2009 (11) TMI 141 - HC - Customs

Export duty on goods moved from Domestic Tariff Area to SEZ ruled unjustified; no duty to be imposed or recovered

Essar Steel Ltd. and M/s. Adani Power Ltd. Versus Union of India

HC held that levy of export duty on goods supplied from Domestic Tariff Area to Special Economic Zone is unjustified; petitioners need not be called upon ... Notification No. 66/2008-Cus, dated 14.05.2008- Whether export duty can be levied on goods supplied from Domestic Tariff Area to Special Economic Zone? Held that, levy of export duty on goods supplied from the Domestic Tariff Area to the Special Economic Zone is not justified. The petitioner, are therefore not to be called upon to pay export duty on movement of goods from Domestic Tariff Area to Special Economic Zone Units or developers. ISSUES PRESENTED AND CONSIDERED 1. Whether export duty can be imposed under the Customs Act, 1962 on supplies of goods made from the Domestic Tariff Area (DTA) to a Special Economic Zone (SEZ) unit. 2. Whether export duty can be levied under the Special Economic Zones Act, 2005 (SEZ Act) on DTA?SEZ supplies. 3. Whether the definition/deeming provisions in the SEZ Act (including section 53 and section 2(m)) can be imported into or read into the Customs Act, 1962 to treat DTA?SEZ movement as 'export' for purposes of imposing export duty under the Customs Act. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether export duty can be imposed under the Customs Act, 1962 on DTA?SEZ supplies Legal framework: Section 12 of the Customs Act levies customs duties on goods 'imported into, or exported from India.' Definitions in section 2 of the Customs Act define 'export' as taking goods out of India to a place outside India, 'export goods' similarly, and 'India' to include territorial waters. The Customs Tariff Act prescribes rates; assessment and provisional assessment provisions (ss.14,17,18) and related notifications govern levy and collection. Precedent treatment: Cited authorities establish strict construction of charging provisions in fiscal statutes and that 'export' under customs law requires movement outside territorial waters; decisions hold export occurs only upon movement outside territorial waters or outside India. Interpretation and reasoning: The Customs Act's charging section contemplates an export event constituted by taking goods out of India. No amendment of the Customs Act altered these definitions or the charging section to encompass DTA?SEZ movement. The Court notes that chapter X-A (Special Provisions relating to SEZ) which earlier provided a specific charging provision was omitted by finance amendment, indicating that, absent a statutory charging provision, DTA?SEZ movement is not a taxable event under the Customs Act. Ratio vs. Obiter: Ratio - export duty under the Customs Act attaches only when goods are exported out of India; in absence of amendment to definitions/charging section, movement to SEZ within India does not attract export duty under Customs Act. Obiter - historical legislative context regarding consolidation of customs laws and policy background. Conclusion: Export duty cannot be justified under the Customs Act, 1962 for supplies from DTA to SEZ units because the taxable event under that Act is export outside India, which DTA?SEZ movement is not. Issue 2 - Whether export duty can be levied under the SEZ Act, 2005 on DTA?SEZ supplies Legal framework: SEZ Act: definitions (including export in section 2(m) covering specified DTA?SEZ supplies), section 7 (exemption from taxes/duties under enactments in First Schedule), section 26 (special fiscal provisions: exemptions/drawbacks/concessions to developer/entrepreneur), section 30 (duties on removal from SEZ to DTA), section 51 (non obstante), section 53 (deeming a SEZ to be outside customs territory 'for purposes of undertaking authorized operations'), and SEZ Rules (notably Rules 23,24,27,30 on procurement/import without payment of duty and export benefits eligibility). Precedent treatment: Authorities on interpretation of fiscal statutes and legal fictions emphasize strict textual construction; legal fictions are confined to purposes for which they are created and cannot be extended beyond their statutory object. Interpretation and reasoning: SEZ statutory scheme and the Statement of Objects show legislative intent to make goods and services available to SEZ units/developers 'free of taxes and