SEZ customs control limited where goods stayed in the zone and no bill of entry was filed for domestic clearance.

Goods remaining within a notified Special Economic Zone are treated as outside the customs territory under the Special Economic Zones Act, 2005, and the Customs Act, 1962 applies only if there is removal from the zone without duty, import contrary to authorised operations, or a prohibited import into India. In the absence of a bill of entry under rule 47 of the SEZ Rules, 2006, there was no established removal into the domestic tariff area. On those facts, confiscation under section 111 of the Customs Act and the consequential penalty under section 112 were not justified, and the SEZ Act prevailed in case of conflict.

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Issues: Whether customs authorities could invoke the Customs Act, 1962 to confiscate goods lying in a Free Trade and Warehousing Zone or Special Economic Zone before filing of bill of entry for clearance into the domestic tariff area, and whether penalty under the Customs Act, 1962 was sustainable.

Analysis: The goods remained within the notified Special Economic Zone area, which is treated as outside the customs territory under the Special Economic Zone Act, 2005. In the absence of a bill of entry under rule 47 of the Special Economic Zone Rules, 2006, there was no established removal of the goods into the domestic tariff area. The Customs Act, 1962 would apply only where there is removal from the Special Economic Zone without payment of duty, import contrary to authorized operations, or a prohibited import into India. The Special Economic Zone Act, 2005 also prevails in case of conflict. On the facts found, the invocation of confiscation provisions and consequential penalty was not justified.

Conclusion: The customs authorities lacked competence to proceed under section 111 of the Customs Act, 1962 on these facts, and the penalty under section 112 of the Customs Act, 1962 was unsustainable.

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