HC denies refund of SAD paid on import of coil sheets sold after corrugation as proflex roof

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1 24 March 2017 EY Tax Alert HC denies refund of SAD paid on import of coil sheets sold after corrugation as proflex roof Executive summary Tax Alerts cover significant tax news, developments and changes in legislation that affect Indian businesses. They act as technical summaries to keep you on top of the latest tax issues. For more information, please contact your EY advisor. This Tax Alert gives an update on the recent decision 1 of the Gujarat High Court (HC) dealing with the rejection of refund claim of special additional duty (SAD) paid on import of coil steel sheets that were subsequently sold after corrugation under a composite bill for laying of proflex roof. The refund application was filed in terms of Notification No. 102/2007-Cus dated 14 September As per the notification, refund of SAD is admissible only when it is established that VAT has been paid on the imported goods. The HC upheld the Tribunal s order and rejected the refund claim of SAD based on the following observations: SAD is paid on imported coil sheets and thereafter what is manufactured and sold is proflex roof. VAT has been paid on the proflex roof. Thus, it cannot be said that VAT has been paid on the coil sheets. In the invoice, laying of proflex roof is charged based on the per square meter rate including value of the material. No separate invoice for sale of coil sheets has been issued. What is sold by the appellant is not the same goods that are imported i.e. coil sheet TIOL-427-HC-AHM-CUS

2 Background and facts The appellant is engaged inter-alia, in importing prime quality pre-painted aluminium zinc alloy quoted steel sheet in coil (CTH 7210). Appropriate imported duty including Special Additional Duty (SAD) has been paid by the appellant. Appellant also carried out turn-key works contract of laying proflex roof with material. Subsequent to its import, coils were converted into roof and VAT was paid thereon. Accordingly, assessee filed a refund claim for SAD under Notification No. 102/2007-Cus dated 14 September The issue before the HC was whether SAD refund under Notification No. 102/2007-Cus dated 14 September 2007 can be denied on the ground that steel sheets in coils became a different product, since they were corrugated at the stage of placing them on roof and thus VAT is not paid on the goods imported. Appellant Contentions The appellant contended that what is used in manufacturing the roof is the coil only which was imported and the only activity carried out thereafter, is to corrugate the same, before it is installed on the building. Therefore, it cannot be said that by corrugated coils, a new product is manufactured and supplied. The said Notification exempts goods from the additional duty of customs levied under Section 3(5) of Customs Tariff Act, 1975 (Act), when imported into India for subsequent sale and subject to certain conditions, such as Further, VAT was paid on the corrugated coils, the same can be said to have been paid on imported goods i.e. coil. Thus, the conditions of Notification are complied with and refund of SAD paid shall be admissible. Importer pays all duties including SAD, Declaration given by importer on the invoice that no credit of SAD shall be admissible, Importer shall file claim before Customs officer, Importer shall pay VAT on said imported goods, Copies evidencing of payment of SAD, VAT and issuance of VAT invoice, etc. However, refund was denied by the adjudicating authority, Commissioner (Appeals) and Tribunal on the ground that the assessee has not fulfilled the conditions of the notification since he has not paid the VAT on the imported goods i.e. coils. Further, what was sold subsequently, is altogether different goods i.e. roof. Aggrieved by this, appellant filed an appeal before High Court of Gujarat (HC). SAD has been imposed to compensate the local taxes levied on the same goods, if manufactured locally. Where commodities imported are sold and at the time of sale VAT is paid thereon, it results into double taxation i.e. SAD and VAT both are paid. In order to avoid this double taxation, Notification No. 102/2007-cus was issued granting refund of SAD on the condition that a declaration is furnished stating that credit has not been taken and proof of payment of VAT is provided. Assessee argued that even if, it is assumed that corrugated roofing has been supplied, the same would still not be the supply of different material. In this regard, appellant placed reliance on Commissioner of Customs vs. Posco India Delhi Steel Processing Centre Pvt Ltd 2 wherein refund of SAD was allowed where imported steel was sold after cutting and slitting (299) ELT 263

3 Assessee also placed reliance on Agarwalla Timbers Pvt Ltd vs. Commissioner of Customs, Kandla 3 wherein the quantity utilised/sold from the total imported quantity of goods was identified and refund of SAD was granted. Assessee further relied on the following judicial precedents :- Commissioner of Customs vs Variety Lambers Pvt ltd4 Shri Ashok Jindal (Member) J Eqvinox Solutions ltd vs Commissioner of Customs (Import) Mumbai5 Vijrom Chem Pvt Ltd vs. Commissioner of Customs, Bangalore 6 Revenue Contentions As per the Notification, refund of SAD is admissible only in a case where it is established and proved that SAD is paid on the imported goods and subsequently the VAT is also paid on said imported goods. For claiming refund of SAD, importer has to prove that VAT has been paid on the very goods imported. In this case, VAT paid is not on the imported goods but altogether a different goods. Further, SAD was paid on the import of coil sheets and thereafter, what is manufactured is a different product i.e. Proflex Roof on which VAT is paid. Therefore, the condition mentioned in the Notification is not satisfied Further, even on the retail invoice appellant has charged price for proflex roof with material and labour work. The measure/rate of the charges are based on per square meter of proflex roof including value of material imported. Invoice is a composite invoice including sale of material and VAT is paid thereon. Thus, refund is not available. High Court Ruling HC held that coil sheets were imported and SAD paid on such coil sheets. Thereafter, proflex roof was manufactured and on such proflex roof VAT is paid. It cannot be said that VAT has been paid on the goods on which SAD is paid. It appears that what is imported is coil sheets and what is sold subsequently is proflex roof. Thereafter, proflex roof is installed on the building as per the requirement of client and on such proflex roof, VAT is paid. Even in the invoice the rate of laying of proflex roof is charged on per square meter basis including the value of material. There is no separate invoice/bill issued for coil sheets. Therefore, it cannot be said that what is sold by the appellant to his client is same goods which is imported i.e. coil sheets. Reliance placed by Appellant on the division bench of HC in the matter of Commissioner of Customs vs Posco India Delhi Steel Processing Centre Pvt ltd (supra) is distinguished on facts, as it was observed and found that the process undertaken by the importer did not amount to manufacture and imported goods continued to retain their distinct and original character as well as identity. Further, the decision of the Tribunal in the case of Agarwalla Timbers Pvt Ltd (supra) was also distinguished on facts. Based on above, HC dismissed the appeal holding that one of the condition of Notification No. 102/2007-Cus has not been satisfied and as the VAT has been paid by the appellant on the proflex roof and not on the imported goods i.e. coil sheets, the appellant is not entitled to refund of SAD claimed under the said Notification (299) ELT (302) ELT (272) ELT (199) ELT 751

4 Comments The HC ruling is significant in as much as it suggests that SAD refund claim is admissible only in cases where imported goods continue to retain their distinct and original identity, at the time of sale. The settled legal procedure adopted for SAD refund covers a normal trading sale where co-relation of imported goods visà-vis domestic sale is apparent and can be clearly substantiated. However, it does not seem to go well with the cases of works contract where imported goods are incorporated/used in the course of execution of works. The manner of invoicing to establish corelation could be crucial for meeting the requirement of the Notification for claiming refund of SAD.

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