Exemption Under SEZ Act Cannot Be Denied Merely for Procedural Lapses: CESTAT Sets Aside Excise Demand on SEZ Supplies [Read Order]
CESTAT quashes the excise demand, holding Section 26 SEZ exemption for DTA to SEZ supplies cannot be denied for missing ARE-1 or minor procedural lapses.
The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside the excise duty demand raised on ACE Enterprises for supplies made to Special Economic Zones (SEZ) units, holding that exemption under Section 26 of the Special Economic Zones Act, 2005 cannot be denied for non-filing of ARE-1 or other procedural lapses when substantial compliance is established.
The dispute arose during an EA-2000 Audit, where departmental officers noticed that ACE Enterprises had cleared “Apron Front Body PVC Disposable” under 45 invoices between 2015–16 and June 2017 to SEZ Units, without payment of duty under Notification No. 58/2003-CE.
The audit noted that the clearances were not reflected in ER-1 returns and that ARE-1 forms or re-warehousing certificates were not produced.
A Show Cause Notice was issued proposing a duty demand of ₹7,52,063 along with interest and penalty under Section 11AC of the Central Excise Act, 1944, alleging that the appellant failed to follow the procedure of Notification No. 42/2001-CE (N.T.) and suppressed clearances by not declaring them in ER-1.
The adjudicating authority confirmed the demand and penalty, and the Commissioner (Appeals) upheld the order, observing that the appellant failed to correlate the goods with SEZ receipts, and that SEZ units were closed, making verification impossible.
On appeal, the appellant submitted that all 45 consignments were duly received by the SEZ unit, supported by invoices, lorry receipts, SEZ gate entries, vehicle exit numbers, and online SEZ entries.
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The Bench Comprising M.M. Parthiban (Technical Member) examined the SEZ Act, 2005, SEZ Rules, 2006, and CBEC Circular 29/2006, noting that after enactment of the SEZ Act, Notification No. 58/2003-CE became redundant and supplies from the Domestic Tariff Area (DTA) to SEZ are to be treated as in the nature of exports and are exempt from central excise duty
The Tribunal noted that Section 26(1)(c) read with Section 51 gives the SEZ Act overriding force, and exemption under the SEZ framework cannot be denied on the basis of procedural non-compliance under excise notifications.
The Tribunal further rejected the observation that SEZ units were closed, relying on official Ministry of Commerce records showing the SEZ as active, and held that the documents produced by the appellant sufficiently established receipt of goods in the SEZ unit.
The tribunal set aside the duty demand, holding that the appellant had substantially complied with the essential requirements and that the SEZ Act provides independent exemption not subject to conditions of other laws.
The appeal was accordingly allowed with consequential relief.
The appellant was represented by J.N. Tiwari, while Ranjan Kumar appeared for the Revenue.
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