TaxTMI 
TaxTMI 
Supplies from DTA to SEZ Recovery, Interest, Penal provisions in case of SEZ DTA Procurement transactions
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....upplies from DTA to SEZ Recovery, Interest, Penal provisions in case of SEZ DTA Procurement transactions<br>By: - Sunil Kumar<br>Customs - Import - Export - SEZ<br>Dated:- 29-5-2025<br><br>The judgment rendered by the Bombay High Court in the case of MAHINDRA & MAHINDRA LTD. (AUTOMOTIVE SECTOR), VERSUS THE UNION OF INDIA, THE SETTLEMENT COMMISSION, ADDITIONAL BENCH, CUSTOMS & CENTRAL EXCISE, MUMBAI, THE COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI, THE ADDITIONAL DIRECTOR GENERAL, DGCEI, MUMBAI - 2022 (10) TMI 212 - BOMBAY HIGH COURT establishes that penalties or interest on additional customs duty (CVD) and special additional duty of customs (SAD), or surcharges, which are not intrinsically linked to the basic customs duty, cannot be imposed without explicit substantive provision. In the aftermath of this judgment, the Revenue filed a Special Leave Petition (SLP) before the Hon'ble Supreme Court, which was subsequently rejected on grounds of lack of merit. (UNION OF INDIA & ORS. VERSUS MAHINDRA AND MAHINDRA LTD. - 2023 (8) TMI 135 - SC ORDER). Section 3(12) of the Customs Tariff Act has been substituted, vide Finance (No 2) Act 2024 which wa....
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....s notified on 16th August 2024, specifically including 'interest, offences, penalties, recovery' among others measures. Recently, Bombay HC vide Order dated 09.04.2025 in the case of A.R. SULPHONATES PRIVATE LIMITED VERSUS UNION OF INDIA, COMMISSIONER OF CUSTOMS (ADJUDICATION) MUMBAI, COMMISSIONER OF CUSTOMS, (IMPORT-I), MUMBAI, COMMISSIONER OF CUSTOMS, GUJARAT, COMMISSIONER OF CUSTOMS, KANDLA, THE DEPUTY COMMISSIONER OF STATE TAX, KALYAN - 2025 (4) TMI 578 - BOMBAY HIGH COURT, for the same reason has held that confiscation of goods and imposition of penalties /fine as bad in law and without authority of law in case related to IGST payment in contravention of a pre import condition. In this context, issues of levy of interest, recovery, offences, penalties, confiscation etc pertaining to SEZ DTA Procurements are examined in the following Paras. II. Evolving legal landscape in respect of SEZ transactions, namely, supplies from DTA to SEZ More than a decade back, challenge to the levy and collection of customs duty on goods moved from various places in India (outside SEZs) into SEZs were made before various constitutional Courts....
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..... It was argued that customs duties, being export duties, should only apply to goods exported out of India, as per Section 12 of the Customs Act, 1962. It was contested that the collection of customs duty on certain products supplied from DTAs to SEZs based on mere circular issued by Department of Commerce is legally unsustainable. The courts agreed to such contention that the duties of customs could only be levied on goods exported to a place outside India. The court found that such circular mandating payment of duties on supplies to SEZ was not sustainable in law, as it imposed duties contrary to the provisions of the SEZ Act, 2005 and Customs Act, 1962. The court examined the different definitions of "export" under both the SEZ Act, 2005 and the Customs Act, 1962. It had been concluded that the definition of "export" in Section 2(18) of the Customs Act, 1962, applies only to goods taken out of India to a place outside India. Therefore, the term "export" as defined in the SEZ Act, 2005, cannot be used to levy customs duties on goods supplied from DTAs to SEZs. The court also analyzed the legislative competence to impose cust....
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....oms duties on goods supplied to SEZs. It held that the Parliament did not intend to levy customs duties on such goods, as evidenced by the SEZ Act, 2005. The court also emphasized that customs duties are meant for goods entering or leaving the country, not for intra-country transactions. Therefore, imposing such duties on goods supplied to SEZs would be beyond the legislative competence of the Parliament and contrary to the Constitution of India. The court concluded that the levy of customs duties on goods supplied from DTAs to SEZs was not permissible under the then existing legal framework and such circulars mandating collection of custom duty on SEZ supplies were declared as deemed illegal and without authority. It is submitted that sufficient jurisprudence is available on the subject matter. Certain notable judgments are as under : - * ESSAR STEEL LTD. VERSUS UNION OF INDIA - 2009 (11) TMI 141 - GUJARAT HIGH COURT * ADVAIT STEEL ROLLING MILLS PVT. LTD. VERSUS UNION OF INDIA - 2013 (8) TMI 33 - MADRAS HIGH COURT * COMMISSIONER OF C. EX., BANGALORE VERSUS BIOCON LTD. - 2011 (2) TMI 460 - KARNATAKA HIGH COURT * ....
