2021 (10) TMI 1090 - HC - Customs

Entitlement to O M benefits (fiscal benefits covered under Section 26 of the SEZ Act in respect of maintenance and duty free import to raw materials and consumables for generation of power) - period 01.04.2015 to 15.02.2016 - whether the condition that no duty free benefits for transfers to EOU is contrary to the SEZ Act and the Rules made thereunder? - HELD THAT - It is apparent from Sub-section (8) of Section 15 of the SEZ Act that the Central Government has ample powers to impose certain terms and conditions subject to which a unit can carry out its operations - it is clear that the Central Government can introduce terms and conditions by notifying Rules or issuing guidelines in terms of which an approval may be granted. The letter of approval as contemplated under Section 15(9) of the SEZ Act is required to be issued by the Development Commissioner pursuant to the proposal submitted under Section 15(1) of the SEZ Act. The person who is granted the letter of approval falls within the definition of an entrepreneur within the meaning of Section 2(j) of the SEZ Act. Section 15(9) of the SEZ Act makes it specifically clear that the letter of approval shall mention the operations that the concerned person is authorised to undertake. Thus, the scope of the expression authorised operations is well defined and the same has to be stated in the letter of approval - In the present case, the letter of approval dated 08.10.2009 expressly indicates the operations/activities that the petitioner is authorised to undertake. In the aforesaid circumstances, the contention that the operations of generating electricity were rendered unauthorised by the Central Government by the letter dated 06.04.2015 whereby the 2009 Guidelines were reinstated, is unpersuasive. There is nothing to indicate either in the three Guidelines (2009 Guidelines, 2012 Guidelines and the 2016 Guidelines) that the effect and the import of the said guidelines was to render the operations being carried out by the concerned unit as unauthorised operations. This Court is of the view that this is an apparent error as the Second Letter was addressed to all Development Commissioners forwarding the First Letter. As noticed above, the opening words of the second paragraph of the Second Letter indicates that it is in pursuance to the decision to withdraw the 2012 Guidelines and restore the 2009 Guidelines as contained in the communication enclosed the First Letter dated 06.04.2015. The First Letter does not contain any decision that the processing areas of the SEZ would be re-demarcated to place those units which are operating in the processing area of the SEZ to be placed in a non-processing area - the exercise of demarcation is required to precede the issuance of the letter of approval. It is essential to note that one of the principal difference between the 2009 Guidelines and the 2012 Guidelines is that, whereas under the 2009 Guidelines, a power plant set up by a developer/co-developer as a part of infrastructure facility was required to be placed only in a non-processing Area of the SEZ and would not be entitled to any O M benefits - the direction in the second paragraph of the Second Letter must be read as applicable only to those power plants which are set up by developers/co-developers as a part of the facility or utility for the SEZ and, not as a separate unit set up within the SEZ to generate power as a product or as a captive power plant in terms of Clause (ii) of the 2009 Guidelines. Even assuming that the Central Government had the power to re-demarcate areas post-issuance of the letter of approvals, the Second Letter on the basis of which the petitioner has been denied the O M benefits with effect from 01.04.2015 to 16.02.2016, cannot be construed in the manner so as to be applicable to the petitioner s unit which was granted the LoA under the 2009 Guidelines. The dispute in the present case relates to the direction to re-demarcate the petitioner s power plant as a non-processing unit for the purposes of the 2009 Guidelines. The direction to re-demarcate is clearly not traceable to Section 26(2) of the SEZ Act. The present petition is allowed to the limited extent that the condition imposed by Unit Approval Committee of refunding the O M benefits obtained by the petitioner during the period 01.04.2015 to 15.02.2016 by its letter dated 18.04.2016, is set aside - Petition disposed off.

Summary

Issues Involved:

1. Entitlement to O&M benefits for the period 01.04.2015 to 15.02.2016.
2. Condition prohibiting duty-free transfer of power to EOUs.

Detailed Analysis:

1. Entitlement to O&M Benefits for the Period 01.04.2015 to 15.02.2016:

The petitioner, a company engaged in electricity generation, sought approval for its power generating unit in the MBIL-SEZ under the 2009 Guidelines. The approval was granted via a Letter of Approval (LoA) dated 08.10.2009, which extended all facilities and entitlements as admissible to a unit in the SEZ for "Authorised Operations." The petitioner availed benefits under Section 26 of the SEZ Act, including O&M benefits, during the period from 08.10.2009 to 20.03.2012.

On 21.03.2012, the 2012 Guidelines were issued, superseding the 2009 Guidelines, but the petitioner continued to receive O&M benefits. The LoA was renewed until 08.10.2019. On 06.04.2015, the 2012 Guidelines were withdrawn, and the 2009 Guidelines were restored. Another letter on the same date indicated that power plants in processing areas would be demarcated as non-processing areas, and no O&M benefits would be available to such plants.

The petitioner contended that the operations carried out under the LoA were "authorised operations" and that the restoration of the 2009 Guidelines should not affect their entitlement to O&M benefits. The court found that the approval for the power plant in the processing area under the 2009 Guidelines remained valid and that the letter dated 06.04.2015 did not alter the "authorised operations" status. The court concluded that the petitioner was entitled to O&M benefits during the disputed period, as the direction to re-demarcate the power plant as a non-processing unit was not traceable to Section 26(2) of the SEZ Act.

2. Condition Prohibiting Duty-Free Transfer of Power to EOUs:

The petitioner argued that it was entitled to sell surplus power under Rule 47(3)(c) of the SEZ Rules and that the Approval Committee had no authority to demand duties on inputs consumed by an SEZ unit. Rule 47(3) allows the transfer of surplus power to the Domestic Tariff Area (DTA) on payment of duty on consumables and raw materials used for power generation. Clause (c) of Rule 47(3) specifies that the sale of surplus power to other units within the SEZ or to EOUs shall be without payment of duty.

The court noted that Rule 47(3) clearly permits duty-free transfer of surplus power to EOUs. The petitioner's contention that the condition imposed by the Approval Committee was contrary to the SEZ Act and Rules was upheld. The court found that the Approval Committee's condition prohibiting duty-free transfer of power to EOUs was invalid and set aside the impugned order upholding this condition.

Conclusion:

The court allowed the petition to the extent that the condition imposed by the Unit Approval Committee, requiring the petitioner to refund O&M benefits obtained during the period 01.04.2015 to 15.02.2016, was set aside. The impugned order upholding this condition was also set aside, and the petition was disposed of in these terms.