Delhi High Court
M/S Moser Baer India Ltd vs Union Of India And Anr on 25 October, 2021
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 25.10.2021
+ W.P.(C) NO.662/2017
M/S MOSER BAER INDIA LTD. ..... Petitioner
versus
UNION OF INDIA & ANR. ..... Respondents
Advocates who appeared in this case:
For the Petitioner : Mr Pramod Kumar Rai and Mr Deepak
Anand, Advocates.
For the Respondent : Ms Suparna Srivastava & Ms Sanjna Dua,
Advocates for R-1&2.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The petitioner has filed the present petition under Article 226 of
the Constitution of India impugning an order dated 28.12.2016 passed
by the Board of Approval, whereby the petitioner's appeal against an
order dated 18.04.2016 passed by the Unit Approval Committee,
NOIDA SEZ was rejected. The petitioner also prays that the petitioner
may be allowed benefits under Section 26 of the Special Economic
Zones Act, 2005 (hereafter 'the SEZ Act') in respect of maintenance
and duty free imports of raw materials and consumables for operation
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By:DUSHYANT
RAWAL
and maintenance of the power plant (hereafter 'O&M benefits'). In
addition, the petitioner also prays that it should be allowed duty free
transfer of surplus power generated by it to the Export Oriented Units
(hereafter 'EOU').
Factual Context
2. The petitioner is a company, inter alia, engaged in generation of
electricity, which is captively consumed and also supplied to other units
in the Special Economic Zone (SEZ Units). The petitioner had
submitted its proposal for seeking approval for its power generating unit
in MBIL-SEZ. The said proposal was accepted and by a Letter of
Approval dated 08.10.2009 (hereafter 'the LoA'), the Development
Commissioner, Noida SEZ (Approval Committee) approved the same
and extended all facilities and entitlements, as admissible to a unit in
the Special Economic Zone (SEZ) subject to the terms of the SEZ Act
and the Rules made thereunder, for undertaking "Authorised
Operations". The said approval was subject to certain terms and
conditions as stipulated in the LoA including that, the approval was
valid for a period of one year from the date of issue, within which the
petitioner was obliged to implement the project and commence
production. It was also stipulated that the LoA would be valid for a
period of five years from the date of commencement of production. It
is relevant to note that the petitioner's proposal was for it to be treated
as an SEZ unit in terms of the Guidelines issued by the Department of
Commerce by its letter dated 27.02.2009 (hereafter referred to as 'the
2009 Guidelines').
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RAWAL
3. The petitioner continued to operate its power generation unit in
the SEZ for the period 08.10.2009 to 20.03.2012. During this period, it
was granted and availed all benefits under Section 26 of the SEZ Act
including O&M benefits in terms of the 2009 Guidelines.
4. On 21.03.2012, Government of India, Ministry of Commerce and
Industry, Department of Commerce issued fresh guidelines for power
generation in SEZ (hereafter referred to as the '2012 Guidelines'),
which superseded the 2009 Guidelines. The said Guidelines continued
till 31.03.2015 and during this period the petitioner continued to operate
its unit and availed O&M benefits as available under Section 26 of the
SEZ Act. In the meanwhile, with the expiry of five years, the LoA
expired and in terms of the letter dated 04.12.2014, the LoA was
renewed for a further period of five years, that is, till 08.10.2019.
5. Thereafter, by a letter dated 06.04.2015 (P6/3/2006-SEZ),
Department of Commerce, Government of India communicated its
decision to withdraw the 2012 Guidelines with immediate effect (that
is, with effect from 01.04.2015) and restore the 2009 Guidelines
(Guidelines issued in terms of the letter dated 27.02.2009). The said
letter expressly stated that the 2009 Guidelines would be the basis for
the relevant policy and operational decisions. A copy of the said letter
is annexed as Annexure P-8 to the petition, and it is not disputed that
the same contains a typographical error inasmuch as the letter dated
27.02.2009 (the 2009 Guidelines) is referred to as a letter dated
27.02.2012.
