No Duty Demandable on Semi-Finished and Finished Goods when it was Exported after Payment of Duty u/s 3(1) of Central Excise Act: CESTAT [Read Order]

In a significant case, the Chennai bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that no duty demandable on semi-finished and finished goods when it was exported after payment of duty under section 3(1) of Central Excise Act, 1944.

the assessee namely, M/s. Sharada Terry Products Ltd. is a registered public limited company, established as 100% EOU under the name and style “Annur Cotton Mills” for the manufacture of 100% Cotton Terry Towels. They obtained License for a private bonded warehouse on 25.09.2007.

As per the provisions of Notification Nos. 22/2003CE dated 31.03.2003 and 52/2003 dated 31.03.2003, the assessee by import as well as indigenously procured inputs, and capital goods without payment of duty for manufacture of final products.

On fulfilment of an Export obligation, they applied for permission to exit from the EOU scheme. The Development Commissioner granted permission to exit in principle upon payment of requisite duties on all imported and indigenously procured capital goods, inputs, and consumables, including finished stock. The appellant then paid all duties on semi-finished and finished goods.

Based on no objection and final exit order issued by the Development Commissioner, the appellant exited the EOU scheme and got converted into a DTA unit, in the same premises and transferred all capital goods, raw materials, semi-finished goods and finished goods to the DTA unit. From the DTA unit, the finished goods were exported and the semi-finished goods were fully processed and also exported on payment of duty under claim of rebate of duty in terms of Rule 18 of CER, 2002.

The Department alleged that the assesse has not correctly paid the duty on semi-finished goods and finished goods at the time of de-bonding into a DTA unit. The assesse discharged duty on semi-finished and finished goods by availing the concession rate of duty under Notification No. 23/2003-CE dated 31.03.2003.

Show Cause Notice was issued proposing to demand the short paid duty on semi-finished goods and finished goods which were transferred to DTA at the time of de-bonding. It was also proposed to enhance the assessable value by including the freight charges insurance and landing charges. After due process of law, the original authority confirmed the demands, interest and penalty. The proposal to enhance the value by including various charges was dropped by the adjudicating authority. The department has filed an appeal.

A further Show Cause Notice dated 06.06.2012 was issued to the appellant alleging wrongful availment of credit and for recovery of the same with interest and for imposing penalties. After due process of law, the original authority allowed the credit on all items except credit of the duty paid on semi-finished goods and finished goods. 

Shri S. Durairaj appeared and argued for the appellant. At the time of de-bonding, appellants paid duties on the stock of finished goods/ semi-finished goods as on 23.05.2011 as per proviso to Section 3(1) of Central Excise Act, 1944 by availing the benefits of Sl.No: 1, 2 and 3 of notification 23/2003-CE dated 31.03.2003. Sl.No:1 is the exemption from 4% SAD when VAT is not exempted for DTA clearances. Sl.No:2 is the exemption for 50% customs duty [BCD] when the goods are manufactured out of indigenous materials and cleared in DTA [5/15%]. After assessment by the jurisdictional authorities, the no-due certificate was issued.

The issue of the liability to pay duty on semi-finished goods was considered by the Tribunal in the case of Jubilant Life Sciences Ltd. (supra). The Tribunal observed that the duty demand is on the goods that had not come into existence (that have not completed the manufacturing stages) and therefore not sustainable. Moreover, these goods have been further processed into finished goods and the assesse has exported these goods.

After due process of law, the original authority allowed the credit availed on imported raw materials, and indigenous raw materials, the credit availed of additional duty paid on imported raw materials and also allowed the service tax credit transferred. However, the credit availed of the duty paid on semi-finished goods and finished goods by availing the benefit of Notification No. 23/2003 at the time of de-bonding was disallowed. 

A Two member bench comprising Ms Sulekha Beevi C S, Member (Judicial) and Mr M Ajit Kumar, Member (Technical) concluded that the duty demand raised on the semi-finished goods and finished goods cannot be sustained for the reason that the goods have already been exported and that too on payment of duty under Section 3(1) of Central Excise Act, 1944.

While allowing the appeal, the CESTAT held that the “appellant is eligible to avail credit of duty paid on finished goods and semi-finished goods.”

To Read the full text of the Order CLICK HERE

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