2019 (10) TMI 826 - HC - Customs

Auction Purchases from SEZ to Domestic Tariff Area Exempt from Customs Duty, Court Rules for Refund within 3 Weeks.

B.I.F.R. Versus M/s Lunar Diamod Ltd

The court ruled that goods purchased in an auction sale from the SEZ to the Domestic Tariff Area were not subject to customs duty, as they entered the SEZ ... Auction sale - demand of customs duty prior to removing these goods out of the Special Economic Zone and into the Domestic Tariff Area - HELD THAT:- The customs duty could have been levied at the time of removal of the goods from the SEZ only if customs duty was chargeable on these goods at the time of their import into the SEZ, although such import duty into SEZ may be exempted in view of other provision of the Special Economic Zone Act, 2005. In view of the provisions namely Section 26(1) a and 30(a) and in view of what has been held by the Division Bench of the Gujarat High Court in the judgment in M/s Adani Power Limited Vs. Union of India, [2015 (11) TMI 1466 - GUJARAT HIGH COURT], this Court is constrained to hold that since no duty was leviable upon the goods while entering the Special Economic Zone, the same when being removed as scrap are not chargeable to any customs duty as it consisted of scrap machine parts. The machine parts which were scrap on the date of their removal, even when new were exempt from customs duty under Section 26(1)(a) of the Special Economic Zone Act, 2005 as they were taken into the Special Economic Zone (imported) to carry on the authorized operations of the Company (in liquidation). The amount realised as customs duty by respondent no. 2 from the auction purchaser M/s Shree Ganesh Trading Company, was therefore wholly unwarranted, cannot be sustained and is hereby, set aside - Respondent no. 2 is directed to refund the amount realised as customs duty from the applicant, M/s Ganesh Trading Company - decided in favor of respondent. Issues:- Whether the goods purchased in an auction sale by the Company Court were subject to customs duty upon removal from the Special Economic Zone (SEZ) to the Domestic Tariff AreaRs.- Whether the customs duty charged by the respondent on the movable assets purchased by the applicant was justifiedRs.Analysis:1. Issue 1: Liability for Customs DutyThe applicant sought relief from the court to restrain the respondent from obstructing the removal of movable assets purchased in an auction sale, claiming that customs duty was being imposed on these goods during removal from the SEZ to the Domestic Tariff Area. The respondent argued that duty was chargeable on M.S. Scrap as per the Customs Act and the Special Economic Zone Act, 2005. However, the Official Liquidator contended that the goods purchased did not include M.S. Scrap, and the duty imposition lacked a specific order detailing the reasons and rates. The court referred to a Gujarat High Court judgment, emphasizing that customs duty could only be levied if chargeable at the time of import into the SEZ, exempted under the SEZ Act, 2005.2. Issue 2: Justification of Customs DutyThe court examined the relevant provisions of the SEZ Act, particularly Sections 26 and 30, which grant exemptions and specify conditions for charging customs duty on goods removed from the SEZ to the Domestic Tariff Area. Citing the Gujarat High Court's decision, the court concluded that since no duty was leviable upon the goods entering the SEZ, they were not subject to customs duty upon removal, especially if they consisted of scrap machine parts. Consequently, the customs duty imposed on the auction purchaser was deemed unwarranted, and the court directed the respondent to refund the amount within three weeks upon demand by the applicant.In summary, the judgment clarified that goods entering the SEZ without duty liability are not subject to customs duty upon removal, emphasizing the provisions of the SEZ Act and a prior court ruling. The court set aside the customs duty charged on the movable assets purchased in the auction sale and directed the respondent to refund the amount to the applicant.