TMI Blog2020 (5) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 26(2) of the Act. The phrase used in section 26(2), is the Central Government may prescribe the manner in which, and the terms and conditions subject to which, the exemptions, concessions, drawback or other benefits shall be granted to the Developer or entrepreneur under sub-section (1) . Further, Supplies from the Domestic Tariff Area to a Unit or Developer for their authorized operations are eligible for export benefits as admissible under the Foreign Trade Policy - thus, the DTA supplier is 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 the petitioner from IOCL did not qualify as an import within the meaning of Section 2(o) of the Special Economic Zones Act, 2006. Therefore, there cannot 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 the petitioner under section 28 or 28AA of the Customs Act, 1962. Further, Rule 47(5) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 2019VIL-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-pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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-pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial 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: Special Economic Zones Act, 2005. Chapter II: EXEMPTION FROM TAXES, DUTIES OR CESS. Chapter VII: SPECIAL PROVISION FOR FISCAL ECONOMIC ZONES. Section 7: Any goods or services exported out of, or imported into, or procured from the Domestic Tariff Area by, - (i) a Unit in a Special Economic Zone; or (ii) a Developer; shall, subject to such terms, conditions and limitations, as may be prescribed, be exempt from the payment of taxes, duties or cess under all enactments specified in the First Schedule. Section 26: (1) Subject to the provisions of sub-section (2), every Developer and the entrepreneur shall be entitled to the following exemptions, drawbacks and concessions, namely: - (a) exemption from any duty of customs, under the Customs Act, 1962 or the Cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms, conditions and limitations, as may be prescribed, be exempt from the payment of taxes, duties or cess under all enactments specified in the First Schedule. 32. In the First Schedule only the following enactments are specified: 1. The Agricultural Produce Cess Act, 1940 (27 of 1940). 2. The Coffee Act, 1942 (7 of 1942). 3. The Mica Mines Labour Welfare Fund Act, 1946 (22 of 1946). 4. The Rubber Act, 1947 (24 of 1947). 5. The Tea Act, 1953 (29 of 1953). 6. The Salt Cess Act, 1953 (49 of 1953). 7. The Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (16 of 1955). 8. The Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957). 9. The Sugar (Regulation of Production) Act, 1961 (55 of 1961). 10. The Textiles Committee Act, 1963 (41 of 1963). 11. The Produce Cess Act, 1966 (15 of 1966). 12. The Marine Products Export Development Authority Act, 1972 (13 of 1972). 13. The Coal Mines (Conservation and Development Act, 1974 (28 of 1974). 14. The Oil Industry (Development) Act, 1974 (47 of 1974). 15. The Tobacco Cess Act, 1975 (26 of 1975). 16. The Additional Duties of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or air or by any other mode, whether physical or otherwise; or (ii) receiving goods, or services by, Unit or Developer from another Unit or Developer of the same Special Economic Zone or a different Special Economic Zone; 38. An export is said to take place within the meaning of section 2 (m) of the Special Economic Zones Act, 2005 under the following circumstances:- i. if goods are taken out or services supplied are exported by land, sea or air or any other mode, whether physical or otherwise from a Special Economic Zone; or ii. if there is a supply of goods or provision of services to unit or a developer situated in Special Economic Zone by a unit situated in Domestic Tariff Area ; or iii.in the case of supply of goods or there is a provision of service from one unit to another unit or Developer, within the same or different Special Economic Zone. 39. Thus, supply of goods from a Domestic Tariff Area qualifies as an export . Therefore, a supplier in DTA can supply HSD without payment of duty. 40. Receiving of goods or service intra-unit or intra-developer from another unit or developer of the same Special Economic Zone or a different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment Commissioner may, after approval of the proposal referred to in sub-section (3), grant a letter of approval to the person concerned to set up a Unit and undertake such operations which the and every such operation so authorised shall be mentioned in the letter of approval. 46. As per Section15(3), the Approval Committee [constituted under Section 13(1)] may, either approve the proposal without modification, or approve the proposal with modifications subject to such terms and conditions as it may deem fit to impose, or reject the proposal in accordance with section 15(8)of the Act. 47. Thus, the authorized operations contemplated in Section 4(2) is the operations which the Central Government i.e. the 1st respondent may authorise a Developer. The Petitioner was given such a final approval and authorisation by the 1st respondent vide approval dated 7.10.2008 to locate 48MW capacity power plant in the processing area . 48. As per section 15(8) the Central Government may prescribe the terms and condition, subject to which a Unit shall undertake the authorised operation and the obligations and entitlements. 