SEZ statutory entitlements prevail over later policy guidelines; excise duty on DTA procurement cannot be recovered from the SEZ recipient.

A guideline under the SEZ policy framework cannot override statutory entitlements already flowing from the Special Economic Zones Act and Rules; the Court held that the 2015 guideline could not reclassify an approved co-developer power plant in the processing area as a non-processing area unit or deny operation and maintenance benefits. On excise recovery, the Court held that duty on HSD procured from the Domestic Tariff Area could not be demanded from the SEZ recipient by the Development Commissioner in the absence of statutory authority, since recovery lies against the manufacturer before the competent jurisdictional excise authority. The impugned guideline and consequential show cause notice were set aside.

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Issues: (i) Whether the 2015 guideline could lawfully withdraw the earlier relaxation and require existing power plants in the processing area to be treated as non-processing area units with the consequence of denying operation and maintenance benefits. (ii) Whether the show cause notice demanding excise duty, interest and penalty on HSD procured from the Domestic Tariff Area from the Development Commissioner was without jurisdiction and unsustainable.

Issue (i): Whether the 2015 guideline could lawfully withdraw the earlier relaxation and require existing power plants in the processing area to be treated as non-processing area units with the consequence of denying operation and maintenance benefits.

Analysis: The statutory scheme distinguishes between the power of the Central Government to issue general guidelines and its power to demarcate processing and non-processing areas and to regulate authorised operations. The petitioner's power plant had already been approved as a co-developer's authorised operation in the processing area. The later guideline of 2015 did not merely regulate future policy but attempted to reclassify existing units and deny benefits already flowing from the statutory framework and earlier approvals. The Court held that withdrawal of the 2012 guideline did not alter the entitlement available under the Act and Rules, and the impugned guideline could not override the statutory position.

Conclusion: The 2015 guideline was held unsustainable and unenforceable against the petitioner.

Issue (ii): Whether the show cause notice demanding excise duty, interest and penalty on HSD procured from the Domestic Tariff Area from the Development Commissioner was without jurisdiction and unsustainable.

Analysis: Exemption on procurement from the Domestic Tariff Area is governed by the Special Economic Zones Act, 2005 and the Special Economic Zones Rules, 2006, while excise duty is ordinarily recoverable from the manufacturer by the jurisdictional excise authorities. The Court held that a buyer in the SEZ could not be subjected to reverse recovery of excise duty in the absence of statutory authority, and that the Development Commissioner was neither the proper officer nor the authority competent to invoke section 11A of the Central Excise Act, 1944. The Court further held that procurement from the Domestic Tariff Area constituted an export for SEZ purposes and that the demand was revenue neutral in any event.

Conclusion: The show cause notice and the proposed demand were held to be without jurisdiction and liable to be quashed.

Final Conclusion: The writ petitions succeeded, the impugned guideline and consequential proceedings were set aside, and the petitioner's entitlement under the SEZ regime was protected.

Ratio Decidendi: A guideline issued under the SEZ policy framework cannot override statutory entitlements already flowing from the Special Economic Zones Act, 2005 and the Rules, and excise duty for DTA clearances can be demanded only from the manufacturer by the competent jurisdictional authority, not from the SEZ recipient by the Development Commissioner.

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