CESTAT Remands ₹3.90 Crore Sun Pharma Case, Holds Deemed Exports to be Considered For DTA Entitlement [Read Order]

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) remanded a Rs. 3.90 crore excise duty demand, holding that the FOB value of deemed exports should be considered along with physical exports while calculating Domestic Tariff Area (DTA) sales entitlement for a 100 percentExport Oriented Unit (EOU).

Sun Pharmaceuticals Industries Ltd., the appellant, is a 100 percent EOU engaged in the manufacture of bulk drugs at its unit in Gujarat. The unit operated under the EOU scheme until 28 February 2014.

During the audit, the department noticed that for the period from April 2011 to February 2014, Sun Pharma had cleared goods into the DTA at a concessional rate of duty under Notification No. 23/2003-CE.

The department alleged that some products cleared in DTA were never exported and that, in certain cases, DTA clearances exceeded 90 percent of the Free on Board (FOB) value of exports of the same product.

Based on these allegations, a show-cause notice was issued proposing recovery of Rs. 3.90 crore along with interest and penalty by invoking the extended period of limitation. The Commissioner confirmed the demand, interest, and penalty. Aggrieved by this order, Sun Pharma approached the CESTAT.

The appellant’s counsel argued that under the Foreign Trade Policy and the relevant notification, DTA entitlement must be calculated by adding the FOB value of deemed exports to physical exports. They argued that if deemed exports were properly considered, the appellant had not exceeded the permissible DTA limits.

The counsel also argued that the goods cleared in DTA were similar to the goods exported and that the adjudicating authority wrongly treated them as dissimilar.

The revenue argued that the goods cleared in DTA were not similar to the exported goods and that some products were sold only in DTA without any exports, which violated the conditions of the notification and the Foreign Trade Policy. The revenue also argued that the product-wise limit of 90 percent of FOB value of exports had been breached in certain cases.

The two-member bench comprising Somesh Arora (Judicial Member) and Satendra Vikram Singh (Technical Member) observed that settled law supports the inclusion of the FOB value of deemed exports while calculating DTA sales entitlement. The tribunal observed that several judicial decisions, including those of the Supreme Court, support this position.

At the same time, the tribunal observed that the Foreign Trade Policy imposes a product-wise cap of 90 percent of the FOB value of exports, subject to the overall DTA limit and this aspect required factual verification.

The tribunal also observed that determining whether pharmaceutical products are similar is a technical exercise involving composition, use, and therapeutic application. The tribunal explained that this issue should be examined afresh by the adjudicating authority after allowing the appellant to submit technical evidence.

In view of these findings, the Tribunal set aside the impugned order and remanded the matter to the adjudicating authority for fresh consideration on all issues in light of its observations. The appeal was allowed by way of remand.

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