2011 (2) TMI 403 - AT - Customs

Demand with penalty - Shortage of stock under verification - Remission of duty - it becomes quite clear that the definition of import and other provisions relating to import have to be applied on the assumption that when the goods are imported into SEZ they are in foreign territory - The Commissioner has also relied upon Section 76-B of Customs Act 1962 to take a view that by denying remission under Section 23 of Customs Act 1962 no conflict arises between the Customs Act and the provisions relating to SEZ - This is further confirmed when we consider Regulation-4 in the Regulations notified under Notification No. 53/2003-N.T. dated 22-7-03 - these regulations show that even though SEZ is treated as a foreign territory for the purpose of levy of customs duties yet when it comes to procedure to be followed for clearance of goods to the SEZ unit it is treated as clearance for home consumption Once the action to the SEZ units or the loss of goods by fire is not covered by Rule 8 of SEZ Rules 2003 the deemed fiction of SEZ being a foreign territory comes into picture - the goods which have been destroyed have to be held to have been destroyed in the deemed foreign territory and if that is so no customs duty can be demanded - Appeal is allowed

Issues Involved:
1. Applicability of Section 23 of the Customs Act, 1962 for remission of duty due to accidental fire.
2. Interpretation of SEZ Rules 2003 and Regulation 28 of SEZ Regulations regarding duty on destroyed goods.
3. Consideration of deemed foreign territory status of SEZ under Section 76A of the Customs Act.
4. Validity of the demand for customs duty on goods destroyed by fire in SEZ.

Detailed Analysis:

1. Applicability of Section 23 of the Customs Act, 1962:
The appellants argued that the fire was accidental, and remission of duty should be allowed under Section 23 of the Customs Act, 1962. They contended that since the goods were destroyed in the fire, they could not be considered as removed for home consumption. The respondents countered that Section 23 was not applicable as the goods were considered cleared for home consumption, making remission irrelevant.

The Tribunal noted that Section 23 provides for remission of duty on goods lost or destroyed before clearance for home consumption. However, the SEZ unit must file a bill of entry for home consumption, not for warehousing, indicating that even though SEZ is treated as foreign territory for customs duties, the procedure treats it as clearance for home consumption. Hence, the Tribunal upheld the Commissioner's view that remission under Section 23 could not be granted.

2. Interpretation of SEZ Rules 2003 and Regulation 28 of SEZ Regulations:
The appellants cited Rule 12 of SEZ Rules 2003 and Regulation 28, arguing that no duty could be recovered on goods destroyed within the SEZ. The Commissioner concluded that Rule 12 permits destruction of goods with the Assistant Commissioner's permission, which does not apply to accidental destruction by fire. Regulation 28 envisages clearance of scrap from destruction under Rule 12, which does not help the appellants. The Tribunal agreed, noting that Rule 12 is procedural and not an exemption notification.

3. Consideration of Deemed Foreign Territory Status of SEZ:
The appellants relied on Section 76A of the Customs Act, which treats SEZ as outside the customs territory of India. They argued that the deemed status should be fully respected, meaning goods destroyed in SEZ should not attract customs duty. The Tribunal recognized the SEZ as a deemed foreign territory under Section 76A and noted that duty is payable only when goods are removed into the Domestic Tariff Area (DTA) or fail to be accounted for under Rule 8 of SEZ Rules 2003.

4. Validity of the Demand for Customs Duty on Goods Destroyed by Fire:
The Tribunal examined whether the fire accident constituted a breach of Rule 8 of SEZ Rules 2003. It found no evidence of malfeasance or deliberate misuse of goods. The accidental fire did not amount to unauthorized use or failure to account for the goods. Therefore, there was no contravention of Rule 8, which authorizes the demand for duty. The Tribunal emphasized that the fiction of SEZ being a foreign territory must be given full effect, and since the destruction by fire was not covered by Rule 8, the goods were still in deemed foreign territory, exempting them from customs duty.

Conclusion:
The Tribunal concluded that the impugned orders demanding customs duty could not be sustained. It set aside the orders and allowed the appeals with consequential relief to the appellants, recognizing the SEZ as a deemed foreign territory and the accidental fire as not constituting a breach of SEZ rules warranting customs duty.

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