TaxTMI 
TaxTMI 
2021 (10) TMI 1090
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....uty free transfer of surplus power generated by it to the Export Oriented Units (hereafter 'EOU'). Factual Context 2. The petitioner is a company, inter alia, engaged in generation of electricity, which is captively consumed and also supplied to other units in the Special Economic Zone (SEZ Units). The petitioner had submitted its proposal for seeking approval for its power generating unit in MBIL-SEZ. The said proposal was accepted and by a Letter of Approval dated 08.10.2009 (hereafter 'the LoA'), the Development Commissioner, Noida SEZ (Approval Committee) approved the same and extended all facilities and entitlements, as admissible to a unit in the Special Economic Zone (SEZ) subject to the terms of the SEZ Act and the Rules made thereunder, for undertaking "Authorised Operations". The said approval was subject to certain terms and conditions as stipulated in the LoA including that, the approval was valid for a period of one year from the date of issue, within which the petitioner was obliged to implement the project and commence production. It was also stipulated that the LoA would be valid for a period of five years from the date of commencement of production. It is rel....
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....lines') extending the O&M benefits to power generating units in the processing zone subject to certain conditions. The petitioner states that it has been operating under the said guidelines and, has been extended the O&M benefits subject to the condition proscribing duty free transfer of power to EOUs. 8. In the meanwhile, the petitioner submitted its proposal for a fresh Letter of Approval for a power plant unit in the non-conventional energy SEZ, MBIL-SEZ. The same was placed before the Approval Committee at its meeting held on 01.04.2016. The Approval Committee was of the view that a fresh Letter of Approval was not required as the petitioner's unit was already approved for power generation. However, it noted that O&M benefits were not allowed to the petitioner's unit during the period 01.04.2015 to 15.02.2016 under the 2009 Guidelines as restored by the Government of India by its letter dated 06.04.2015. Accordingly, it directed that the said O&M benefits be recovered from the petitioner. The Approval Committee also decided that the petitioner would be entitled to O&M benefits subject to the condition that duty free transfer of power to its EOU shall not be allowed. The said....
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....o O&M benefits (fiscal benefits covered under Section 26 of the SEZ Act in respect of maintenance and duty free import to raw materials and consumables for generation of power) for the period 01.04.2015 to 15.02.2016; and (b) whether the condition that no duty free benefits for transfers to EOU is contrary to the SEZ Act and the Rules made thereunder. 14. Insofar as the validity of the condition that no duty free benefits would be allowed for transfer of power to EOU is concerned, it is common ground that the interpretation of Rule 47(3) of the SEZ Rules is dispositive of the said controversy. Rule 47(3) of the SEZ Rules, is set out below: "47(3) Surplus power generated in a Special Economic Zone's Developer's Power Plant in the SEZ or Unit's captive power plant or diesel generating set may be transferred to Domestic Tariff Area on payment of duty on consumables and raw materials used for generation of power subject to the following conditions, namely:- (a) proposal for sale of surplus power received by the Development Commissioner shall be examined in consultation with the State Electricity Board, wherever considered necessary: Provided that consultat....
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....d that in terms of Section 6 of the SEZ Act, the Central Government is entitled to demarcate the 'processing' and 'non-processing' area of the SEZ and since the petitioner's unit was required to be demarcated as a non-processing area for the period 01.04.2015 to 15.02.2016, O&M benefits would not be available to the petitioner's unit. Third, it was contended that in terms of Sub-section (2) of Section 26 of the SEZ Act, the Central Government has the powers to prescribe the manner and the terms and conditions subject to which benefits under Section 26(1) of the SEZ Act are to be granted. Lastly, it was submitted that the Board of Approval was bound by the policy decisions. It is also stated that the Central Government had the power to issue directions on questions of policy and in terms of Section 9(6) of the SEZ Act, the Board of Approval was bound by the same. Before examining the scheme of the SEZ Act and before addressing the aforesaid issues, it would be relevant to refer to the relevant Guidelines. 17. As noted above, the petitioner had sought approval for its power generating unit in the 'processing area' of the MBIL-SEZ in terms of the 2009 Guidelines. The approval as so....
