DLF Utilities Ltd. Vs Union of India (Madras High Court)
Conclusion: Even if, it was assumed that the clearance of HSD Oil was without the authority of law by the DTA supplier (IOCL). Only the jurisdictional officer concerned under the Central Excise Act, 1944 within whose jurisdiction IOCL was registered, was competent to issue a show cause notice to recover the excise duty under section 11A of the Central Excise Act, 1944. Therefore, the demand proposed for recovering excise duty on HSD Oil was liable to be quashed.
Development Commissioner appointed under section 11 of the Special Economic Zones Act, 2005 is neither a “proper officer” within the meaning of Section 2(34) the Customs Act, 1962 nor a Central Excise Officer for the purpose of Section 11A of the Central Excise Act, 1944, to demand excise duty vide impugned show cause notice.
Held: Assessee was a co-developer of Information Technology/Information Technology Enabled Services located in a Special Economic Zone (SEZ). Assessee was procuring High-Speed Diesel (HSD) without payment of excise duty from a local refinery in terms of Section 26(1)(c) of the Special Economic Zones Act. 2005 read with Rule 27 of the SEZ Rules, 2006 for carrying on authorised operation in the “Processing Area”. Department issued show cause notice seeking to recover an amount of excise duty from assessee on HSD Oil supplied between 1.4.2015 to 2.10.2015. Assessee’s case was that the impugned 2015 Guidelines could not deny the exemptions provided under the provisions of the Special Economic Zones Act, 2005 and the aforesaid Rules by altering the location of the power plant of assessee to an area in a “Non Processing Area” to make all the procurements dutiable for generation of electricity for being supplied to units located in the Special Economic Zones. Department issued show cause notice seeking to recover an amount of excise duty from assessee on HSD Oil supplied between 1.4.2015 to 2.10.2015. Assessee contended that even if excise duty had to be collected, it had to be collected from the manufacturer /refinery concerned which supplied HSD Oil to assessee. It was held that DTA supplier was not only entitled to the exports benefits under the Foreign Trade Policy in terms of Rule 23 of Special Economic Zone Rules, 2006 but was also entitled to clear the goods under bond or claim rebate of tax/duty paid by it in terms of Rule 30 of the aforesaid Rules. That apart procurement of HSD by assessee from IOCL did not qualify as an import within the meaning of Section 2(o) of the Special Economic Zones Act, 2006. Therefore, there could not be a demand for customs duty and interest thereon on the excise duty foregone by IOCL at the time of clearance of HSD from its factory/refinery to assessee under section 28 or 28AA of the Customs Act, 1962. Further, Rule 47(5) of the Special Economic Zones Rules, 2006 had been inserted vide GSR 772 (E) dated 5.8.2016 with effect from 8.8.2016. As per the above provision, “Refund, Demand, Adjudication, Review and Appeal with Regard to Matters Relating to Authorised Operations under the Special Economic Zones Act, 2005, transactions, and goods and services related thereto, shall be made only by the jurisdictional Customs and Central Excise Authorities in accordance with the relevant provisions contained in the Customs Act, 1962, the Central Excise Act, 1944 and the Finance Act, 1994 and the rules made the render or notification issued under”. Thus, the impugned show cause notice was also liable to be declared as without jurisdiction. Even if, it was assumed that the clearance of HSD Oil was without the authority of law by the DTA supplier (IOCL). Only the jurisdictional officer concerned under the Central Excise Act, 1944 within whose jurisdiction IOCL was registered was competent to issue a show cause notice to recover the excise duty under section 11A of the Central Excise Act, 1944. Therefore, the demand proposed was liable to be quashed.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
By this common order both the writ petitions are being disposed.
2. In W.P No. 25837 of 2016 the petitioner has challenged the impugned Guideline dated 6.4.2015 bearing Reference No. P.613/2006-SEZ of the 1st respondent. The impugned guidelines seeks to restore earlier Guideline dated 27.2.2009 bearing reference P.6/2003-SEZ of the 1st respondent. As a result of the impugned Guideline, the petitioner was required to procure High-Speed Diesel Oil (HSD) on payment of excise duty during the period in dispute between 1.4.2015 and 15.02.2016.