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RAWAL
6. The Government of India also issued another letter dated
06.04.2015 addressed to all Development Commissioners, Special
Economic Zones informing them that, henceforth, setting up of power
plant shall be allowed only in non-processing area of SEZs. It further
stated that processing power plants presently situated in the processing
area would be demarcated as non-processing areas and no O&M
benefits would be available to such power plants.
7. Thereafter, on 16.02.2016, the Government of India, Ministry of
Commerce issued fresh guidelines (hereafter referred to as the '2016
Guidelines') extending the O&M benefits to power generating units in
the processing zone subject to certain conditions. The petitioner states
that it has been operating under the said guidelines and, has been
extended the O&M benefits subject to the condition proscribing duty
free transfer of power to EOUs.
8. In the meanwhile, the petitioner submitted its proposal for a fresh
Letter of Approval for a power plant unit in the non-conventional
energy SEZ, MBIL-SEZ. The same was placed before the Approval
Committee at its meeting held on 01.04.2016. The Approval Committee
was of the view that a fresh Letter of Approval was not required as the
petitioner's unit was already approved for power generation. However,
it noted that O&M benefits were not allowed to the petitioner's unit
during the period 01.04.2015 to 15.02.2016 under the 2009 Guidelines
as restored by the Government of India by its letter dated 06.04.2015.
Accordingly, it directed that the said O&M benefits be recovered from
the petitioner. The Approval Committee also decided that the petitioner
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RAWAL
would be entitled to O&M benefits subject to the condition that duty
free transfer of power to its EOU shall not be allowed. The said
conditional approval was communicated to the petitioner by a letter
dated 18.04.2016. The relevant extract of the said letter setting out the
said conditions is reproduced below:-
1. "You will refund an amount of Rs. 1,55,76,751/-
being the duty foregone on material procured from DTA
& imported for operation & maintenance of power plant
for the period of 01.04.2015 to 15.02.2016, within a
period of 15 days from the date of issue of this letter.
2. You will comply with the extant Power Guidelines
as issued by DOC vide letter No. P6/3/2006-SEZ (vol-
III) dated 16.02.2016.
3. No duty free benefits for transfer of power to EOU
shall be allowed.
4. All other terms and conditions of LOA dated
08.10.2009 shall remain unchanged.
5. You shall execute fresh/additional Bond-cum-LUT
within 15 days of this letter.
6. You shall confirm acceptance of the above terms
and condition to this office immediately."
9. Aggrieved by the aforesaid decision, the petitioner preferred an
appeal to the Board of Approval constituted under Section 8 of the SEZ
Act.
10. In its appeal, the petitioner raised two issues. First, it claimed that
it was entitled to O&M benefits during the period 01.04.2015 to
15.02.2016 under Section 26 of the SEZ Act and the Rules made
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By:DUSHYANT
RAWAL
thereunder. The petitioner claimed that such benefits could be denied in
terms of instructions issued by the Government of India. It also claimed
that on correct interpretations of the communication dated 06.04.2015,
the benefit of the 2009 Guidelines were not denied to the petitioner.
11. Second, it claimed that it was entitled to sell surplus power under
Rule 47(3)(c) of the Special Economic Zone Rules, 2006 (hereafter 'the
SEZ Rules') and the Approval Committee had no power to demand the
duties imposed on inputs consumed by an SEZ unit. The petitioner
claimed that it was entitled to such duty free procurement on its inputs
irrespective of whether the goods manufactured were cleared for export
in the Domestic Tariff Area (DTA).
12. The Board of Approval rejected the petitioner's appeal by the
impugned order dated 28.12.2016. And, this led the petitioner to file the
present petition.
Reasons and Conclusion
13. It is apparent from the above that the controversy involved in the
present petition relates to the questions, (a) whether the petitioner is
entitled to O&M benefits (fiscal benefits covered under Section 26 of
the SEZ Act in respect of maintenance and duty free import to raw
materials and consumables for generation of power) for the period
01.04.2015 to 15.02.2016; and (b) whether the condition that no duty
free benefits for transfers to EOU is contrary to the SEZ Act and the
Rules made thereunder.
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By:DUSHYANT
RAWAL
14. Insofar as the validity of the condition that no duty free benefits
would be allowed for transfer of power to EOU is concerned, it is
common ground that the interpretation of Rule 47(3) of the SEZ Rules
is dispositive of the said controversy. Rule 47(3) of the SEZ Rules, is
set out below:
"47(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."
