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2010 Supreme(Kar) 715
High Court of Karnataka
THE HONOURABLE MR. JUSTICE ANAND BYRAREDDY
M/s. Shymaraju & Comparative Citation:.(India) Pvt. Ltd., Represented by P. Shyamaraju, C & MD
Versus
Union of India Rep. By the Director Department of Commerce (SEZ Section) Ministry of Commerce & Industry & Others
Writ Petition No.10810 OF 2008 C/W Writ Petition No.10999 of 2008, 11197 of 2008, 11440 of 2008, 11441 of 2008, 11442 of 2008, 11107 of 2008 And Writ Petition No. 12017 of 2008 (T-TAR)
Decided on : 13-07-2010
For the Petitioner:K.S. Ravishankar, Advocate.
For the Respondent:Y. Hariprasad, N.R. Bhaskar, Senior Standig Counsel, K.N. Mohan, Advocate.
The levy of export duty is not contemplated under the Special Economic Zones Act, and the authorities under the SEZ Act are without jurisdiction in seeking to enforce the liability which could arise only under the Customs Act.
Headnote:
SEZ Act - Export Duty - Section 26 of the SEZ Act - Customs Act, 1962 - Section 25 - Special Economic Zones Rules, 2006 - Duty exemptions, drawbacks and concessions - The court discussed the provisions of the SEZ Act, Customs Act, and SEZ Rules, and their interpretations. It highlighted the legal provisions related to duty exemptions, definitions of 'export' and 'import', and the applicability of export duty on goods supplied from the Domestic Tariff Area to the SEZ. The court concluded that the levy of export duty is neither expressly nor impliedly contemplated under the SEZ Act and that the authorities under the SEZ Act are without jurisdiction in seeking to enforce the liability which could arise only under the Customs Act. The instructions issued by the respondents under the impugned notifications are declared as wholly illegal and cannot be sustained.
Fact of the Case:
The petitioners, defined under the Sub-clauses of Section 2 of the Special Economic Zones Act, 2005, challenged the imposition of export duty on goods supplied from the Domestic Tariff Area to the SEZ. They contended that the instructions issued by the Department of Commerce enabling the levy of customs duty under the SEZ Act were without jurisdiction and illegal. The petitioners argued that the SEZ units fall within the territory of India and cannot be treated as a foreign territory for the purpose of levying export duty.
Finding of the Court:
The court found that the levy of export duty is neither expressly nor impliedly contemplated under the SEZ Act. It concluded that the authorities under the SEZ Act are without jurisdiction in seeking to enforce the liability which could arise only under the Customs Act. The court declared the instructions issued by the respondents under the impugned notifications as wholly illegal and quashed all proceedings initiated in this regard.
Issues: The main issues were whether export duty can be levied under the provisions of the Special Economic Zones Act, 2005, and 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.
Ratio Decidendi: The court held that the levy of export duty is not contemplated under the SEZ Act and that the authorities under the SEZ Act are without jurisdiction in seeking to enforce the liability which could arise only under the Customs Act. It emphasized that the movement of goods from the Domestic Tariff Area to the SEZ is treated as an export under the SEZ Act only by a legal fiction for the purposes of the Act, and that the levy of export duty arises under the Customs law and not under the SEZ Act.
Final Decision: The court declared that no export duty is payable for the supply of goods from the Domestic Tariff Area to the SEZ and quashed all proceedings initiated in this regard. The petitions were allowed accordingly.
These petitions are heard and disposed of to-gether having regard 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’, ‘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 Economic Zones for the promotion of exports. While notifying an area as a SEZ, the Central Government is guided by the objects enumerated under Section 5 of the SEZ Act, viz., generation of additional economic activity, promotion of exports of goods and services,. Promotion of investment from domestic and foreign sources, creation of employment opportunities, development of infrastructure facilities and maintenance of the sovereignty and integrity of India including its security and friendly relations with foreign countries.
Section 26 of the SEZ Act provides for duty exemptions, drawbacks and concessions to every ‘developer,, entrepreneur’, ‘co-developer’ and an ‘unit’ , as defined under the SEZ Act. There is exemption from duty of customs on goods imported into or services provided in a SEZ to carry on the authorised operations and exemptions from customs duty on goods exported from or services provides from a SEZ. Exemption from duty of central excise under the Central Excise Act, 1944 (hereinafter referred to as the ‘1944 Act’ for brevity) or the Central Excise Tariff Act, 1985 (hereinafter referred to as ‘the CET Act for brevity), on goods brought from the ‘Domestic Tariff Area’ (hereinafter referred to as ‘the DTA’ for brevity), as defined under the Act, to an SEZ. These exemptions are claimed as per Rule 22 of the Special Economic Zones Rules, 2006 (hereinafter referred to as ‘SEZ Rules’ for brevity).
By virtue of the Finance Act, 2008, various items were included in the Second Schedule – Export Tariff, to the Customs Tariff Act, 1975, including pig-iron, ferrous products, iron and steel products of various types, so as to introduce tariff rates of duty at 20% ad-valorem on all iron and steel items. Simultaneously, on 10.5.2008, the Central Government issued an exemption notification prescribing the effective rates of duty on sixteen items added to the Export Tariff Schedule. Consequently, all Development Commissioners were made aware that “export duty” had been levied on export of steel products and therefore they were to allow supply of steel products to SEZs on submission of a bond and a bank guarantee in case the duty would be finally payable. The notification dated 10-5-2008 was amended by another notification dated 13.6.2008, reducing the rates of exemption and thereby increasing the effective rate of duty.
The effect of the custom notifications issued 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
