Issuance of Notification No.45 /2005 Custom

 

The main purpose to issue the Notification No.45 /2005 Custom dated May 16, 2005 was to avoid imposition of double taxation & levy SAD on any imported goods to counter balance the effect when Sales Tax or VAT is exempted.

 

The Notification stated that goods cleared from the SEZ to DTA are exempted from payment of whole of the additional duty of customs leviable herein referred to as SAD under Section 3(5) of the Customs Tariff Act subject to the fulfillment of the condition that no such exemption shall be applicable if such goods, when cleared to domestic tariff area, are exempted by the State Government from payment of sales tax or value added tax.

 

But the issuance of the notification raised doubts to a very important issue:

 

“Whether the stock transferred by the applicant SEZ unit to its DTA unit would be eligible for exemption from the payment of SAD under Notification No. 45/2005 Cus dated May 16, 2005?”

 

The issue was raised due to the confusion created by the word “cleared” used in the said notification as to whether the word cleared relates to only sale of goods or is inclusive of stock transfer from SEZ / FTWZ to DTA

 

Many importers who sought evasion from SAD tried to take tax advantage of the lack of clarification provided by the said notification in respect to the word cleared. This is evident from the fact that the issue was raised several times in the past.

 

The cases cited dealing with the impugned issue were as follows:

 

GE India Industrial Pvt. Ltd. Vs. CC(Exp.)-2013

 

Bharat Electronics Ltd. Vs.Dy. Commissioner (CT)-2011 (46) VST 170 (AP)…para 3…referred

 

Peekay Re-rolling Mills Vs. AC –2007 …para 3…referred

 

Goodyear India Ltd. Vs. State of Haryana – 2002 …para 3…referred

 

Moser Baer India Ltd. Vs. Commissioner of Central Excise, Noida - 2009…paras 4 & 5…distinguished

 

The most recent case cited is M/s VVF LTD Vs COMMISSIONER OF CENTRAL EXCISE, BELAPUR-2013

 

From all the above cases the following analysis can be done in respect of tax levy on “stock transfer” & on “sale of goods”

 

It is to be noted that in case of stock transfer, two persons are not involved, as the stock transfer is between the units of same legal entity & hence no sale of goods is involved. On the hand, VAT or Sale Tax is a tax on sale of goods. The inevitable conclusion is that VAT/Sale Tax is not levied on stock transfer.

 

So the next question that arises that if Stock transfer is exempted from VAT/Sale Tax levy whether the same is exempted from SAD or SAD is leviable to counter balance VAT/Sale Tax exemption?

 

“Stock Transfers made by EOU to its other units do not attract Sales Tax/VAT but it cannot be said that Sales Tax/VAT is "exempted" so as to deny the benefit of exemption from SAD leviable.” A simple interpretation of the same is that where goods are imported & transferred by the importer from SEZ to its other units in DTA, it would have been otherwise subjected to VAT/Sale Tax if the same goods were sold in DTA.

 

This can be further understood by showing a clear cut distinction between the provisions contained in the statue in regard to the exemptions of tax on the one hand and in regard to the non-liability to tax or non-imposition of tax on the other.

 

In respect of provisions in regard to the exemptions of tax, the sales of purchases would have to be included in the gross turnover of the dealer because they are prima facie liable to tax and the only thing which the dealer is entitled to in respect thereof is the deduction from the gross turnover in order to arrive at the net turnover on which the tax can be imposed.

 

However in respect of provisions in regard to the non-liability to tax or non-imposition of tax the sales or purchases are exempted from taxation altogether & they are not liable to any such imposition of tax ab initio. If they are thus not liable to tax, they do not come within the purview of the Act at all. The very fact of their non-liability to tax is sufficient to exclude them from the calculation of the gross turnover.

 

Thus based on the above interpretation it is held stock transfer does not attract sale tax or VAT ,hence the question of it being exempted from the levy of sale tax or VAT does not arise.

 

So the impugned issue raised was decided in favour of the importer as per the cases cited.

 

“The notification specifically states that when Sale Tax or Vat is exempted SAD is leviable in case of clearance. In respect of stock transfer no tax is imposed ab intio so the applicability of the notification does not get attracted & no SAD will be leviable on the same. As there is nothing to levy the question of exemption also does not arise so along with VAT or Sale Tax exemption the benefit of SAD exemption is also extended.However there should be legal documentary evidence to substantiate that there has been stock transfer.

 

Different Intrepretation of the circular contradicting the precedent judgements on the Impugned Issue

 

Recently Circular No.44/2013 – Customs dated the 30th December, 2013 has been issued As per the Circular in case of stock transfer of goods from an SEZ unit to its unit in the DTA, no sales tax/ VAT is leviable since stock transfer is not in the nature of sale. It further goes on to say that “since no sales tax / VAT is leviable on stock transfer, SAD is payable”.

 

The recent circular No.44/2013 – Customs issued for clarification of the Notification No.45 /2005 Cus dated May 16, 2005 has further created confusion regarding SAD leviability in case of stock transfer. Whether the circular has been wrongly interpreted by the concerned authority can be concluded from any subsequent circular released in this matter. But till now no such similar circular has been issued focusing on this matter. However if similar circular is issued confirming that SAD is leviable on stock transfer then it would reverse the previous judgements & result in a contradictory effect causing huge burden to the importers who were till now enjoying SAD exemption on stock transfer.

 

While circular are normally explanatory / interpretative or relax the rigors of the law administered. It is more of an administrative guideline meant to clarify doubts & can be superseded by another circular to clarify any other point missed out in the preceding circular. A circular is not binding on the assessee.

 

On the hand a notification is issued by a government (central/ state) for publishing rules or regulations or decisions in the Government Gazette and has authority and enforceability of law & is binding on assessee, courts or officers, i.e. on all.

 

Since notification is binding on assessee unlike circular, the importer may continue to take the benefit of SAD exemption since the circular is not beneficial to the assessee. It can be concluded by saying that the applicability of the circular seems to be a big question especially for the fully confused importer.

 

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