The exemption from payment of Customs Duties (Basic Customs Duty, Countervailing Duty, Special Additional Duty, Integrated Goods and Services Tax) on goods imported by a 100% Export Oriented Unit (“EOU”) flows from Customs Notification No. 52/2003-Cus dated 31.03.2003, as amended from time to time. Apparently, the said Notification does not grant exemption from payment of Safeguard Duty, Anti-dumping Duty, etc. Such exemption, however, is contemplated in the levying Section i.e., Section 8B, 9A of the Customs Tariff Act, 1975 (“Tariff Act”), albeit subject to certain conditions specified therein.
The question, therefore, arises as to whether import of goods by an EOU under a Non-EOU category would be eligible to avail the exemption from safeguard duty in terms of Section 8B (2A) of the Tariff Act or not.
The CESTAT, Delhi in Alpex Solar Pvt. Ltd. v. Pr. Commissioner of Customs, ACC (Imports), New Delhi, in the context of safeguard duty leviable under Section 8B of the Tariff Act read with the Notification, has held 100% EOU would be eligible for safeguard duty exemption even if goods are imported under the non-EOU category.
The Assessee, being a 100% Export Oriented Unit, was engaged in the business of import-export and manufacture of solar modules. To carry out the aforesaid activities, various parts such as solar cells, glass, junction box, etc. were imported from China, Korea, Malaysia, Taiwan, etc. Upon manufacture of the finished goods, these were exported to USA, UK, Dubai, etc. However, some quantities were sold in the Domestic Tariff Area.
On the raw materials imported, the assessee availed the exemption benefit of Notification No. 24/2005-Cus. dated 01.03.2005, discharging ‘Nil’ rate of Basic Customs Duty (“BCD”) and Integrated Goods and Services Tax (“IGST”) @ 5%. The goods in question were leviable to safeguard duty in terms of Notification No. 01/2018 - (SG) dated 30.07.2018 for import from countries specified therein. However, the said Notification was not leviable if the goods were imported from Developing Countries. Having the understanding that no safeguard duty is leviable on a 100% EOU, the assessee did not discharge the same on the imported goods.
No benefit was availed under Notification No. 52/2003-Cus. dated 31.03.2003 and the Bills of Entry were filed under Non-EOU Category.
The contention of the department was that Notification No. 01/2018-(SG) dated 30.07.2018 seeking to impose safeguard duty on import of Solar Cells, whether or not assembled in modules or panels falling under Customs Tariff Heading (“CTH”) 8541 of the Tariff Act excluded import of goods from countries notified as developing countries in terms of Notification 19/2016-Cus. (N.T.) dated 05.02.2016, barring China PR and Malaysia.
Department contended that the assessee would not stand excluded from Section 8B(2A) of the Tariff Act in the absence of any specific exemption contemplated for 100% EOU under Notification No. 01/2018-(SG) dated 30.07.2018. Since the assessee had made imports from Taiwan, which did not form part of the countries enlisted in the said Notification, the department proposed to levy safeguard duty.
It was also alleged that the assessee filed Bills of Entry under Non-EOU Category, but failed to comply with Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 (“IGCRD”), which apparently is contemplated in Notification No. 52/2003-Cus. dated 31.03.2003.
Section 8B of the Tariff Act empowers the Central government to impose Safeguard Duty by issuing a notification. Sub-section (2A) therein begins with a non obstante clause and states that notifications or safeguard duties under sub-sections (1) and (2) shall not apply to articles imported by a 100% EOU unless (i) specifically made applicable in such notification or (ii) the article is cleared into the domestic tariff area or used in manufacture of goods cleared into the domestic tariff area.
Notification No. 01/2018-(SG) dated 30.07.2018, levying Safeguard Duty did not specifically apply to a 100% EOU in view of Sub-section (2A) to Section 8B of the Tariff Act, which carves out an exception to the 100% EOUs unless otherwise specified therein.
Thus, CESTAT observed that the legislative intent was to create a special status for 100% EOUs to be exempt from Safeguard Duty unless the notification expressly provides for a levy of such duty on 100% EOUs or the imported article is cleared/used in the domestic tariff area. Thus, once it is established that the importer is a 100% EOU and the Notification imposing safeguard duty did not specifically provide levy of safeguard duty to 100% EOUs, the aspect as to whether the goods originated from a developing country or otherwise becomes irrelevant to leviability.
The authors feel that the decision passed by the CESTAT is the correct interpretation of the law and reflects the true spirit of the legislative intent. The principle laid down by CESTAT in this decision is that the substantive statutory exemptions cannot be overpowered by subsequent administrative or any assessment action initiated by the department.
It further emphasizes that, regardless of whether the imports are categorized as EOU or Non-EOU, as long as they are made by a ‘100% EOU’, the exemption provided under Section 8B(2A) of the Tariff Act remains applicable and prevails. Therefore, the benefit conferred on a 100% EOU is ‘qua status’, and not ‘qua the declaration in import documents’.
Having said the above, if the exemption from safeguard duty flows from Notification No. 52/2003-Cus. dated 31.03.2003, instead of Section 8B(2A) of the Tariff Act, the declarations made in the Bill of Entry and related import documents, perhaps, could be relevant in claiming the exemption benefits.
Authors feel that the true meaning of ‘100% EOU’ in today’s scenario remains open, where law permits an EOU to clear goods into DTA, albeit subject to suitable permission and on payment of applicable duties, as the case may be.
About the authors: Ratan Jain is an Executive Partner and Shruti Khanna is a Senior Associate at Lakshmikumaran and Sridharan attorneys.
Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.
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