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By:DUSHYANT
RAWAL
15. Sub-rule (3) of Rule 47 of the SEZ Rules clearly specifies that
surplus power generated in SEZ Developer's plant or an SEZ Unit's
captive power plant may be transferred to Domestic Tariff Area on
payment of duty on consumables and raw materials used for generation
of the power. The reference to the duty under Clause (c) of Sub-rule (3)
of Rule 47 of the SEZ Rules is clearly a reference to duty on sale of
surplus power under Rule 47 of the SEZ Rules. It is averred in the
petition that Rule 47 of the SEZ Rules is ultra vires to Section 26 of the
SEZ Act, which permits duty free procurement of raw material.
However, the learned counsel for the petitioner did not press the said
challenge to Rule 47 of the SEZ Rules and, had confined his
submissions to the question whether the petitioner was entitled to O&M
benefits under the 2009 Guidelines as restored with effect from
01.04.2015. According to the petitioner, it was entitled to such benefits
in terms of the LoA and the provisions of the SEZ Act and the Rules
made thereunder.
16. The respondent has contested the same and contends that in terms
of the statutory scheme, the Board of Approval is required to follow the
guidelines issued by the Central Government. In its reply to the
petition, the respondent has briefly alluded to the scheme of the SEZ
Act and the Guidelines issued by the Central Government. It is the
respondent's contention that an SEZ unit would be eligible for O&M
benefits only for "authorised operations" and only as so long as the said
operations are considered as "authorised operations" by the Central
Government. Second, it is stated that in terms of Section 6 of the SEZ
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RAWAL
Act, the Central Government is entitled to demarcate the 'processing'
and 'non-processing' area of the SEZ and since the petitioner's unit was
required to be demarcated as a non-processing area for the period
01.04.2015 to 15.02.2016, O&M benefits would not be available to the
petitioner's unit. Third, it was contended that in terms of Sub-section
(2) of Section 26 of the SEZ Act, the Central Government has the
powers to prescribe the manner and the terms and conditions subject to
which benefits under Section 26(1) of the SEZ Act are to be granted.
Lastly, it was submitted that the Board of Approval was bound by the
policy decisions. It is also stated that the Central Government had the
power to issue directions on questions of policy and in terms of Section
9(6) of the SEZ Act, the Board of Approval was bound by the same.
Before examining the scheme of the SEZ Act and before addressing the
aforesaid issues, it would be relevant to refer to the relevant Guidelines.
17. As noted above, the petitioner had sought approval for its power
generating unit in the 'processing area' of the MBIL-SEZ in terms of
the 2009 Guidelines. The approval as sought for by the petitioner was
granted by the LoA dated 08.10.2009. The petitioner was granted all the
facilities and benefits as admissible to a unit in an SEZ, subject to the
provisions of the SEZ Act and the Rules made thereunder.
18. The 2009 Guidelines made a distinction between a power plant
set up by a developer/co-developer in the non-processing area of an SEZ
as a part of the infrastructure facility and, a unit set up in the SEZ to
generate power as a product or as a captive power plant, located in the
'processing area'. Whereas a power plant set up by a developer/co-
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By:DUSHYANT
RAWAL
developer as a part of the infrastructure facility was entitled to fiscal
benefits for its initial setting up; it was not entitled to fiscal benefits in
regard to its operation and maintenance activities, in terms of Rule 27(3)
of the SEZ Rules.
19. The relevant extracts of the 2009 Guidelines are set out below:
"Generation, transmission and distribution of power in
SEZs.
i) Power plant set up by developer/Co-developer
A power plant to be set up by developer/co-
developer in an SEZ as part of infrastructure facility will
be in the non processing area of SEZ and will be entitled
to fiscal benefits only for its initial setting up and no fiscal
benefit would be admissible for its operation and
maintenance in terms of Rule 27(3) of the SEZ Rules.
There will be no obligation to achieve positive Net Foreign
Exchange Earning (NFE) for such power plants.
