2010 (7) TMI 768 - HC - Customs

SEZ Act does not permit customs duty on goods supplied within SEZ, ruling proceedings illegal.

The court concluded that neither the SEZ Act nor the Customs Act allows for the levy of customs duty on goods supplied from a DTA unit to a unit within a ... Levy of customs duty - Charging section and strict construction of taxing statutes - Export as taking out of India - Legal fiction of SEZ being outside customs territory - Non-obstante clause and inconsistency between enactments - Effect of repeal of special SEZ provisions in Customs Act - Scope of SEZ Act exemptions and Rules relating to procurement from DTALevy of customs duty - Charging section and strict construction of taxing statutes - Export as taking out of India - Whether customs export duty under Section 12(1) of the Customs Act, 1962 is leviable on supplies made by a Domestic Tariff Area (DTA) unit to a unit located within a Special Economic Zone (SEZ). - HELD THAT: - The Court examined the wording of the Customs Act and the definitions of 'export', 'import' and 'India' in Sections 2(18), 2(23) and 2(27). Section 12(1) levies duties of customs only on goods imported into, or exported from, India. Both the DTA supplier and the SEZ unit are located within the territorial waters of India and thus supplies between them do not amount to 'export' as defined in the Customs Act. Taxing provisions must be couched in clear and unambiguous language and cannot be extended by implication; a charging section is to be strictly construed and no person can be taxed by implication. Consequently Section 12(1) is not attracted where goods move from a DTA to an SEZ unit within India, and the Customs Act does not authorise levy of export duty on such supplies. [Paras 11, 15, 16, 20, 21]Section 12(1) of the Customs Act does not permit levy of export duty on supplies made by a DTA unit to a unit situated in an SEZ; such supplies are not 'export' under the Customs Act and cannot be taxed by implication.Scope of SEZ Act exemptions and Rules relating to procurement from DTA - Legal fiction of SEZ being outside customs territory - Non-obstante clause and inconsistency between enactments - Effect of repeal of special SEZ provisions in Customs Act - Whether the SEZ Act, its Rules or any repealed provisions of the Customs Act justify imposing export duty (or requiring bank guarantees) on SEZ units or on DTA suppliers for goods supplied for authorised operations in an SEZ. - HELD THAT: - The SEZ Act provides specified exemptions (Section 26) but does not itself create a charging provision to levy customs duty on goods supplied from a DTA to an SEZ unit for authorised operations. Section 53 creates a limited legal fiction deeming an SEZ to be outside the customs territory for undertaking authorised operations, but that fiction is limited to its purpose and cannot be extended to import a levy where the Customs Act does not, by plain language, provide for one. Chapter X-A of the Customs Act (which earlier contained provisions charging duties on goods admitted to an SEZ) was repealed by Finance Act 2007; after repeal neither the Customs Act nor the SEZ Act provide for levy of customs duty on such supplies. Rules under the SEZ Act and the Drawback Rules do not supply a charging provision and, if they were interpreted to impose duty, such an interpretation would be ultra vires because a tax or duty can be imposed only by enactment. Consequently neither the SEZ Act, its Rules nor the Drawback Rules authorize the collection of export duty or the requirement of bank guarantees in respect of supplies from DTA to SEZ units for authorised operations. [Paras 31, 32, 33, 35, 36]The SEZ Act, SEZ Rules and the Drawback Rules do not authorise levy or collection of export duty on supplies from a DTA to an SEZ unit for authorised operations; nor do they justify requiring SEZ units to furnish bank guarantees for such duty, and the imposition would be ultra vires in the absence of a charging statute.Final Conclusion: The impugned orders calling upon SEZ units to furnish bank guarantees and directing DTA suppliers to pay export duty on supplies to SEZ units are quashed; the writ petitions are allowed, without costs. Issues Involved:1. Legality of proceedings by the Development Commissioner and Assistant Commissioner of Customs regarding export duty on chrome ore.2. Legality of proceedings and circulars related to export duty on steel products.3. Whether SEZ units or DTA suppliers are liable to pay export duty under the SEZ Act, 2005 or the Customs Act, 1962.4. Interpretation of the SEZ Act and the Customs Act regarding the levy of export duty.5. Applicability of legal fictions and non-obstante clauses in the SEZ Act.Issue-wise Detailed Analysis:1. Legality of Proceedings by Development Commissioner and Assistant Commissioner of Customs:The petitioners questioned the Development Commissioner's proceedings dated 17-04-2008 and the Assistant Commissioner of Customs' proceedings dated 08-05-2008 as illegal and void. The Development Commissioner directed that export consignments of SEZ units should be cleared after obtaining a bank guarantee covering the value of export duty on chrome ore. The Assistant Commissioner of Customs informed the petitioner that export duty was not payable by SEZ units procuring chrome ore from DTA suppliers, but DTA suppliers were required to pay export duty at Rs. 3,000/- per metric tonne on chrome ore exported to SEZ units.2. Legality of Proceedings and Circulars Related to Export Duty on Steel Products:The petitioners questioned the proceedings dated 30-06-2008 by the Director, SEZ Section, Ministry of Commerce and Industry, and the Circular dated 09-07-2008 by the Development Commissioner, Visakhapatnam SEZ. The Director informed that supply of steel products should be permitted only after payment of the prescribed amount of duty. The Development Commissioner reiterated this in the circular, and the Superintendent of Central Excise, Kottur Division, Hyderabad, informed that export liability should be discharged on iron and steel products cleared to the SEZ from 10-05-2008 onwards.3. Liability of SEZ Units or DTA Suppliers to Pay Export Duty:The petitioners argued that SEZ units are exempt from customs duty on goods imported into or exported from a Special Economic Zone under Section 26(1)(a) & (b) of the SEZ Act. They contended that SEZ units are not liable to pay export duty, and the proceedings requiring SEZ units to furnish bank guarantees towards export duty on chrome ore were without jurisdiction. The respondents argued that the Customs Act is not specified in the First Schedule to the SEZ Act and that DTA units are liable to pay export duty as per the Customs Act.4. Interpretation of the SEZ Act and Customs Act Regarding Levy of Export Duty:The court examined whether the DTA unit is liable to pay export duty on goods supplied to a unit within the SEZ under the SEZ Act, 2005 or the Customs Act, 1962. Article 265 of the Constitution prohibits the levy or collection of tax except by authority of law. The SEZ Act does not contain any provision for the levy and collection of export duty for goods supplied by a DTA unit to an SEZ unit for its authorized operations. The Customs Act provides for the levy of customs duty only on goods imported into or exported beyond the territorial waters of India.5. Applicability of Legal Fictions and Non-Obstante Clauses in the SEZ Act:Section 53(1) of the SEZ Act creates a legal fiction deeming a Special Economic Zone to be a territory outside the customs territory of India for authorized operations. However, this legal fiction is limited in scope and cannot be extended to levy customs duty. Section 51(1) of the SEZ Act contains a non-obstante clause, giving it overriding effect over other laws. However, in the absence of inconsistency between the SEZ Act and the Customs Act regarding the levy of customs duty, the non-obstante clause does not apply.Conclusion:The court concluded that neither the SEZ Act nor the Customs Act provides for the levy of customs duty on goods supplied from a DTA unit to a unit within a Special Economic Zone for its authorized operations. The impugned proceedings requiring SEZ units to furnish bank guarantees and DTA units to pay customs duty were quashed. The writ petitions were allowed without costs.