2020 (5) TMI 524 - HC - Customs

SEZ unit - Purchase of High-Speed Diesel (HSD) without payment of excise duty from a local refinery - validity of Guideline dated 6.4.2015 bearing Reference No. P.613/2006-SEZ - period in dispute between 1.4.2015 and 15.02.2016 - HELD THAT - The liability to pay excise duty is on the manufacturer and not the buyer though burden of such duty is passed on the to the buyer. There is no provision under the Central Excise Act,1944 by virtue of which excise duty is payable on reverse charge basis by the buyer. Therefore, interpretation of the provision of Special Economic Zones Act, 2005 cannot be in direct violation of the provisions of the Central Excise Act, 1944. Duty if any, is payable only by the manufacturer - Further, the exemption under Section 26(1) is subject to the restriction in section 26(2) of the Act. The phrase used in section 26(2), is the Central Government may prescribe the manner in which, and the terms and conditions subject to which, the exemptions, concessions, drawback or other benefits shall be granted to the Developer or entrepreneur under sub-section (1) . Further, Supplies from the Domestic Tariff Area to a Unit or Developer for their authorized operations are eligible for export benefits as admissible under the Foreign Trade Policy - thus, the DTA supplier is not only entitled to the exports benefits under the Foreign Trade Policy in terms of Rule 23 of Special Economic Zone Rules, 2006 but was also entitled to clear the goods under bond or claim rebate of tax/duty paid by it in terms of Rule 30 of the aforesaid Rules. That apart procurement of HSD by the petitioner from IOCL did not qualify as an import within the meaning of Section 2(o) of the Special Economic Zones Act, 2006. Therefore, there cannot be a demand for customs duty and interest thereon on the excise duty foregone by IOCL at the time of clearance of HSD from its factory/refinery to the petitioner under section 28 or 28AA of the Customs Act, 1962. Further, Rule 47(5) of the Special Economic Zones Rules, 2006 has been inserted vide GSR 772 (E) dated 5.8.2016 with effect from 8.8.2016. As per the above provision, Refund, Demand, Adjudication, Review and Appeal with Regard to Matters Relating to Authorised Operations under the Special Economic Zones Act, 2005, transactions, and goods and services related thereto, shall be made only by the jurisdictional Customs and Central Excise Authorities in accordance with the relevant provisions contained in the Customs Act, 1962, the Central Excise Act, 1944 and the Finance Act, 1994 and the rules made the render or notification issued under . The impugned show cause notice is also liable to be declared as without jurisdiction. Even if, it is assumed that the clearance of HSD Oil was without the authority of law by the DTA supplier (IOCL). Only the jurisdictional officer concerned under the Central Excise Act, 1944 within whose jurisdiction IOCL is registered is competent to issue a show cause notice to recover the excise duty under section 11A of the Central Excise Act, 1944 - the impugned show cause notice issued by the 2nd respondent is unsustainable and the demand proposed is liable to be quashed. Petition allowed.

Summary

Issues Involved:

1. Validity of the 2015 Guideline dated 6.4.2015.
2. Legality of the Show Cause Notice dated 30.3.2016.
3. Jurisdiction of the Development Commissioner to issue the Show Cause Notice.
4. Applicability of exemptions under the Special Economic Zones Act, 2005.

Issue-wise Detailed Analysis:

1. Validity of the 2015 Guideline dated 6.4.2015:

The petitioner challenged the 2015 Guideline which restored the 2009 Guideline, requiring the petitioner to procure High-Speed Diesel Oil (HSD) with excise duty payment. The petitioner argued that the 2015 Guideline could not override the exemptions provided under the Special Economic Zones Act, 2005, and SEZ Rules, 2006. The court noted that the 2015 Guideline was later replaced by a new Guideline dated 16.9.2016, which partly restored the previous status. The court found that the 2015 Guideline was not sustainable as it conflicted with the SEZ Act and Rules.

2. Legality of the Show Cause Notice dated 30.3.2016:

The petitioner contested the Show Cause Notice demanding ?11,13,78,979/- as excise duty for HSD Oil procured without duty. The court held that the demand was contrary to the provisions of the SEZ Act and Rules, which allowed duty-free procurement for authorized operations. The court also noted that excise duty is payable by the manufacturer, not the buyer, and there was no provision for reverse charge basis under the Central Excise Act, 1944.

3. Jurisdiction of the Development Commissioner to issue the Show Cause Notice:

The court ruled that the Development Commissioner was not a "proper officer" under the Customs Act, 1962, or a Central Excise Officer under the Central Excise Act, 1944, to demand excise duty. The jurisdiction to issue such a notice lay with the Central Excise authorities where the manufacturer (IOCL) was registered.

4. Applicability of exemptions under the Special Economic Zones Act, 2005:

The court examined Sections 7 and 26 of the SEZ Act, 2005, which provide exemptions from taxes, duties, or cess for goods procured from the Domestic Tariff Area (DTA) for authorized operations in SEZs. The court emphasized that the petitioner was entitled to these exemptions and that the 2015 Guideline could not revoke such statutory benefits. The court also noted that the 2012 and 2016 Guidelines recognized these exemptions, making the 2015 Guideline's withdrawal of benefits unsustainable.

Conclusion:

The court allowed both writ petitions, quashing the 2015 Guideline and the Show Cause Notice. The court held that the petitioner was entitled to duty-free procurement of HSD Oil for authorized operations in the SEZ, and the Development Commissioner lacked jurisdiction to demand excise duty. The court emphasized the consistent policy of the government to allow such exemptions, making the 2015 Guideline and the subsequent demand unsustainable.