2010 (7) TMI 290 - HC - Customs

Court Invalidates Export Duty on DTA to SEZ Transactions

The court ruled that the imposition of export duty on goods supplied from the Domestic Tariff Area (DTA) to Special Economic Zones (SEZs) is not justified ... Levy of export duty on supplies from Domestic Tariff Area to Special Economic Zone - territorial scope of 'export' and 'import' under the Special Economic Zones Act vis-a -vis the Customs Act - jurisdiction of SEZ authorities to enforce customs duties - legal fiction of treating DTA SEZ movement as 'export' for grant of export benefits - strict construction of fiscal statutesLevy of export duty on supplies from Domestic Tariff Area to Special Economic Zone - legal fiction of treating DTA SEZ movement as 'export' for grant of export benefits - strict construction of fiscal statutes - Whether export duty can be levied in respect of goods supplied from the Domestic Tariff Area to units or developers in a SEZ - HELD THAT: - The SEZ Act and Rules confer exemptions and create a deeming fiction that supplies from the Domestic Tariff Area to a SEZ are to be treated as 'export' for the limited purpose of granting export benefits (drawback, rebate and related entitlements) so as to avoid domestic duty incidence on SEZ operations. The Customs Act, however, defines 'export' as taking goods out of India to a place outside India and the charging provisions of the Customs Act contemplate a taxable event strictly within those definitions. Chapter provisions in the Customs Act that specially dealt with SEZs were omitted; there is no amendment in the Customs charging provisions to treat DTA SEZ movement as an export outside India for imposition of export duty. Fiscal statutes must be construed strictly; a deeming fiction created in the SEZ legislation to confer benefits cannot be read downwards to import a liability to pay export duty under the Customs law. To construe the SEZ deeming provision as creating an overseas movement for purposes of export duty would defeat the statutory scheme of exemptions under Section 26 of the SEZ Act and the object of protecting SEZ operations from domestic duty incidence. Accordingly, export duty cannot be levied on supplies from the DTA to SEZ units by treating such supplies as exports outside India.Export duty is not leviable on supplies from the Domestic Tariff Area to SEZ units; the SEZ deeming fiction applies only to grant export benefits and cannot be used to impose export duty.Territorial scope of 'export' and 'import' under the Special Economic Zones Act vis-a -vis the Customs Act - jurisdiction of SEZ authorities to enforce customs duties - Whether officers acting under the SEZ Act can be directed to collect export duty under the Customs Act by adopting the SEZ Act definition of 'export' - HELD THAT: - The power to levy and collect customs duties arises solely from the Customs Act and relevant charging provisions; authorities under the SEZ Act derive powers only as provided by that Act and its Rules. The Departmental instructions construing SEZ transactions as exports for the purpose of levying export duty impermissibly attempt to enforce a Customs Act liability through SEZ machinery. In the absence of a statutory charging provision in the Customs Act treating DTA SEZ movement as export outside India (and given the omission of SEZ-specific charging Chapter), SEZ authorities lack jurisdiction to enforce export duty on such supplies. Instructions and actions predicated on that construction are therefore without jurisdiction and unlawful.Instructions directing SEZ officers to collect export duty on DTA SEZ supplies are without jurisdiction and illegal; proceedings based on such instructions are liable to be quashed.Final Conclusion: The petitions are allowed: export duty cannot be levied on supplies from the Domestic Tariff Area to SEZ units by treating such supplies as exports outside India, and the impugned departmental instructions to collect such duty through SEZ authorities are illegal and without jurisdiction; consequent proceedings are quashed. Issues Involved:1. Whether export duty can be levied under the provisions of the Special Economic Zones Act, 2005.2. Whether export duty could be imposed under the Customs Act, 1962 while incorporating the definition of the expression 'export' under the SEZ Act, 2005, into the Customs Act, 1962.Issue-wise Detailed Analysis:1. Whether export duty can be levied under the provisions of the Special Economic Zones Act, 2005:The petitioners, comprising developers, co-developers, entrepreneurs, or existing units under the SEZ Act, 2005, contested the imposition of export duty on goods supplied from the Domestic Tariff Area (DTA) to the SEZs. They argued that Section 26 of the SEZ Act provides for duty exemptions, including customs duty exemptions for goods imported into or exported from SEZs. The SEZ Act aims to promote exports and economic activity by offering such exemptions. The petitioners contended that treating goods supplied to SEZs as exports and imposing export duty is contrary to the SEZ Act's provisions and objectives. They argued that SEZ units are part of India and should not be treated as foreign territories for tax purposes. The court noted that the SEZ Act's Section 26 explicitly provides exemptions from customs duty, and the imposition of export duty on goods supplied from DTA to SEZs contradicts this provision. The court concluded that the SEZ Act does not contemplate the levy of export duty on such transactions.2. Whether export duty could be imposed under the Customs Act, 1962 while incorporating the definition of the expression 'export' under the SEZ Act, 2005, into the Customs Act, 1962:The respondents argued that the SEZ Scheme, introduced in the Foreign Trade Policy of 2001 and later codified in the SEZ Act, 2005, treats supplies from DTA to SEZs as exports, thus justifying the imposition of export duty under the Customs Act, 1962. They contended that the SEZ Act defines 'export' to include supplies from DTA to SEZs, and this definition should be incorporated into the Customs Act for the purpose of levying export duty. The court examined the definitions of 'export' and 'import' under both the SEZ Act and the Customs Act. It noted that the Customs Act defines 'export' as taking goods out of India to a place outside India, while the SEZ Act includes supplies from DTA to SEZs within its definition of 'export.' The court emphasized that the SEZ Act's definition of 'export' is intended to confer benefits like duty exemptions and drawbacks, not to impose export duty. The court concluded that incorporating the SEZ Act's definition of 'export' into the Customs Act to levy export duty is not justified. The court referred to the principle that fiscal statutes should be construed strictly, and any tax liability must be clearly provided for in the law. In the absence of a specific provision in the Customs Act to treat supplies from DTA to SEZs as exports for the purpose of levying export duty, such a levy cannot be justified.Conclusion:The court ruled that the imposition of export duty on goods supplied from DTA to SEZs is not justified under either the SEZ Act, 2005, or the Customs Act, 1962. The SEZ Act explicitly provides for duty exemptions, and treating supplies to SEZs as exports for the purpose of levying export duty contradicts this provision. The court quashed the impugned notifications and instructions, declaring them illegal and without jurisdiction. The petitions were allowed, and all proceedings initiated to impose export duty on the petitioners were quashed.