State VAT Exemption Cannot Override SAD Liability On Imports: CESTAT Chennai

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 24 April dismissed an appeal filed by Enterprise International Ltd., holding that exemption from VAT in Uttar Pradesh cannot be used to avoid payment of 4% Special Additional Duty (SAD) on imported silk fabrics.

A Bench comprising Judicial Member P. Dinesha and Technical Member Vasa Seshagiri Rao examined whether SAD liability can be avoided on the basis of a state-level VAT exemption and whether a demand can be raised when assessment is claimed to be provisional. They observed:

“...at the time of import, the Appellant did not pay 4% SAD since the Appellant claimed benefit of Notification No.20/2006, there is also no dispute that when the Bill of Entry was filed for the goods in question, change in law (w.e.f. 08.04.2011) was already in place, which changed the scenario by removing the exemption. This means that even as on the date of import, the exemption of 4% SAD stood deleted thereby making the Appellant liable.....”

The dispute arose from the import of silk fabrics in January 2012, where the appellant claimed exemption from SAD under Notification No. 20/2006.

The Customs Department issued a show cause notice on the ground that the exemption had already been withdrawn by the Finance Act, 2011 with effect from 8 April 2011, making SAD payable on such imports.

The appellant argued that since there was an exemption from VAT under the Uttar Pradesh VAT Act, SAD should not be levied. It also contended that the assessment was provisional due to a dispute relating to countervailing duty (CVD), and therefore, the demand under Section 28 of the Customs Act was not sustainable.

Opposing this, the Revenue submitted that SAD is a central levy and is not dependent on whether VAT is paid in a particular state. It further argued that exemption from VAT in one state cannot be extended across the country, especially when imported goods can be sold in any state where VAT may be applicable. The Department also clarified that the provisional assessment related only to CVD and had no connection with SAD liability.

The Tribunal observed that the exemption from SAD had already been withdrawn prior to the date of import and therefore the appellant was liable to pay the duty. It rejected the argument based on VAT exemption in Uttar Pradesh, holding that such state-specific exemptions do not have nationwide applicability.

The Bench also noted that SAD refund can be claimed only after payment of duty, which was not done in this case. It held:

“Statute also provides for claiming refund of SAD provided the claimant makes the payment of SAD only then they will be eligible to claim refund, which is not the case here. When there is no specific exclusion from exemption, the payment of duty is imperative. Just because it is claimed that there was exemption from VAT in U.P. does not mean the same is valid throughout India as long as the goods imported are sold anywhere in India.”

On the issue of provisional assessment, the Tribunal held that the dispute was limited to CVD and did not affect the levy or recovery of SAD.

Accordingly, the CESTAT dismissed the appeal as devoid of merit.

For Appellant: S. Murugappan, Advocate

For Respondent: Vineet Goyal, Authorized Representative