B.I.F.R. vs M/S Lunar Diamod Ltd
2019 Latest Caselaw 2186 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

?AFR
 
Reserved
 
In Chamber
 

 
Case :- MISC. COMPANY APPLICATION No. - 3 of 2005
 

 
Applicant :- B.I.F.R.
 
Opposite Party :- M/S Lunar Diamod Ltd
 
Counsel for Applicant :- O.L.U.S. Patole,Amit Shukla,Nawal Kishor Mishra,O.L. M.K. Bagri,O.L. O.P. Sharma,Raj Nath N. Shukla,Subham Agarwal
 
Counsel for Opposite Party :- Ashish Mishra,Ashok Bhatnagar,L.P. Singh,Maneesh Mehrotra,S.K.Mishra,V.K.Jaiswal
 

 
Hon'ble Anjani Kumar Mishra,J.

Misc. Application No. 207803 of 2017

The instant application has been filed by M/s Shree Ganesh Trading Company through its proprietor Subhash Agarwal praying for a direction restraining the opposite party no. 2 from obstructing in removal of movable assets purchased by the applicant in an auction sale by the Company Court and also not to charge any duty or tax on removal of these movable assets.

The applicant appears to be aggrieved because while removing some of the movable assets purchased by the applicant, the opposite party no. 2 has imposed and realized customs duty, thereon.

A second prayer made in the application appears to have been resolved and no order is required to be passed in its regard.

It has been stated that the applicant had purchased fixtures, furniture, cable PVC wire, false ceiling, Air Conditioner ducting, extra iron gates on which customs duty was being demanded by the respondent prior to removing these goods out of the Special Economic Zone hereinafter referred to as SEZ and into the Domestic Tariff Area.

The objection that has been filed to this application by Shri S.K. Mishra on behalf of the Development Commissioner, Noida Special Economic Zone, states that duty has been charged on M.S. Scrap. This duty was chargeable in view of Section 12 of the Customs Act read with Section 30 of the Special Economic Zone Act, 2005 and in accordance with Schedule 1 Chapter 172, heading 7204, of the Customs Tariff Act, 1975.

In this regard, the submission of Shri Rajnath N. Shukla, counsel for the Official Liquidator is that the inventory of goods put to auction and actually purchased by the applicant, M/s Shree Ganesh Trading Company, does not contain any mention of M.S. Scrap. The inventory mentions 'Scrap parts' and this entry is below the entry which reads 'Old Machines'.

Counsel for the Official Liquidator next submits that the objection filed by respondent no. 2 does not reveal the basis or the rates at which the duty has been levied. No order in this regard appears to have been passed. No customs duty could have been charged without an order containing reasons for its imposition, specifying the rate at which it was imposed. In absence of any such order customs duty has been arbitrarily realised by respondent no. 2.

It has also been submitted that five bills of entry for removal of goods from the SEZ to Domestic Tariff Area were submitted, but duty has been charged on one only as the other articles were not dutiable.

The point for determination by this Court is whether the goods removed by the auction purchaser from the Special Economic Zone to the Domestic Tariff Area were in fact dutiable or not?

With regard to the issue for determination, this Court considers it expedient to refer to a decision of the Gujarat High Court in Special Civil Application No. 3142 of 2010 (M/s Adani Power Limited and others Vs. Union of India through Secretary, Ministry of Finance).

In this case, a notification no. 25/2010-Customs dated 27.02.2010 imposing customs duty at the rate of Rs. 16% advalorem on electrical energy removed from Special Economic Zone to Domestic Tariff Area and non-processing areas of the zone was under challenge.

The dispute arose because the petitioner Company was generating, transmitting and selling electrical energy generated from its plant situated in Mundra Port and Special Economic Zone. Some of the electricity generated was liable to be transferred from the Special Economic Zone to the Domestic Tariff Area and on its transfer that customs duty was sought to be charged.

