CESTAT Mumbai Sets Aside ₹1.80 Crore SAD Demand Against Emerson Process Management

On 2 September, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai set aside a Special Additional Duty of Customs (SAD) demand of Rs.1,79,95,057 against Emerson Process Management (India) Private Limited for the period from April 2012 to July 2013.

A Bench comprising Judicial Member Ajay Sharma and Technical Member M.M. Parthiban held that the extended period of limitation could not be invoked in the absence of suppression of facts or mala fide intention, as the company's claim for SAD exemption was based on the understanding prevailing among the concerned government authorities. The Tribunal observed:

“Thus, we are of the view that the practice adopted by the appellants, neither had any malafide intention, nor was there any suppression of fact, in order to avail SAD exemption benefit. Therefore, in our opinion there exist no ground for invoking extended period of limitation with suppression of facts...”

Emerson Process Management is engaged in manufacturing process management equipment. It imported raw materials which were supplied through a Free Trade Warehousing Zone (FTWZ) and subsequently transferred to its factory in Navi Mumbai for manufacture of finished products. The finished products were sold in the domestic market on payment of applicable VAT/sales tax. The company claimed SAD exemption under Notification No.45/2005-Customs.

The Department initiated an investigation and issued a show cause notice demanding Rs.1,79,95,057 towards SAD, along with interest. The demand covered the period from April 2012 to July 2013 and was raised by invoking the extended period of limitation. The Department also proposed confiscation of the goods and penalties under the Customs Act, 1962.

Emerson argued that the issue of SAD exemption on stock transfers from an FTWZ/SEZ to a Domestic Tariff Area (DTA) unit had already been considered in several decisions. It submitted that the transactions were undertaken in accordance with the prescribed procedure and under the supervision of departmental officers. Therefore, there was no suppression of facts warranting invocation of the extended limitation period.

The Tribunal noted that the Ministry of Commerce and Industry and the Ministry of Finance had exchanged communications on the issue. It also referred to instructions issued by the Development Commissioner, SEEPZ SEZ, stating that the benefit of Notification No.45/2005-Customs should not be denied. In similar cases, the authorities had permitted SAD exemption subject to certification of payment of sales tax/VAT.

Against this background, the Bench found no basis to allege mala fide intention or suppression of facts against Emerson. Since the entire demand fell beyond the normal limitation period, the duty demand could not be sustained. It therefore found it unnecessary to examine the exemption claim on merits. It also noted that the issue had already been considered by the Tribunal in its earlier decision in CRI Ltd.

Accordingly, the CESTAT set aside the duty demand, confiscation and penalties imposed on Emerson and its Managing Director. It also dismissed Revenue's separate appeal seeking mandatory penalty equal to the duty amount under Section 114A of the Customs Act, 1962 (which provides for penalty where duty has not been levied or has been short-levied due to specified circumstances).

Appearances: Akhilesh Kangasia along with Madhura Khandekar, Advocates, appeared for Emerson and its Managing Director. Krishna Azad, Authorised Representative, appeared for the Revenue.