SAD on DTA Clearances from EOU - CAG Objection
THE CAG in its latest report on Customs points out,
According to the proviso to serial No.2 of the Notification No. 23/2003-CE dated 31 March 2003 as amended, it is stipulated that while calculating the aggregate of the customs duties, additional duty of customs leviable under sub section 5 of section (3) of the Customs Tariff Act shall be included, if the goods cleared into Domestic Tariff Area (DTA) are exempt from payment of Sales Tax (ST) or Value Added Tax (VAT). Further, in terms of Notification No. 19/2006-cus dated 1 March 2006, an additional duty of customs shall be levied at the rate of four per cent ad valorem on all the imported goods. Thus, in the case of finished goods cleared in DTA, which are exempt from payment of ST or VAT, the special additional duty of customs at the rate of four per cent becomes leviable.
A 100% EOU under Central Excise Commissionerate, Vapi, engaged in manufacture and export of goods falling under chapters 28, 32, 34 and 38 of the Customs Tariff had made DTA clearances between 1 March 2006 and 31 March 2009 to its sister units. The DTA clearances made to sister units were treated as ‘stock transfer' and cleared under notification No. 23/2003-CE without payment of excise duty equivalent to the four per cent additional duty of customs on the plea that goods cleared in DTA are not exempt from payment of ST/VAT. This resulted in non levy of additional duty of customs amounting to Rs. 19.90 crore.
When Audit pointed this out in January 2010, the department did not accept the Audit observation and stated that sales tax was not paid for clearances to its sister units, as it was stock transfer/branch transfer. The department further stated that the goods transferred to sister units were used for their own production and final products are cleared on payment of appropriate taxes.
The reply of the department is not acceptable to Audit as:
1. The notification no. 23/2003-CE does not provide any specific exemption to ‘stock transfer'. It provides exemption only to ‘DTA clearances', that too where the goods suffered ST/VAT.
2. Board circular No. 38/2003-cus dated 6 May 2003 had clarified that stock transferred' by an EOU to DTA are covered under DTA sale.
3. ‘Stock transfer' is covered under the meaning of ‘sale' as defined in section 2 (h) of the Central Excise Act, 1944.
However, the department subsequently adjudicated the demand for Rs. 33.14 crore for period upto 30 June 2010.
CAG Recommends
Department may introduce suitable mechanism in the notification itself to levy special additional duty on firm on clearances of goods on stock transfer basis to their related firms if sales tax/VAT is not paid at the time of clearance of goods from customs bonded warehouse .
But there is no sale and so no sales tax/VAT when an EOU transfers certain goods to itself. The AG created litigation has already reached higher echelons of appellate machinery and will continue merrily for some years.
The CAG should conduct an Audit on the litigation it has generated and the final results with the amount of money the nation lost in audits and appeals.