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TMI Blog2010 (7) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... EZ Act are without jurisdiction in seeking to enforce the li ability which could arise only under the Customs Act. Hence, the instructions issued by the respondents under the impugned notification are wholly illegal and cannot be sustained - petitions are allowed accordingly. - 10810 of 2008/10999,11197,11440-11442, 11107 and 1 - - - Dated:- 13-7-2010 - Anand Byrareddy, J. REPRESENTED BY: S/Shri K.S. Ravishankar and Harish V.S., Advocates, for the Petitioner. S/Shri V. Hariprasad, SSC, N.R. Bhaskar CGSC and K.N. Mohan, Advocates and B. Pramod, CGSC, for the Respondent. [Order]. - These petitions are heard and disposed of together having re gard to the common issues that arise for consideration. 2. Heard the learned counsel for the petitioners and the learned counsel for the respondents. 3.. The factual background is as follows: The petitioners are either a 'Developer, a 'Co-Developer', an 'Entrepreneur', or an 'existing Unit', as defined under the sub-clauses of Section 2 of the Special Economic Zones Act, 2005 (hereinafter referred to as the 'SEZ Act', for brevity). The SEZ Act, inter alia, provides for the establishment, development and management of Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued under Section 25 of the Customs Act, 1962 has been construed as enabling the levy of customs duty on transactions treated as exports. In other words, a domestic manufacturer or supplier of the subject items, is treated as an "exporter" and' the purchaser within the SEZ, such as the petitioners, as "importers". The petitioners contend that the impugned action has the unnatural effect of levying duty of customs on goods which are neither physically moving out of the territory of India by treating them as "export" of goods outside India nor physically moving into India from outside India as "import" of goods. It is also contended that yet another effect of the action of the respondents is that goods manufactured in India, which are subject to levy under the Central Excise Tariff Act, are being treated as goods exported outside India and imported into India for levy of customs duty. It is in this background that the petitioners are before this court. 4. The learned counsel for the petition would contend that instructions issued by the Department of Commerce construing the notifications dated 10-5-2008 and 13-6-2008, issued under Section 25 of the Customs Act, 1962, as enabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on a supply to a SEZ unit by a domestic manufacturing unit in India or to levy import duty on bringing into the SEZ unit, goods from indigenous manufacturing units in India. Thus, the impugned directions therefore are contrary to the established principles of taxing statutes. The same is also contrary to the decision of the Apex Court in Aban Loyd Chiles Offshore Limited v. Union of india, 2008 (227) E.L.T. 24 (S.C.), wherein the Supreme Court has held that the territorial jurisdiction of India under the Customs Law would extend to the continental shelf and exclusive economic zones and that the principles of international law including United Nation Conventions on the Law of Sea 1982, would be applicable while interpreting fiscal laws such as the Customs Act, 1962. Similarly, the impugned instructions run contrary to the decision of the Apex Court in Collector of Customs v. Sun Industries, 1988 (35) E.L.T. 241 (S.C.) wherein it is' held that in order to constitute an export, goods should be taken out to a place outside India. The impugned instructions of the first respondent are therefore contrary to the settled principles. It is contended that in terms of Section 26 of the SEZ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stoms Act, 1962 and all procurement of goods imported as well as indigenous were exempted from customs and central excise duties by a Notification issued under the Customs Act and the CE Act. Under these EPZ Schemes, units were set up with export obligation and they were subjected to conditions in the scheme and notifications issued to clear goods to the domestic market on payment of appropriate duty. With the re designation of the scheme as SEZ in the year 2001, the concept was revised to deem the SEZs as areas where the central excise tariffs would not apply. There fore in May, 2004, the Customs Act, 1962, was amended to incorporate Chapter XA and allowed all goods imported into SEZ to be zero rated for customs and for all supplies from Domestic Tariff Area to be considered at par with fiscal imports out of the country and thus exempt from levy of central excise duty as well as being eligible for drawback and other export benefits. All documents and procedures under the Customs Act and the CE Act were being followed for bringing the goods into the SEZ as well as for removal, whether for export or for sale in the domestic tariff area. With the passing o. the Special Economic Zones ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffs imposed by the Union as well for clearance into the domestic tariff area on payment of duty. The procedures are independent of the Customs Act and are wholly governed by the SEZ Act and the Rules thereof. Twenty-six items have been subjected to export duty under the Customs Act till 31-3-2008. With effect from 10th May, 2008, the Finance Act, 2008 added sixteen items to the Second Schedule of the Customs Tariff Act, which included items of iron and steel rendering them liable to export duty under the Customs Act. Effective rates of duty on these items were prescribed by a Notification dated 10-5- 2008 issued under Section 25 of the Customs Act and new effective rates of duty were further prescribed under a Notification dated 13-6-2008. It is contended that Section 47 or any other provisions of the SEZ Act cannot be read with any other provision of law unless the provision SEZ Act requires that to be done specifically or generally. It is further contended that Section 4 of the Customs Act has been invoked by Notifications to enable the officers under the SEZ Act to exercise powers under the Customs Act outside the SEZ for a limited area and for a limited purpose in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions, the questions that would arise for consideration are, (i) Whether export duty can be levied under the provisions of the Special Economic Zones Act, 2005? (ii) Whether export duty could be imposed under the Customs Act, 1962 while incorporating the definition of the expression "export" under the SEZ Act, 2005, into the Customs Act, 1962? 