2019 (2) TMI 1863 - AT - Central Excise

Levy of Central Excise Duty - Debonding of unit - SEZ unit - cement and iron steel procured duty free for construction and development of their unit - capital goods or not - HELD THAT - The cement and steel are not included in the definition of capital goods as defined in rule 2(1)(e) of SEZ Rules, 2006. Further, cement and steel also do not fall under the category of capital goods, raw materials, components, consumables, spares and finished goods. Thus, the Court below have erred in considering cement and steel as capital goods. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability to pay duty on cement and iron & steel procured duty-free for construction and development of unit in SEZ.

Analysis:
The judgment dealt with the issue of whether an appellant operating under SEZ is liable to pay duty on construction materials like cement and iron & steel procured duty-free for setting up their unit. The appellants had procured these materials without paying excise duties while operating in the SEZ area. When the SEZ area was de-notified by the government, they were asked to deposit the duties forgone on these materials. The appellants deposited the duties under protest and later applied for a refund, which was rejected by the adjudicating authority. The appellants contended that cement and steel used for construction were not capital goods as per the SEZ Rules.

The appellants appealed to the Commissioner (Appeals), arguing that cement and steel were not capital goods as defined in the SEZ Rules. However, the Commissioner dismissed the appeals, stating that since these materials were procured duty-free for construction and development of the SEZ unit, they fell under the definition of capital goods. Dissatisfied with this decision, the appellants approached the Tribunal for relief.

The Tribunal analyzed the definition of capital goods, components, and consumables under the SEZ Rules. It noted that cement and steel did not fit the definition of capital goods or fall under the categories of raw materials, components, consumables, spares, or finished goods. The Tribunal concluded that the lower court had erred in considering cement and steel as capital goods. Therefore, the impugned order was set aside, and the appeals were allowed. The appellants were deemed entitled to consequential benefits, including a refund with interest, as per the law.

In summary, the Tribunal ruled in favor of the appellants, stating that cement and steel were not to be treated as capital goods under the SEZ Rules. As a result, the appellants were relieved of the duty payment imposed on these materials during the de-bonding process.