Constituents to whom it can supply power
Such a power plant can supply power to other
facilities located in the non processing area of the same
SEZ/facilities located in the non processing area of other
SEZs, SEZ units located in the processing area of the same
SEZ/SEZ units located in the processing area in other
SEZs, facilities located in the processing area of the same
SEZ/facilities located in the processing area of other SEZs
and also Domestic Tariff Area (DTA).
ii) A unit set up within the SEZ
A unit can be set up within the SEZ to generate power
as a product or have a captive power plant and will be
located in the processing area. Such a power plant will be
entitled to all the fiscal benefits covered under section 26
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RAWAL
of the SEZ Act including the benefits for initial setting up,
maintenance and the duty free import of raw materials and
consumables for the generation of the power in such plants.
With respect to SEZs in sectors such as IT/ITES,
Gem and Jewelry. Biotech, etc. where a minimum built up
area is stipulated under the SEZ Rules and in respect of
which generation of power has been approved by the
Board of Approval as authorized operation to the
Developer/Co-developer within the processing area, in
such cases generation of power will be carried out as a unit
without any separate demarcation of the area for that
purpose. However, such unit will maintain separate
accounts as a power generating unit.
These units will enjoy duty free import of capital
goods, raw materials and consumables for the generation
of power and such duty free imports of capital goods, raw
material and consumables etc. would be counted towards
the NFE obligations of the unit.
Constituents to whom it can supply power
Such a unit can supply power to other SEZ Units
located in the processing area of the same SEZ/SEZ units
located in the processing area of other SEZs, facilities
located in the non processing area of the same SEZ/
facilities located in the non processing area of other SEZs,
facilities located in the processing area of the same SEZ/
facilities located in the processing area of other SEZs and
DTA.
iii) A single power plant in an SEZ
A single stand alone power plant can be set up in an
SEZ in which there would be no other units. Such a power
plant will be treated as a unit in the processing area and
will be entitled to all fiscal benefits covered under Section
26 of the SEZ Act including benefits for initial setting up,
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RAWAL
maintenance and the duty free imports of raw material and
consumables for generation of power in such a plant.
The duty free import of capital goods, raw material
and consumables etc. would be counted towards the NFE
obligation of the unit as applicable to such units under Rule
53 of the SEZ Rules, 2006.
Constituents to whom it can supply power
Such a power plant can supply power to the facilities
in the non processing area of the same SEZ/facilities in the
non processing area of other SEZs, SEZ units located in
other SEZs and DTA."
20. The 2009 Guidelines were superseded by the 2012 Guidelines.
In terms of the said Guidelines, O&M benefits were extended to power
generating units set up by developers/co-developers as a part of the
infrastructure facilities in the processing zone. Such benefits were not
available to units set up in the 'non-processing' area of the SEZ.
21. Insofar as the petitioner is concerned, the 2012 Guidelines did not
materially affect the petitioner's entitlement to O&M benefits under
Section 26 of the SEZ Act.
22. The 2012 Guidelines were withdrawn with effect from
01.04.2015 and the 2009 Guidelines were restored in terms of the letter
dated 06.04.2015 issued by the Government of India. The said letter is
reproduced below:
"No. P 6/3/2006- SEZ
Government of India
Ministry of Commerce & Industry
Department of Commerce
(SEZ Division)
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By:DUSHYANT
RAWAL
Udyog Bhawan, New Delhi
Dated- 6th April, 2015
Subject: Guidelines for Power Generation in Special
Economic Zone- regarding
1. The undersigned is directed to say that guidelines for power
generation transmission and distribution in Special
Economic Zone issued vide this Ministry's letter of even
number dated 21st March, 2012 stand withdrawn with
immediate effect i.e. 1st April, 2015.
2. The guidelines for Power Generation, Transmission and
Distribution in Special Economic Zone issued vide this
Department's letter of even number dated 27th February, 2012
[sic 27th February 2009] are hereby restored and will,
henceforth, be the basis for relevant policy and operational
decisions.
