The Ahmedabad Bench of Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that the transfer of goods from a 100% Export Oriented Unit ( EOU ) to its own Domestic Tariff Area ( DTA ) unit should be deemed as a stock transfer and not a sale. It was also held that such stock transfers from 100% EOUs to their domestic units are not subject to Special Additional Duty ( SAD ). The case revolved around the interpretation of Notification No. 23/2003-CE and centered on whether the appellant, Heranba Industries Ltd., was liable to pay SAD in the case of DTA clearance from their EOU when the goods were cleared as stock transfers to their own unit rather than sales transactions.

The respondent revenue, the Commissioner of Central Excise, Customs and Service Tax, Daman contended that since the appellant did not pay Value Added Tax ( VAT )/Sales Tax on the domestic clearance to their own unit, the goods were considered exempted from VAT/Sales Tax. Consequently, they argued that the appellant was not entitled to the exemption under Notification No. 23/2003-CE. On the other hand, the appellant argued that the transaction being a stock transfer within the same entity does not attract VAT/Sales Tax, and therefore, they are entitled to the exemption.

The CESTAT observed that the transaction from EOU to Domestic Tariff Area ( DTA ) was not a sale but a stock transfer within the same entity. Therefore, no VAT/Sales Tax was applicable to such transfers. This was not due to any exemption but because such transactions do not involve the sale of goods. The bench, citing precedents such as Micro Inks, VVF Ltd., and Sti Industries, confirmed that inter-unit transfers from EOU to DTA are not automatically exempted from VAT/Sales Tax. It emphasised that the benefit of Notification No. 23/2003-CE applies to goods not exempted by the State Government from VAT/Sales Tax. Since there was no evidence of such exemption, the bench ruled in favour of the appellant. Stock transfers from EOU to their own units did not attract VAT/Sales Tax and hence did not violate the conditions of Notification 23/2003-CE.

The bench emphasised that since there was no evidence to suggest such an exemption, the appellant was entitled to benefit from Notification No. 23/2003-CE. The Tribunal clarified that to benefit from Notification No. 23/2003-CE, the critical condition was whether the goods cleared into DTA were exempted by the State Government from VAT/Sales Tax. In result, the two-member bench comprising Mr. Ramesh Nair ( Judicial Member ) and Mr. Raju ( Technical Member ) dismissed the revenue’s contention regarding the limitation issue, noting that the appellant had regularly filed returns indicating the nature of their clearances of goods to their sister units and claiming the benefit of SAD exemption. Consequently, the orders demanding SAD were set aside and the appeals were allowed.