49. The impugned Guidelines of 2015 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any service is rendered within a Special Economic Zone, it has to be necessarily declared as a processing area. 54. As per Section 2 (r) of the Act the expression manufacture means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining. Since the definition of manufacture being very wide, both generation of power and supply qualifies as manufacture and supply of services respectively being the petitioner. 55. The power that is exercised by the Central Government under section 15(8)(b) of the Special Economic Zones, 2005 is different from the power vested with the Central Government to issue guidelines under section 5 and 6 of the said Act. 56. The power to issue Guidelines under Section 5 of the Act by the Central Government cannot be in confused with the power to demarcate an area within a Special Economic Zone under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to which, the exemptions, concessions, drawback or other benefits shall be granted to the Developer or entrepreneur under sub-section (1) . 63. Rule 30 of the SEZ Rules, 2006 prescribes the manner in which and the terms and conditions subject to which the benefit can be granted to a Developer or an entrepreneur while procuring goods from the Domestic Tariff Area. Rule 30 of the SEZ Rules,2006 reads as under: 30. Procedure for procurements from the Domestic Tariff Area.- (1) The Domestic Tariff Area supplier supplying goods to a Unit or Developer shall clear the goods, as in the case of exports, either under bond or as duty paid goods under claim of rebate on the cover of ARE-1 referred to in Notification number 42/2001-Central Excise (NT) dated the 26th June, 2001 in quintuplicate bearing running serial number beginning from the first day of the financial year. (2) Goods procured by a Unit or Developer, on which Central Excise Duty exemption has been availed but without any availment of export entitlements, shall be allowed admission into the Special Economic Zone on the basis of ARE-1. (3) The goods procured by a Unit or Developer under claim of export en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oice, Bill of Export of packing list and also as per the examination norms laid down in respect of export goods in cases where the goods are being procured under claim of an export entitlement. (8) Drawback or Duty Entitlement Pass Book credit against supply of goods by Domestic Tariff Area supplier shall be admissible provided payments for the supply are made from the Foreign Currency Account of the Unit. Provided that the reimbursement of duty in lieu of drawback or Duty Entitlement Pass Book credit against supply of goods by Domestic Tariff Area supplier to Special Economic Zone developers shall be admissible even if payment is made in Indian Rupees. Reimbursement of duty in lieu of drawback against supply of goods to Special Economic Zone developer shall be made as per the procedure prescribed by the Central Government. (9) A copy of the Bill of Export and ARE-1 with an endorsement of the Authorised Officer that the goods have been admitted in full in the Special Economic Zone, shall be treated as proof of export. (10) Where the goods are to be procured by a Unit or Developer from a Domestic Tariff Area supplier who is not registered with the Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocedures under sub-rule (12). (16) A Unit or Developer may procure goods and services from another Unit located in the same or any other Special Economic Zone, subject to following conditions, namely:- (i) the receiving Unit or Developer shall file Bill of Entry for home consumption with the Authorized Officer, in quintuplicate, giving description of the goods along with an invoice and packing list for assessment; (ii) on the basis of such assessed Bill of Entry, the goods shall be allowed to be transferred to the receiving Unit or Developer under transhipment permit; (iii) there shall be no requirement to file any additional document or bond(s) for the purpose of transhipment of goods and the transhipment permission shall be stamped on the Bill of Entry itself; (iv) the supplying Unit shall submit the re-warehousing certificate to the Specified Officer having jurisdiction over the supplying unit within forty-five days, failing which the Specified Officer of the supplying Unit shall write to the Specified Officer having jurisdiction over the receiving Unit or Developer for demand of duty from the receiving Unit or Developer; (v) where the supplyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, 1962. 67.Though, in a slightly different context, the Honourable Supreme Court In WPIL Industries versus Commissioner of Central Excise 2005 (181) ELT 359 (SC) while dealing with scope of Notification No. 46/94-CE dated 1.3.1994 and Notification No. 95/94-CE dated 25.4.1994 issued under Section 5A of the Central Excise Act, 1944, held that In view of the consistent policy of the Government of exempting parts of power driven pumps utilised by the factory within the factory premises, it could not be said that while issuing Notification No. 44/96 of 01/03/1994, the exemption in respect of the said item which was operative was either withdrawn or revoked. The action was taken only with the view to rescinding several notifications and by issuing a composite notification. The policy remained as it was and in view of the demands being made by the Department, a representation was made by the industries and on being satisfied, the central government issued a clarificatory Notification No. 95/94 on 25.4.19 94. It was held to be not a new notification granting exemption for the 1st time in respect of parts of power driven pumps to be used in the factory of manufacture of pumps ..... X X X X Extracts X X X X X X X X Extracts X X X X
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