SEZ Exemption Can’t Be Denied for Procedural Lapses: CESTAT

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai Bench has held that exemption benefits extended to excisable goods supplied to Special Economic Zones (SEZs) under Section 26 of the Special Economic Zones Act, 2005 cannot be denied on the ground that certain procedures have not been followed or certain conditions prescribed in the notification have not been fulfilled. The bench of M.M. Parthiban (Technical Member) has observed that Section 51 of the SEZ Act grants it primacy over other laws. Therefore, when Section 26(1)(c) grants excise duty exemption for goods supplied from Domestic Tariff Area (DTA) to SEZ units, no other condition under central excise notifications can curtail this statutory benefit. The appellant, ACE Enterprises, a manufacturer of automobile components and seat covers, had supplied 45 consignments of “Apron Front Body PVC Disposable” between 2015 and June 2017 to SE Blades Ltd./Suzlon Energy Ltd., both SEZ units in Karnataka. These goods were cleared without payment of duty by claiming exemption applicable to SEZ supplies. However, during an EA-2000 departmental audit, officials alleged the supplies were not reported in ER-1 returns. The assessee did not file ARE-1 forms, Re-warehousing certificates were not produced, and procedures under Notifications 58/2003-CE and 42/2001-CE(NT) were not followed. A show-cause notice was issued in June 2019, invoking the extended period of limitation and proposing duty recovery and penalty under Section 11AC. The adjudicating authority confirmed the demand in September 2021, and the Commissioner (Appeals) upheld this in July 2022. The appellant contended that supplies to SEZs are deemed exports, backed by substantial documentation such as invoices, lorry receipts, SEZ gate entry details, and online entry records. The earlier departmental audit for part of the same period did not raise any objection, making invocation of the extended period untenable. After the enactment of the SEZ Act, 2005, the earlier exemption Notification No. 58/2003-CE and the Domestic Procurement Certificate system became redundant. Exemption under Section 26 of the SEZ Act is a statutory entitlement, which cannot be overridden by procedural lapses under central excise notifications. The Department argued that the assessee failed to comply with mandatory requirements of Notification 42/2001-CE(NT) and CBEC’s 2006 Circular. Non-filing of ARE-1 and failure to declare clearances in ER-1 returns indicate suppression with intent to evade duty. Documentary evidence submitted could not substitute the prescribed statutory procedures. CESTAT examined the SEZ Act, SEZ Rules, central excise notifications, and CBEC Circular No. 29/2006-Cus in detail. The Tribunal observed Circular No. 29/2006 clarified that post-2006, supplies to SEZ are to be treated as exports, and earlier conditions like Domestic Procurement Certificates stand abolished. The Tribunal held that substantial evidence of movement and receipt of goods cannot be ignored. The Commissioner (Appeals) had concluded that the SEZ units were closed and therefore verification was impossible. CESTAT countered this by extracting updated SEZ functioning data from the Ministry of Commerce, establishing that the units were very much operational. CESTAT heavily relied on the Andhra Pradesh High Court’s ruling in GMR Aerospace Engineering Ltd., which held that SEZ exemptions cannot be denied for non-filing of forms prescribed under other statutes. The Tribunal held that exemption under SEZ Act cannot be denied due to non-adherence to excise procedural requirements. Duty demand, interest, and penalty imposed on ACE Enterprises were unsustainable. The impugned order dated 27.07.2022 was set aside in full. The appeal was allowed with consequential relief. Case Details Case Title: ACE Enterprises Versus Commissioner of CGST & Central Excise, Nashik Case No.: Excise Appeal No. 87131 of 2022 Date: 17/11/2025 Counsel For Appellant: J.N. Tiwari, Advocate Counsel For Respondent: Ranjan Kumar, Authorized Representative Click Here To Read Order Read More: S. 68 Addition Not Justified When Alleged Bogus Loan Is Repaid: ITAT

SEZ Exemption Can’t Be Denied for Procedural Lapses: CESTAT

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