3. Since the petitioner had procured HSD Oil from Indian Oil Corporation Ltd. (IOCL)without payment of excise duty between 1.4.2015 and 3.10.2015, the 2nd respondent, the Development Commissioner, MEPZ, Chennai- 45 has issued the impugned SCN dated 30.3.2016 bearing reference No. 25/SO/2015-MP EZ-SEZ to the petitioner and has called upon the petitioner to pay a sum of Rs.11,13,78,979/- in terms of Rule 27(3) of Special Economic Zone Rules, 2006 read with Section 26 of the Special Economic Zones Act,2005.
4. The petitioner has therefore challenged the aforesaid show cause notice dated 30.3.2016 bearing reference No. 25/SO/2015-MPEZ- SEZ (hereinafter referred to as the impugned show cause) issued by the 2nd respondent, the Development Commissioner, MEPZ, Chennai- 45 in W.P.No 25838 of 2016.
5. The petitioner is a Co-Developer of Information Technology/Information Technology Enabled Services located in a Special Economic Zone (SEZ) in Pour, Chennai.
6. The petitioner was approved as a co-developer by the Board of Approval, Ministry of Commerce by an approval order dated 17.6.2008 and 7.10.2008 to generate 84 MW power for being supplied to units located in SEZ, that was being developed by DLF Info City Developers (Chennai) Ltd.
7. The petitioner was procuring High-Speed Diesel (HSD) without payment of excise duty from a local refinery in terms of Section 26(1)(c) of the Special Economic Zones Act. 2005 read with Rule 27 of the SEZ Rules, 2006 for carrying on authorised operation in the “Processing Area”.
8. It is the case the petitioner that the impugned 2015 Guidelines cannot deny the exemptions provided under the provisions of the Special Economic Zones Act, 2005 and the aforesaid Rules by altering the location of the power plant of the petitioner to an area in a “Non Processing Area” to make all the procurements dutiable for generation of electricity for being supplied to units located in the Special Economic Zones. It is submitted that the impugned Show Cause Notice dated 30.3.2016 by the 2nd respondent seeking to recover an amount of Rs.11,13,78,979/- as excise duty from the petitioner on HSD Oil supplied between 1.4.2015 to 2.10.205 was liable to be quashed.
9. It is further submitted that even if excise duty has to be collected, it has to be collected from the manufacturer /refinery concerned which supplied HSD Oil to the petitioner and therefore the proposed demand was contrary to the well known canons of law and contrary to the provisions of the Act.
10.It is further submitted that there is no method provided either under the Act or the Rules made thereunder to order recovery of the excise duty from the recipient like the petitioner even if it is assumed procurement was without any authority of law.
11. It is further submitted that, the Large Tax Unit of the Excise Department has issued a notice dated 6.4.2016 to Chennai Petroleum Corporation Ltd. for supplies effected without payment of duty to similarly placed person. It is therefore submitted that at best notice could have been issued to the supplier who supplied HSD Oil to the petitioner without duty. As such, the impugned show cause notice was without the authority of law.
12.It is further submitted that the impugned 2015 Guidelines dated 6.4.2015 was lated replaced with a new Guidelines dated 16.9.2016 as a result of which the status quo-ante that was prevailing immediately prior to the impugned 2015 Guideline has been partly restored.
13. It is therefore submitted that all procurement after 16.9.2016 are without payment of tax. It is therefore submitted that benefit of Guidelines dated 16.9.2016 should be allowed retrospectively. Under these circumstances, it is therefore submitted that even if the impugned 2015 Guidelines in valid, it is liable to be read down. Consequently, the demand proposed in the impugned show cause notice is liable to be quashed.
14. Learned counsel for the petitioner relied on the following case laws:
i. GMR Aerospace Engineering Ltd. V. UOI – 2019-VIL-489-TEL
ii. Mahavir Prasad & Ors. – (1999) 8 SCC 266.
iii. Jindal Stainless Limited Vs. UOI – 2017(51) S.T.R. 130(Del.)
15.The respondents have filed a detailed counter wherein it has been stated that exemptions, concessions and drawback incentives etc. as provided for in Section 26(1) of the SEZ Act, 2005 are subject to conditions prescribed. It is submitted that the Central Government may prescribe the manner in which, and the terms and conditions subject to which, the exemption, concession, drawback or other benefits shall be granted to the developer or entrepreneur under subsection (1).
