Extended limitation is unavailable absent suppression where SAD exemption eligibility involves a bona fide interpretational dispute.

Emerson Process Management (India) Pvt. Ltd. imported raw materials through a Free Trade Warehousing Zone (FTWZ) and transferred them to its DTA manufacturing unit at Pawne, Navi Mumbai, where they were used in manufacturing process-control equipment.

The company claimed exemption from Special Additional Duty of Customs (SAD) under Notification No. 45/2005-Customs dated 16 May 2005, on the basis that VAT/sales tax was payable when the manufactured final products were sold in the DTA.

An undertaking to this effect was furnished to the FTWZ’s Specified Officer.

Following investigation, the Department issued a show-cause notice dated 28 May 2015 demanding SAD of ₹1,79,95,057 with interest for the period 7 April 2012 to 31 July 2013, invoking the extended limitation period under Section 28(4) of the Customs Act, 1962.

The notice also proposed confiscation under Section 111(o) and penalties under Sections 112, 114A and 114AA.

The Principal Commissioner confirmed the demand, confiscation and penalties by Order-in-Original dated 6 November 2015.

The assessee and its Managing Director appealed against the order, while Revenue appealed seeking a mandatory penalty equal to the duty under Section 114A.

Whether the benefit of SAD exemption under Notification No. 45/2005-Customs was available for goods cleared from the FTWZ to the appellants’ DTA unit by way of stock transfer for use in manufacture.

Whether the Department was entitled to invoke the extended limitation period under Section 28(4) on the allegation of suppression or wilful misstatement.

Whether the consequential confiscation of goods and penalties under Sections 112, 114A and 114AA of the Customs Act, 1962 were sustainable.

Whether Revenue could seek enhancement of the penalty to an amount equal to the duty under Section 114A.

The Tribunal applied Section 3(5) of the Customs Tariff Act, 1975, concerning SAD, read with Section 25(1) of the Customs Act, 1962 and Notification No. 45/2005-Customs, which exempted goods cleared from an SEZ/FTWZ to another place in India from SAD, subject to the proviso concerning goods exempted from State sales tax/VAT.

The proviso applies where the goods, when sold in the DTA, are exempt from sales tax/VAT; a stock transfer that merely postpones the tax liability is not equivalent to a State tax exemption.

The Tribunal followed CRI Ltd. v. Commissioner of Customs, Final Order No. 75617/2020, affirmed by the Supreme Court, and Commissioner of Central Excise v. Serum Institute of India, 2019 (370) E.L.T. 407 (Tri.-Mum.), holding that the exemption notification must be interpreted according to its own terms and that an administrative circular cannot restrict its scope.

On limitation, the Tribunal applied the principle that extended limitation cannot be invoked in a case involving bona fide interpretational dispute, full disclosure and departmental knowledge of the relevant transactions.

Since the demand was time-barred, the statutory consequences of confiscation and penalty, including the proposed Section 114A penalty, could not survive.

The Tribunal found the case factually identical to CRI Ltd. and other coordinate-bench decisions granting the SAD exemption for stock transfers from an SEZ/FTWZ to a DTA unit.

The relevant notification did not restrict the exempted clearance to a sale; its proviso was attracted only where the goods were exempt from VAT/sales tax.

Here, the imported materials were used in manufacturing, and VAT/sales tax was paid when the finished products were sold in the DTA.

The Tribunal further noted that the issue had generated conflicting governmental interpretations, that the Development Commissioner and FTWZ authorities had approved or facilitated the procedure, and that customs officers had assessed and supervised the clearances.

These circumstances negatived any deliberate suppression, wilful misstatement or mala fide intention.

As the entire demand related to the period April 2012 to July 2013 and the show-cause notice was issued beyond the normal one-year period, the extended limitation under Section 28(4) was unavailable.

The Tribunal therefore held that the demand itself could not be sustained on limitation, making the related confiscation and penalties unsustainable.

Revenue’s claim for a mandatory Section 114A penalty consequently became untenable.

The Order-in-Original confirming SAD, confiscating the goods and imposing penalties was set aside.

Customs Appeals Nos. 85270 and 85271 of 2016 filed by the company and its Managing Director were allowed, while Revenue’s Appeal No. 85291 of 2016 seeking enhancement under Section 114A was dismissed.