Ashok Jindal, Member (J)

1. The applicants are seeking waiver of pre-deposit of demands of duty of Rs. 4,81,41,421/- for the period February 2009 to October 2009 along with interest and equal amount of penalty under the provisions of Central Excise Act, 1944. The facts of the case are that the applicants are a 100% Export Oriented Unit and manufacturers of fatty acids, alcohol and soap noodles. The applicants were allowed to sell goods manufactured by them in domestic tariff area up to 50% of FOB value of the exports on payment of concessional duty subject to achievement of NFEF. As the applicant has achieved the NFEP, applicants are allowed to clear the goods in DTA on payment of Central Excise duty equal to customs duty leviable. As per Notification 19/2006-Cus., dated 1-3-2006, Additional duty of customs (SAD) @ 4% ad valorem to countervail sales tax i.e. VAT/local taxes and other charges leviable on sales or purchase or transportation of like goods in India when imported into India is leviable whereas as per Notification 20/2006-Cus., dated 1-3-2006 the exemption of SAD is available in respect of articles where SAD is nil and as per Notification 23/2003-C.E., dated 31-3-2003, the exemption is also available subject to the condition that the goods being cleared into DTA are not exempted from State government from payment of sales tax/VAT. Therefore, the payment of SAD is exempt, if goods did not attract duty of customs and additional duty of goods when like goods are imported into India, tax such as sales tax, VAT etc. are payable and paid on said goods at the time of removal from EOU.

2. The department is of the view that the appellant are required to pay 4% SAD on clearance into DTA. In any other case, an EOU is required to 4% SAD on clearance into DTA. Therefore, a show-cause notice was issued for the period February 2009 to October 2009 for demand of SAD on DTA clearances. The show-cause notice was adjudicated and demands were confirmed as per the impugned order. Aggrieved from the said order, applicants are before us.

3. Shri Vipin Jain, the Id. advocate for the applicant appeared before us and submitted that the applicants are having two units one at Taloja and the other at Sion. As applicant is 100% EOU at the Taloja they were clearing fatty acids manufactured by them in their EOU into DTA at their Sion unit on payment of SAD but they are taking credit of the same at their Sion unit. During the course of audit of records of Sion unit, it was pointed out by the audit that the SAD is not payable on supply made from EOU as per Sr. No. 1 of Notification No. 23/03 and therefore the Sion unit is not entitled to the credit of SAD paid by applicants. A show-cause notice was issued proposing to deny the CENVAT credit availed by their Sion unit in respect of SAD paid by the applicant for stock transfer. After the said show-cause notice, the applicant stopped paying SAD on stock transfer to their Sion unit. In these circumstances, the demands are not sustainable as department is having inconsistent views. He further argued on merits also that as per Notification 23/2003-C.E., dated 31-3-2003, there is an exemption for DTA clearance on specified goods produced by an EOU tm the condition that if the goods being cleared in domestic tariff area are not exempt by State government from payment of sales tax or VAT. In this case admittedly fatty acid is not exempt from sales tax/VAT. Therefore, the applicant has fully qualified condition of the Notification 23/2003 and are entitled for the benefit of exemption under Notification No. 23/2003 on stock transfer to their Sion unit without payment of SAD. He further submitted that the issue came up for consideration before the larger bench in the case of Mozer Baer 2009 (240) E.L.T. 25 (Tri.-LB) wherein this Tribunal has observed that if an article on which sales tax/VAT are or other tax are leviable has been noted by the central government by Notification 3(5) of the Central Excise Act as attracting SAD, the SAD would be chargeable on clearance of that article even if in some State government or in some area of particular state, that article has been fully exempt from payment of service tax or VAT. The said decision is not applicable to the facts of this case as in this case it is admitted fact that the fatty acid transferred by the applicant to the Sion unit is chargeable to ST/VAT. Therefore, he prayed that at this stage, stay be granted.

4. On the other hand, Mr. Y.K. Agarwal, ld. DR strongly opposed the contention of the ld. advocate and submitted that the SAD is payable on the clearance made by the applicant. Admittedly, in this case goods were cleared without payment of SAD therefore, the adjudicating authority has rightly held that they are liable to pay SAD and therefore applicant be asked to make the pre-deposit at this stage. We have heard both sides in detail and find that in this case demand of SAD has been confirmed against the applicant on their stock transfer to their Sion unit. It is an admitted position that the fatty acid cleared by the applicant is liable for ST/VAT. Therefore, the view taken in Mozer Baer India (supra) is distinguishable as in that case the state government has given area based exemption where the factory was situated and the article was exempt from ST/VAT (claiming area based exemption.) Further we find that no sale has taken place at the appellants unit at Taloja which is a 100% EOU and there is merely stock transfer to their Sion unit which finally has paid ST/VAT on their clearance. Moreover the applicant has paid VAT/ST on the clearance made to other than their Sion unit. Therefore, the applicant has correctly availed the exemption under Notification 23/03 which provides exemption to DTA clearance on the goods produced by EOU and as per condition on the goods which are cleared in DTA are not exempt by state government from payment of ST/VAT. Accordingly, the applicant have made out a prima facie strong case in their favour, we waive the requirement of pre-deposit of entire amount of duty interest, and penalty and stay recovery thereof during the pendency of the appeal.

(Operative part pronounced in Court)