Sd/-
Under Secretary to
the Govt. of India
Tel- 011- 23062496
e-mail:[email protected]
1. Chief Secretaries of all States/UT's
2. All Development Commissioners of SEZs
3. Ministry of Power, Govt. of India, Shram Shakti
Bhawan, Rafi Marg, New Delhi
4. Department of Revenue{CBDT/CBEC) Govt. of
India
5. DG, EPCES"
23. The aforesaid letter (also referred to as 'the First Letter') clearly
indicates that the Government of India had decided to withdraw the
2012 Guidelines and restore the 2009 Guidelines without any additional
condition. The aforesaid decision of the Government of India to
withdraw the 2012 Guidelines would have no material impact on the
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By:DUSHYANT
RAWAL
petitioner insofar as the O&M benefits are concerned as undisputedly,
it was entitled to the same in terms of the 2009 Guidelines. However,
according to the respondents, the O&M benefits were no longer
available to the petitioner by virtue of another letter of the same date
(letter dated 06.04.2015) that was circulated to all the Development
Commissioners of Special Economic Zones. The said letter is also
referred to as the Second Letter. The contents of the said letter dated
06.04.2015 are at the centre of the controversy in the present petition.
24. The said letter is reproduced below:
"No.
P.6/3/2006-SEZ
Government of India
[Ministry of Commerce & Industry
Department of Commerce
(SEZ Division)
Udyog Bhawan, New Delhi
Dated: 6th April, 2015
To
Ail Development Commissioners
Special Economic Zones
Subject: Guidelines for Power Generation in Special Economic
Zones-regarding.
Sir/Madam
1. 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 resorted. A copy of the
communication in this regard is enclosed.
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By:DUSHYANT
RAWAL
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 in the matter may be furnished to this Department.
End. As above
Yours faithfully,
(Kabiraj Sabar)
Under Secretary to the Govt. of India
Tel. 011-23062496
e-mail: [email protected]
Copy to: Department of Revenue (CBDT/CBEC) Govt. of India"
25. On 16.02.2016, the Government of India issued fresh guidelines
(the '2016 Guidelines'). The relevant extract of the said Guidelines are
set out below:
i. "A power plant, including non-conventional energy
power plant to be set up by the developer/ co-
developer in an SEZ as part of infrastructure facility
will be in the Non Processing Area of SEZ only and
will be entitled to fiscal benefits only for initial setting
up and no fiscal benefit would be admissible for its
operation and maintenance. There will be no
obligation to achieve positive Net Foreign Exchange
(NFE) for such power plants. Such a power plant can
supply power to DTA after meeting the power
requirement of the SEZ subject to payment of
customs duty as determined by DoR keeping in view
the duty foregone on initial setting up of the power
plant.
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RAWAL
ii. Henceforth no single stand-alone power plant will be
permitted to be set up in to SEZ in which there would
be no other units.
iii. Henceforth setting up of captive power plant
including non conventional energy power plant, can
be permitted in Processing Area as a unit, and it will
be subject to NFE obligations. Such a power plant
will be entitled to all the benefits covered under
section 26 of the SEZ Act including the benefits of
initial setting up maintenance and the duty free import
of raw materials and consumables for the generation
of the power. They can sell power to DTA on
payment of customs duty as determined by DoR
keeping in view the duty on installation, as well as
O&M, and including service tax exemptions.
xxxx xxxx xxxx
vi. Those Power Plants In SEZs which were approved
prior to 27.02.2009, and subject to issue of Power
Guidelines and Provisions of SEZ Act & Rules, either as
an infrastructure facility by Developer/Co-developer or
as a unit in the Processing Area, will be permitted to
operate. It is relevant that during period of installation of
such plants, duty benefits on capital investment of mega
power plants were available under the then prevalent
policy guidelines even in the DTA area.
Henceforth, such power plants will be allowed
O&M benefits only with regard to the average monthly
power supplied to entities within the same SEZ during the
preceding year. Henceforth, no O&M benefits including
service tax exemption will be allowed for power supplied
to DTA/other SEZs/EOUs from such power plants. The
surplus power generated in such power plants may be
transferred to DTA, without payment of duty, keeping
inconsideration of the fact that no duty free benefits on
raw materials, consumables, etc have been availed for
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RAWAL
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
01.03.2002, will be required to pay duty for sale in DTA,
on accounts of duty free import of capital goods, as
determined by DoR.
