CESTAT Mumbai: SEZ Excise Exemption Cannot Be Denied for Procedural Lapses; Section 26 of SEZ Act Has Overriding Effect
Pranav B Prem
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai Bench, has held that exemption benefits available for supplies made to Special Economic Zones (SEZs) under Section 26 of the Special Economic Zones Act, 2005 cannot be denied merely because certain excise procedures or notification-based formalities were not followed by the assessee. The Tribunal ruled that the statutory benefit flowing directly from the SEZ Act cannot be curtailed by procedural prescriptions under central excise notifications.
The order was passed by M.M. Parthiban (Technical Member) in an appeal filed by ACE Enterprises, a manufacturer of automobile components including disposable PVC apron fronts. The appellant had supplied 45 consignments of goods between 2015 and June 2017 to SE Blades Ltd. / Suzlon Energy Ltd., both operating as SEZ units in Karnataka. These goods were cleared without payment of central excise duty by claiming the exemption applicable to SEZ supplies.
However, during an EA-2000 audit, the Department took the view that the appellant had not complied with procedural conditions. It alleged that the supplies were not reflected in ER-1 returns, that the assessee had not filed ARE-1 forms, and that re-warehousing certificates were not produced. The Department further claimed that procedures under Notification 58/2003-CE and Notification 42/2001-CE(NT) were not adhered to. A show-cause notice issued in June 2019 proposed duty recovery, interest, and penalty under Section 11AC by invoking the extended period. The adjudicating authority confirmed the demand in September 2021, and the Commissioner (Appeals) upheld it in July 2022.
Challenging these findings, the appellant argued that supplies to SEZ units are deemed exports, and substantial evidence—such as invoices, lorry receipts, SEZ gate entries and online records—established that the goods were indeed supplied to the SEZ units. It was further submitted that after the enactment of the SEZ Act, 2005, the earlier Domestic Procurement Certificate system and notification-based conditions had become redundant. Section 26 of the SEZ Act grants a statutory exemption from excise duty, and compliance failures under excise notifications cannot override a legislative benefit. The appellant also pointed out that a prior audit for part of the same period had raised no objection, making invocation of the extended period unjustified.
The Department maintained that the appellant failed to comply with mandatory procedural requirements under Notification 42/2001-CE(NT) and the 2006 CBEC Circular governing clearances to SEZ. According to the Revenue, the non-filing of ARE-1 and failure to disclose clearances in ER-1 returns constituted suppression with intent to evade duty, and the documents produced could not substitute statutory procedures.
The Tribunal examined the SEZ Act, SEZ Rules, central excise notifications and CBEC Circular No. 29/2006-Cus, which treated post-2006 supplies to SEZ as exports and clarified that earlier procedures like domestic procurement certificates were abolished. The Tribunal observed that the cumulative documentary evidence submitted by the appellant sufficiently established the supply and receipt of the goods. It rejected the Commissioner (Appeals)’ reasoning that verification was impossible because the SEZ units had allegedly closed. Relying on updated data from the Ministry of Commerce, the Tribunal noted that the SEZ units were fully operational.
The Tribunal placed considerable reliance on the judgment of the Andhra Pradesh High Court in GMR Aerospace Engineering Ltd., which held that exemption under the SEZ Act cannot be denied due to non-compliance with procedures prescribed under other statutes. Applying this reasoning, the Tribunal held that when Section 26 of the SEZ Act grants exemption, subordinate legislation such as central excise notifications cannot dilute that benefit. On this basis, the Tribunal found that the impugned duty demand, interest and penalty were unsustainable.
Allowing the appeal, the CESTAT set aside the order dated 27 July 2022 in full, holding that SEZ exemption could not be denied for procedural lapses under excise notifications. The Tribunal ruled that ACE Enterprises was entitled to the exemption under Section 26 of the SEZ Act and granted consequential relief.
Appearance
Counsel For Appellant: J.N. Tiwari, Advocate
Counsel For Respondent: Ranjan Kumar, Authorized Representative
Cause Title: ACE Enterprises Versus Commissioner of CGST & Central Excise, Nashik
Case No: Excise Appeal No. 87131 of 2022
Coram: M.M. Parthiban (Technical Member)
