Case Law Details
Lupin Limited Vs Commissioner of Customs (CESTAT Delhi)
Conclusion: Since the appellate authority had failed to examine issue of customs duty exemption Notification No. 45/2017-Cus., which provided different levels / measures of exemption benefits to the re-imported goods depending upon which export benefits, like duty drawback, rebate etc., the therefore, matter need to be remanded on the applicability of the exemption notification and whether the appellant was entitled to any benefit in terms thereof.
Held: Appellant was a SEZ unit, engaged in manufacturing and export of pharmaceutical products for which they procured some input goods from DTA unit. Since certain input goods remained unutilised, the appellant supplied back the said goods to the DTA on payment of duty under protest. Accordingly, they filed the refund application amounting to Rs. 36,65,884/-. The show cause notice was adjudicated whereby the refund claim was rejected being not admissible under the provisions of Special Economic Zone Act, 2005 read with the Customs Act, 1962. Revenue contended the provisions of rule 47 of SEZ Rules read with section 30 of SEZ Act any goods removed from SEZ to DTA were chargeable to Customs duties. The issue which arose for consideration was whether the goods removed from SEZ to DTA (initially procured from DTA) were chargeable to customs duties in terms of section 30 of SEZ Act, 2005 read with rule 47 of SEZ Rules, 2006. It was held that appellant had raised the contention that he had been wrongly denied the benefit of the exemption Notification No. 45/2017-Cus., which provided different levels / measures of exemption benefits to the re-imported goods depending upon which export benefits, like duty drawback, rebate etc., were availed and subject to several conditions. It was observed that it had been dispatched on payment of Central Excise duty and drawback too have been claimed, however, the appellate authority had failed to examine the issue of exemption benefit under the said notification in detail, giving specific reasons. Therefore, the matter need to be remanded on the applicability of the exemption notification and whether the appellant was entitled to any benefit in terms thereof.
FULL TEXT OF THE CESTAT DELHI ORDER
Challenging the Order in Appeal No IND-EXCUS-000-APP107-2022-23 dated 02.03.2023 whereby the Commissioner (Appeals) dismissed the appeal, the appellant has filed the instant appeal.
2. The appellant is a SEZ unit, engaged in manufacturing and export of pharmaceutical products for which they procured some input goods from DTA unit. Since certain input goods remained unutilised, the appellant supplied back the said goods to the DTA on payment of duty under protest. Accordingly, they filed the refund application amounting to Rs. 36,65,884/-. The show cause notice dated 28.10.2021 was adjudicated whereby the refund claim was rejected being not admissible under the provisions of Special Economic Zone Act, 2005 (hereinafter referred to as SEZ Act, 2005) read with the Customs Act, 1962. The appeal filed by the appellant challenging the order in original dated 01.12.2021 was also dismissed by the Commissioner (Appeals) vide impugned order. Hence the present appeal has been filed before this Tribunal.
3. The issue which arises for consideration here is whether the goods removed from SEZ to DTA (initially procured from DTA) are chargeable to customs duties in terms of section 30 of SEZ Act, 2005 read with rule 47 of SEZ Rules, 2006.
4. I have heard the learned counsel for the appellant and also the Authorised Representative for the revenue and have perused the records of the case.
5. The basic submission of the appellant is that in terms of rule 48 (3) of the SEZ Rules, 2006 if the goods procured from DTA are cleared back to DTA by SEZ unit without undertaking any manufacturing activity, such goods shall be treated as re-import and the said rule postulates deeming fiction with regard to non-leviability of basic customs duty on the re-imported goods. The revenue on the other hand relied on the findings of the authorities below referring to the provisions of rule 47 of SEZ Rules read with section 30 of SEZ Act to say that any goods removed from SEZ to DTA are chargeable to Customs duties.
6. Before adverting to the issue, it is necessary to examine the introduction and the relevant provisions of the SEZ Act. The Government of India introduced the concept of special economic zone (herein after referred to as SEZ) in India on 01.04.2000 under the export and import policy now referred to as foreign trade policy. Subsequently, the Parliament enacted the Special Economic Zones Act, 2005. The Special Economic Zone Rules were brought into effect from 10.02.2006. The Act was enacted with a view to provide for the establishment, development and management of special economic zones so as to encourage and promote exports, generate additional economic activities and employment opportunities.
