2010 (7) TMI 768 - HC - Customs

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

TIRUPATI UDYOG LTD. Versus UNION OF INDIA

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 ... Whether the DTA unit is liable to pay export duty on goods supplied to a unit within the Special Economic Zone either under the SEZ Act, 2005 or the Customs Act, 1962? - SEZ units submit that, even if the DTA supplier is liable to pay export duty, it should be recovered from them and not from an SEZ unit – Held that:- A conjoint reading of Section 12(1) with Sections 2(18), 2(23) and 2(27) of the Customs Act, 1962 makes it clear that customs duty can be levied only on goods imported into or exported beyond the territorial waters of India. Since both the SEZ unit and the DTA unit are located within the territorial waters of India, Section 12(1) of the Customs Act 1962 (which is the charging section for levy of customs duty) is not attracted for supplies made by a DTA unit to a unit located within the Special Economic Zone. It is no doubt true that Section 2(m)(ii) of the SEZ Act defines ‘export’ to mean supplying goods from the domestic area to a unit or developer. The SEZ Act, however, does not contain any provision for the levy of customs duty on goods supplied by a DTA unit to a unit located within a Special Economic Zone. The word ‘export’, as defined in Section 2(m)(ii) of the SEZ Act, cannot be interpolated into Section 12(1) of the Customs Act. The Customs Act is a taxing statute and if the said Act does not, by the plain language used therein, carry out the object the Court will not be justified in supplying deficiencies in the Act. The Drawback, under Rule 3 of the Drawback Rules, is subject to the provisions of the Customs Act and the Rules made thereunder. These Rules also specify certain goods which are not entitled for drawback. The Drawback Rules do not relate to levy and collection of customs duty, and it is only for the limited purpose of claiming drawback would taking out of goods from a place in a Domestic Tariff Area to a Special Economic Zone fall within the definition of “export” under Rule 2(c) of the Drawback Rules, absence of any provision for the levy or collection of customs duty on goods supplied from a Domestic Tariff Area to a Special Economic Zone for its authorized operations, either on the D.T.A. supplier or the SEZ unit, the impugned proceedings whereby the SEZ units were called upon to furnish bank guarantees, and the D.T.A. units were called upon to pay customs duty, are quashed, Writ Petitions are allowed 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.