Setback for Sun Pharmaceuticals: CESTAT Rules SAD Applicable on Stock Transfers to DTA Units Even Without VAT Payment [Read Order]

The Ahmedabad Bench of Customs,Excise and Service Tax Appellate Tribunal(CESTAT) ruled that Special Additional Duty (SAD) was applicable on stock transfers made by Sun Pharmaceuticals from its 100% Export Oriented Unit (EOU) to sister units in the Domestic Tariff Area (DTA), even without Value Added Tax (VAT) payment.

Sun Pharmaceuticals Industries Limited,appellant-assessee,a 100% Export Oriented Unit (EOU), was engaged in exports as well as sales in the DTA. The company claimed exemption from SAD under Notification No. 23/2003-CE on DTA clearances, stating that stock transfers to sister units were not liable for VAT or CST and hence SAD was not payable.

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The Department disagreed and alleged that SAD should have been paid on such stock transfers. Although the appellant argued that SAD was not applicable, they paid the duty under protest.

Another issue involved the destruction of expired tablets, capsules, and raw materials. The company took permission from the local FDA to destroy finished goods but did not get approval from Customs or Central Excise for destroying raw materials. The Department held that, since proper procedure was not followed, duty was payable on the destroyed goods and the credit taken had to be reversed.

The Department also pointed out that the assessee had not paid excise duty or sales tax/VAT on certain DTA clearances, which violated the conditions of the exemption notification. It relied on past rulings, including Moser Baer and John Deere, to support its claim that SAD was payable when sales tax was applicable, even if it was later exempted by the state.

The assessee argued that SAD was not payable on stock transfers to sister units. They referred to an earlier CESTAT order in their favour and said VAT was reimbursed under a government scheme, making the situation revenue neutral.

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For destroyed goods, they said no duty was payable as the items were unfit for use and destroyed inside the factory. They cited policy rules and a past favourable order on the same issue.

They claimed there was no suppression since audits were done regularly and the department was informed about the destruction. So, the extended time limit, interest, and penalty were not justified.

Their counsel admitted that the Moser Baer case went against them and the SAD issue was settled in favour of the department, but they still argued on limitation and revenue neutrality.

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The two member bench comprising Somesh Arora(Judicial Member) and Satendra Vikram Singh(Technical Member) dealt with two main issues. First, it examined whether 4% SAD applied to stock transfers made by the assessee from its 100% EOU to group companies in the  DTA without VAT payment. Referring to the Moser Baer India Ltd. case, the Tribunal held that SAD was applicable even if VAT was not paid, as long as the goods were notified under Section 3(5) of the Customs Tariff Act.

The assessee’s counsel also admitted that this decision went against them. The appellate tribunal rejected the assessee’s argument on limitation, noting that the relevant ruling came in 2005, while the dispute in this case related to 2010–2013. It also pointed out that the assessee failed to disclose the benefit claimed under Serial No. 1 of Notification No. 23/2003, which justified the extended period.

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The CESTAT addressed the issue of duty on the destruction of expired goods, referencing the Sun Pharmaceutical case, where no duty was payable if permission was sought in a reasonable time before destruction. In this case, it was unclear whether permission was obtained or enough time was given for the department’s review. Therefore, the bench sent the matter back to the original authority for verification and a decision on the duty demand and limitation.

In short, the appeal was partly allowed.

To Read the full text of the Order CLICK HERE

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