to SEZ Developers as Exports:

The court considered whether goods supplied to SEZ developers before the amendment could be treated as exports. The SEZ Act defines "export" to include supplies from the domestic tariff area to SEZ units or developers. The court noted that the SEZ Act has an overriding effect over other laws, and goods supplied to SEZ developers are to be treated as exports.

The court emphasized that excise duty is not levied on goods meant for export, and the same principle should apply to supplies to SEZ developers. The initial omission of developers from sub-rule 6(6)(i) was an inadvertent mistake, corrected by the amendment. The court held that treating the amendment as prospective would perpetuate discrimination, which is against the constitutional mandate.

Conclusion:

The court concluded that the substituted sub-rule 6(6)(i) is retrospective, effective from the date the 2004-Rules were enforced. The amendment is clarificatory, correcting an obvious mistake and removing discrimination between SEZ units and developers. The appeal by the Central Excise Department was dismissed, and both substantial questions of law were decided against the Department.