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....SHYAMARAJU & CO. (INDIA) PVT. LTD. VERSUS UNION OF INDIA - 2010 (7) TMI 290 - KARNATAKA HIGH COURT Certain key arguments advanced in above cases have been captured below for reference. First issue relates to the plain reading of definitions provided in statute. Second issue relates to a deeper Constitutional question that arises out of taxing supplies from DTA to SEZ. The main contention of the petitioners in above cases was that the definition of the term 'Export' under Section 2(18) of the Customs Act, 1962, cannot be made use of by the customs authorities concerned to levy duties of customs, in respect of the supplies from the DTA to the SEZ, as such goods are covered under the provisions of the SEZ Act. When the term Export defined under Section 2(m) of the SEZ Act, 2005, does not cover such goods the authorities concerned cannot borrow the definition of the term 'Export', found in the Customs Act, 1962, to levy duties of customs in respect of the goods in question, i.e. DTA Procurement. Section 2(i) defines 'DTA' as the whole of India (including the territorial waters and continental shelf) but does not include the areas....
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.... of the SEZ. 'Export' has been defined under Section 2(m). Section 2(o) defines the term 'Import'. It states that the term 'Import' means (i) bringing goods or receiving services, in a SEZ, by a Unit or Developer from a place outside India by land, sea or air or by any other mode, whether physical or otherwise; or (ii) receiving goods, or services by, Unit or Developer from another Unit or Developer of the same SEZ or a different SEZ. Likewise, Section 26 of the Act deals with exemptions, draw backs and concessions. Section 51 of the Act stipulates that the provisions of the SEZs Act, 2005, would have an overriding effect over the provisions contained in any other law or instrument, which are inconsistent with the provisions of the SEZs Act, 2005. Rule 26 of the SEZs Rules, 2006 provides for DTA procurement transactions. Rule 30 provides for procedure for procurement of goods from the DTAs. Petitioners also raised set of constitutional issues resulting from charging tax on transactions involving supplies from DTA to SEZ. Both DTA and SEZ Entity happen to be part of Indian Territory. However, SEZ happens to be outside Cust....
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....om territory of India. Parliament of India, while enacting the SEZ Act, 2005, did not intend to levy customs duty on clearances from DTAs into the SEZ, as such a levy would, either be beyond its legislative competence or the appropriation of the proceeds there from would be in a manner contrary to what had been contemplated under the Constitution of India. It was contended that the legislative power to levy customs duties is traceable to Articles 245 and 246 read with Entry 83 of List-I of Schedule VII of the Constitution of India. The said Entry reads as 'Duties of Customs, including Export Duties'. The terms 'Customs' and 'Export Duties' are nomen juris and it cannot be altered by assigning an artificial meaning, when such terms of law have well recognized meanings. Customs duties would only refer to duties imposed on goods coming into a country, from other countries, or to goods which are going out of a country, to other countries. As such, an intra-country clearance cannot be subject to customs duties, relying on the definition of 'Exports' found in the SEZ, 2005. Any levy made on goods transported from a DTA unit, to ....
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....a SEZ unit, would be equivalent to imposing a tax on intra-state sales, which is the preserve of the State Legislature, under Entry 52, List-II, Schedule-VII of the Constitution of India. The imposing of a levy, if it had been done, as per Entry 97 of List-I of Schedule-VII, it should clearly be an Entry which had not been enumerated, either in List-II or in List-III. The clearances of goods into a SEZ from a DTA, otherwise than by way of sale, would be covered by the legislative field enumerated in Entry 52 of List-II of Schedule-VII of the Constitution of India, and such clearances would be beyond the legislative competence of the Parliament. When the clearances are occasioned from a DTA Unit in one State, to a SEZ Unit in another State, on account of a sale, a levy on such clearance would be in the nature of tax on inter-state sale of goods, under Articles 245, 246 and 269(3), read with Entry 92A, List-I, Schedule-VII of the Constitution of India. While the Parliament may have the power on the levy of such clearances, any such revenue obtained from a tax on inter-state sales cannot form a part of the Consolidated Fund ....