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.... power in such plants. With respect to SEZs in sectors such as IT/ITES, Gem and Jewelry. Biotech, etc. where a minimum built up area is stipulated under the SEZ Rules and in respect of which generation of power has been approved by the Board of Approval as authorized operation to the Developer/Co-developer within the processing area, in such cases generation of power will be carried out as a unit without any separate demarcation of the area for that purpose. However, such unit will maintain separate accounts as a power generating unit. These units will enjoy duty free import of capital goods, raw materials and consumables for the generation of power and such duty free imports of capital goods, raw material and consumables etc. would be counted towards the NFE obligations of the unit. Constituents to whom it can supply power Such a unit can supply power to other SEZ Units located in the processing area of the same SEZ/SEZ units located in the processing area of other SEZs, facilities located in the non processing area of the same SEZ/ facilities located in the non processing area of other SEZs, facilities located in the processing area of the same....
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....r of even number dated 27th February, 2012 [sic 27th February 2009] are hereby restored and will, henceforth, be the basis for relevant policy and operational decisions. Sd/- Under Secretary to the Govt. of India Tel- 011- 23062496 e-mail:[email protected] 1. Chief Secretaries of all States/UT's 2. All Development Commissioners of SEZs 3. Ministry of Power, Govt. of India, Shram Shakti Bhawan, Rafi Marg, New Delhi 4. Department of Revenue{CBDT/CBEC) Govt. of India 5. DG, EPCES" 23. The aforesaid letter (also referred to as 'the First Letter') clearly indicates that the Government of India had decided to withdraw the 2012 Guidelines and restore the 2009 Guidelines without any additional condition. The aforesaid decision of the Government of India to withdraw the 2012 Guidelines would have no material impact on the petitioner insofar as the O&M benefits are concerned as undisputedly, it was entitled to the same in terms of the 2009 Guidelines. However, according to the respondents, the O&M benefits were no longer available to the petitioner by virtue of another letter of the same date (letter dated 06.04.2015) that....
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....ower plants. Such a power plant can supply power to DTA after meeting the power requirement of the SEZ subject to payment of customs duty as determined by DoR keeping in view the duty foregone on initial setting up of the power plant. ii. Henceforth no single stand-alone power plant will be permitted to be set up in to SEZ in which there would be no other units. iii. Henceforth setting up of captive power plant including non conventional energy power plant, can be permitted in Processing Area as a unit, and it will be subject to NFE obligations. Such a power plant will be entitled to all the benefits covered under section 26 of the SEZ Act including the benefits of initial setting up maintenance and the duty free import of raw materials and consumables for the generation of the power. They can sell power to DTA on payment of customs duty as determined by DoR keeping in view the duty on installation, as well as O&M, and including service tax exemptions. xxxx xxxx xxxx vi. Those Power Plants In SEZs which were approved prior to 27.02.2009, and subject to issue of Power Guidelines and Provisions of SEZ Act & Rules, either as an infrastructure facility by ....
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....eveloper to undertake the operations in an SEZ as may be authorized by the Government. Sub-section (9) of Section 15 of the SEZ Act expressly provides that the Development Commissioner may issue a letter of approval to the person concerned to set up a unit and undertake such operations, which the Development Commissioner may authorise and such operations would be mentioned in the letter of approval. 29. The word "Developer" is defined under Section 2(g) of the SEZ Act as under: "(g) "Developer" means a person who, or a State Government which, has been granted by the Central Government a letter of approval under sub-section (10) of section 3 and includes an Authority and a Co-Developer." 30. It is also relevant to refer to the definition of the term 'entrepreneur' as defined under Section 2(j) of the SEZ Act. Section 2(j) of the SEZ Act reads as under: "2(j) "entrepreneur" means a person who has been granted a letter of approval by the Development Commissioner under sub-section (9) of section 15." 31. Section 3 of the SEZ Act contains provisions for the procedure for making a proposal to establish an SEZ Zone. Any person who intends to set up an SEZ is req....
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.... Development Commissioner is required to submit the same to an Approval Committee for its approval. If such approval is granted in terms of Sub-section (9) of Section 15 of the SEZ Act, the Development Commissioner is required to issue a letter of approval to the person concerned to set up a unit and undertake such operations, which the Development Commissioner may authorise. Sub-section (8) of Section 15 of the SEZ Act entitles the Central Government to, inter alia, prescribe the requirements subject to which the Approval Committee shall approve, modify or reject the proposal. It is also entitled to prescribe the terms and conditions subject to which a unit shall undertake the "authorised operations". The relevant extract of Section 15 of the SEZ Act is set out below: "15. (1) Any person, who intends to set up a Unit for carrying on the authorised operations in a Special Economic Zone, may submit a proposal to the Development Commissioner concerned in such form and manner containing such particulars as may be prescribed: Provided that an existing Unit shall be deemed to have been set up in accordance with the provisions of this Act and such Units shall not requir....
