2019 (3) TMI 1839 - AT - Customs

Relief of special additional duties - clearances of various medicinal products by the respondent, from their unit in a special economic zone to their own undertaking in the domestic tariff area as stock transfer - Section 3(5) of Customs Tariff Act, 1975 - HELD THAT - From N/N. 45/2005-Cus., dated 16th May, 2005, it is apparent that exemption will not apply only if such goods, when sold in domestic tariff area, are exempted from value added tax attendant on a specific notification providing for nil rate of duty - In the present instance, the goods themselves are not exempt from value added tax though the internal transfer defers the tax for the moment. In other words, the payment of value added tax is merely postponed till actual transaction of sale occurs. The exclusion from value added tax is, thus, fleetingly temporary and the exemption test cannot be applied except when that transaction takes place. That which cannot be subjected to the test cannot fail the test. There is no doubt that the goods themselves are liable to value added tax. Postponement of that liability or even evasion of that liability does not derogate from taxability. As the said goods are taxable under the relevant revenue laws of the State, it is found that the appeal against the order of the first appellate authority is misdirected. Appeal dismissed.

Summary

Issues:
Appeal against granting relief of special additional duties under Section 3(5) of Customs Tariff Act, 1975 for clearances of medicinal products from a special economic zone to a domestic tariff area as stock transfer.

Analysis:
The appeal by Revenue challenged the order-in-appeal granting relief of special additional duties under Section 3(5) of Customs Tariff Act, 1975 for clearances of medicinal products from a special economic zone to a domestic tariff area as stock transfer. The contention was that the clearances were liable for special additional duty as the goods were not exempted from value added tax when sold in the domestic tariff area. The Tribunal considered the exemption Notification No. 45/2005-Cus., dated 16th May, 2005, which stated that exemption would not apply if the goods, when sold in the domestic tariff area, were exempted from value added tax by the State Government. The Tribunal noted that in this case, the goods were not exempt from value added tax, and the tax liability was only deferred until the actual sale transaction took place. Therefore, the goods were still taxable under the revenue laws of the State, and the appeal against the order of the first appellate authority was deemed misdirected.

The Tribunal emphasized that the postponement or evasion of value added tax liability did not negate the taxability of the goods themselves. The temporary deferral of tax did not exempt the goods from being taxable under the relevant revenue laws of the State. The Tribunal concluded that since the goods were taxable, the appeal against the order of the first appellate authority had no merit and was dismissed. The judgment was pronounced in court on 20-3-2019.