2021 (2) TMI 655 - HC - Central Excise

SEZ unit - Eligibility of HSD/fuel for exemption from Central Excise Duty - Rule 27 of Central Excise Rules - HELD THAT - In the present case, Fuel/HSD is used to run the capital equipment deployed directly in the manufacturing process. No exemption is sought for fuel used in running of vehicles/other equipment not connected with the eligible activity. The capital equipment deployed have a direct nexus with the manufacturing process as, in their absence, the equipment cannot be run and there would, consequently, be no manufacture/eligible activity. HSD/fuel is thus consumed in the running of the capital equipment which is intrinsic to the process of manufacture itself. The respondent has itself accepted this position as exemption is granted with demur to fuel/HSD used in running vehicles owned by the petitioner and denied only to leased equipment. The argument of the revenue also ignores the fact that the exemption under Rule 27(1) is extended to all types of goods and the width of language employed would include diesel/HSD so long as the goods are used towards/in authorised operations and excepting where the goods are prohibited. Thus, there is no justification in law to deny exemption to HSD/diesel, used as it is, in the running of the capital equipment deployed in the manufacturing process. The preamble to the Act states that the SEZ Act provides for the establishment, development and management of the Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto - The Supreme Court in the case of BAJAJ TEMPO LIMITED VERSUS COMMISSIONER OF INCOME-TAX 1992 (4) TMI 4 - SUPREME COURT considered the interpretation to be accorded to a provision granting exemption, concluding that where the exemption was intended for the encouragement of specified sectors, activities or areas, the interpretation of such provisions should be liberal and not narrow. The respondent has raised the plea of alternate remedy and states that the petitioner ought to have exhausted the remedy of approaching the Unit Approval Committee and Board of Approval for addressing its grievances rather than rushing to this Court by way of present writ petition. The petitioner has raised a question of interpretation of the SEZ Act and Rules and, there are, admittedly, no disputes on facts. Petition allowed.

Summary

Issues Involved:
1. Eligibility of High Speed Diesel Oil (HSD) for exemption from Central Excise Duty under the SEZ Act and Rules.
2. Interpretation of Rule 27 of the SEZ Rules regarding exemption eligibility.
3. The respondent's differing stands on the exemption claim.
4. The plea of alternate remedy by the respondent.

Detailed Analysis:

1. Eligibility of High Speed Diesel Oil (HSD) for Exemption from Central Excise Duty:
The petitioner, engaged in manufacturing Offshore Structures within a Special Economic Zone (SEZ), sought exemption from Central Excise Duty for HSD/fuel used in operating equipment leased from contractors and sub-contractors, exclusively for authorized operations. The SEZ Act, 2005, and SEZ Rules, 2006, govern these activities, providing tax exemptions for goods and services exported from, imported into, or procured from the Domestic Tariff Area (DTA) by an SEZ unit.

2. Interpretation of Rule 27 of the SEZ Rules:
Rule 27(1) of the SEZ Rules allows SEZ units to procure goods, including capital goods and consumables, without payment of duty, provided they are used for authorized operations. The proviso to Rule 27 extends this exemption to contractors for setting up and maintaining the factory building. The petitioner argued that HSD used in leased equipment for manufacturing activities should be exempt from duty, as it is essential for running the capital equipment involved in authorized operations.

3. The Respondent's Differing Stands on the Exemption Claim:
The respondent initially confirmed that HSD could be procured without duty if not used for internal/external transport to employees and goods provided by service providers. However, the Development Commissioner later rejected the claim, stating that the exemption applies only to setting up and maintaining the factory building, not regular production. The impugned order further stated that diesel, being a consumable, should be used directly in manufacturing activities to qualify for exemption. The petitioner countered that HSD is used to run capital equipment directly involved in manufacturing, making it eligible for exemption.

4. The Plea of Alternate Remedy by the Respondent:
The respondent argued that the petitioner should have approached the Unit Approval Committee and Board of Approval for redressal instead of filing a writ petition. However, the court found that the petition raised a question of interpretation of the SEZ Act and Rules, with no factual disputes, making the writ petition maintainable.

Conclusion:
The court concluded that the SEZ Act and Rule 27 provide broad exemptions to SEZ units for procuring goods and consumables necessary for authorized operations, including HSD used in leased equipment for manufacturing. The respondent's differing stands and narrow interpretation were found unjustified. The writ petition was allowed, granting the petitioner the sought exemption for HSD used in leased equipment for authorized operations, with no costs awarded.