2017 (2) TMI 7 - HC - Customs

SEZ - condition of mandatory physical export - manufacturing recycled plastic raw material from the imported plastic scrap in the zone - As per the policy dated 17.9.2013 Units have been restrained from carrying out any broad band activity with regard to unrelated products all the manufactured goods are required to be physically exported out of country gradually from second year onwards and from fifth year onwards 100% of goods manufactured in the SEZ is to be physically exported. Some penal actions have also been referred in the Policy for breach of any conditions. Held that - the Central Government while notifying any area as Special Economic Zone etc. has to consider generation of additional economic activity permission of export of goods and services. It is true that the important feature of establishing SEZ is to promote the activities of export on goods and services but it does not prevent the units established in SEZ to sell such goods in domestic tariff area (DTA) - the Central Government is empowered to make Rules by notification for carrying out the provisions of this Act under Section 55 of the Act. In sub-Section (2) of Section 55 it is made clear that certain matters are required to be covered while framing the Rules. The relevant conditions of the policy of 2013 are not in consonance with the Rules since none of the Rules prohibit the unit established in SEZ to remove the goods in DTA. Under Section 55 (3) of the SEZ Act no rules are amended and therefore when the petitioner units are following the rules particularly Rule 53 of the Rule and in accordance with Section 30 of the Act and paying the custom duty in foreign currency there was no need to impose conditions as per the guidelines of 2013. When Section 30 itself provides the payment of custom duty with regard to removal of goods manufactured in SEZ to Domestic Tariff Area and the conditions specified in the Rules there is no reason for the Authority to issue a Policy with regard to plastic manufacturers only and compelling them to remove the goods out of India. Petition allowed - decided in favor of petitioner.

Issues Involved:
1. Legality of the Policy dated 17.9.2013 issued by the Ministry of Commerce and Industries.
2. Compliance with the SEZ Act, 2005 and SEZ Rules, 2006.
3. Legitimacy of conditions imposed on plastic recycling units.
4. Discrimination against plastic recycling units.
5. Impact on domestic market and public interest.
6. Authority of the Board of Approval.
7. Validity of conditions in the Letter of Approval (LOA).

Issue-Wise Detailed Analysis:

1. Legality of the Policy dated 17.9.2013:
The petitioners challenged the Policy dated 17.9.2013 issued by the Ministry of Commerce and Industries, arguing that it imposed several conditions on existing plastic raw material manufacturing units that were contrary to the SEZ Act and SEZ Rules. They contended that the Policy was issued without following the prescribed procedure under Section 5 of the SEZ Act.

2. Compliance with the SEZ Act, 2005 and SEZ Rules, 2006:
The petitioners argued that the SEZ Act and SEZ Rules permit the sale of goods in the Domestic Tariff Area (DTA) on payment of custom duties, and the Policy in question, which required 100% physical export of goods, was contrary to these provisions. They emphasized that any amendment to the Rules should be placed before Parliament, which was not done in this case.

3. Legitimacy of conditions imposed on plastic recycling units:
The Policy imposed conditions such as prohibiting broad banding of unrelated products and requiring 100% export of manufactured goods. The petitioners argued that these conditions were impractical and would lead to the closure of units and unemployment. They also contended that these conditions were not backed by any provisions of the SEZ Act or SEZ Rules.

4. Discrimination against plastic recycling units:
The petitioners claimed that the Policy was discriminatory as it imposed conditions only on plastic recycling units and not on other industries in SEZs. They argued that this was a violation of Article 14 of the Constitution of India, as it treated plastic recycling units differently without any clear rationale.

5. Impact on domestic market and public interest:
The petitioners highlighted that the plastic raw material produced by their units had a huge demand in India, especially in the agriculture sector. They argued that the Policy would lead to higher prices for finished goods in the domestic market and discourage Indian manufacturers, thereby affecting public interest.

6. Authority of the Board of Approval:
The respondents argued that the Board of Approval, constituted under Section 8 of the SEZ Act, had the authority to impose conditions on units in SEZs and that the Policy was issued following the guidelines under Section 5 of the SEZ Act. They contended that the conditions were necessary to promote exports and economic activity.

7. Validity of conditions in the Letter of Approval (LOA):
The petitioners argued that the conditions in the LOA, based on the impugned Policy, were illegal and contrary to the SEZ Act and SEZ Rules. They emphasized that the SEZ Act and Rules allow for the removal of goods from SEZ to DTA on payment of duties, and the Policy's conditions were not in consonance with these provisions.

Judgment:
The court found that the conditions imposed by the Policy were contrary to the SEZ Act and SEZ Rules, particularly since the Rules allow for the sale of goods in DTA on payment of custom duties. The court held that the Policy was not in consonance with the Act and Rules and quashed the Policy and the conditions in the LOA based on it. The court emphasized that the government must follow the statutory provisions and cannot impose conditions that are not backed by law. The petitions were allowed, and the Policy and related conditions were set aside.

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