2026 (3) TMI 1257 - HC - Customs

Deemed export treatment for DTA supplies to SEZ units may be supported by invoices and bank realisation certificates.

Supplies by a domestic tariff area unit to a special economic zone unit were treated as deemed exports under the Foreign Trade Policy because the goods ... Deemed exports - entitlement of Holoflex to duty exemption under the EPCG license - proof of fulfilment of export obligation - Supplies from Domestic Tariff Area to Special Economic Zone - Limited operation of statutory deeming fiction - definition of “export” in Section 2(m)(ii) - Whether the effect of para-8.1 of the FTP would in any way be diluted or eliminated by the SEZ Act or SEZ Rules. Deemed exports - Supplies from Domestic Tariff Area to Special Economic Zone - HELD THAT: - The Court held that, as the entitlement in question arose under the FTP, the character of the supplies had primarily to be tested on Chapter 8 of the FTP. Para 8.1 treated as deemed exports transactions in which goods supplied do not leave the country, and the Court found that supplies to an SEZ unit satisfied that description. Para 8.2 was not read as exhaustive of all categories of deemed exports, as such a reading would render para 8.1 otiose; in any event, para 8.2 dealt with supplies by contractors or sub-contractors, which was not the case here. The Court further held that Section 2(m)(ii) of the SEZ Act only defined export for the purposes of that Act, and Section 53(1) created a deeming fiction only for undertaking authorised operations; such fiction could not be extended to determine entitlement under the FTP. Rule 23 of the SEZ Rules, far from excluding the claim, recognised eligibility of DTA supplies to an SEZ unit for export benefits under the FTP. [Paras 41, 42, 43, 44, 45] The Court rejected the contention that supplies to the SEZ were physical exports alone and held that para 5.13(b), and not para 5.13(a), governed proof of fulfilment of export obligation. Bill of Export as proof of export - Export obligation under EPCG Scheme - HELD THAT: - The Court held that Rule 30 of the SEZ Rules dealt with admission of goods into the SEZ and assessment of Bill of Export, but did not directly prescribe the documents that alone would entitle an EPCG licence holder to the incentive. Once the supplies were found to fall within para 8.1 of the FTP as deemed exports, denial of benefit merely for want of Bills of Export was unjustified when there was ample evidence of actual supply and receipt of remittance. The overriding effect under Section 51 extended only to the SEZ Act and not to the SEZ Rules. Relying also on the principle that export incentives are governed by the FT (D & R) Act, the FTP and the HBP, the Court held that such incentives could not be disallowed by reference to the SEZ Rules where the FTP requirements stood otherwise satisfied. The Court also noticed the subsequent DGFT Policy Circular relaxing the Bill of Export requirement for similar schemes and the Bombay High Court decisions taking the view that collateral evidence of discharge of export obligation was sufficient. [Paras 49, 50, 51, 52, 53] The Court found no error apparent in the earlier judgment and dismissed the review petition, holding that absence of Bills of Export alone could not defeat the assessee's EPCG claim. Final Conclusion: The Court held that supplies made by the assessee from the Domestic Tariff Area to the SEZ unit were deemed exports under the FTP and that invoices with bank realisation certificates were sufficient proof of discharge of export obligation. As no ground other than absence of Bills of Export was shown, the review petition was dismissed. Issues: (i) whether supplies made by a domestic tariff area unit to a unit in a special economic zone constituted deemed exports under the foreign trade policy, and whether paragraph 5.13(b) of the handbook of procedures applied; (ii) whether the special economic zones act and rules displaced the entitlement under the foreign trade policy and required a bill of export as the only proof of discharge of export obligation.Issue (i): whether supplies made by a domestic tariff area unit to a unit in a special economic zone constituted deemed exports under the foreign trade policy, and whether paragraph 5.13(b) of the handbook of procedures applied.Analysis: Paragraph 8.1 of the foreign trade policy defines deemed exports as transactions in which goods supplied do not leave the country and payment is received in Indian rupees or free foreign exchange. Paragraph 8.2 lists specified categories of supply, but it is not exhaustive. The supply of goods to a unit in a special economic zone remained within India and satisfied the definition in paragraph 8.1. The categories in paragraph 8.2 did not exclude such supplies, and the fact that the supplier was not a contractor or sub-contractor also meant paragraph 8.2 did not operate to exclude the transaction.Conclusion: The supplies were deemed exports and paragraph 5.13(b) governed the proof of export obligation discharge.Issue (ii): whether the special economic zones act and rules displaced the entitlement under the foreign trade policy and required a bill of export as the only proof of discharge of export obligation.Analysis: Section 2(m)(ii) of the special economic zones act defines export only for that Act. Section 51 gives the Act overriding effect, but only where its provisions are inconsistent with other law. Section 53(1) creates a deeming fiction that a special economic zone is outside the customs territory of India only for authorised operations, and that fiction cannot be extended beyond its stated purpose. Rule 23 of the special economic zones rules supports export benefits for supplies from the domestic tariff area, while Rule 30 regulates entry and assessment for SEZ procurement and does not control entitlement under the foreign trade policy. The absence of a bill of export was therefore not ative where supply invoices and bank realisation certificates evidenced actual supplies and receipt of payment.Conclusion: The special economic zones act and rules did not displace the foreign trade policy entitlement, and a bill of export was not indispensable on the facts found.Final Conclusion: No ground was made out to reopen the earlier view that the supply transactions qualified for export benefit on the basis of deemed export treatment and supporting invoices and bank realisation certificates.Ratio Decidendi: A deeming fiction created for a limited statutory purpose cannot be extended to defeat entitlement under a separate export incentive regime, and where the policy definition of deemed exports is satisfied, supporting invoices and bank realisation certificates may suffice in place of a bill of export unless the governing policy expressly makes that document indispensable.