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TMI Blog2021 (2) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... ) by a unit in an SEZ or a developer of an SEZ. The issue that arises in this writ petition is the eligibility or otherwise to exemption of High Speed Diesel Oil (HSD)/fuel purchased from suppliers including the Indian Oil Corporation Limited, Chennai (IOCL), for operating equipment leased from contractors and sub-contractors, and exclusively used in authorized operations, from the payment of Duty under the Central Excise Act, 1944. 3. The authorized operations of the petitioner are set out in the approval granted, as follows: 'Government of India, Ministry of Commerce and Industry, . . . . . . . . Lr.No.8/2/2010/L & T Shipbuilding SEZ-II Dt. 31/3/2010 To M./s.Larsen & Toubro Limited, . . . . Sub: Your proposal for setting up a unit in the Special Economic Zone. Ref: Your application dated 5/3/2010. ----- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al equipment, was reiterated. 6. By letter dated 08.03.2017, the Development Commissioner invoked Rule 27 of the Rules to reject the claim stating that the proviso to Rule 27 granted an exemption from duty for goods and services of contractors only so far as they were utilized for setting up and maintenance of the factory building and not for regular production of finished goods. 7. On 14.09.2017 the petitioner reiterated its request yet again and on 01.05.2019, the impugned order has come to be passed in the following terms: 'No.K 43014(16)/26/2018-SEZ Government of India . . . . . . . Udyog Bhavan New Delhi Dated 1st May 2019 To . . . . L&T Hydrocarbon Engineering Ltd. Subject: Seeking clarification for the usage of diesel for hired equipment for manufacturing activity. Sir, I am directed to refer to your letter dated 13.11.2018 on the subject mentioned above and to stable that the issue was earlier examined in consultation with DGEP. DGEP has opined that Diesel is consumable item and in view of the definition of the term consumable provided in Rule 2(1)(g) of SEZ Rules, 2006 diesel can be used only where manufacturing takes place. Since no manufacturing acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procured to run leased equipment. 9. The SEZ Act has been enacted to provide a fillip to economic activity and Section 7 of the Act exempts all goods and services exported out of or imported into or procured from the domestic tariff area by a unit therein or a developer, from all taxes, duties or cess. Section 26 of the Act extends available exemptions, drawbacks and concessions under all enactments to developers and entrepreneurs of an SEZ and exemption from any duty of excise, under the Central Excise Act, 1944 (1 of 1944) or the Central Excise Tariff Act, 1985 (5 of 1986) or any other law for the time being in force, on goods brought from Domestic Tariff Area to a Special Economic Zone or Unit is in terms of clause (c) thereof. 10. Rule 27(1) of the SEZ Rules extends the benefit of exemption to all types of goods including capital goods, both new and second hand, raw materials, semifinished goods, components, consumables, spares and materials for making capital goods that are required for the authorised operations except where such items are prohibited. The proviso to Rule 27 extends the eligibility to exemption to contractors and sub-contractors appointed by SEZ unit. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing up of an SEZ unit and carrying out of authorised operations are intended to be free of the fetters of taxation, subject of course, to strict compliance with all Rules, Regulations, terms and conditions. 13. In my understanding, the Rule grants a wide range of exemptions to a unit or developer, such exemptions covering the procurement of various goods, equipments, consumables, components, spaces and materials as required for authorized operations. The provisio extends such exemption to contractors appointed by the unit as well upon condition that the goods and services, procured are used only for setting up and maintenance of the factory building. The intention is evidently to ensure that contractors who play a role in the setting up and maintenance of the SEZ unit are given the benefit of exemption as well. 14. In the present case there is no dispute on the position that the fuel/HSD is used only for running the capital equipment for authorized operations. The Contractor plays no role except as the lessor of the capital equipment receiving lease rentals. 15. In the impugned order, the respondent states that diesel, being a consumable, should be used directly in the activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head 'use of crane service for the supply of tangible goods'. This appears to be the only consideration paid. 19. 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, Bombay V. Commissioner of Income Tax (196 ITR 188) 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. A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it. 20. 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 Com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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