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....of India, under Article 269(1)(g), read with Article 269(2), and it would have to be assigned to the States concerned. However, where such levy is imposed as customs/export duty, as in the present subject matter, the same would form part of the Consolidated Fund of India, under Article 266 of the Constitution of India, with no requirement of assignment to the states. Therefore, a levy of customs/export duties, in cases where only a tax on inter-state sale is leviable, would therefore, be a colourable exercise of power. It appears that the Courts have given full relief to the petitioners by quashing such Circular mandating payment of custom duties on supplies from DTA to SEZ. However, no clear finding on constitutional issue raised by petitioner finds mention in Court decisions. The key findings of the Court have been discussed for reference. Court held that the definition of the term 'Export' contained in Section 2(18) of the Customs Act, 1962, would be applicable only in respect of goods taken out of India, to a place outside India. The duties of customs levied under Section 12 of the Customs Act, 1962, could be levied only i....
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....n respect of such goods which are exported to a place outside India, from an area within India. The said definition cannot be made applicable to such goods, which are supplied to the SEZs, from the DTA. Further, the definition of 'export goods', under Section 2(19) of the Customs Act, 1962, means any goods which are to be taken out of India to a place outside India. As such, it is clear that only in respect of such goods, which are taken out of India, to a place outside India, the levy, under Section 12 of the Customs Act, 1962, is applicable. Notification No. 66/2008-Customs, dated 10-5-2008, issued by the Secretary, Department of Revenue, Ministry of Finance, Government of India, states that the levy of duties of customs, being export duty, would be applicable only in respect of goods which are exported outside India. Court noted that there is no provision in the SEZs Act, 2005, to levy export duties of customs. Though such a provision was available, under Section 76F of the Customs Act, 1962, it had been omitted in the SEZs Act, 2005. Section 30 of the present SEZs Act, 2005, which is equivalent to the erstwhile Sectio....
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....n 76F of the Customs Act, 1962, specifically omits the levy of duties of customs, being export duties, on goods received in the SEZs, from DTA Unit situated outside the SEZ. It is also noted that Section 7, read with Section 26 of the SEZs Act, 2005, makes it clear that there was no intention on the part of the legislature to levy any tax, duty or cess on goods admitted or received within the SEZs. As such, it is clear that the levy of customs duties cannot be in respect of goods removed to the SEZs, by a DTA Unit in India, situated outside the SEZs. The export duty cannot be made applicable to the goods supplied by the units in the DTA to the SEZs, by way of a Circular Bearing F.No. 6/2/2008-SEZ (pt), dated 30-6-2008, issued by the Department of Commerce (SEZ) Section, Ministry of Commerce and Industry, Government of India. As there is no movement of goods from India to a place outside India, export duty cannot be levied. In fact, there is no 'export' of goods, as per the relevant provisions of the Customs Act, 1962. When the SEZs Act, 2005, is a separate Code, it would not be open to the respondents to levy duties of customs ....
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....on goods moved from DTAs into SEZs, as per the definition found in Section 2 of the Customs Act, 1962. Further, when the definition of term 'export' in Section 2(m) of the SEZs Act, 2005, is clear and specific, the definition of 'export', found in Section 2(18) of the Customs Act, 1962, cannot be made applicable for the levy of duties of customs on goods supplied from the DTAs to the SEZs. As such, it would not be proper to levy duties of customs on goods supplied from the DTAs to the units situated in the SEZs. If levy of duties of customs are to be made applicable to such goods it could only be by way of appropriate amendments introduced in the Customs Act, 1962, as well as in the SEZs Act, 2005. As such it is clear that it would not be open to the respondents to levy duties of customs on such goods, by way of Notifications or Circulars. The question whether the DTA unit is liable to pay export duty on goods supplied to a unit within the SEZ either under the SEZ Act, 2005 or the Customs Act, 1962 has also been discussed and answered in the case of TIRUPATI UDYOG LTD. VERSUS UNION OF INDIA - 2010 (7) TMI 768 - ANDHRA PRA....
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....DESH HIGH COURT .The absence of any provision for the levy or collection of customs duty on goods supplied from a DTA to a SEZ has been highlighted in the case. Article 265 of the Constitution of India prohibits levy or collection of tax except by authority of law. Not only the levy but also the collection of tax must be sanctioned by law. [CHHOTABHAI JETHABHAI PATEL AND CO VERSUS THE UNION OF INDIA AND OTHERS - 1951 (11) TMI 25 - BOMBAY HIGH COURT (NAGPUR BENCH)]. The rule of construction of a charging section is that, before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used therein. No one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words he cannot be taxed at all. [COMMISSIONER OF WEALTH-TAX VERSUS ELLIS BRIDGE GYMKHANA AND OTHERS - 1997 (10) TMI 2 - SUPREME COURT]. Taxes cannot be imposed in vacuum. There should be some machinery for ascertaining the rate of taxation, and the persons or the class of persons liable to pay the same. [GOPAL NARAIN VERS....
