SEZ inter-unit transfer and procedural banking compliance cannot defeat drawback where export conditions and substantial compliance are shown.

Inter-unit movement of duty-paid raw materials within the same Special Economic Zone was treated as permissible where the statutory scheme allowed transfer between units and there was no finding of unauthorised diversion, so no violation of Rule 22(2) or Rule 34 was established. Payment for domestic tariff area supplies through a current account, rather than a foreign currency account, was treated as a procedural requirement only; substantial compliance was found because export proceeds were realised in foreign currency and routed through the current account, and the benefit had been allowed on the same basis in other periods. The revisional order rejecting drawback was therefore unsustainable, and the drawback claim was upheld.

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Issues: (i) Whether transfer and utilisation of duty-paid raw materials between units in the same Special Economic Zone, and export of finished goods from a different unit of the same corporate entity, violated Rule 22(2) and Rule 34 of the Special Economic Zone Rules, 2006. (ii) Whether payment for domestic tariff area supplies from a current account, rather than a foreign currency account, violated Rule 30(8) of the Special Economic Zone Rules, 2006.

Issue (i): Whether transfer and utilisation of duty-paid raw materials between units in the same Special Economic Zone, and export of finished goods from a different unit of the same corporate entity, violated Rule 22(2) and Rule 34 of the Special Economic Zone Rules, 2006.

Analysis: Rule 22(2) requires proper accounts of goods imported or procured from the domestic tariff area and their utilisation. Rule 30(15)(v) permits movement of goods between units in the same Special Economic Zone without filing a bill of entry, and the proviso to Rule 34 also recognises inter-unit movement without duty. The records showed procurement of duty-paid raw materials for authorised operations and export of finished goods from the zone. The absence of separate accounts, by itself, did not justify denial of drawback where the statutory scheme permitted inter-unit transfer and there was no finding that the goods were diverted for unauthorised use.

Conclusion: No violation of Rule 22(2) or Rule 34 was established, and this issue was decided in favour of the assessee.

Issue (ii): Whether payment for domestic tariff area supplies from a current account, rather than a foreign currency account, violated Rule 30(8) of the Special Economic Zone Rules, 2006.

Analysis: Rule 30(8) was treated as a procedural condition. Section 26(1)(d) and section 26(2) of the Special Economic Zones Act, 2005 contemplate drawback subject to rules, but the rules did not make a foreign currency account mandatory in absolute terms. Regulation 6A of the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) (Third Amendment) Regulations, 2002 is enabling and permits, but does not compel, maintenance of such an account. The Court found substantial compliance because the export proceeds were realised in foreign currency and were routed through the current account, and the benefit had been granted in other periods on the same basis. Procedural infraction could not defeat the substantive drawback claim.

Conclusion: Rule 30(8) was substantially complied with, and this issue was decided in favour of the assessee.

Final Conclusion: The revisional order rejecting drawback was unsustainable, and the assessee was entitled to the drawback claim on the facts found.

Ratio Decidendi: Where the statutory scheme permits inter-unit movement in the same Special Economic Zone and the essential export and realisation requirements are satisfied, a procedural lapse in the manner of accounting or banking compliance cannot defeat a substantive drawback benefit absent a demonstrated misuse of the goods.

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