Clearance of goods to a SEZ unit would not amount to export for the purposes of Rule 5 of
CENVAT Rules
Court : CESTAT, Mumbai
Brief : Tiger Steel Engineering India Pvt. Ltd. („the assessee?) is registered with Central Excise
Department for the manufacture of pre-fabricated steel buildings, falling under Chapter 94 of
Central Excise Tariff Act, 1985. The assessee also avails of the CENVAT credit facility under
CENVAT Credit Rules, 2004 („CENVAT Rules?). From 1 January 2007 to 30 June 2008, the
assessee cleared its finished goods, namely, pre-fabricated building without payment of Central
Excise duty to a unit located in Special Economic Zone („SEZ?) under a letter of undertaking.
These goods so cleared to SEZ without payment of duty were regarded as exports and accordingly,
the assessee filed six refund claims in respect of the unutilized CENVAT credit under Rule 5 of the
CENVAT Rules. The refund claims filed by the assessee were rejected by the Original Adjudicating
authority and on appeal to the Commissioner (Appeals), the order of the Adjudicating authority was
set aside by concluding that the supplies to SEZ units amount to exports for the purpose of Rule 5 of
CENVAT Rules. The Department has filed the present appeal against the said order to the Customs
Excise & Service Tax Appellate Tribunal („CESTAT?).
Citation : CESTAT decision in the case of Commissioner of Central Excise, Thane-I v. The Tiger
Steel Engineering (I) Pvt Ltd (2010-TIOL-1256-CESTAT-MUM)
Judgement :
Contentions of the Assessee
· The term export is not defined under the CENVAT Rules and Central Excise Act, 1944 („the
Central Excise Act?), hence the meaning of the term export should be understood as defined under
the SEZ Act, 2005 („the SEZ Act?).
· Under the SEZ Act, the term 'export' has been defined to include not only the physical export of
goods and services outside India, but also supply of goods and services from the domestic tariff area
(„DTA?) to a unit / developer in the SEZ and therefore, the DTA supplier is entitled to refund in
case where goods are supplied to SEZ units.
· Board Circular No. 29/2006-Cus.,dated 27 December 2006 read with instructions No. 6/06 dated 3
August 2006 issued by the Ministry of Commerce and Industry to the Chief Commissioners of
Customs and Central Excise suggests that supply of goods to SEZ units are considered in the nature
of exports for purpose of Rule 5 of the CENVAT Rules.
· Circular 6/2010-Cus dated 19 March 2010 clarifies that rebate of excise duty paid could be
claimed on goods supplied from DTA to a SEZ under Rule 18 of the Central Excise Rules, 2002
(„the Central Excise Rules?). Hence, supplies from a DTA unit to SEZ unit can be deemed as
exports for the purpose of Rule 5 of the CENVAT Rules.
· In the case of Commissioner of C. Ex., Ludhiana v Self Knitting Works 2007 (220) E.L.T. 926
(Tri. - Del.), the CESTAT has laid down that deemed exports are to be treated as exports for all
purposes.
Contentions of the Department
· Meaning of export for the purpose of Rule 5 of the CENVAT rules has to be understood in the
ordinary and natural sense i.e. „taking goods physically out of India to a place outside India?.
· The benefits available to a DTA unit supplying raw materials or capital goods to SEZ units are
limited to the extent specified in Para 7.9 of Foreign Trade Policy („FTP?), which deals with the
entitlements for supplies from DTA to SEZ.
· In the absence of any express provision under the SEZ Act / Rules for refund of unutilized
CENVAT credit, the benefit under Rule 5 will not be available to a DTA unit supplying goods to a
SEZ unit / developer.
· Board?s Circular No 29/06 does not touch Rule 5 of the CENVAT Rules and hence, in the present
case it cannot be relied for the purpose of claiming refund of unutilized CENVAT credit.
· Decision held in the case of Self Knitting Works is not applicable to the present case, since there
was no supply of goods by a DTA to SEZ in the said decision.
· The Hon?ble High Court decision in the case of Essar Steels Ltd v. Union of India 2010 (249)
E.L.T. 3 (Guj.), holds that export duty cannot be levied in respect of goods supplied by DTA to SEZ
as export for this purpose should be physical export out of India.
· Deemed exports cannot be treated at par with the physical exports as held in the case of BAPL
Industries Ltd. v. Union of India - 2007 (211) E.L.T. 23 (Mad.) by the Hon?ble Madras High Court.
Observations of CESTAT
The following observations were made by the Bench of the Hon?ble CESTAT –
· SEZ Act is a special statute enacted by Parliament to benefit manufacturing units in Special
Economic Zone, the various provisions of the SEZ Act are considered as vehicles which convey
such benefits to SEZ units. In this respect, the definition of export under the SEZ Act is a deeming
provision as it purports to designate as „export? a transaction which is not recognized as export
under the Customs Act.
· Export as defined under Section 2 of the SEZ Act purports to be an export by that unit just as an
import? as defined under the Act purports to be an import by the same unit.
· Deeming provisions under the SEZ Act / Rules are exclusively for the benefit of SEZ units. The
DTA unit, by the mere activity of supplying goods to SEZ unit, cannot claim any complementary
benefit on the strength of the deeming provisions of the SEZ Act / Rules. Benefits, cannot be
claimed by the DTA unit unless it is expressly provided for under the Central Excise Act / Rules
thereunder.
· In the absence of a definition of „export' under the Central Excise Act, the Central Excise Rules or
the CENVAT Rules, one should look for its definition under the Customs Act. The fictionalized
definition of „export' under the SEZ Act cannot be looked for as it purports only to make the SEZ
unit an exporter. The term export used in Rule 5 of the CENVAT Rules, stands for „physical export'
out of the country, as envisaged under the Customs Act.
· CESTAT decision in the case of Self Knitting Works is not in accordance with the purport of the
law inasmuch as the said decision followed an earlier decision of the Tribunal which pertained to
100% EOU. The policy provisions relating to 100% EOU cannot be applied to SEZ units, for which
there is separate statute and a body of rules.
· Board?s Circular does not provide clarification on refund of accumulated CENVAT credit on
inputs used by DTA in the manufacture of goods which are supplied to SEZ units.
· The assessee has not brought any evidence on record to show that the adjustment of the
accumulated CENVAT credit is not possible. Only when such adjustment is not possible that the
refund of the accumulated credit in cash can be considered.