duties' to promote export production. Section 26 and Rule 27 provide for exemption from duties and permit procurement from DTA without payment of duty or after availing export entitlements; rules provide for eligibility for export benefits (drawback, DEPB) on DTA?SEZ supplies. Section 30 expressly contemplates duties on removal from SEZ to DTA (i.e., inbound to DTA), demonstrating where the statute expressly provides for levy; absence of any express provision imposing export duty on DTA?SEZ movement indicates Parliament did not intend such levy under SEZ Act. Implied levy cannot be read into the SEZ Act; exemptions and benefit provisions undermine any argument that SEZ Act contemplates levying export duty on DTA suppliers. Ratio vs. Obiter: Ratio - SEZ Act does not provide for imposition or recovery of export duty on movement of goods from DTA to SEZ; its provisions and rules evidence legislative intent to exempt such supplies from duties and to furnish export benefits. Obiter - discussion of policy objectives and purposive construction supporting these conclusions. Conclusion: Export duty cannot be levied under the SEZ Act, 2005 on DTA?SEZ supplies; the Act neither contains a charging/recovery provision for such duty nor contemplates such a levy by implication. Issue 3 - Whether SEZ Act definitions/deeming can be imported into the Customs Act to treat DTA?SEZ movement as 'export' for Customs Act levy Legal framework: Principle that definitions in one enactment apply for that enactment; section 2(zd) of SEZ Act preserves meanings from other Acts for undefined terms; section 51 non obstante clause of SEZ Act; section 53 deeming provision; settled rules on legal fictions and their limited scope. Precedent treatment: Authorities establish that a statutory definition/fiction is generally confined to the statute that creates it and cannot be extended to alter the meaning of terms in another statute; legal fictions must be confined to their purpose and not imported to create new taxable events in other enactments. Interpretation and reasoning: The Customs Act contains its own clear definitions of 'export' and 'India'; those definitions govern the Customs Act's charging provisions. The SEZ Act's legal fiction treating certain DTA?SEZ movements as 'export' serves limited statutory purposes (e.g., conferring export benefits, enabling procurement without duty) and cannot be used to create or expand the taxable event under the Customs Act. Section 51's non obstante clause does not permit adopting SEZ definitions to create tax liabilities under the Customs Act where there is no operational conflict; non obstante operates where provisions of two statutes conflict, not to rewrite a distinct charging structure. Section 53's deeming a SEZ 'territory outside the customs territory of India for purposes of authorized operations' cannot be equated to declaring SEZ outside India for all purposes; treating SEZ as outside India would render many statutory provisions unworkable and is constitutionally impermissible. Thus, importing the SEZ Act's definition or deeming into the Customs Act to justify export duty is impermissible. Ratio vs. Obiter: Ratio - a definition or legal fiction in the SEZ Act cannot be imported into the Customs Act to create a taxable event or to expand the scope of export duty under the Customs Act; legal fictions are confined to their statutory purpose. Obiter - extended policy and constitutional considerations against treating SEZ as completely outside India. Conclusion: The Customs Act's meaning of 'export' governs levy under that Act; the SEZ Act's definitions/deeming cannot be read into the Customs Act to impose export duty on DTA?SEZ movement. Overall Conclusion Export duty on supplies from the Domestic Tariff Area to Special Economic Zone units or developers is not justified: (a) it cannot be levied under the Customs Act, 1962 because the taxable event under that Act is export out of India; (b) the SEZ Act does not itself provide for levy of export duty on such movement and its scheme evidences an intention to exempt or provide benefits for such movements; and (c) the SEZ Act's definitions or deeming provisions cannot be imported into the Customs Act to expand the charging provision. Consequently, petitioners are not liable to pay export duty on movement of goods from DTA to SEZ units/developers (subject to temporary suspension ordered by the Court for operational reasons).