2018 (10) TMI 1372 - HC - Central Excise

SEZ Unit - sub-contract - benefit of exemption from Central Excise to the sub-contractor - case of petitioner is that merely because the manufacturer s dispatch to the SEZ is linked through a chain of which a sub-contractor is a party, the benefit of exemption from Central Excise should not be denied to the contractor. Held that - From reading of the Statement of Objects and Reasons of the Special Economic Zones Act, 2005, it is evident that one of the prime objectives of creation of such zones was to make available goods and services free of taxes and duties supported by integrated infrastructure for export production, expeditious and single window approval mechanism. For such implementation, Units were to be set up in such zones. The term Unit as defined under Section 2(zc) of the Act would mean a Unit set up by an entrepreneur in such Special Economic Zone. From the facts on hand, it is evident that Torrent Energy Limited was the SEZ Unit and the identity entitled to exemption. Reading Section 26 with Rule 27 of the Rules suggests that, when raw materials are procured for such a unit, such exemptions shall be allowed to a Unit and such benefit shall be available to contractors and for the purposes of such exemption a joint document is to be filed. This Rule i.e. Rule 27 falls under the Chapter prescribing procedure for establishment of a Unit. The privity of contract for claiming the benefit of exemption is strictly between Torrent Energy Limited, the Unit and available contractor, the petitioner. If respondent No.4, Simplex has procured such raw material and paid excise and raised a claim for reimbursement, will not clothe such an entity to claim exemption, under the guise of it supplying goods to a Unit, through the petitioner. Merely because Siemens, as a Contractor has been saddled with a liability to reimburse the excise duty to Simplex Limited, respondent No.4, in itself, will not make the petitioner to avail the benefit of exemption, de-hors the mandate of Rule 27 read with Rule 30. In fact, the benefit of the Act is to a Unit who in turn by deeming fiction passes it on to a Contractor who has produced goods and services for manufacture etc., i.e. raw materials. It cannot, through the cloak of a sub-Contractor Simplex Ltd., respondent No.4, approach this Court, in a petition to seek exemption, which is not otherwise available to Simplex Industries respondent No.4. What cannot be done directly cannot certainly be done indirectly - No petition would therefore be maintainable at the instance of the petitioner Siemens Ltd. The petition, therefore, is accordingly dismissed. The petitioner as a Contractor is not entitled to the benefit of exemption of Central Excise - petition dismissed.

Summary

Issues Involved:
1. Entitlement to exemption from Central Excise Duty for goods supplied to SEZ units via sub-contractors.
2. Interpretation of relevant provisions under the Special Economic Zones Act, 2005 and Special Economic Zones Rules, 2006.
3. Procedure for procurement and endorsement of ARE-1 forms.
4. Entitlement to exemption from Central Sales Tax (CST) for the entire value chain.

Detailed Analysis:

1. Entitlement to Exemption from Central Excise Duty for Goods Supplied to SEZ Units via Sub-contractors:
The petitioner, engaged in Turn-Key Contracts in SEZ, sought a declaration that exemption from Central Excise should apply to goods used for authorized operations, even when supplied via sub-contractors. The petitioner argued that since the goods were ultimately used in SEZ operations, the exemption should not be denied. However, the court noted that the SEZ Act and Rules specifically provide exemptions to the Developer or Unit and their contractors, not sub-contractors. The court emphasized that the privity of contract for claiming the benefit of exemption is strictly between the SEZ Unit and the contractor. The sub-contractor, having procured goods and paid excise, cannot claim exemption indirectly through the contractor.

2. Interpretation of Relevant Provisions under the SEZ Act, 2005 and SEZ Rules, 2006:
The court examined various provisions of the SEZ Act and Rules, including Sections 7, 26, and 51 of the Act, and Rules 10, 27, and 30 of the SEZ Rules. Section 26 provides exemptions to Developers and Units for goods used in authorized operations. Rule 10 extends exemptions to contractors and sub-contractors, but Rule 27, which deals with Units, does not mention sub-contractors. The court concluded that the omission of "sub-contractor" in Rule 27 indicates a legislative intent to exclude sub-contractors from exemptions available to Units.

3. Procedure for Procurement and Endorsement of ARE-1 Forms:
The petitioner contended that the refusal of the SEZ Officer to endorse ARE-1 forms for goods supplied via sub-contractors was contrary to the SEZ scheme. The court, however, upheld the SEZ Officer's action, stating that the endorsement of ARE-1 forms is contingent upon compliance with the conditions set forth in the Act and Rules. The court found that the sub-contractor's procurement of goods and subsequent claim for exemption did not meet the statutory requirements for endorsement.

4. Entitlement to Exemption from CST for the Entire Value Chain:
In a related petition, the petitioner sought a declaration for CST exemption for the entire value chain, arguing that goods dispatched directly to the SEZ area should be tax-free. The court, applying the same reasoning as in the Central Excise exemption issue, held that the petitioner, as a contractor, was not entitled to CST exemption for goods supplied through sub-contractors. The court dismissed this petition as well, reiterating that exemptions are available only to the Developer, Unit, and their direct contractors.

Conclusion:
The court dismissed both petitions, holding that the petitioner, as a contractor, was not entitled to exemptions from Central Excise Duty or CST for goods supplied via sub-contractors. The court emphasized the clear legislative intent and statutory requirements that limit exemptions to the Developer, Unit, and their direct contractors, excluding sub-contractors from such benefits.