2019 (2) TMI 1557 - AT - Central Excise

CENVAT Credit - goods on which CENVAT credit had been availed was deployed for the manufacture of excisable goods, viz., gypsum board , jointing compound and gypboard moisture resistant ultra which was, inter alia, being cleared to developers of Special Economic Zone - rule 6(3) of CENVAT Credit Rules, 2004 - Held that - The requirement of neutralisation of ineligible CENVAT credit is waived for certain categories of clearances including exports and clearances to units in special economic zones without, admittedly, covering developers of special economic zones. With the coming into force of Special Economic Zones Act, 2005, effective from 10th February 2006, exemption of duties on goods cleared from the domestic tariff area for use of developers or units in special economic zone is accorded by that special statute which does not distinguish between a unit and a developer - The gap in operationalising of the exemptions between two different arms of the Central Government, i.e., Ministry of Finance and Ministry of Commerce, should not have created an artificial, and uncontemplated, distinction between such clearances effected to special economic zones. Section 2(m) of the Special Economic Zones Act, 2005 includes supply from domestic tariff area to a unit or developer in the definition of export and section 51 of Special Economic Zones Act, 2005 mandates that this statute would prevail over any other in the event of a conflict. Therefore, notwithstanding a subsequent amendment in rule 6(6) to the CENVAT Credit Rules, 2004, to include developer of special economic zones within the escapement covered of rule 6 of the said Rules, the categorization as exports would itself suffice to exclude the applicability of the liability prescribed therein. The impugned order has erred in upholding the liability of the appellant - appeal allowed - decided in favor of appellant.

Summary

Issues:
Recovery of Central Excise duty, imposition of penalty under Central Excise Act, 1944, interpretation of CENVAT Credit Rules, 2004 regarding clearances to Special Economic Zones.

Analysis:
The appeal challenged an order upholding the recovery of Central Excise duty, interest, and penalty under the Central Excise Act, 1944, related to the availed CENVAT credit used in manufacturing excisable goods cleared to Special Economic Zones. The appellant argued that the clearances to Special Economic Zones should be considered exports, thus exempt from the liability under rule 6(3) of CENVAT Credit Rules, 2004. The Tribunal had previously decided similar cases affirming that clearances to Special Economic Zones are exports, not requiring specific exclusion in the rules. However, the Authorized Representative contended that the exclusion for developers of Special Economic Zones was deliberate until a subsequent amendment. He argued that the definition of 'export' in Central Excise Rules, 1944 did not cover such transactions.

The Tribunal analyzed the gap between the exemptions for exports and clearances to Special Economic Zones, emphasizing the Special Economic Zones Act, 2005, which exempts duties on goods cleared for use in Special Economic Zones. The Tribunal highlighted that the Act includes supply to a unit or developer in the definition of 'export,' with a provision stating that the Act prevails in case of conflict. Despite an amendment to the CENVAT Credit Rules, 2004, including developers of Special Economic Zones, the Tribunal held that categorizing the clearances as exports would suffice to exclude the liability. Citing previous decisions, the Tribunal emphasized that the benefits should extend to developers as well, and any oversight in the rules was unintentional. Consequently, the Tribunal set aside the liability imposed on the appellant, allowing the appeal.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the liability for Central Excise duty and penalty under the CENVAT Credit Rules, 2004, did not apply to clearances to Special Economic Zones categorized as exports. The judgment highlighted the importance of considering the provisions of the Special Economic Zones Act, 2005, in interpreting the rules governing such transactions, ultimately leading to the decision to set aside the imposed liability.