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. Importing finished jewellery for remaking was deemed legal under the SEZ Rules. The invocation of Sections 111(d) and 111(m) of the Customs Act was found unjustified due to lack of prohibition and mis-declaration. Duty demand under Section 28 was deemed unwarranted as SEZ exemptions applied. The imposition of a penalty under Section 114A was beyond the scope of the notice. The Court quashed show cause notices, discharged petitioners, and directed the return of bank guarantees.

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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.

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