16. It is submitted that for the aforesaid purpose the Special Economic Zone Rules, 2006 (SEZ Rules 2006) has been framed by the Central Government. It is submitted that as per Rule 27(3) of the aforesaid Rules, “no duty free material shall be permitted for operation and maintenance of infrastructure and other facilities set up in “non-processing area” and since by virtue of the impugned guidelines powerplants situated in “Processing Areas” were directed to be demarcated as “Non-Processing Areas”, question of the petitioner claiming exemption from payment of excise duty on HSD Oil procured from Domestic Tariff Area cannot be countenanced.
17. I have considered the arguments advanced on behalf of the petitioner and the respondent. The petitioner is co-developer of DLF Info City Developers (Chennai) Ltd.
18. Initially, the petitioner was given an approval on 17.6.2008 for setting up a co-generation plant by installing and commissioning gas turbine based power generating sets by setting up an energy centre to provide electricity as a single source and to generate chilled water using vapour absorption machine.
19. By another letter dated 17.6.2008, the petitioner was allowed to set up 48 MW capacity power plant in the Non-Processing Area” of the IT Facility infrastructure being set up by the Developer of Special Economic Zone namely DLF Info City Developers (Chennai) Ltd.
20.It mandated that procedure prescribed in the Special Economic Zones Rules, 2006 must be followed for availing the benefit of any exemption, drawback or concession.
21. By another approval dated 7.10.2008, the petitioner was informed that the Board of Approval of 1st respondent in its meeting held on 22.9.2008 had approved for modification in the authorised operations to be carried out by the petitioner.
22. By virtue of the aforesaid communication, the capacity of production was altered to 48 MW from 84 MW. The location of the power plant was demarcated within the “Non Processing Area” of Special Economic Zone which is now being altered in the impugned Guideline. Thus, the power plant installed by the petitioner fell within the “Processing Area” of the said Special Economic Zone. Thus, all procurements of HSD oil for O & M operation by the petitioner were without payment of excise duty. A reference to the impugned Guideline will be made in the succeeding paragraph of this Order. The impugned guideline restores the position in 2009 Guidelines.
23. In 2009, the 1st respondent issued 2009 Guidelines dated 27.02.2009 under section 5 of the SEZ Act, 2005 read with Rule 12 of the Special Economic Zone Rules, 2006,. As per the aforesaid guidelines,a power plant to be set up by a Developer in a SEZ as a part of infrastructure facility was to be located in the Non-Processing area of SEZ and the developer which included co-developer like the petitioner were entitled to only certain fiscal benefits for initial setting up.
24. It clarified that no fiscal benefit would be admissible for operations and maintenance under rule 27(3) of the SEZ Rules, 2006. It also further stipulated that there will be no obligation to achieve positive Net Foreign Exchange Earning (NFE) for such power plants.
25. However,the 2009 Guideline was modified by 2012 Guideline dated 21.3.2012. Importantly it gave certain relaxation and stated as follows:-
“i) Such a power plant set up in a processing area will be entitled to all the benefits available to developers/co- developers, including fiscal benefits under section 26 of the SEZ Act, 2005 including benefits for initial setting up, duty-free imports of raw materials, components and consumables for operation and maintenance of power plant and generation of power plant.
ii) However, a power plant set up by a developer/co-developer in an SEZ as part of infrastructure facility in the non-processing area of an SEZ as part of infrastructure facility in non-processing area will be entitled to fiscal benefit only force its initial setting up and no fiscal benefit would be admissible for its operation and maintenance in terms of rule 27 (3) of SEZ Rules. There will be no obligation to achieve positive Net Foreign Exchange Earning (NFE) for such power plants.”
26. Since, the petitioner’s power plant had already been earmarked and fell within the “Processing Area”, the petitioner procured HSD Oil without payment of excise duty from a local supplier namely the Indian Oil Corporation Ltd. (IOCL) located in the Domestic Tariff Area (DTA). This guideline was withdrawn. The relevant portion of the impugned Guidelines dated 6.4.2015 which has been challenged in W.P.No 25837 of 2016) reads as under:-
“With reference to subject cited above, I am directed to inform that the above mentioned guidelines issued vide this Department’s letter of even number dated 21st March, 2012 have been withdrawn by the Government with immediate effect i.e. 1st April, 2015. Further, the Power Guidelines issued vide this Department’s letter of even number dated 27th February, 2009 have been restored. A copy of the communication in this regard is enclosed.