The Division Bench of the Gujarat High Court allowed the petition and quashed the notification under challenge. What is relevant for the case at hand is that which has been stated in paragraphs 47 and 48 of the said judgment of the Gujarat High Court, extracted below:-

"47. The SEZ Act was enacted with a view to provide an internationally competent environment for exports and for promoting export led growth. The term "Domestic Tariff Area" is defined in Section 2(i) as to mean the whole of India (including the territorial waters and continental shelf) but does not include the areas of the Special Economic Zones. The term "Special Economic Zone" is defined in Section 2(za) as to mean an economic zone notified under the proviso to sub-section (4) of Section 3 and sub- section (1) of Section 4 (including Free Trade and Warehousing Zone) and includes an existing Special Economic Zone. Section 51 of the SEZ Act provides that the provisions of the Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. Sub-section (1) of Section 53 provides that a SEZ shall on and from the appointed day be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations. Chapter IV of the SEZ Act pertains to special fiscal provisions for SEZs. Section 26 contained in the said Chapter grants exemptions, drawbacks and concessions to every developer and entrepreneur such as exemption from payment of any customs duty, excise duty etc. Section 30 pertains to domestic clearances by a SEZ unit and 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 (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."

"48. Thus, from the above, it can be seen that in order to give an impetus to exports, the SEZ Act was enacted. The SEZ Act envisages a deeming fiction where a SEZ area would be considered outside the Customs area of the country. It is also noticed that Section 30 of the SEZ Act permits DTA clearances to a SEZ unit under certain conditions. One of the conditions being the goods removed from SEZ to DTA would 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."

From a perusal of the extract of the judgment of the Gujarat High Court above, it is clear that customs duty could have been levied at the time of removal of the goods from the SEZ only if customs duty was chargeable on these goods at the time of their import into the SEZ, although such import duty into SEZ may be exempted in view of other provision of the Special Economic Zone Act, 2005.

In this connection, it would also be relevant to refer to Chapter VI of the Special Economic Zone Act, 2005, especially sections 26 and 30 thereof. The said provisions are extracted below:-

"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 (52 of 1962) or the Customs Tariff Act, 1975 (51 of 1975) or any other law for the time being in force, on goods imported into, or services provided in, a Special Economic Zone or a Unit, to carry on the authorised operations by the Developer or entrepreneur;

b. exemption from any duty of customs, under the Customs Act, 1962 (52 of 1962) or the Customs Tariff Act, 1975 (51 of 1975) or any other law for the time being in force, on goods exported from, or services provided, from a Special Economic Zone or from a Unit, to any place outside India;

c. exemption from any duty of excise, under the Central Excise Act, 1944 (1 of 1944) or the Central Excise Tariff Act, 1985 (5 of 1986) or any other law for the time being in force, on goods brought from Domestic Tariff Area to a Special Economic Zone or Unit, to carry on the authorised operations by the Developer or entrepreneur;

d. drawback or such other benefits as may be admissible from time to time on goods brought or services provided from the Domestic Tariff Area into a Special Economic Zone or Unit or services provided in a Special Economic Zone or Unit by the service providers located outside India to carry on the authorised operations by the Developer or entrepreneur;

e. exemption from service tax under Chapter V of the Finance Act, 1994 (32 of 1944) on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone;

f. exemption from the securities transaction tax leviable under Section 98 of the Finance (No. 2) Act, 2004 (23 of 2004) in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre;

g. exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 (74 of 1956) if such goods are meant to carry on the authorised operations by the Developer or entrepreneur.

2. The Central Government may prescribe, the manner in which, and, the terms and conditions subject to which, the exemptions, concessions, draw back or other benefits shall be granted to the Developer or entrepreneur under sub-section (1).

30. 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 (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."

In view of the aforesaid provisions namely Section 26(1) a and 30(a) especially the portions underlined by me for emphasis and in view of what has been held by the Division Bench of the Gujarat High Court in paragraph 48 of the judgment in M/s Adani Power Limited Vs. Union of India, this Court is constrained to hold that since no duty was leviable upon the goods while entering the Special Economic Zone, the same when being removed as scrap are not chargeable to any customs duty as it consisted of scrap machine parts. The machine parts which were scrap on the date of their removal, even when new were exempt from customs duty under Section 26(1)(a) of the Special Economic Zone Act, 2005 as they were taken into the Special Economic Zone (imported) to carry on the authorized operations of the Company (in liquidation).

The amount realised as customs duty by respondent no. 2 from the auction purchaser M/s Shree Ganesh Trading Company, was therefore wholly unwarranted, cannot be sustained and is hereby, set aside.

Respondent no. 2 is directed to refund the amount realised as customs duty from the applicant, M/s Ganesh Trading Company within a period of three weeks from the date, a demand for the same is raised by the applicant along with a certified copy of this order.

Order Date :- 01.04.2019

Mayank