2015 (11) TMI 1466 - HC - Customs

Customs duty on energy from SEZ to DTA ruled unconstitutional, petitioners granted refund.

The court held that the Government Notification No.25/2010-Customs levying customs duty on electrical energy removed from SEZ to DTA was unconstitutional ... Levy of customs duty on goods removed from SEZ to DTA - Section 30 of the SEZ Act as independent charging and reference provision - Section 25 power to grant exemption (not to create levy) - presumption against retrospective taxation - double taxation and Article 265 - discrimination under Article 14Levy of customs duty on goods removed from SEZ to DTA - Section 30 of the SEZ Act as independent charging and reference provision - Section 25 power to grant exemption (not to create levy) - Validity of proviso to Notification No.25/2010-Customs (27.2.2010) insofar as it levies customs duty @16% on electrical energy removed from SEZ to DTA/non-processing areas - HELD THAT: - The Court held that Section 30 of the SEZ Act creates the statutory scheme for charges on goods removed from SEZ to DTA and operates independently; it incorporates rates by reference to the Customs Tariff Act but is not supplanted by the Customs Act charging section. The power under Section 25 of the Customs Act is for exemption of goods when imported into India and cannot be used to impose a new charge on removals from SEZ to DTA beyond the field occupied by Section 30. Consequently the proviso in Notification No.25/2010, which treats electrical energy removed from SEZ to DTA as subject to a separate customs levy, exceeded the permissible scope and was arbitrary. The Court therefore held the proviso ultra vires the Customs Act read with Section 30 of the SEZ Act. [Paras 30, 33, 34, 54, 63]The entire proviso to Notification No.25/2010-Customs is ultra vires Section 25(1) of the Customs Act read with Section 30(a) of the SEZ Act and is quashed.Presumption against retrospective taxation - retrospective taxation and clarificatory/declaratory amendments - Whether the levy of customs duty by the impugned notification could be given retrospective effect from 26.6.2009 - HELD THAT: - Applying the settled presumption that taxing provisions are prima facie prospective and the principles distinguishing clarificatory/declaratory statutes from substantive retrospective impositions, the Court found that the retrospective imposition of a new customs charge by the Finance Clause and Notification (w.e.f. 26.6.2009) could not be sustained. The amendment operated to create a new onerous liability rather than merely clarifying existing law; accordingly retrospective levy was unreasonable and arbitrary. [Paras 57, 58, 60, 61, 63]The 16% ad valorem customs levy effected retrospectively from 26.6.2009 is illegal and arbitrary and is set aside; petitioners are entitled to exemption for the period 26.6.2009 to 15.9.2010.Double taxation and Article 265 - Rule 47(3) SEZ Rules - duty on raw materials and consumables - Whether imposing customs duty on electrical energy removed to DTA resulted in impermissible double taxation violative of Article 265 - HELD THAT: - The Court accepted that Rule 47(3) and related provisions require payment of duty on raw materials and consumables used in generation of power when sold to DTA. Imposing an additional customs charge on the electricity itself would create a new and separate liability in respect of the same economic activity, producing double taxation. That outcome offended the requirement that taxation has lawful authority and cannot arbitrarily double-charge the petitioner; the duty paid on inputs should be considered in relation to any levy on the output. [Paras 23, 37, 62, 63]Levy on electrical energy would amount to double taxation in the circumstances and is violative of Article 265; relief granted consequentially.Discrimination under Article 14 - Whether the impugned Notification discriminated between electrical energy imported from outside India and electricity removed from SEZ to DTA - HELD THAT: - The Court found the Notification to be discriminatory because electrical energy imported into India remained wholly exempt while electricity removed from SEZ to DTA was singled out for a distinct and heavier charge without an intelligible differentia justifying that classification. The Court observed SEZ-based producers are similarly situated to other producers and contribute to economic activity, and no rational basis was shown for the differential treatment. [Paras 30, 35, 36, 54, 63]The impugned levy was discriminatory and breached Article 14; the proviso is quashed.Refund and ancillary relief - Relief as to interim security (Bank Guarantee) furnished in compliance with Court order - HELD THAT: - Having held that the retrospective 16% levy and the proviso are invalid for the stated period, the Court directed that the Bank Guarantee furnished by the petitioners pursuant to the interim order be returned forthwith. The dispute in the petition is confined to the period up to 15.9.2010 and the Court awarded restitution of the security as a consequential and immediate remedy. [Paras 61, 63]Respondent authority directed to return the Bank Guarantee; petitioners granted exemption for the period 26.6.2009 to 15.9.2010.Final Conclusion: Writ petition allowed. The proviso to Notification No.25/2010-Customs dated 27.2.2010 is quashed as ultra vires Articles 14 and 265, Section 25(1) of the Customs Act and Section 30 of the SEZ Act; the retrospective 16% ad valorem levy from 26.6.2009 is set aside and petitioners are exempted from payment of customs duty on electricity cleared to DTA for the period 26.6.2009 to 15.9.2010; the Bank Guarantee furnished by petitioners is directed to be returned forthwith; parties to bear their own costs. Issues Involved:1. Constitutionality and legality of Government Notification No.25/2010-Customs dated 27.2.2010.2. Applicability of customs duty on electrical energy removed from Special Economic Zone (SEZ) to Domestic Tariff Area (DTA).3. Retrospective levy of customs duty.4. Double taxation.5. Refund of Bank Guarantee.Detailed Analysis:Constitutionality and Legality of Notification No.25/2010-Customs:The petitioners challenged the constitutionality of Notification No.25/2010-Customs dated 27.2.2010, which levied a 16% ad valorem customs duty on electrical energy removed from SEZ to DTA. They argued that this notification is ultra vires Entry 83 of List I of Schedule VII of the Constitution, Section 12 of the Customs Act, Section 30 of the SEZ Act, and violates Articles 14, 19(1)(g), and 265 of the Constitution of India.Applicability of Customs Duty:The petitioners contended that under Section 30(a) of the SEZ Act, goods removed from SEZ to DTA should be treated as imported goods and thus should be exempted from customs duty as per Section 25(1) of the Customs Act. The respondents argued that Section 30 of the SEZ Act is a charging section akin to Section 12 of the Customs Act, and the duty is levied on goods removed from SEZ to DTA.Retrospective Levy of Customs Duty:The petitioners argued that the retrospective levy of customs duty from 26.6.2009 to 27.2.2010 is illegal and arbitrary. The court noted that any amendment imposing a new tax or duty must be prospective as it amounts to substantive law. The retrospective amendment in this case was deemed illegal and arbitrary.Double Taxation:The petitioners claimed that they were already paying duty on raw materials like coal under Rule 47(3) of the SEZ Rules, and the additional customs duty on electrical energy amounted to double taxation. The court agreed, stating that the petitioner should not suffer double taxation and is entitled to a refund of the duty paid on raw materials.Refund of Bank Guarantee:The court directed the respondent authority to return the Bank Guarantee furnished by the petitioners in compliance with the interim order dated 6.5.2010.Conclusion:The court held that the entire proviso to Government Notification No.25/2010-Customs dated 27.2.2010 is ultra vires Articles 14 and 265 of the Constitution of India and is quashed. The petitioners are entitled to exemption from payment of customs duty for the period from 26.6.2009 to 15.9.2010 on the electricity cleared to DTA from SEZ. The respondent authority is directed to return the Bank Guarantee furnished by the petitioners.