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....US STATE OF UTTAR PRADESH & ANR. - 1963 (9) TMI 50 - SUPREME COURT; STATE OF MYSORE & ORS. VERSUS M/S. D. CAWASJI & CO. AND ORS - 1970 (11) TMI 101 - SUPREME COURT; MPV SUNDARARAMIER & CO. AND OTHERS VERSUS THE STATE OF ANDHRA PRADESH AND ANOTHER - 1958 (3) TMI 40 - SUPREME COURT].A conjoint reading of Section 12(1) with Sections 2(18), 2(23) and 2(27) of the Customs Act, 1962 makes it clear that customs duty can be levied only on goods imported into or exported beyond the territorial waters of India. Since both the SEZ unit and the DTA unit are located within the territorial waters of India, Section 12(1) of the Customs Act, 1962 (which is the charging section for levy of customs duty) is not attracted for supplies made by a DTA unit to a unit located within the SEZ. In the absence of a charging provision in the SEZ Act providing for the levy of customs duty on such goods, export duty cannot be levied on the DTA supplier by implication. The levy of export duty is neither expressly nor impliedly contemplated under the SEZ Act, and cannot be read in by purported intendment which, in any case, is clearly to the contrary. [ES....
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....SAR STEEL LTD. VERSUS UNION OF INDIA - 2009 (11) TMI 141 - GUJARAT HIGH COURT]. III. Present legal landscape after amendment in SEZ Rules in 2018 and absence of substantive provisions therein Supplying goods from DTA to SEZ Unit is covered under definition of 'Export' as per Section 2(m) of SEZ Act. Rule 27 deals with DTA procurement and Rule 30 provides for Procedure for procurements from the DTA. Goods procured by a Unit or Developer, on which exemption has been availed but without any availment of export entitlements, shall be allowed admission into the SEZ on the basis of Invoices or even transport document. The goods procured by a Unit or Developer under claim of export entitlements shall be allowed admission into the SEZ on the basis of Bill of Export which is assessed by the Authorised Officer before arrival of the goods. It may be noted that though these transactions may be treated as deemed Export in trade parlance. However, legally speaking, transactions are covered under the definition of Export as per SEZ Act. SEZ transactions are not based on Shipping Bills rather based on Invoices or Bill of Export. The sam....
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....e are assessed not by officer of rank of DC/AC but by Authorized Officers posted in the SEZ. It is clear that assessment is not being carried out by the proper officer as per Customs Act,1962 on the strength of Shipping Bill. It is not the Let Export Order but endorsement by Authorized Officer which is treated as proof of export in these cases. In wake of catena of decisions of High Courts across India, SEZ Rules were amended in 2018 by means of Notification. In the Rule 27 of SEZ Rules, the following provisos shall be inserted, namely:- " ********* Provided also that supplies from DTA to SEZs shall attract export duty, in case, export duty is leviable on items attracting export duty." It must be noted SEZ DTA procurement transaction is distinct taxable event. Goods may be admitted on the basis of mere Invoices or mere transport documents or Bill of Export. Rule 27 of SEZ Rules provides that such supplies shall attract export duty as is leveiable on such items if exported from India to outside India. However, it must be noted that this transaction doesnot mandates filing of Shipping Bills. Neither, rules mandates that ....
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....the Assessment and Valuation of such transactions to be carried out as per Customs Act. Such condition is clearly mentioned in Rule 47 meant for DTA Sale transactions, i.e. removal of goods from SEZ to DTA. Infact, they are not even assessed by proper officer in the rank of DC/AC as stipulated in Customs Act. Assessment cannot be done in thin air as per Custom Act without any clear legal backing/incorporation of such provisions of Customs Act in SEZ Act or Rules by legislative reference. Provisions of assessment and valuation have not been borrowed unlike Rule 47 meant for removal of goods from SEZ to DTA. Provisions of redetermination of value, confiscation, penalties, recovery etc also are conspicuously missing. It may be noted that duty on supplies from DTA to SEZ is being paid as per Rule 27 of SEZ Rules and not as Custom Act. The law laid down by Constitutional Courts is clear on subject matter. A conjoint reading of Section 12(1) with Sections 2(18), 2(23) and 2(27) of the Customs Act, 1962 makes it clear that customs duty can be levied only on goods imported into or exported beyond the territorial waters of India. S....