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....cerned person is authorised to undertake. Thus, the scope of the expression "authorised operations" is well defined and the same has to be stated in the letter of approval. 39. In the present case, the letter of approval dated 08.10.2009 expressly indicates the operations/activities that the petitioner is authorised to undertake. In the aforesaid circumstances, the contention that the operations of generating electricity were rendered unauthorised by the Central Government by the letter dated 06.04.2015 whereby the 2009 Guidelines were reinstated, is unpersuasive. There is nothing to indicate either in the three Guidelines (2009 Guidelines, 2012 Guidelines and the 2016 Guidelines) that the effect and the import of the said guidelines was to render the operations being carried out by the concerned unit as unauthorised operations. The letter of approval has been granted specifying the authorised operations and the same cannot be altered by general guidelines, which at best qualify to be a policy decision by the Central Government. 40. It is next contended that the Central Government is entitled to demarcate processing areas and non-processing areas and the unit established by t....
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....e Rules for demarcation of processing and non-processing zones prior to the issuance of the letter of approval; the Central Government can re-demarcate the areas under the SEZ Zone as a measure to deny the benefits available to a unit in terms of the SEZ Act. Plainly, this militates against the scheme of the SEZ Act and the SEZ Rules and thus, the said contention is unsustainable. 45. It is material to note that two letters dated 06.04.2015 have been placed on record. The First Letter communicates the decision of the Government of India to withdraw the 2012 Guidelines with effect from 01.04.2015. The second paragraph of the said letter communicates the decision to restore the 2009 Guidelines and further directs that the same would "henceforth, be the basis for relevant policy and operational decisions". There is no ambiguity in the language of this letter. The use of the word 'henceforth' clearly indicates that the decision as communicated in the said letter is required to be applied prospectively and the 2009 Guidelines would be the basis for all relevant policy and operational decisions. 46. It appears that this letter was forwarded under the cover of the Second Letter. Thi....
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....n the processing area of the SEZ to be placed in a non-processing area. The purport of the Second Letter dated 06.04.2015 appears to be essentially to amplify the decision as communicated by the First Letter. Read in the aforesaid context, the import of the direction that the power plants which are situated in processing areas of the SEZ would be demarcated as non-processing areas could only be applicable to those power plants in the processing areas in respect of which a letter of approval had not been issued or if issued, was not renewed. As noticed above, the exercise of demarcation is required to precede the issuance of the letter of approval. 48. Under the 2009 Guidelines, a power plant could be set up by the developers/co-developers as a part of the infrastructure facilities only in the non-processing area of the SEZ. However, under the 2012 Guidelines this condition was relaxed and therefore, with the reinstatement of the 2009 Guidelines such units would now require to be placed in the non-processing area. The Second Letter thus, would be applicable only to such units and not the ones that were other-wise permissible to be established in the processing areas under the 200....
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....rued in the manner so as to be applicable to the petitioner's unit which was granted the LoA under the 2009 Guidelines. 51. Insofar as the respondent's contention that the Board of Approval is required to follow the policy decisions of the Central Government is concerned, there is no dispute that it is required to do so. Section 9 of the SEZ Act contains provisions regarding the duties, powers, functions of the Board of Approval. Section 9 of the SEZ Act is set out below: "9. Duties, powers and functions of Board.-(1) Subject to the provisions of this Act, the Board shall have the duty to promote and ensure orderly development of the Special Economic Zones. (2) Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Board shall include - (a) granting of approval or rejecting proposal or modifying such proposals for establishment of the Special Economic Zones; (b) granting approval of authorised operations to be carried out in the Special Economic Zones by the Developer; (c) granting of approval to the Developers or Units(other than the Developers or the Units which are exempt....
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.... policy of the Central Government is not to permit power plants to be set up in processing areas, the Board of Approval is required to ensure that no letter of approval is granted to a unit or a developer to do so. However, that does not mean that the Board of Approval is required to proceed to cancel an existing letter of approval even though there is no default on the part of the entrepreneur in complying with the terms and conditions or its obligations subject to which, the letter of approval was granted to him. As noticed above, the letter of approval granted to an entrepreneur can be cancelled if the conditions as stipulated under Section 16(1) of the SEZ Act are met and not otherwise. The letter of approval granted to a developer for setting up an SEZ may also be suspended in terms of Section 10 of the SEZ Act. 53. However, the Board of Approval cannot for the purpose of cancelling a letter of approval, re-demarcate the processing areas and non-processing areas in an SEZ. Demarcation of such areas is not to be done for the purpose of cancelling existing letter of approvals. 54. Section 26 of the SEZ Act provides for certain exemptions, drawbacks and concessions availabl....