M/S Kiocl LTD vs. Commissioner Of Central Excise And Central Tax (GST)

The undisputed facts are that the Government of India vide Notification No.23/2003-CE dated 31.03.2003 [the Exemption Notification] has exempted 'Excisable Goods' are mentioned in the First Schedule of the Central Excise Tariff Act, 1985 but described in Column [3] and specified in Column [2] of the Tables appended to the Notification. These Goods, to be exempted from the duty of excise leviable, must be produced or manufactured in an Export Oriented Undertaking [EOU] or an Electronic Hardware Technology Park Unit [EHTP Unit] or a Software Technology Park Unit [STP Unit] and brought to any other place in India in accordance with the provisions of Export and Import Policy.

The exemption is subject to satisfaction of the relevant conditions specified in the annexure appended to the Notification. The relevant condition for the present dispute will be condition at Sl.No.No.1 HC-KAR NC: 2025:KHC:50342-DB as mentioned in the annexure to the Exemptin notification which reads as under: "If the goods being cleared into the Domestic Tariff Area are not exempt by the State Government from payment of sales tax or value added tax."

The appellant is permitted exemption insofar as the sales tax and VAT paid for the goods cleared within the DTA in the State of Karnataka and the dispute is about whether the appellant is entitled to any exemption under the Exemption Notification for the goods cleared in the DTA but outside the State. The original Authority, while considering whether the appellant has fulfilled the condition HC-KAR NC: 2025:KHC:50342-DB under the Exemption Notification to avail the exemption from payment of sales tax or the VAT, has opined that the appellant would not be entitled for exemption based on the payment of central sales tax.

The Tribunal has found, as an established fact, that the appellant has cleared the goods from their unit to different States on payment of central sales tax, but the Tribunal has refused to interfere with the Orders-in-Original opining that, because the Condition No.1 contains the expression 'State Government', the tax payable [for exemption] must essentially be to the Government in the State in which the goods are sold. The Tribunal has also opined that the appellant has failed to establish that the VAT/sales tax is paid in the recipient State.

Sri Ravi Raghavan, the learned counsel for the appellant, submits the following to support his case for answers on the afore admitted substantial questions. [A] The Exemption Notification is intended HC-KAR NC: 2025:KHC:50342-DB to ensure that there is a level field with no advantage to the EOU or imported goods. [B] The Special Additional Duty of Customs is relatable to sales tax/VAT that is levied on goods domestically produced. [C] If the exemption from Special Additional Duty of Customs is to be permitted, then the corresponding sales tax/VAT must be paid. The learned counsel emphasizes that the test to decide on the condition is satisfied or not is to ascertain that the State Government, within whose boundary the goods are cleared into the DTA [within that State or otherwise] has received the tax for such clearance.

Sri Ravi Raghavan canvasses that in the present case it cannot be disputed that the appellant, who has cleared the goods into the DTA outside the State of Karnataka, has paid central sales tax with the assistance of 'C' Form and that such tax would be to the benefit of the State Government's exchequer, and therefore, the requisite condition in the HC-KAR NC: 2025:KHC:50342-DB Exemption Notification is satisfied but the Original Authority and the Tribunal has not applied this test to decide whether the appellant should be permitted exemption under the Exemption Notification.

Sri Aravind V Chavan, the learned counsel for the respondent, submits that this Court must consider, first, that though the appellant asserts that it has paid central sales tax with the assistance of 'C' Form, it has produced no document and second, that mere production of invoices or ledger accounts by themselves will not satisfy the requirement in law to show that the condition is satisfied. The learned counsel also emphasizes that: • it cannot be gainsaid that the onus of discharging the burden of satisfying the condition is on the appellant, • the appellant has produced no document [except the invoices] to show that the central sales tax is indeed paid. HC-KAR NC: 2025:KHC:50342-DB Sri Aravind V Chavan also canvasses that the condition in the Exemption Notification must be strictly interpreted, and when it is so interpreted, the condition that must be satisfied is whether the State Government concerned has not exempted the imported goods from payment of sales tax/VAT and that these taxes are paid, and that if the imported goods are cleared into the DTA outside a particular State, as the levy would be under the Central enactment, it will not be exempted.

In rejoinder, Sri Ravi Raghavan submits that this Court must disturb the Tribunal's finding of fact that the appellant has failed to establish that it has cleared the goods from its EOU to different States on payment of central sales tax because there is no conflict on this, and the learned counsel also emphasizes that at this length of time, [after over a decade and more], it would not be just to call upon the appellant to produce 'C' Form or other details to HC-KAR NC: 2025:KHC:50342-DB justify that it has not paid the central sales tax. The learned counsel submits that this Court must take on record his statement that the State Government has not issued any demand for non-payment of such tax.

It is trite that the exemption terms have to be strictly construed as is the position that the person who claims an exemption [or a concession] must establish the conditions required to be entitled to such exemption/concession. As such, the burden is on the appellant to show that it satisfies the terms of the Exemption Notification to be entitled to exemption from paying the Special Additional Duty of customs under Section 3[5] of the Customs Tariff Act, 1975. However, the question is about the conditions that the appellant must establish. This depends on the test to be applied, and the Tribunal has not considered the appellant's case that the test must be whether the State Government from whose borders HC-KAR NC: 2025:KHC:50342-DB the imported goods are cleared into DTA has received the sales tax or the VAT.

The canvass in support of this test is also that the sales tax as contemplated under the condition in the Exemption Notification would include even the central sales tax levied under the Central enactment and that the concerned State Government, from where the imported goods are cleared, must receive such sales tax. The further canvass is that the amount paid under Section 8 of the CST Act, 1956 must be to the benefit of the concerned State Government's exchequer. This Court is of the view that the Tribunal has not considered these circumstances, and that has resulted in the first question admitted, which requires reconsideration. Therefore, the appeal is allowed, and the matter is restored to the Tribunal for reconsideration. On the question of the dispute over the appellant paying central sales tax, this Court is not persuaded to HC-KAR NC: 2025:KHC:50342-DB interfere with the Tribunal's finding of fact that the petitioner has paid such tax. (B M SHYAM PRASAD) JUDGE (T.M.NADAF) JUDGE