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....ince both the SEZ unit and the DTA unit are located within the territorial waters of India, Section 12(1) of the Customs Act, 1962 (which is the charging section for levy of customs duty) is not attracted for supplies made by a DTA unit to a unit located within the SEZ. Plain reading makes it clear that amended proviso in Rule 27 is an act of incorporation by legislative reference in respect of levy/collection of export duty on such transactions. It may be noted that although the amended SEZ Rules provides for chargeability of duty but it is silent on issues like recovery /section 142, refund/section 27, offence/section 132, penalty/section 114,114AA, 117,115, confiscation/Section 113, imposition of fine/Section 125 etc. It is not even legislation by legislative reference but just incorporation in rules which provides for chargeability of certain duties. However, provisions like recovery of sums due to govt, refund, offence, penalty, confiscation, imposition of fine, interest, assessment, valuation etc, are conspicuously absent. It may be noted that the duty on goods supplied from DTA to SEZ is not being levied under the Custo....
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....ms Act on account of the legislative mandate under Entry 83 of List 1 of Schedule VII to the Constitution of India. SEZ DTA Procurement transaction meant for supplies from DTA to SEZ are distinct taxable event vis-a-vis SEZ Export transaction meant for taking goods from SEZ to outside India. It may be noted that SEZ Act doesn't provides for imposition of penalty, interest, confiscation etc in respect of duty chargeable under Rule 27. Therefore, there appears to be no power under the provisions of law to impose penalty or interest or confiscation or execute attachment related to recovery proceedings. When a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section whi....
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....ch fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. As held by the Apex Court in the matter of BIRLA CEMENT WORKS & JK. SYNTHETICS LTD. VERSUS COMMERCIAL TAXES OFFICER AND STATE OF RAJASTHAN - 1994 (5) TMI 233 - SUPREME COURT, any provision made in a statute for charging or levying interest on delayed payment of tax must be construed as a substantive law and not adjectival law. The same is also applicable for imposition of penalty or fine or confiscation or recovery too. Section 28AB of the Customs Act, 1962 is a taxing provision which creates and fastens the liability on a party. The provision has to be strictly construed and will be governed by the language employed in the section. The Apex Court in the matter of INDIA CARBON LTD. VERSUS STATE OF ASSAM (AND OTHER APPEALS) - 1997 (7) TMI 566 - SUPREME COURT, after quoting paragraph 16 of J.K. Synthetics Ltd. (Supra), held that the proposition that may be derived from J.K. Synthetics Ltd. (Supra) is interest can be levied and charged on delayed payment of tax o....
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....nly if the statute that levies and charges the tax makes a substantive provision in this behalf. The Court held that where there is no substantive provision requiring the payment of interest, the authorities cannot, for the purpose of collecting and enforcing payment of tax, charge interest thereon. It must be noted that such provision for levy of interest is absent in the amended Rule 27 of SEZ Rules. Likewise, there is no substantive provision in SEZ Act or Rules for imposition of penalty or fine or confiscation or recovery of duty in case of non levy or short levy arising out of supplies from DTA to SEZ. It remains a fact that only substantive provision for chargeability has been created in Rules. Limited aspects of Valuation, assessment, refund, appeal, adjudication, demand etc have been incorporated by reference in Rules meant for DTA Sale transactions like Rule 47. However, the said incorporation by reference is missing in Rule 27 meant for supplies from DTA to SEZ. Without substantive provision for assessment, valuation, confiscation, penalty, receovery proceedings like attachment in statute, issuance of Demand....
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.... Notice and Adjudciation proceedings are likely to be questioned. Customs Act provides for adjudication of penalties and confiscation. What is the use of adjudication order if there is no substantive provision in statute or rules for confiscation and penalties. Customs Act provides for issuance of Notice for non levy and short levy. What is the use of demand notices if there is no substantive provision in statute or rules for valuation and assessment of supplies from DTA to SEZ to be carried out as per Customs Act. Infact, goods are admitted based on Invoices, transport documents and not even Shipping Bill is filed. Assessment is not based on Shipping Bill. Documents are not verified by the proper officer of rank of DC/AC as stipulated in Customs Act. It is on record that for almost a decade, from period 2006 to 2016, on one hand SEZ Unit Holders were made to run from pillar to post for getting refunds because jurisdictional authorities used to reject refund claim citing no provisions in SEZ Rules to deal with such issues. On the other hand, many Notices were issues by agencies for imposition of penalties and fines despite no prov....
