Legal analysis of Company's SEZ exit, NOC responsibility & tax liability under Rule 74

The court addressed issues related to a Company's exit from a Special Economic Zone (SEZ) in Gujarat, focusing on the responsibility for obtaining a No Objection Certificate (NOC) and tax liability under Rule 74 of SEZ Rules. The Company sought a provisional NOC due to business losses, with the court granting time for the Advocate General to consider this request. The court indicated a future examination of the legality of the tax liability if the matter advances to a merit-based contest. Further proceedings were scheduled for April 13, 2022.

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Issues:
1. Application for exit from SEZ and compliance requirements.
2. Dispute regarding NOC application responsibility.
3. Tax liability for exit from SEZ under Rule 74 of SEZ Rules.
4. Request for provisional NOC due to business exigencies.

Analysis:
1. The judgment revolves around a Company seeking to exit a Special Economic Zone (SEZ) in Gujarat. The Company, a joint venture of ONGC, Gail India Ltd., and GSPC, set up a Mega Petrochemical Complex in the SEZ at Dahej. The Unit Approval Committee granted in-principal approval for the exit subject to compliance, including obtaining a No Objection Certificate (NOC) from the State Government.

2. A dispute arose regarding the responsibility for applying for the NOC, with the Company arguing that as per a circular, the developer should apply. The Developer did write to the Industries Commissioner requesting the NOC for a specific area. However, the State Government linked the NOC grant to the Company's settlement of a tax liability of Rs. 1049.47 Crore towards VAT/GST up to March 2021, as per an order by the Joint State Tax Commissioner.

3. The Advocate General argued that Rule 74 of the Central Special Economic Zone Rules, 2006, allows the Government to claim the tax amount before granting the NOC for the Company's exit from the SEZ. The Company requested a provisional NOC due to significant annual losses and urged that Rule 74 should not apply in their case.

4. The Court granted time for the Advocate General to seek instructions on granting a provisional NOC to provide relief to the Company from losses. The provisional NOC, if granted, would be subject to the Government's right to determine the tax liability later. The Court indicated it would examine the legality of the tax liability under Rule 74 if the matter proceeds to a merit-based contest. The case was adjourned for further proceedings on April 13, 2022.

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