CESTAT Mumbai Overturns Duty Demand in SAD Exemption Dispute

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 14.03.2026

CESTAT Mumbai Overturns Duty Demand in SAD Exemption Dispute

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai, recently delivered a landmark judgment in favor of India Steel Works Limited and its General Manager, in the Customs Appeal Nos. ​ 86427 and 86428 of 2016. ​ The appeals challenged the Order-in-Original No. ​ 21/2015-16/RT-13/NS-GEN dated February 29, 2016, issued by the Principal Commissioner of Customs (NS-GEN), Jawaharlal Nehru Custom House (JNCH), Nhava Sheva. ​ The case revolved around the eligibility of India Steel Works Limited to claim exemption from the Special Additional Duty of Customs (SAD) under Notification No. ​ 45/2005-Customs dated May 16, 2005. ​

Background of the Case ​

India Steel Works Limited, a manufacturer of stainless steel products, imported goods such as waste and scrap of stainless steel, stainless steel billets, and ferro alloys through the Free Trade Warehousing Zone (FTWZ) operated by M/s Arshiya Supply Chain Management Limited. ​ These goods were used in the production of stainless steel products, which were later sold in the Domestic Tariff Area (DTA) upon payment of applicable VAT/sales tax. ​ The company availed the SAD exemption benefit under Notification No. ​ 45/2005-Customs, which provides exemption from the whole of SAD for goods cleared from SEZ/FTWZ to DTA, provided the goods are not exempt from sales tax or VAT. ​

However, based on intelligence developed by the Directorate General of Central Excise Intelligence (DGCEI), Mumbai Zonal Unit, a Show Cause Notice (SCN) dated June 16, 2015, was issued to the appellants. ​ The SCN alleged that India Steel Works Limited had wrongly availed the SAD exemption benefit and demanded Rs. ​ 4,06,30,866/- in SAD along with interest under Section 28(4) of the Customs Act, 1962. ​ The SCN also proposed the confiscation of goods under Section 111(o) and the imposition of penalties under Sections 112 and 114AA of the Customs Act. ​

The Principal Commissioner of Customs upheld the SCN, confirming the duty demands, confiscation of goods, and penalties. ​ Aggrieved by this decision, the appellants filed appeals before the CESTAT. ​

Arguments Presented

Appellants’ Arguments ​

1. Eligibility for SAD Exemption: The appellants argued that the issue of eligibility for SAD exemption on clearance from FTWZ to DTA had already been conclusively settled in favor of appellants in multiple decisions by the Tribunal. ​ They contended that stock transfers from FTWZ to DTA cannot be equated with exemptions from sales tax/VAT. ​
2. Disclosure of Facts: The appellants maintained that they had made complete disclosures to the Department and followed all prescribed procedures. ​ They argued that there was no suppression of facts or malafide intent. ​
3. Industry-Wide Issue: The appellants highlighted that the issue was subject to varying interpretations by different government wings, and they had acted in good faith based on assurances from the Development Commissioner of SEZ/FTWZ and the FTWZ unit. ​
4. Time-Barred Demand: The appellants contended that the demand for the disputed period (April 2012 to March 2013) was barred by the limitation period, as the SCN was issued beyond the normal period of one year. ​

Revenue’s Arguments ​

1. Clarification from Ministry of Finance: The Revenue argued that Customs Circular No. ​ 44/2013 dated December 30, 2013, clarified that SAD exemption was not available for goods cleared from SEZ/FTWZ to DTA on a stock transfer basis for self-consumption. ​
2. Misleading Undertaking: The Revenue alleged that the appellants had provided misleading undertakings and suppressed facts to avail the SAD exemption. ​

CESTAT’s Observations and Ruling ​

After hearing both sides and reviewing the case records, the Tribunal made the following observations:

1. Judicial Precedents: The Tribunal referred to several previous rulings, including CRI Limited vs. Commissioner of Customs and Serum Institute of India vs. Commissioner of Central Excise, which had upheld the eligibility for SAD exemption under similar circumstances. ​ The Tribunal noted that the facts of the present case were identical to those in the CRI Limited case, which was upheld by the Supreme Court. ​
2. Notification Interpretation: The Tribunal emphasized that Notification No. ​ 45/2005-Customs exempts all goods cleared from SEZ/FTWZ to DTA, provided the goods are not exempt from sales tax/VAT. ​ The nature of clearance—whether by sale or stock transfer—was not specified in the notification, and the proviso regarding exemption from VAT was not applicable in this case. ​
3. No Suppression of Facts: The Tribunal found that the appellants had acted in good faith, relying on assurances from the Development Commissioner of SEZ/FTWZ and the FTWZ unit. ​ There was no evidence of malafide intent or suppression of facts. ​
4. Time-Barred Demand: The Tribunal ruled that the demand for the disputed period was time-barred, as the SCN was issued beyond the normal limitation period of one year. ​ The extended period of limitation could not be invoked due to the absence of suppression or misstatement. ​

Final Order

The Tribunal set aside the impugned order on the grounds of limitation and ruled in favor of the appellants. ​ The adjudged demands, confiscation of goods, and penalties were all quashed. ​

Key Takeaways

1. SAD Exemption: The judgment reinforces the principle that SAD exemption under Notification No. ​ 45/2005-Customs is applicable to goods cleared from SEZ/FTWZ to DTA, even on a stock transfer basis, provided the goods are not exempt from sales tax/VAT. ​
2. Importance of Disclosure: The Tribunal highlighted the significance of full disclosure and compliance with prescribed procedures to avoid allegations of suppression or malafide intent. ​
3. Limitation Period: The ruling underscores the importance of adhering to the limitation period for issuing SCNs, and that extended periods cannot be invoked without evidence of suppression or misstatement. ​
4. Judicial Precedents: The judgment demonstrates the importance of consistency in judicial decisions, with the Tribunal relying on previous rulings to arrive at its conclusion. ​

This decision is a significant win for India Steel Works Limited and sets a precedent for similar cases involving SAD exemption claims under Notification No. ​ 45/2005-Customs. It also serves as a reminder to both taxpayers and authorities about the importance of adhering to legal provisions and established judicial principles.

Source: CESTAT Mumbai

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