2. These guidelines would be effective with effect from
16th February, 2016."
26. In the aforesaid backdrop, the first and foremost question to be
addressed is whether the operations carried out by the petitioner cease
to be "authorised operations" by virtue of the letter dated 06.04.2015,
whereby the 2012 Guidelines were superseded. It is necessary to note
that by the LoA dated 08.10.2009, the petitioner was extended the
facilities and entitlements as admissible to a unit in the SEZ for
undertaking 'authorised operations'. The LoA also expressly specified
the authorised operations as under:
"Authorised Operations
Setting up of Power Plant in Processing area for
generating Power (Electrical energy) 1740 MW."
The LoA also specified the Projected Annual Exports for the entire five
year term of the LoA.
27. It is also material to note that there is no dispute that the
petitioner's generating unit is located in 'the processing zone' of MBIL-
SEZ.
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By:DUSHYANT
RAWAL
28. The expression "authorised operations" is defined under Section
2(c) of the SEZ Act to mean "operations which may be authorised
under sub-section (2) of section 4 and sub-section (9) of section 15."
Section 4(2) of the SEZ Act empowers the Board of Approval to
authorize the Developer to undertake the operations in an SEZ as may
be authorized by the Government. Sub-section (9) of Section 15 of the
SEZ Act expressly provides that the Development Commissioner may
issue a letter of approval to the person concerned to set up a unit and
undertake such operations, which the Development Commissioner may
authorise and such operations would be mentioned in the letter of
approval.
29. The word "Developer" is defined under Section 2(g) of the SEZ
Act as under:
"(g) "Developer" means a person who, or a State
Government which, has been granted by the Central
Government a letter of approval under sub-section
(10) of section 3 and includes an Authority and a Co-
Developer."
30. It is also relevant to refer to the definition of the term
'entrepreneur' as defined under Section 2(j) of the SEZ Act. Section 2(j)
of the SEZ Act reads as under:
"2(j) "entrepreneur" means a person who has
been granted a letter of approval by the
Development Commissioner under sub-section
(9) of section 15."
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By:DUSHYANT
RAWAL
31. Section 3 of the SEZ Act contains provisions for the procedure
for making a proposal to establish an SEZ Zone. Any person who
intends to set up an SEZ is required to make a proposal to the State
Government for the purpose of setting up the SEZ. The State
Government may on receipt of the proposal shall forward the same with
its recommendation to the Board of Approval within such period as may
be prescribed in terms of Section 3(7) of the SEZ Act. The Board of
Approval, upon receipt of the proposal, may approve the said proposal
subject to such terms and conditions as it may deem fit to impose or
modify or reject the proposal. In terms of Section 3(8) of the SEZ Act,
the Central Government may prescribe the requirement for establishing
an SEZ including the terms and conditions, subject to which the
developer shall undertake the "authorised operations" and his
obligations and entitlements.
32. In the event the Board of Approval approves the proposal without
any modification or approves the same with modifications, which are
accepted by the concerned person or the State Government, it is
required to communicate the said approval to the Central Government.
Section 3(10) of the SEZ Act provides that on receipt of such
communication from the Board of Approval, the Central Government
shall issue a letter of approval on such terms and conditions as may be
approved by the Board, to the developer.
33. It is relevant to note that the letter of approval as mentioned under
Section 3(10) of the SEZ Act is with respect to the proposal to set up an
SEZ and not a unit within an existing SEZ.
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By:DUSHYANT
RAWAL
34. Section 4 of the SEZ Act provides for the establishment of an
SEZ by a developer after grant of the letter of approval under Section
3(10) of the SEZ Act. Sub-section (2) of Section 4 of the SEZ Act
entitles the Board of Approval to authorise a developer to undertake
such operations that may be authorised by the Central Government in
the SEZ. It is clear from the Scheme of the SEZ Act that the 'authorised
operations' under Section 4(2) of the SEZ Act are such operations that
a developer who establishes the SEZ in terms of the letter of approval
issued under Section 3(10) of the SEZ Act is entitled to carry out in the
SEZ.