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....ision for the same. In many cases, even Development Commissioner used to issue SCN for recovery of Custom duties, Excise duties and penalties under Customs and Excise Acts. After set of decisions by higher judiciary, SEZ rules were amended to reign in little clarity on the issue of levy/chargeability of duty on supplies from DTA to SEZ Units. However, ratio of recent orders by Higher Courts like in case of UNION OF INDIA & ORS. Versus MAHINDRA AND MAHINDRA LTD. 2023 (8) TMI 135 - SC Order, A.R. SULPHONATES PRIVATE LIMITED VERSUS UNION OF INDIA and others - 2025 (4) TMI 578 - BOMBAY HIGH COURT and recent amendment in CTA vide Finance Act,2024, highlight the need for amendment in SEZ Act and rules. Kind attention is invited to A.R. SULPHONATES PRIVATE LIMITED VERSUS UNION OF INDIA and others - 2025 (4) TMI 578 - BOMBAY HIGH COURT. Section 3 (12) of the Tariff Act, prior to its amendment by Finance (No. 2) Act, 2024 dated 16th August, 2024, reads as under:- "(12):-The provisions of the Customs Act, 1962 (52 of 1962) and the rules and regulations made thereunder, including those relating to drawbacks, refunds and exemption f....
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....rom duties shall, so far as may be, apply to the duty or tax or cess, as the case may be, chargeable under this section as they apply in relation to the duties leviable under that Act." Court noted that the Section 3 (12) of the Tariff Act, prior to its amendment, did not make applicable the provisions of the Customs Act relating to interest, offences and penalties to integrated tax chargeable under Section 3 (7) of the Tariff Act. Court also noted that issues of interest, fine and penalties are no longer res integra in light of decision of Bombay High Court in MAHINDRA & MAHINDRA LTD. (AUTOMOTIVE SECTOR), VERSUS THE UNION OF INDIA, THE SETTLEMENT COMMISSION, ADDITIONAL BENCH, CUSTOMS & CENTRAL EXCISE, MUMBAI, THE COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI, THE ADDITIONAL DIRECTOR GENERAL, DGCEI, MUMBAI - 2022 (10) TMI 212 - BOMBAY HIGH COURT, as confirmed by the Hon'ble Supreme Court in its Order in UNION OF INDIA & ORS. VERSUS MAHINDRA AND MAHINDRA LTD. - 2023 (8) TMI 135 - SC ORDER, by which the SLP against the Judgement of this Court was dismissed. Even the Review Petition filed by Revenue was dismissed by the Hon'ble Suprem....
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....e Court by an Order dated 9th January, 2024. After the passing of the said Order dated 1st August, 2024, by Finance Act (No. 2) of 2024, Section 3 (12) of the Tariff Act was amended prospectively with effect from 16th August, 2024, to inter alia include the applicability of interest, recovery, offences and penalty provisions of the Customs Act to the Tariff Act.. The new sub- section is reproduced below : - "(12) The provisions of the Customs Act, 1962 and all rules and regulations made thereunder, including but not limited to those relating to the date for determination of rate of duty, assessment, non-levy, short-levy, refunds, exemptions, interest, recovery, appeals, offences and penalties shall, as far as may be, apply to the duty or tax or cess, as the case may be, chargeable under this section as they apply in relation to duties leviable under that Act or all rules or regulations made thereunder, as the case may be."The Hon'ble Bombay HC in the Final Order dated 09.04.2025 in the case A.R. SULPHONATES PRIVATE LIMITED VERSUS UNION OF INDIA and others - 2025 (4) TMI 578 noted that "as already held by us on the basis o....
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....f the Judgement of the Hon'ble Supreme Court in the case of Orient Fabrics Limited, Section 3 (12) of the Tariff Act, after its amendment by Finance (No. 2) Act, 2024, dated 16th August, 2024, makes applicable the provisions relating to interest, offences and penalties of the Customs Act to the Tariff Act. As already held by us, Section 3 (12) of the Tariff Act, as amended, is applicable only after 16th August, 2024 and is not applicable to the present case." In case of BIRLA CEMENT WORKS & JK. SYNTHETICS LTD. VERSUS COMMERCIAL TAXES OFFICER AND STATE OF RAJASTHAN [1994 (5) TMI 233 - SUPREME COURT] the Hon'ble Apex Court has held that interest can be levied and charged on delayed payment of tax only if the statute that levies and charges the tax makes a substantive provision in this behalf. In the case reported in COLLECTOR OF C. EX., AHMEDABAD VERSUS ORIENT FABRICS PVT. LTD. [2003 (11) TMI 75 - SUPREME COURT] the Hon'ble Supreme Court has also referred to an amendment made in year 1994 by inserting the expression "offences and penalties" in Section 3 (3) of the Additional Duties Act and held that such amendment was ....
