Extended Limitation Can’t Be Invoked for SAD Demand on FTWZ–DTA Stock Transfers: CESTAT

The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside a demand of over Rs. 4.06 crore in Special Additional Duty (SAD) raised holding that the extended period of limitation cannot be invoked when the department was already aware of the transactions and the issue involved interpretation of an exemption notification. The Bench of S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) noted that the issue had already been examined in several earlier decisions, including the case of CRI Ltd., where the Tribunal held that SAD exemption could not be denied in similar circumstances. The appellant/assessee, India Steel Works Limited is engaged in the manufacture of stainless-steel products such as billets, blooms, bars and rods. For its manufacturing operations, the company imported raw materials including stainless steel scrap, stainless steel billets and ferro alloys. These goods were supplied through a Free Trade Warehousing Zone (FTWZ) operated by Arshiya Supply Chain Management Limited. Under Notification No. 45/2005-Customs dated 16 May 2005, importers can claim exemption from the whole of the Special Additional Duty (SAD) when goods cleared into the Domestic Tariff Area (DTA) are ultimately sold on payment of applicable VAT or sales tax. India Steel Works availed this exemption on the basis that the final products manufactured using the imported inputs were sold in the domestic market after paying VAT. To comply with the notification, the company submitted an undertaking before the FTWZ authorities confirming that VAT/CST would be paid when the finished goods were sold. The Directorate General of Central Excise Intelligence (DGCEI) initiated an investigation alleging that the company wrongly availed SAD exemption because the imported goods were used in its factory rather than being sold directly in the domestic market. Following the investigation, a Show Cause Notice dated 16 June 2015 proposed the demand of Rs. 4,06,30,866 in SAD, interest under Section 28(4) of the Customs Act, 1962, confiscation of goods under Section 111(o) and penalties under Sections 112 and 114AA The adjudicating authority confirmed the demand and penalties, prompting the company and its tax head to file appeals before the Tribunal. The appellant argued that the issue regarding SAD exemption for clearances from SEZ/FTWZ units to DTA units on a stock transfer basis had already been settled by various Tribunal rulings in favour of taxpayers. It was further contended that a stock transfer from FTWZ to DTA does not amount to exemption from VAT. The company had fully disclosed all facts and followed the procedures prescribed by the department. Customs authorities themselves oversaw the clearances and assessed the Bills of Entry, indicating that there was no suppression of facts. The demand for the period April 2012 to March 2013 was therefore time-barred. The Tribunal observed that the Supreme Court had dismissed the department’s Special Leave Petition against the CRI Ltd. ruling, reinforcing the legal position. The Bench also highlighted that the customs authorities were aware of the nature of clearances because the Bills of Entry had been filed and processed through official channels. Therefore, the allegation of suppression of facts could not be sustained. The Tribunal further noted that the issue involved interpretation of an exemption notification, and there were differing views within government authorities on the matter. It also referred to communications between the Ministry of Commerce and the Ministry of Finance and instructions issued by the SEZ Development Commissioner indicating that the benefit of the notification should not be denied. In such circumstances, the Bench held that the company could not be accused of mala fide intent or deliberate misstatement. As a result, invocation of the extended limitation period was unjustified. The Tribunal ruled that the duty demand, confiscation and penalties confirmed by the adjudicating authority cannot survive. The extended period of limitation was wrongly invoked. The order was set aside, and the appeals filed by India Steel Works Limited and its tax head are allowed. Case Details Case Title: India Steel Works Limited Versus Commissioner of Customs (NS-General), JNCH Citation: JURISHOUR-386-CES-2026(MUM) Case No.: Customs Appeal No. 86427 of 2016 Date: 13.03.2026 Counsel For Petitioner: Akhilesh Kangsia, Advocate Counsel For Respondent: Ram Kumar, Authorized Representative Click Here To Read Order Read More: Meerut DGGI | Court Denies Bail to Transporter Accused of Moving Areca Nuts Worth Rs. 5,000 Crore Without E-Way Bills

Extended Limitation Can’t Be Invoked for SAD Demand on FTWZ–DTA Stock Transfers: CESTAT

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