2014 (2) TMI 285 - AT - Customs

Tribunal rules in favor of appellants: SEZ area deemed duty-free. Customs Act provisions overridden.

The Tribunal, by majority decision, ruled in favor of the appellants. It held that the additional area was part of the SEZ from the original notification ... Setup of SEZ - meaning and scope of the term 'additional area' - Removal of Goods from SEZ to DTA area for storage without payment of duty under permission - movement of Goods from DTA to another DAT area called Refinery Tank Farm (RTF) was considered as contravention of Rules - Confiscation u/s 111 - Penalty u/s 112 - Imposition of redemption fine u/s 125 - Violation of terms of the permissions granted under Rule 50 (1) (e) of the SEZ Rules, 2006 - Held that:- Notification dated 04.06.2007 should relate back to 19.04.2006. In view of this, the construction activities conducted in the additional area will have to be deemed as carried out within the SEZ. The permission granted under Rule 50 (1) (e) as also the conditions laid down therein will become irrelevant in view of the subsequent action of notifying the additional area as part of the existing SEZ. SEZ Unit is not required to file a Bill of Entry or pay duty on the goods removed temporarily under the above referred rules. The entire purpose of the above-referred rule is to ensure that the goods which are permitted to be cleared to the DTA are returned back to the SEZ, so that they are ultimately used only for the required purpose of undertaking 'authorized operation' within the SEZ. The 'authorized operation' within the SEZ, insofar as the assessee is concerned, is the activity of refining Crude oil so as to obtain various Refined end-products such as gasoline, diesel etc. If the goods which were removed from the Zone to the DTA were ultimately received back into the SEZ and were finally used only for SEZ's authorized operation, the object behind the permission stood achieved and fulfilled. Steel materials were used for the purpose of construction of storage tanks in the RTF. Such storage tanks were still under construction on 04.06.2007, when the additional land was notified to be part of the SEZ. As such, neither the storage tanks nor the steel materials used for their construction had been used or utilized for any purpose other than the originally contemplated purpose of setting up a refinery in the SEZ. We also take note of the fact that before effecting any removal of goods in terms of the permission granted to it, the Developer had informed the Ministry of Commerce on 03.08.2006 that construction activity was proposed to be undertaken in the additional area. Even in the applications filed by the assessee on 18.10.2006, the fact that construction activity was being undertaken by using the steel materials was disclosed. Since entire operation of the appellant was relatable back to the SEZ notification dated 19.04.2006, therefore, impugned order confiscating the goods, levy of interest and the penalties on other two appellants is not sustainable and is liable to be set aside - Decided in favour of assessee. It cannot be said that there is no machinery to recover the duties of Customs/Central Excise under the SEZ Act 2005 and the Rules made thereunder and the Bond-cum-Legal undertaking, given by the appellants to the authorities implementing the SEZ Act 2005 and the SEZ Rules 2006, is available to enforce the dues if utilization of duty free goods received is not satisfactorily explained and such recovery will not be time barred, However, this power to invoke and enforce the Bond-cum-Legal undertaking, is available only to the appropriate authorities working under the SEZ Act 2005 and the SEZ Rules 2006 and cannot be made use of by other authorities working under the Customs Act, 1962 to demand duties under Section 28 that acts. Issues Involved:1. Whether duty is payable on the goods removed from SEZ and permitted storage area to the additional area for construction.2. Whether Customs officers have jurisdiction to investigate the case and demand duty.3. Whether the appellants violated the terms of permission granted for storage of steel items by removing them for construction.4. Whether limitation as a ground was raised by the appellants and needs to be considered.5. Whether the demand can be said to be barred by limitation.6. Whether the matter is required to be remanded for re-quantification of duty.Detailed Analysis:1. Duty Payable on Goods Removed from SEZ:The main issue revolved around whether the notification dated 04.06.2007, which included additional land into the SEZ, should relate back to the original notification dated 19.04.2006. The appellants argued that the additional area was always intended to be part of the SEZ and that operations undertaken with the knowledge and approval of SEZ authorities should be considered 'Authorized Operations' under the SEZ Act, 2005. The Tribunal, by majority, accepted the appellants' contention, holding that the notification dated 04.06.2007 should relate back to 19.04.2006, making the operations within the additional area as part of SEZ from the inception. Consequently, no duty was payable under Sections 28 and 28AB of the Customs Act, 1962.2. Jurisdiction of Customs Officers:The Tribunal held that the SEZ Act, 2005 and the SEZ Rules, 2006 form a self-contained code for the functioning of SEZs. The Customs Act, 1962 provisions were made inapplicable to SEZs by Notification No.S.O.320(E), dated 14.03.2006. The Tribunal concluded that the Customs officers did not have jurisdiction to investigate and demand duty under the Customs Act, 1962 for operations that were under the purview of SEZ authorities and were conducted with their approval. The issue was deemed irrelevant as the SEZ Act, 2005 provisions prevailed.3. Violation of Terms of Permission:The Tribunal found that the operations undertaken by the appellants were with the knowledge and approval of the SEZ authorities and thus constituted 'Authorized Operations.' The permissions granted under Rule 50(1)(e) of the SEZ Rules, 2006 were not violated as the additional area was deemed part of the SEZ from the original notification date. Therefore, the appellants did not violate the terms of the permission granted for storage of steel items.4. Limitation as a Ground:The Tribunal noted that the issue of limitation was raised by the appellants in their reply to the show cause notice and was also discussed in the Order-in-Original. Therefore, the issue of limitation needed to be considered.5. Demand Barred by Limitation:The Tribunal held that the demand was time-barred under Section 28 of the Customs Act, 1962, as the extended period could not be invoked without an intention to evade duty. The operations were conducted with the approval of SEZ authorities, and there was no evidence of clandestine removal or intent to evade duty.6. Remand for Re-quantification:Given the conclusion that no duty was demandable under the Customs Act, 1962, the Tribunal found no need to remand the matter for re-quantification of duty. The appeals filed by the assessee and individuals were allowed, and the appeals filed by the Revenue were rejected.Conclusion:The Tribunal, by majority, set aside the impugned orders, allowed the appeals filed by the assessee and individuals, and rejected the appeals filed by the Revenue. The operations in the additional area were deemed part of the SEZ from 19.04.2006, and no duty was payable under the Customs Act, 1962.