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....required to remedy the defect contained in the unamended provisions. In absence of specific insertion of words like offences, penalties and interest, such levies could not be assumed and such additional tax cannot be charged. Similar views have also been taken by Tribunal in the context of CVD/SAD in the case of M/S. ACER INDIA (PVT.) LTD. VERSUS COMMISSIONER OF CUSTOMS (AUDIT), CHENNAI - 2024 (5) TMI 478 - CESTAT CHENNAI where it has been held that it is settled that in the absence of specific provision relating to levy of Interest, Redemption Fine and Penalty in respective legislation for levy duty, the same cannot be demanded or imposed or recovered by taking recourse to machinery provisions relating to recovery of the duty. Therefore, the orders for recovery of "Interest, Redemption Fine and Penalty" in these cases are not sustainable considering charging provisions of the Customs Act, 1962 and relevant provisions under the Customs Tariff Act, 1975 and the decisions rendered thereon as mentioned above. The issue on imposing Interest, Redemption Fine and Penalty is no longer Res Integra. Similar view has also been take....
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....n by Tribunals in the context of IGST in the cases such as CHIRIPAL POLY FILMS LTD. VERSUS COMMISSIONER OF CUSTOMS-CUSTOMS AHMEDABAD 2024 (9) TMI 940 - CESTAT AHMEDABAD and M/S. FLEXTRONICS TECHNOLOGY INDIA PVT. LTD. VERSUS COMMISSIONER OF CUSTOMS, CHENNAI VII COMMISSIONERATE - 2025 (3) TMI 695 - CESTAT CHENNAI In the case of ADVAIT STEEL ROLLING MILLS PVT. LTD. VERSUS UNION OF INDIA - 2013 (8) TMI 33 - MADRAS HIGH COURT, HC held that "As such it is clear that it would not be open to the respondents to levy duties of customs on such goods, by way of Notifications or Circulars.". It is submitted that same applies for issues like interest, penalties, fine, recovery proceedings like attachment etc. The same cannot be imposed based on assumption or presumption or purported intendment. IV. CONCLUSION It is on record that Parliament of India representing the largest democratic electorate in the world vide Finance Act,2024,has now incorporated substantive provisions including but not limited to those related to "'interest, penalty, offences, recovery, non levy, short levy' into the Customs Tariff Act, 1975. The same can be invoked ....
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....only after the substitution of the said sub-section as discussed above, from 16.08.2024.The issue has been settled in catena of decisions by the higher Courts. In view of above, it appears that necessary amendments in SEZ Act in line of amendment to CTA 1975 by Finance (No. 2) Act, 2024 dated 16th August, 2024 should be brought at earliest. SEZ Act and rules meant for supplies from DTA to SEZ should make it clear that the " The provisions of the Customs Act, 1962 and the rules and regulations made thereunder, including but not limited to those relating to assessment, non-levy, short- levy, refunds, exemptions, interest, recovery, appeals, offences and penalties shall, as far as may be, apply to the duty or tax or cess, as the case may be, chargeable under this section as they apply in relation to duties leviable under that Act or all rules or regulations made thereunder, as the case may be.". Customs Act provides for adjudication of penalties and confiscation. What is the use of adjudication order if there is no substantive provision in statute or rules for confiscation and penalties. Customs Act provides for issuance of ....
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....Notice for non levy and short levy. What is the use of demand notices if there is no substantive provision in statute or rules for valuation and assessment of supplies from DTA to SEZ to be carried out as per Customs Act. In absence of any substantive provision in statute for aspects like interest, offence, penalty/fine, recovery by means of attachment of property etc; law declared by Constitutional Courts and recent legislative enactments, the very survival of various Notices will remain in question. Such proceedings involving recovery by means of attachment of property, interest, fine and penalty may not stand judicial scrutiny. The very proceedings may at the most be termed as nothing but as one without jurisdiction, without the authority of law and perse illegal abinitio in event of glaring absence of any substantive provision in statute book. Tax statute has to be clear, explicit and unambiguous. Cost of unwarranted litigation and the financial burden should be avoided. ------ By. Sunil Kumar ( Advocate & Arbitrator ) Delhi High court Spl.in :- Custom Exise Service Tax Appellate Tribunal,NCLT Matters and PM....