7. To answer these questions, we may briefly look at the provisions of the relevant statutes. The Customs Act, 1962 is an Act to consolidate and amend the law relating to customs. Under Section 2(15), the expression "duty" is defined to mean a duty of customs leviable under the said Act. "Export" is defined under Section 2(18) to mean with its grammatical variations and cognate expressions 'taking out of India to a place outside India'. The expression "export goods" is defined under. Section 2(19) to mean goods which are to be taken out of India to a place outside India and the expression "importer" is defined under Section 2(20) to mean in relation to any goods at any time between their entry for export and the time when they are exported and would include any owner or any person himself out to be "exporter". The expression "import" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted provides for the establishment, development and management of the SEZs for the promotions of exports and for matters connected therewith. Section 2(i) defines "Domestic Tariff Area" to mean the whole of India including the territorial waters and the continental shelf but, does not include the areas of the SEZs. The expression "entrepreneur" is defined under Section 2(15) to mean a person who has been granted a letter of approval by the Development Commissioner under sub-section (9) of Section 15. An existing Special Economic Zone is defined under Section 2(k) to mean every SEZ which is in existence on or before the commencement of the Act of 2005. Similar is the definition in respect of an "existing unit". The expression "export" is defined under Section 2(m) to mean taking goods or providing services out of India from a SEZ by land, sea, or air or by any other mode, whether physically or otherwise or supplying the goods or providing services from the Domestic Tariff Area to a unit or a developer or supplying goods or providing services from one unit to another unit or developer for the same or different SEZs. The expression "import" is defined under Section 2(o) to mean bringi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumption; Export goods "export goods" means any goods which are to he taken out of India to a place outside India; It is seen that the Government of India with a view to curtail the increasing price of steel products imposed export duty of 20% by introducing Heading Nos. 27 to 41 in the Second Schedule to the Customs Tariff Act, 1975 vide amendment to the Finance Bill dated 28-4-2008. The Government of India simultaneously issued Notification No. 66/2008 dated 10-5-2008 prescribing the effective duty at 5% to 15% on various steel products. This Notification was subsequently amended by Notification No. 77/2008 dated 13-6-2008. The authorities held that supplies to SEZs from a Domestic Tariff Area should be treated as exports and opined that such supplies would attract export duty. Since there was wide-spread objections by the industry, the Ministry of Commerce and Industry, issued a letter wherein it was stated that the Department of Revenue had suggested that supply of steel products on which export duty is applicable should be permitted after payment of prescribed amount of duty. It is pursuant to this clarification that demands were raised on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a territory outside the customs territory of India, for the purpose of undertaking its authorised operations the question would be whether a SEZ does not continue to be a part and parcel of India. If a SEZ was to be treated as being outside India, there was hardly any necessity under Section 26 to exempt from customs duty any goods which are imported into a SEZ and likewise exempt export duties when exported from a SEZ. Section 26 which provides for exemption and the manner of effectuating the exemptions are provided under the Rules. Rule 12 lays down that goods may be procured from the DTA without payment of duty, taxes and cess. Thus, if there is a manufacture in the DTA excise duty is not levied on the goods entering the SEZ area. Likewise, no customs duties are imposed when goods move from the DTA to a SEZ in terms of the Rule. Rule 27 also lays down that procurement from a DTA shall be without payment of duty and taxes. Export entitlements are also extended to the DTA units. It is seen that when a DTA clears its goods to SEZ unit, the transaction is treated as if it is a export from the DTA to the SEZ. A Bill of export is filed by the DTA unit and all duty paid is re funde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27 read with Section 26, drawback has to be allowed which is referable to the said drawback Rules when the domestic tariff supplies to a SEZ and therefore the amendment was made in the definition of "export". Incidentally, it is brought to the attention of the Court that a similar argument was advanced with reference to erstwhile EPZ units, when they clear goods to the DTA, to be considered as being supplied outside India, whereby the EPZ units were treated as an island within India and to be not a part of India. Such contention was negatived by the apex Court in the case of Thermax Private Limited v. Collector of Customs, 1992 (61) E.L.T. 352 (S.C.), to the effect that imports made into India would be entitled for the purpose of payment of countervailing duty to press into service the central excise exemptions which were sought to be denied on the reasoning that an export-oriented unit and export processing zones are deemed to be outside India and by such reasoning, when an EPZ Unit clears goods into a DTA, there was a measure of duty as if the goods were imported into India and countervailing duty, was also to be levied. The argument that excise exemption was not applicable sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lements. This would lead to the conclusion that export entitlements available on account of either the export of goods from the DTA to the SEZ are available either to the DTA supplier or a SEZ unit or a developer, at their option. Therefore, duty drawback and other export benefits would be available to either party at their option. Such provision exempts goods brought in by the SEZ unit from all levies and duties and since the duty is le viable on the goods, it is not rational to contend that the export leviable on the goods, it is not rational to contend that the export from the DTA to the SEZ should be taxed while the inward movement of the goods from the DTA to the SEZ would be exempt. It is thus clear from the Statement of objects to the SEZ Act that the intention of the Legislature was to make available goods and ser vices to the developer or unit, within the SEZ free of taxes and duties. Hence, the levy of export duty is neither expressly nor impliedly contemplated under the Act. The movement of goods from the DTA to the SEZ is treated as an export under the SEZ Act only by a legal fiction for the purposes of the Act, namely, for making available benefits as in the case of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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