In a ruling in favour of Reliance Industries Ltd, the Ahmedabad Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) has held that Excise Duty is not payable on manufacturing goods produced in the Special Economic Zones (SEZ) unit.
The respondent/assessee is a SEZ unit in Reliance Jamnagar SEZ. In the SEZ, the respondent manufactures Motor Spirit ( MS ), High Speed Diesel ( HSD ), and Aviation Turbine Fuel ( ATF ), which fall under Sub-Headings 27101241, 27101944, and 27101939, respectively, of the Fourth Schedule to the Central Excise Act 1944. The surcharge ( SAED ) and the road and infrastructure cess ( AED ) levied under Section 147 of the Finance Act 2002 and Section 112 of the Finance Act 2018, respectively, are in the nature of additional duties of excise, i.e., an increase in the basic excise duty charged under Section 3(1).
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The assessee was of the view that the goods manufactured in SEZ are excluded from the said charge of basic excise duty; the same are also outside the purview of the said surcharge and cess. The surcharge and cess, which are in the nature of an increment in the existing duty charged under said Section 3(1), cannot apply to goods manufactured in SEZ since they are excluded from the basic charge under Section 3(1). The surcharge and cess were not payable on the MS, HSD, and ATF manufactured by the respondent SEZ unit and removed from the SEZ by way of export.
The department viewed that the MS, HSD, and ATF manufactured by the respondent SEZ unit and removed from the SEZ by way of export were liable to the SAED (surcharge) and AED (cess) during the period 1-7-2022 to 19-7-2022.
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The tribunal viewed that the levy of SAED and AED lack completeness and certainty in respect of four components, namely the taxable event, the person to whom the levy is imposed, and measure. This is the reason that Sections 147 and 112 of the 2018 Act clearly provide that for the levy of these duties, the provisions of the Central Excise Act and Rules made thereunder shall apply. Therefore, to arrive at the completion of the levy, it is necessary that Section 147 of the Finance Act, 2002, and Section 112 of the Finance Act, 2018 cannot alone be applied for the levy of SAED and AED. The provisions of both sections apply along with the relevant provisions of Section 3 of the Central Excise Act, which clearly exclude the SEZ unit.
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The levy of SAED (surcharge) and AED (cess) cannot be levied on the SEZ unit. Sections 147 and 112 of the Finance Act, 2002, and 2018, respectively, do not provide any reference to the taxable territory that is otherwise provided under Section 3(1)(a) of the Central Excise Act, 1944. Therefore, for levy under Sections 147 and 112 of the 2002 and 2018 Acts, respectively, the taxable territory needs to be decided on the basis of Section 3 of the Central Excise Act of 1944, which excludes the territory of SEZ.
The two member bench of Ramesh Nair (Judicial Member) and Raju (Technical Member) has observed that since the SEZ unit has been excluded from the levy of the duty of excise, the same exclusion shall apply in respect of the levy of SAED and AED. Since there is no specific mention of the SEZ unit in Sections 147 and 112 of the Finance Act, 2002 and 2018, respectively, and SEZ is excluded from the levy of duty.
The tribunal held that the assessee was not liable for payment of SAED, and AED is an SEZ unit. The duties paid are refundable to the respondent along with interest, in accordance with the law.
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