SEZ debonding duty cannot be recovered on cement and steel used for construction when they fall outside statutory categories.

Cement and iron and steel used for construction of an SEZ unit do not fall within the statutory definitions of capital goods, raw materials, components, consumables, spares or finished goods under the SEZ Rules. As a result, duty cannot be recovered on debonding merely because those materials were procured duty free for construction and development of the unit. The stated ratio is that construction materials are outside the exit-duty framework unless they fit a specific statutory category attracting duty on leaving the SEZ regime.

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Issues: Whether cement and iron and steel procured duty free for construction and development of an SEZ unit fall within the definition of capital goods, raw materials, components, consumables, spares or finished goods so as to justify recovery of duty on debonding.

Analysis: The definition of capital goods under Rule 2(1)(e) of the Special Economic Zone Rules, 2006 covers plant, machinery, equipment and allied items required for manufacture, production or development of a Special Economic Zone, including certain specified categories. Rule 74 of the Special Economic Zone Rules, 2006 obliges a unit exiting the SEZ regime to pay applicable duties on imported or indigenous capital goods, raw materials, components, consumables, spares and finished goods in stock. Cement and iron and steel used for construction of the unit do not answer any of these descriptions. They are not capital goods within the statutory definition and also do not fall within the other categories liable on exit.

Conclusion: Cement and iron and steel used for construction of the SEZ unit are not exigible to duty on debonding under the cited SEZ Rules, and the duty recovered was not sustainable.

Final Conclusion: The appeals succeeded, the impugned order was set aside, and the appellants were held entitled to consequential refund benefits in accordance with law.

Ratio Decidendi: Materials used for construction of an SEZ unit cannot be treated as capital goods, or as raw materials, components, consumables, spares or finished goods, unless they fall within the specific statutory definitions attracting duty on exit from the SEZ regime.

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