7. Special economic zones created under the SEZ Act are on a different footing. Section 53 declares a special economic zone to be a territory outside the customs territory of India for the purpose of undertaking the authorised operations. Thus the Act itself treats SEZ as an area outside India and such zones are deemed to be a foreign territory for trade operations, duties and tariff purposes and have therefore been accorded special status. Section 30 of the SEZ Act makes any goods removed from special economic zone to the domestic tariff area, chargeable to duties of customs, including antidumping, countervailing, and safeguard duties. Further, Section 51 of the SEZ provides for a non-obstinate clause, conferring overriding effect upon the Act vis-a-vis any other law.
8. The clear and unambiguous provisions of section 30 has been noted in Roxul Rockwood Insulation India Pvt. Ltd Vs Union of India, 2015 (320) ELT 554, where the High Court observed as under :
”From the above statutory provisions, it can be seen that by virtue of section 30 of the SEZ Act, a SEZ unit on its clearance of goods to any DTA invites duty of customs, including CVD where applicable as leviable on such goods when imported. Such DTA clearance by SEZ unit would, thus, be treated as imports for computation of CVD”.
8.1. The Madras High Court in Nokia India Sales Pvt. Ltd. Vs. Assistant Commissioner, CT, Chennai, 2015, (325) ELT 259, where the issue was with regard to levy of purchase tax on interstate stock transfer from warehouse located in SEZ, observed as under:-
”23. It is to be noted that the petitioner had accepted the terms prescribed in the approved letter dated 7-3-2011 for its setting up in SEZ unit, of which, one of the conditions is that the petitioner can supply/sell the goods or services in the domestic tariff area in terms of the provisions of the Special Economic Zones Act, 2005 and rules and orders made thereunder. In this regard, it is relevant to extract Section 30 of the Special Economic Zones Act, 2005, which deals with ‘Domestic clearance by units‘, which reads as under :
”30. Domestic clearance by Units. – Subject to the conditions specified in the rules made by the Central Government in this behalf :- (a) any goods removed from a Special Economic Zone to the Domestic Tariff Area shall be chargeable to duties of customs including anti-dumping, countervailing and safeguard duties under the Customs Tariff Act, 1975, where applicable, as leviable on such goods when imported; and (b) the rate of duty and tariff valuation, if any, applicable to goods removed from a Special Economic Zone shall be at the rate and tariff valuation in force as on the date of such removal, and where such date is not ascertainable, on the date of payment of duty.”
24. A perusal of the above, it is explicit that if any goods are to be removed from a special economic zone to the domestic tariff area, they shall be chargeable to duties of customs, including anti-dumping, countervailing, and safeguard duties.‖
8.2. In Essar Project India Ltd., Vs. Commissioner of Customs, Ahmedabad, 2019 (368) ELT 1547, the Tribunal was dealing with the issue of payment of interest on clearance of the goods from SEZ to DTA and it was observed:
”Analyzing the above provisions, particularly Sec. 30 of the SEZ Act, it is clear that on clearance or removal of the goods from the SEZ to DTA, the applicable duties of Customs as levied under the CTA, 1975 are required to be paid at the rate of duty and tariff valuation, if any applicable, would be the rate as in force on the date of its removal or payment of duty as the case maybe.”
8.3. Similarly, in Suchi Fastners Pvt. Ltd. Vs. Commissioner of Central, Excise & ST, Vadodara, 2021 (378) ELT 329 (Tri-Ahmad) the Tribunal was dealing with the refund claim of customs duty and SAD paid in excess on clearance of goods from SEZ unit to DTA customers, held in para 6 :
”However, in the facts and circumstances of this case, I find that findings of Commissioner (Appeals) are not correct as under section 30 of the SEZ Act, 2005, goods removed from SEZ to DTA are chargeable to customs duties.”
From the aforesaid decisions, it is evident that on clearance of goods from SEZ unit to DTA, customs duty etc. is payable under section 30 of SEZ Act.
9. The learned Counsel for the appellant has placed much reliance on the provisions of Rule 48(3) of SEZ Rules whereas the revenue has referred to section 30 and rule 47 of the SEZ Rules. Since the issue to be decided requires the applicability of these provisions, the same are quoted below:
”Section 30. Domestic clearance by Units.- Subject to the conditions specified in the rules made by the Central Government in this behalf,-
(a) any goods removed from a Special Economic Zone to the Domestic Tariff Area shall be chargeable to duties of customs including antidumping, countervailing and safeguard duties under the Customs Tariff Act, 1975 (51 of 1975), where applicable, as leviable on such goods when imported; and
(b) the rate of duty and tariff valuation, if any, applicable to goods removed from a Special Economic Zone shall be at the rate and tariff valuation in force as on the date of such removal, and where such date is not ascertainable, on the date of payment of duty.‖
Rule 47. Sales in Domestic Tariff Area.—
(1) A Unit may sell goods and services including rejects or wastes or scraps or remnants or broken diamonds or by products arising during the manufacturing process or in connection therewith, in the Domestic Tariff Area on payment of Customs duties under section 30, subject to the following conditions, namely:—
(a) Domestic Tariff Area sale under sub-rule (1), of goods manufactured by a Unit shall be on submission of import licence, as applicable to the import of similar goods into India, under the provisions of the Foreign Trade Policy: Provided that goods imported or procured from the Domestic Tariff Area and sold as such without being subjected to any manufacturing process shall be subject to the provisions of the Foreign Trade Policy as applicable to import of similar goods into India.
(b) Domestic Tariff Area sale under sub-rule (1) of rejects or scrap or waste or remnants arising during the manufacturing process or in connection there-with by the Unit shall not be subject to the provisions of the Import Trade Control (Harmonized System) of Classification of Export and Import Items:
Provided that the Central Government may notify restrictions, as it deems fit on all or any class of such goods mentioned under this clause.
(2) Scrap or dust or sweeping of gold or silver or platinum may be sent to Government of India Mint or Private Mint from a Unit and returned in standard bars in accordance with the procedure specified by Customs authorities or may be sold in the Domestic Tariff Area on payment of duty on the gold or silver or platinum content in the said scrap:
Provided that the value of samples of gold or silver or platinum sweepings or scrap or dust taken at the time of clearance and sent to the Government Mint or Private Mint for assaying and assessment shall be finalized on the basis of reports received from the Government Mint or Private Mint, as the case may be.
(3) Surplus power generated in a Special Economic Zone‘s Developer‘s Power Plant in the SEZ or Unit‘s captive power plant or diesel generating set may be transferred to Domestic Tariff Area on payment of duty on consumables and raw materials used for generation of power subject to the following conditions, namely:—
(a) proposal for sale of surplus power received by the Development Commissioner shall be examined in consultation with the State Electricity Board, wherever considered necessary: Provided that consultation with State Electricity Board shall not be required for sale of power within the same Special Economic Zone;
(b) norms for production of a unit of power shall be approved by the Approval Committee;
(c) sale of surplus power to other Unit or Developer in the same or other Special Economic Zone or to Export Oriented Unit or to Electronic Hardware Technology Park Unit or to Software Technology Park Unit or Bio-technology Park Unit, shall be without payment of duty;
(d) for sale of surplus power in Domestic Tariff Area, the Unit shall obtain permission from the Specified Officer and the State Government authority concerned;
(e) duty on sale of surplus power to the Domestic Tariff Area shall be as provided for in this rule.
(4) Valuation and assessment of the goods cleared into Domestic Tariff Area shall be made in accordance with Customs Act and rules made thereunder.
”Rule 48. Procedure for Sale in Domestic Tariff Area. —
(1) Domestic Tariff Area buyer shall file Bill of Entry for home consumption giving therein complete description of the goods and/or services namely, make and model number and serial number and specification along with invoice and packing list with the Authorised Officers:
Provided that the Bill of Entry for home consumption may also be filed by a Unit on the basis of authorization from a Domestic Tariff Area buyer.
(2) Valuation of the goods and/or services cleared into Domestic Tariff Area shall be determined in accordance with provisions of Customs Act and rules made thereunder as applicable to goods when imported into India.
(3) Where goods procured from Domestic Tariff Area by a Unit are supplied back to the Domestic Tariff Area, as it is or without substantial processing, such goods shall be treated as re-imported goods and shall be subject to such procedure and conditions as applicable in the case of normal re-import of goods from outside India:
Provided that in the case where such goods are supplied back to the Domestic Tariff Area, as it is, and where the import duty on such goods is ‗Nil’ and while procurement of such goods no export benefits were allowed against such goods, the Unit may be allowed to supply back such goods to Domestic Tariff Area on the basis of invoice only and filing of Bill of Entry in such cases shall not be required.‖
10. The provisions of section 30 of the SEZ Act permits DTA clearances by a SEZ unit on certain conditions and that is goods to be removed from SEZ to DTA would be chargeable to duties of customs etc. It is a settled principle of law that once the provisions of an enactment are simple and there is no ambiguity there is no scope for interpretation. A three Judge Bench of the Apex Court in Kalyan Roller Flour Mills Private Limited Vs CCE, 2014 (16) SCC 375, observed that when the language is clear and plain, the courts cannot enlarge the scope by interpretative purposes. The relevant para is quoted below:-
”15. In Oswal Agro Mills Ltd. v. CCE, 1993 Supp (3) SCC 716, this Court has observed that:
“Where the words of the statute are plain and clear, there is no room for applying any of the principles of interpretation which are merely presumption in cases of ambiguity in the statute. The court would interpret them as they stand. The object and purpose has to be gathered from such words themselves. Words should not be regarded as being surplus nor be rendered otiose. Strictly speaking there is no place in such cases for interpretation or construction except where the words of statute admit of two meanings. The safer and more correct course to deal with a question of construction of statute is to take the words themselves and arrive, if possible, at their meaning, without, in the first place, reference to cases or theories of construction.”
Similar view has been reiterated by the Apex Court in State of Maharashtra Vs Shri Vile Parle Kelvani Mandal & Ors. 2022 (2) SCC 725, that recourse cannot be had to any other principle of interpretation, when the words are clear and unambiguous. It also noted the observations of the earlier decision in Giridhar G Yadalam- 2015 (17) SCC 664, where it has been held that in a taxing statute, it is the plain language of the provision that has to be preferred where language is plain and is capable of one definite meaning. There are catena of judgements on the issue, however, I am not repeating the same.
11. In view of the substantive provisions of section 30 specifically providing for clearance of goods from SEZ to DTA on payment of customs and other duties, the submission sought to be made by the appellant that rule 48(3) carved out a deeming fiction of non leviability of BCD and SWS on the imported goods is not correct on the simple principle that the rules cannot go contrary to the substantive provisions of the Act. When section 30 in clear terms says that goods cleared from SEZ units shall be chargeable to duties of customs etc., and though the same are subject to the conditions specified in the rules made by the Central Government in that regard yet the interpretation given by the appellant is unsustainable. Rule 48 sets out the procedure for sale in domestic tariff area and clause (3) thereof merely says that goods procured from domestic tariff area by a unit are supplied back to the domestic tariff area without processing, such goods shall be treated as re-imported goods and shall be subject to such procedure and conditions as applicable in the case of normal re-import of goods from outside India. It nowhere says that no duty is chargeable in such case. And as observed by the authorities below the provisions of re-importation of goods have been provided in section 20 of the Customs Act whereunder the goods are liable to duty. So the appropriate interpretation of rule 48(3) would be that clearance of goods by SEZ units back to DTA shall be treated as normal re-import but that would not make the SEZ unit as importer. The basic fallacy in the interpretation placed by the appellant was that they completely ignored the provisions of rule 47 which provides for ―Sales in Domestic Tariff Area‖ on payment of customs duty under section 30. Thus rule 48(3) has to be read together with rule 47 and not in isolation. Attention is invited to the principle laid down by the Apex Court in J.K. industries Ltd., Vs. Union of India- 2007 (13) SCC 673, observing that, ―Therefore, power to make subordinate legislation is derived from the enabling Act and it is fundamental principle of law, which is self evident that the delegate on whom such powers is conferred has to act within the limitations of the authority conferred by the Act. It is equally well settled that rules made on matters permitted by the Act in order to supplement the Act and not to supplant the Act, cannot be held to be in violation of the Act. A delegate cannot override the Act either by exceeding the authority or by making provisions inconsistent with the Act. “ On similar lines the Apex Court in Yogender Kumar Jaiswal Vs. State of Bihar -2016 (3) SCC 183, where the rule provided the Special Courts to follow summary procedure whereas the Act provided to follow the warrant procedure for trial of cases before a Magistrate, the Court observed that Rules have to be in accord with the Act. The Rules can supplement the provisions of the Act but decidedly they cannot supplant the same. Therefore, the consequent contentions raised by the learned Counsel for the appellant has no substance and stands rejected. The learned Counsel for the appellant has submitted a compilation of judgements, the reference where of is The Commissioner of Income Tax, Mysore, Travencore – Cochin and Coorg, Bangalore Vs. The Indo Mercantile Bank Limited MANU/SC/0070/1959, State of Odisha and Ors. Vs. Khirodini Rout and Ors. –MANU/OR/0832/2023, National Thermal Power Co. Ltd., Vs. Commissioner of Income-Tax -1998 (99) ELT 200 (SC) and also in Collector of Central Excise, Hyderabad Vs. Collector of Central Excise, Hyderabad – 1999 (113) ELT 24 (SC). On perusal of these judgements I am of the view that they are not relevant in the present context.
12. The Adjudicating Authority made the observations as under:-
”In a normal import, the importer is the one who discharges the duty, but as per the special provisions of SEZ, the unit which is supplying the goods is discharging the duty liability. The fact that the supplier is discharging the duty does not give the supplier the status of an importer. When goods are supplied by a unit in SEZ to a DTA purchaser, the transaction is an import for the purchaser and the supplier cannot be an importer. The claim of the noticee is that the goods supplied by them should be treated as a re-import of goods which is without any logic because the supplier is not procuring any goods to the Indian territory from a foreign territory and cannot be an importer by any stretch of imagination. The purchaser of goods located in the DTA is the importer who is procuring the goods from the deemed foreign territory of SEZ.
c. Further, Rule 48(3) based on which the entire refund claim is preferred by the noticee only makes it clear that goods initially procured from DTA, by an SEZ unit, if cleared back to DTA without processing, such goods shall be treated as re-imported goods. The Rule does not say that the SEZ supplier will become the importer of goods. The status of the goods involved in such a transaction will be of re-imported goods, but the crucial fact is that it is a re-import for the DTA purchaser since the said goods were initially supplied or exported to the SEZ unit. A bare reading of Rule 48 of SEZ Rules makes it abundantly clear that when the goods are cleared to DTA, it is the Domestic Area Buyer who is required to file the Bill of Entry and without their authorization a unit in SEZ also cannot file such The noticee has mis-interpreted the rule to the extent that though they are the supplier of the goods, they are claiming as re-importers of the goods which is not acceptable. The duty charged at the time of clearance from the SEZ unit is very much in accordance with the provisions of Rule 48(3) read with Notification No. 45/2017-Cus dated 30.06.2017 and there is no provision for refund of such duties as claimed by the noticee.
d. Moreover, the noticee is claiming the refund on a presumption that all re-imports are duty free. It is not the case at all. As per the provisions of governing re-import of goods under Customs Act, nowhere it is mentioned that all re-imports are duty free. On the other hand Section 20 of the Act provides for levy of duty on all re-imported goods in the same manner as the goods being imported for the first time. However, some conditional exemption is provided and no benefit of exemption can be claimed without fulfilling these conditions. In the present case the noticee is merely assuming that all re-imports are duty free and they being re-importers of the goods are eligible for refund of duty charged on the clearances from SEZ. The fact of the matter is that neither they can claim as importer of goods nor there is any blanket exemption from customs duties on re-import of goods”.
13. The appellant has raised the contention that he has been wrongly denied the benefit of the exemption Notification No. 45/2017-Cus., which provides different levels / measures of exemption benefits to the re-imported goods depending upon which export benefits, like duty drawback, rebate etc., were availed and subject to several conditions. Further, from para 10 of the impugned order, I find that the Commissioner has noted, that the appellant has submitted few sample invoices and on perusal of one tax invoice issued by the DTA, namely M/s Lupin Limited, Palghar to the appellant bearing Invoice No. 0000002152 dated 08.03.2017, it is observed that it has been dispatched on payment of Central Excise duty and drawback too have been claimed, however, the appellate authority has failed to examine the issue of exemption benefit under the said notification in detail, giving specific reasons. I am therefore, of the opinion that the matter needs to be remanded on the applicability of the exemption notification and whether the appellant is entitle to any benefit in terms thereof. I, therefore, partly dismiss the appeal and remand the matter on the limited issue as referred above.
(Pronounced on 29th Nov. 2023).
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