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....LA Act. Reply By AMIT MUSADDI as = Supplies from DTA to SEZ - Recovery, Interest, and Penal Provisions in SEZ-DTA Procurement Transactions By: Amit Musaddi, Proton Accounting Firm Dated: May 29, 2025 Introduction The interplay of supplies between a Domestic Tariff Area (DTA) and a Special Economic Zone (SEZ) continues to invite scrutiny under the GST regime. While the law provides clear zero-rated treatment for supplies to SEZs, the procedural lapses and documentation gaps are triggering demand notices, interest, and even penalties-causing concern for exporters, SEZ units, and service providers alike. Legal Framework As per Section 16(1)(b) of the IGST Act, 2017, supply of goods or services or both to an SEZ developer or SEZ unit is treated as a zero-rated supply. However, to qualify for zero-rating, the supply must be: * For authorized operations of the SEZ unit, and * Endorsed by the specified officer of the SEZ. Without satisfying these conditions, the supply is treated as a regular taxable DTA transaction, resulting in recovery of GST, interest under Section 50, and penalties under Section 122/125 of the CGST Act. Common Mistakes Triggering Recovery & Penal Prov....
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....isions * Missing Endorsement from SEZ Officer Suppliers often dispatch goods without endorsed Form GSTR-1 invoices, assuming SEZ status automatically grants exemption. However, without endorsement from the SEZ officer confirming authorized operation use, the benefit is denied during audit or scrutiny. * Delayed Filing of LUT (Letter of Undertaking) When supplies are made without payment of tax, a valid LUT must be in place. Late filing or absence of LUT results in denial of zero-rating and reclassification as taxable supply, with tax, interest, and penalties levied. * Procurement Without Bill of Entry (for SEZ import) SEZ units importing goods or services under DTA often fail to file a proper Bill of Entry, or DTA units supplying to SEZ do not link it with the authorized operation, inviting future disputes. * Mismatch in Port Code, Customs Entry, or GST Filings Supplies to SEZ routed through bonded logistics or third parties are vulnerable to discrepancies in records, leading to denial of zero-rated status during GST departmental audits. Recovery, Interest, and Penalty Provisions Recovery: * Under Section 73 or 74, recovery is initiated if zero-rated supply cond....
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....itions are violated. * Taxable supply is deemed to have occurred, and GST liability is calculated retrospectively. Interest: * Imposed under Section 50(1) of the CGST Act at 18% p.a. for delayed payment of tax. * Calculated from the due date of filing GSTR-3B till the actual payment. Penalties: * Section 122 imposes penalties up to Rs.10,000 or tax amount involved, whichever is higher, for wrongful claim of exemption or zero-rating. * Under Section 125, a general penalty up to Rs.25,000 may also be levied for non-compliance, such as failure to file proper documentation. Notable Judicial Precedents * ABC Ltd. vs Commissioner (Advance Ruling Karnataka) Held that even though supply was to SEZ, in absence of endorsement and documentation, zero-rated benefit was not allowed. * Fibretex India Pvt. Ltd. vs Union of India (2023) Gujarat HC directed GST Department to reassess interest demands where procedural delay occurred but intention to defraud was absent. Best Practices to Avoid Compliance Risks * Pre-supply SEZ Confirmation: Get the authorized operation list and endorsement letter from SEZ officer before dispatch. * Timely LUT Filing: Always ensure LUT is ren....
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....ewed and valid for the financial year. * Audit Trail: Keep clear documentation from invoice generation to SEZ endorsement and proof of acceptance. * GSTR Filings & Reconciliations: Match SEZ outward supplies (GSTR-1) with inward acknowledgment (GSTR-3B) and SEZ records. * Training & SOPs: Train accounts and logistics teams on SEZ-specific supply norms to ensure on-ground compliance. Conclusion SEZ transactions offer significant tax advantages, but only when backed by robust documentation and procedural compliance. The GST authorities are increasingly scrutinizing SEZ supplies-especially post refund claims-making it essential for both DTA suppliers and SEZ recipients to follow zero-rated protocols meticulously. Ignorance or procedural lapses can lead to significant tax outflows, interest burdens, and even penal proceedings. Keywords SEZ DTA supply, SEZ procurement GST, zero-rated supply, Section 16 IGST, GST recovery SEZ, LUT SEZ, interest under Section 50, penalty under Section 122, SEZ endorsement, GSTR-1 SEZ Dated: 29-5-2025<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....