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SEZ: Hanging In The Balance

Published on Fri, Feb 28,2014 | 16:20, Updated at Fri, Feb 28 at 16:20Source : 

By: Anjlika Chopra - Director and Ankur Bansal - Manager, Deloitte Touche Tohmatsu India

With a view to promote exports enhance foreign investment as well as generate employment in the country, the Government of India has specifically designated certain areas as Special Economic Zone(s) [‘SEZ(s)’]. SEZs, though situated within the territory of India, are deemed to be foreign territories, under the provisions of the SEZ Act, 2005 and rules framed thereunder.

Prior to February 10, 2006, SEZs were governed by certain provisions of Chapter XA of the Customs Act, 1962 as well as the EXIM Policy. Thereafter, SEZ Act came into force and the provisions of Chapter XA of the Customs Act became redundant. , The supremacy of the provisions of the SEZ Act vis-à-vis other enactments (particularly, Customs Act) have evoked considerable debate.

As per the customs authorities, under the Customs Act since, goods cleared from SEZ to non- SEZ areas of the country i.e. Domestic Tariff Area (DTA), are treated as ‘deemed imports’; and goods cleared from DTA to SEZ are treated as ‘deemed exports’, under the provisions of the SEZ Act, the provisions of the Customs Act ipso facto become applicable. However, this contention has been rebutted on the ground that, by virtue of Section 51 of the SEZ Act, there is an over-riding effect and to the extent there is no inconsistency with other enactments the SEZ Act shall govern the operations undertaken by SEZs.

The Courts have, in various judicial pronouncements, considered the application of the duties leviable under the Customs Act to operations undertaken by SEZs.

In the case of Shyamaraju and Co. (India) Pvt. Ltd. v. UOI [Writ Petition No. 10810 of 2008],the Hon’ble Karnataka High Court has perused the statement of objects and reasons for enactment of the SEZ Act and observed that, if the levy of any duty has not been expressly or impliedly contemplated under the SEZ Act, the same cannot be imposed under any other legislations. A similar observation was made by the Hon’ble High Court of Andhra Pradesh in the case of TirupathiUdyog Limited v. UOI [Writ Petition Nos. 11219 of 2008].

In the recent order of M/s Reliance Industries Ltd v. CCE, Rajkot [2014-TIOL-102-CESTAT-AHM], the Ahmedabad Tribunal went a step further. The Tribunal interpreted the scope of Section 30 of the SEZ Act, which provides for levy of duty on clearances made from SEZ to DTA in accordance with the Customs Tariff. The Member (T) was of the view that the provisions of the Customs Act would ipso facto apply to clearances made by SEZ to DTA. However, the Tribunal, by majority held that, in the absence of a linking provision between the SEZ Act and the Customs Act and given the understanding that the SEZ Act has an overriding effect on all other enactments, the provisions of the Customs Act cannot be made applicable.

The decision in Reliance Industries (supra), to a certain extent, runs contrary to the decision of the Hon’ble Allahabad High Court in the case of India Exports v. State of Uttar Pradesh and Ors. (2012) 47 VST 126 (All), wherein, the High Court has overlooked the overriding effect of the SEZ Act and held that, even if duty is payable under Section 30 of the SEZ Act on clearances made from SEZ to DTA, such clearances would not be considered as ‘deemed imports’ and would still be subject to the provisions of the Central Sales Tax, 1956, which levies sales tax on inter-State movement of goods within the territory of India.

Thus, though it may seem quite settled that the SEZ Act is a complete code in itself and the provisions of the Customs Act cannot have ipso facto application to units situated in SEZ, customs authorities continue to impose duties upon SEZs under the provisions of the Customs Act. The legal status of the SEZ Act vis-à-vis the applicability of other enactments continues to be a controversial issue. This issue still needs further clarification so that, the SEZ Act and the benefits granted to SEZs by virtue of the Act are not left hanging in the balance.



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