2. In pursuance of the above cited decision, you are informed that henceforth setting up of power plants shall be allowed only in the Non- Processing Area of SEZs. Further, those power plants which are presently situated in Processing Areas of SEZs, shall be demarcated as Non-Processing Areas and no operation and maintenance (O&M) benefits will now be available for such power plants. An action taken report to the matter may be furnished to this Department.”
27. However, with effect from 1.4.2015, in the light of the 2015 Guidelines dated 6.4.2015(Impugned in W.P.No 25837 of 2016) of the 1strespondent, petitioner has been issued with the impugned show cause notice dated 30.3.2016.
28. The impugned show cause notice challenged in W.P.No 25838 of 2016) calls upon the petitioner to show cause as to why
“i.The power plants owned and operated by M/s.DLF Utilities Ltd., Co-developer, DLT IT/ITES situated in the processing area of M/s.DLF IT/ITES SEZ should not be considered as situated in Non processing area in as much as the Co Developer viz., M/s.DLF utilities Ltd., have failed to adhere to the conditions stipulated in the Ministry’s guidelines dated 27.02.2009 as discussed above;
ii. The exemption for Central Excise duty on the High Speed Diesel procured from DTA should not be held as ineligible as discussed above in terms of Rule 27(3) of SEZ Rules, 2006 read with Section 26 of the SEZ Act, 2005;
iii. An amount of Rs.11,13,78,979/- (Rupees Eleven crores thirteen lakhs seventy eight thousand nine hundred and seventy nine only) towards the Central Excise duty involved on the quantity of 10856 KLs of High Speed Diesel procured by them from DRA under ARE-1s during the period from 01.04.2015 to 03.10.2015 and detailed in the Annexure to this notice should not be demanded in terms of Rule 27(3) of SEZ Rules, 2006 read with Section 26 of the SEZ Act, 2005 as discussed above;
iv.Why interest at appropriate rates on the amount of exemption availed by them should not be demanded in terms of Section 28AA of the Customs Act, 1962.
v.Why a penalty should not be imposed on them in terms of Section 117 of the Customs Act, 1962 for the irregular/wrong availment of exemption under Rule 27(3) of the SEZ Rules, 2006 read with Section 26 of the SEZ Act, 2005.”
29.The impugned Guidelines of 2015 was further modified in 2016 vide Guideline dated 16.02.2016. Relevant portion of the 2016 Guidelines reads as under:-
“(iv) With respect to the IT/IT ES SEZs, which require continuous power wherever generation of power has been approved by the BoA, as authorised operations, to the Developer/Co-developer within the processing area, and in respect of which there is statutory requirement on the developer/co-developer to supply 24 hours uninterrupted quality power supply at stable frequency in the zone, in terms of Rule 5A of the SEZ Rules, 2006, in such cases generation of power will be carried out as a unit within the processing area, and such power plant including nonconventional energy power plant, will be entitled to all the fiscal benefits covered under section 26 of the SEZ Act including the benefits for initial setting up,maintenance and duty-free import of raw materials and consumables for generation of the power. Such duty-free imports of capital goods, raw materials and consumables et cetera would be counted towards NFE obligations of the unit.
vi) Those Power Plants in SEZ which were approved prior to 27.2.2009, and subject to show of Power Guidelines and provisions of SEZ Act and Rules, either as an infrastructural facility by Developer/Co-Developer or as a unit in the processing area, will be permitted to operate. It is relevant that during the period of installation of such plants, due to benefits and capital investment of mega power plants were available under the then prevalent policy guidelines even in the DTA area.
Hence, such power plant will be allowed O&M benefits only with regard to the average monthly power supply to entities within the same S EZ during the preceding year. Henceforth, no O&M benefits including service tax exemption will be allowed for power supplied to DTA/other S EZ/EOU’s from such power plants. The surplus power generated in such power plants may be transferred to DTA without payment of duty, keeping in consideration of the fact that no duty-free benefits on raw materials consumables et cetera have been availed for generation of such power. However, those power plants not having the capacity of the mega power plant, as given in DoR Notification No. 21/2002-Customs dated 1.3.2002 will be required to pay duty for sale in DTA, on account of duty-free import of capital goods as determined by DoR.”
30. As far as exemptions under the Special Economic Zones Act, 2005 is concerned, there are two provisions which grant exemptions to Developers/Co-Developers in a Special Economic Zones. They are Section 7 in Chapter II and Section 26 in Chapter VII of the Act. They are reproduced below:
