2009 (11) TMI 141 - HC - Customs

Notification No. 66/2008-Cus, dated 14.05.2008- Whether export duty can be levied on goods supplied from Domestic Tariff Area to Special Economic Zone? Held that, levy of export duty on goods supplied from the Domestic Tariff Area to the Special Economic Zone is not justified. The petitioner, are therefore not to be called upon to pay export duty on movement of goods from Domestic Tariff Area to Special Economic Zone Units or developers.

Summary

Issues Involved:
1. Imposition of export duty under the Customs Act, 1962.
2. Imposition of export duty under the Special Economic Zones (SEZ) Act, 2005.
3. Incorporation of the definition of 'Export' from the SEZ Act, 2005 into the Customs Act, 1962.

Detailed Analysis:

1. Imposition of Export Duty under the Customs Act, 1962:

35.1 Export duty is a duty of customs leviable under the Customs Act, 1962 on goods exported from India, under section 12 read with section 51 of the said Act and section 2 read with Second Schedule of the Customs Tariff Act, 1975. Such duty is a condition precedent to sending goods out of the country to other lands.

35.2 The various terms used in section 12 of the said Act, which is the charging section for the purpose of levy of duty, have been defined under the said Act itself. Section 2(18) defines export to mean taking out of India to a place outside India; section 2(19) defines export goods as goods which are to be taken out of India to a place outside India; Section 2(27) defines India as including the territorial waters of India. Therefore, the taxable event contemplated under the Customs Act, 1962 for the purpose of levy of export duty is taking the goods out of the territorial waters of India to a place outside India.

35.3 In the absence of any amendment of the definitions of the terms 'Export' and 'India' in the Customs Act, 1962, or any amendment in the charging section, i.e., section 12 or insertion of a charging provision contemplating movement of goods from the Domestic Tariff Area to the Special Economic Zone as a taxable event entailing a levy of export duty as in the case of export, the levy of export duty cannot be justified under the provisions of the Customs Act, 1962.

35.4 The very fact that such a charging provision, i.e., section 76F had to be introduced by inserting Chapter X-A in the Customs Act, 1962 containing sections 76A to 76N being Special Provision Relating to Special Economic Zone, clearly indicates that in the absence of the newly added provision, the said movement of goods was not a taxable event attracting levy of export duty under the provisions of the said Act. The entire Chapter has been omitted by the Finance Act, 2007 with effect from 11-5-2007 and, therefore, the aforesaid movement of goods is no longer a taxable event under the said Act.

2. Imposition of Export Duty under the Special Economic Zones (SEZ) Act, 2005:

36.1 The Department has demanded export duty on the subject goods by invoking the provisions of section 12 of the Customs Act, 1962 read with section 2 and Second Schedule-Export Tariff (Heading No.11) of the Customs Tariff Act, 1975 and for the purpose of considering the effective rate of duty, has taken into account Notifications issued under section 25 of the Customs Act, 1962. Therefore even as per the Department, the levy and the procedure adopted for recovery thereof is under the Customs Act, 1962 and the aforesaid issue does not arise for consideration on the stand of the Department itself.

36.2 The provisions of the SEZ Act do not envisage the movement of goods from the Domestic Tariff Area to the Special Economic Zone to be a taxable event as the said provisions do not contain any charging provision providing for the levy and imposition of export duty, and the said Act does not contain any provisions for recovery of such duty. In construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law.

36.3 The contention that levy of export duty is impliedly contemplated under the SEZ Act, principally on account of the fact that unlike other levies, the levy of export duty has not been specifically exempted under the provisions of the said Act, is wholly misconceived. In the first place, as stated above, there cannot be a levy of tax by implication. Secondly, the necessity for exemption would arise if the subject is liable to tax in the first place.

36.4 The Statement of Objects and Reasons of the SEZ Act, 2005 indicates that the policy for setting up of Special Economic Zones had been adopted by the Government of India with a view to provide an internationally competitive environment for export. The objectives of the Special Economic Zones include making available (to the Unit) goods and services free of taxes and duties for export production, supported by integrated infrastructure.

36.5 In line with the aforesaid objective of providing goods and services free of taxes and duties to the Unit in the Special Economic Zone or to a Developer for the purpose of establishing an integrated infrastructure for export production, provisions have been made in the SEZ Act, 2005 granting exemption from taxes and duties, which would otherwise have been leviable in the absence of any provision for exemption from such duties.

36.6 Section 7 of the Act exempts goods or services exported out of or imported into or procured from the Domestic Tariff Area by a Unit or Developer from the payment of taxes, duties or cess under the enactments specified in the First Schedule.

36.7 Chapter VI of the Act provides for Special Fiscal Provisions for Special Economic Zone. Section 26 thereunder provides for exemptions, drawbacks and concessions specified therein. Sub-clause (1)(a) provides for exemption from any duty of customs on goods exported from a Special Economic Zone to any place outside India which would otherwise have been leviable on the exporter-Special Economic Zone Unit. Sub-clause (1)(c) provides for exemption from any duty of excise on goods brought within the Special Economic Zone from the Domestic Tariff Area which would otherwise have been payable by the manufacturer-Domestic Tariff Area Unit. Sub-clause (1)(d) grants benefits of drawback etc. on goods brought from the Domestic Tariff Area into a Special Economic Zone. Drawback is admissible under Chapter X of the Customs Act, 1962 read with the Customs & Central Excise Duties Drawback Rules 1995 and means a rebate of a specified percentage of duty paid at the time of the importation of goods which are re-exported or used in the manufacture of goods which are exported, which repayment is to the exporter-Domestic Tariff Area Unit. The rebate contemplated under the aforesaid provisions is that of customs duty paid at the time of importation of the subject goods from outside India into India by the Domestic Tariff Area Unit and not of any purported export duty paid on movement of goods into the Special Economic Zone.

36.8 Rule 23 of the SEZ Rules, 2006 provides that supplies from the Domestic Tariff Area to the Special Economic Zone would be eligible for export benefits as admissible under the Foreign Trade Policy. This would include Duty Entitlement Pass Book Scheme and other benefits/concessions under the Policy. The procedure for claiming drawback and DEPB benefits is provided in Rule 24 and Rule 30.

36.9 Rule 27 permits an Unit or Developer to import or procure from the Domestic Tariff Area all types of goods, without payment of duty or procure from the Domestic Tariff Area such goods after availing export entitlements. This means that the export entitlements available on account of the export of goods from the Domestic Tariff Area to the Special Economic Zone are available either to the Domestic Tariff Area supplier or the Special Economic Zone Unit/Developer at their option. Therefore, duty drawback or DEPB and/ or other export benefits would be available to either party at their option. The sweeping exemption granted under this provision renders the contention of the Department regarding liability of the goods to levy of export duty, academic since this provision exempts the goods brought in by the Special Economic Zone Unit from all levies and duties. Since the duty is leviable on the goods, it would be irrational to contend that the export from the Domestic Tariff Area to the Special Economic Zone should be taxed while the inward movement of the goods from the Domestic Tariff Area to the Special Economic Zone, would be exempt.

36.10 The aforesaid provisions clearly establish the legislative intention recorded in the Statement of Objects and Reasons of making available goods and services to the Developer/Unit situated in the Specific Economic Zone, free of taxes and duties. A levy of export duty is neither expressly nor impliedly contemplated under the Act and cannot be read in by purported intendment, which in any case, is clearly to the contrary.

36.11 This is further evident from the provisions of section 30, which provides for imposition of duties of Customs including anti-dumping, countervailing and safeguard duties on goods removed from a Special Economic Zone into the Domestic Tariff Area. This again establishes the legislative intent of encouraging movement of goods/services into the Special Economic Zone and operations within the Special Economic Zone for the purpose of export from the Special Economic Zone to a place outside India. Additionally, such a provision emphasises that where any levy was contemplated, the Act is express and specific in this respect and in the absence of a similar provision regarding export duty, levy thereof is wholly unjustified.

36.12 As stated above, Chapter X-A in the Customs Act, 1962 containing sections 76A to 76N being Special Provision Relating To Special Economic Zone including the charging provision (section 76F) providing for levy of export duty on goods supplied from the Domestic Tariff Area to the Special Economic Zone has been omitted by the Finance Act, 2007 with effect from 11-5-2007 and no corresponding provision akin to section 76F has been enacted in the SEZ Act, 2005 which categorically rules out reading in a purported intendment to levy duty. It is significant that the charging provision in section 76A was retained verbatim by enacting section 30 of the SEZ Act, 2005.

3. Incorporation of the Definition of 'Export' from the SEZ Act, 2005 into the Customs Act, 1962:

37.1 The term 'export' having been defined in the Customs Act, 1962, for the purposes of that Act, there is no question of adopting or applying the meaning of the said term under another enactment for any purpose of levying duty under the Customs Act, 1962. In other words, a definition given under an Act cannot be displaced by a definition of the same term given in another enactment, more so, when the provisions of the first Act are being invoked. Even in the absence of a definition of the term in the subject statute, a definition contained in another statute cannot be adopted since a word may mean different things depending on the setting and context.

37.2 The movement of goods from the Domestic Tariff Area to the Special Economic Zone has been treated as export by a legal fiction created under the SEZ Act, 2005. A legal fiction is to be restricted to the statute which creates it. Moreover, such legal fiction should be confined to the purpose for which it has been created. As stated above, such movement has been treated as export under the SEZ Act, 2005 for the purpose of making available benefits as in the case of actual exports like duty drawback, DEPB benefits, etc. to the Special Economic Zone Unit/Developer or the Domestic Tariff Area supplier at their option. Construing this movement of goods as entailing a liability of payment of duty runs absolutely counter to the purpose of the legal fiction created under the SEZ Act, 2005.

37.3 Section 51 of the SEZ Act, 2005 providing that the Act would have overriding effect does not justify adoption of a different definition in the Act for the purposes of another statute. A non obstante clause only enables the provisions of the Act containing it to prevail over the provisions of another enactment in case of any conflict in the operation of the Act containing the non obstante clause. In other words, if the provision/s of both the enactments apply in a given case and there is a conflict, the provisions of the Act containing the non obstante clause would ordinarily prevail. In the present case, the movement of goods from the Domestic Tariff Area into the Special Economic Zone is treated as an export under the SEZ Act, 2005, which does not contain any provision for levy of export duty on the same. On the other hand, export duty is levied under the Customs Act, 1962 on export of goods from India to a place outside India and the said Act does not contemplate levy of duty on movement of goods from the Domestic Tariff Area to the Special Economic Zone. Therefore, there is no conflict in applying the respective definitions of export in the two enactments for the purposes of both the Acts and therefore, the non obstante clause cannot be applied or invoked at all.

37.4 Similarly, reliance on section 53 of the SEZ Act, 2005 to contend that a Special Economic Zone is a territory outside India, is misconceived. Section 53 provides that the Zone would be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations. The term customs territory cannot be equated to the territory of India and in fact, such term has been defined in the General Agreement of Tariffs & Trade to which India is a signatory to mean an area subject to common tariff and regulations of commerce and that there could be more than one customs territory in a country. Moreover such an interpretation would lead to a situation where a Special Economic Zone would not be subject to any laws whatsoever. The entire SEZ Act, 2005 would be rendered redundant since it is stated to extend the whole of India. In any case, various provisions of the SEZ Act would be rendered redundant and unworkable if the Special Economic Zone was to be considered an area outside India. This is apart from the fact that such a declaration would be constitutionally impermissible.

Conclusion:

38 In view of the above discussion and findings arrived at as well as conclusion drawn, the levy of export duty on goods supplied from the Domestic Tariff Area to the Special Economic Zone is not justified. The petitioners are, therefore, not to be called upon to pay export duty on movement of goods from Domestic Tariff Area to Special Economic Zone units or developers.

39 All these petitions, therefore, stood allowed to the above extent. Rule made absolute without any order as to costs.

40 In view of disposal of Special Civil Application No. 9656 of 2008, Civil Application No. 12705 of 2008 does not survive and it is accordingly disposed of.

41 On pronouncement of the judgment, Mr. Chhaya learned Senior Standing Counsel for the Central Government requests for suspension of operation of this judgment for a period of four weeks.

42 Heard. In the facts and circumstances of the case, the operation of the judgment pronounced today is suspended for a period of four weeks on condition that the protection enjoyed by the petitioners shall continue to.