2022 (11) TMI 1015 - HC - Customs

Court clarifies Customs Dept jurisdiction over SEZ units, allows jewellery import for remaking under SEZ Rules.

The Court held that the Customs Department lacked jurisdiction over SEZ units post the SEZ Act, emphasizing the authority of the Development Commissioner. ... Levy of penalty - SEZ unit - import of new/unused jewellery for remaking after melting is permitted or not - whether petitioner is permitted to import new/unused jewellery for remaking after melting the same? HELD THAT:- The import of finished jewellery for the purpose of remaking in a SEZ is a permitted / authorised operation and there is no prohibition whatsoever on such an activity. In this connection the definition of “manufacture” as contained in Section 2(r) of the SEZ Act is important - in view of what is stated in Rule 27 of the SEZ Rules, it is patently clear that only the DC (respondent no.5) can decide whether any goods or services as required by a unit or developer are for authorised operations or not. This position has also been clarified by the DC (respondent no.5) vide letter dated 22nd May, 2009 addressed to the Commissioner of Customs, Sahar Airport. However, respondent no.2, even though being fully aware of this position, has failed to consider the said letter while adjudicating the case and passing the impugned order. Section 111(m) deals with intentional misdeclaration and mis-match between what has been declared on the Bill of Entry and what has actually been imported by the importer - In the facts of the present case, there is absolutely no misdeclaration between the description and / or value declared in the Bill of Entry and the goods actually imported by petitioner, both being diamond studded gold and silver jewellery. Accordingly, question of invoking Section 111(m) of the Customs Act does not arise at all in the present case. It is also noteworthy that there is no such requirement under the SEZ Act. Alleged Violation of Rule 29(7) of the SEZ Rules - HELD THAT:- There is no allegation in the SCN and / or no finding in the impugned order with respect to any alleged violation of Rule 29(7) of SEZ Rules. This entire issue was raised for the first time in the affidavit dated 25th November 2009 filed by respondent no.2 before this Court. It is settled law that a show cause notice is sacrosanct and all allegations must find mention therein for an assessee to effectively deal with it and respondents cannot be permitted to improve upon the show cause notice or the impugned order by way of filing an affidavit in the Court - In any event the ingredients of Rule 29(7) of the SEZ Rules are not applicable to the facts of the present case. The imports in question do not correspond to any of the four (4) scenarios mentioned in Rule 29(7) of the SEZ Rules. Accordingly, it cannot be said in any manner that petitioner has not followed the due procedure under Rule 29(7) of the SEZ Rules as petitioner was in law never required to do so. Violation, if any, of non-adherence to procedure of Rule 29(7) of SEZ Rules, is only a procedural violation under the SEZ Rules for which appropriate action may be taken by the DC, and cannot be said to be a violation material for the purpose of invoking the provisions of Section 111(m) of the Customs Act - respondent no.2 has completely erred in invoking Section 111(m) of the Customs Act. Penalty u/s 114A of Customs Act - HELD THAT:- In facts of the present case, petitioner’s SEZ license has not been cancelled under Section 16(1) till date, let alone during the impugned period. Accordingly, petitioner has rightly and legally continued to avail of the customs duty exemption under Section 26 of the SEZ at all points in time. Further, and in any event, even if the SEZ registration of petitioner is cancelled, then petitioner is only liable to remit the duty concessions which have been availed with respect to capital goods and unused raw material / unsold finished stock only. Even at the highest, there is no question whatsoever of going back 5 years and demanding Customs Duty on all imports made in the past - the imposition of penalty under section 114A of the Customs Act ought to be set aside. The impugned notices dated 14th July 2009 read with the addendums dated 21st July 2009 and addendum/corrigendum dated 18th August 2009 to the impugned notice, as well as the impugned orders dated 18th August 2010/19th August 2010 in all petitions are set aside - petition disposed off. Issues Involved:1. Jurisdiction of Customs Authorities under the SEZ Act.2. Legality of Importing Finished Jewellery for Remaking.3. Invocation of Sections 111(d) and 111(m) of the Customs Act.4. Applicability of Section 28 of the Customs Act.5. Imposition of Penalty under Section 114A of the Customs Act.Issue-wise Detailed Analysis:1. Jurisdiction of Customs Authorities under the SEZ Act:The primary issue was whether the Customs Department had jurisdiction to investigate, seize, and issue show cause notices to SEZ units post the enactment of the SEZ Act. The Court noted that while the Customs Act provides for the confiscation of goods and imposition of penalties, the SEZ Act, particularly Sections 51 and 53, provides an overriding effect and treats SEZs as territories outside the customs territory of India. The Court emphasized that the Development Commissioner (DC) under the SEZ Act is the competent authority to decide on the import of goods for authorized operations within SEZs.2. Legality of Importing Finished Jewellery for Remaking:The Court examined whether importing finished jewellery for remaking was permissible under the SEZ Act and Rules. It was established that the SEZ Rules allow the import of all types of goods required for authorized operations, except those explicitly prohibited. The DC had clarified that the import of finished jewellery for remaking was an authorized operation, and there was no prohibition under the SEZ Act or Rules against such imports.3. Invocation of Sections 111(d) and 111(m) of the Customs Act:- Section 111(d): This section deals with the confiscation of goods imported contrary to any prohibition. The Court found no notification under Section 5 of the FTDR Act prohibiting the import of finished jewellery into SEZs. Thus, the invocation of Section 111(d) was incorrect.- Section 111(m): This section pertains to the mis-declaration of goods. The Court noted that there was no mis-declaration in the Bill of Entry filed by the petitioners. The goods imported matched the descriptions provided, making the invocation of Section 111(m) unjustified.4. Applicability of Section 28 of the Customs Act:The Customs Department had demanded duty under Section 28, alleging violations of the SEZ Act and Rules. The Court highlighted that the SEZ Act provides blanket exemptions from customs duties unless such exemptions are withdrawn. Since there was no withdrawal of exemptions, the demand for duty under Section 28 was unwarranted. The Court also noted that any alleged breaches of the SEZ license conditions should be addressed by the DC, not the Customs authorities.5. Imposition of Penalty under Section 114A of the Customs Act:The Court found that the show cause notice did not propose a penalty under Section 114A, and imposing such a penalty in the final order was beyond the scope of the notice. The Court reiterated that any order must be confined to the allegations made in the show cause notice.Conclusion:The Court quashed the show cause notices and the impugned orders, discharging the petitioners from their obligations related to the provisional release of goods. The Court directed the cancellation and return of the bank guarantees furnished by the petitioners. All petitions and interim applications were disposed of without any order as to costs.