35. Section 15 of the SEZ Act contains provision regarding setting
up a unit in an SEZ. In terms of Sub-section (1) of Section 15 of the
SEZ Act, any person, who intends to set up a Unit for carrying on the
"authorised operations" in an SEZ is required to submit a proposal to
the Development Commissioner. The Development Commissioner is
required to submit the same to an Approval Committee for its approval.
If such approval is granted in terms of Sub-section (9) of Section 15 of
the SEZ Act, the Development Commissioner is required to issue a
letter of approval to the person concerned to set up a unit and undertake
such operations, which the Development Commissioner may authorise.
Sub-section (8) of Section 15 of the SEZ Act entitles the Central
Government to, inter alia, prescribe the requirements subject to which
the Approval Committee shall approve, modify or reject the proposal.
It is also entitled to prescribe the terms and conditions subject to which
a unit shall undertake the "authorised operations". The relevant extract
of Section 15 of the SEZ Act is set out below:
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By:DUSHYANT
RAWAL
"15. (1) Any person, who intends to set up a Unit
for carrying on the authorised operations in a Special
Economic Zone, may submit a proposal to the
Development Commissioner concerned in such form
and manner containing such particulars as may be
prescribed:
Provided that an existing Unit shall be deemed to
have been set up in accordance with the provisions of
this Act and such Units shall not require approval under
this Act.
xxxx xxxx xxxx
(3) The Approval Committee 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 the provisions of sub-section (8):
Provided that in case of modification or rejection of a
proposal, the Approval Committee shall afford a
reasonable opportunity of being heard to the person
concerned and after recording the reasons, either modify
or reject the proposal.
(4) Any person aggrieved, by an order of the Approval
Committee, made under sub-section (3), may prefer an
appeal to the Board within such time as may be
prescribed.
xxxx xxxx xxxx
(8) The Central Government may prescribe,-
(a) the requirements (including the period for
which a Unit may be set up) subject to which the
Approval Committee shall approve, modify or reject
any proposal referred to in subsection (3);
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RAWAL
(b) the terms and conditions, subject to which the
Unit shall undertake the authorised operations and its
obligations and entitlements.
(9) The Development 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
Development Commissioner may authorise and every
such operation so authorised shall be mentioned in the
letter of approval."
36. It is apparent from Sub-section (8) of Section 15 of the SEZ Act
that the Central Government has ample powers to impose certain terms
and conditions subject to which a unit can carry out its operations.
37. In view of the above, it is clear that the Central Government can
introduce terms and conditions by notifying Rules or issuing guidelines
in terms of which an approval may be granted.
38. The letter of approval as contemplated under Section 15(9) of the
SEZ Act is required to be issued by the Development Commissioner
pursuant to the proposal submitted under Section 15(1) of the SEZ Act.
The person who is granted the letter of approval falls within the
definition of an "entrepreneur" within the meaning of Section 2(j) of the
SEZ Act. Section 15(9) of the SEZ Act makes it specifically clear that
the letter of approval shall mention the operations that the concerned
person is authorised to undertake. Thus, the scope of the expression
"authorised operations" is well defined and the same has to be stated in
the letter of approval.
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RAWAL
39. In the present case, the letter of approval dated 08.10.2009
expressly indicates the operations/activities that the petitioner is
authorised to undertake. In the aforesaid circumstances, the contention
that the operations of generating electricity were rendered unauthorised
by the Central Government by the letter dated 06.04.2015 whereby the
2009 Guidelines were reinstated, is unpersuasive. There is nothing to
indicate either in the three Guidelines (2009 Guidelines, 2012
Guidelines and the 2016 Guidelines) that the effect and the import of
the said guidelines was to render the operations being carried out by the
concerned unit as unauthorised operations. The letter of approval has
been granted specifying the authorised operations and the same cannot
be altered by general guidelines, which at best qualify to be a policy
decision by the Central Government.
40. It is next contended that the Central Government is entitled to
demarcate processing areas and non-processing areas and the unit
established by the petitioner had ceased to be a unit in the processing
area whereby rendering it ineligible for O&M benefits. The said
contention is also not supported by the scheme of the SEZ Act.
41. Section 6 of the SEZ Act requires that the Central Government
may demarcate the areas falling within the SEZ into the processing area
and non-processing areas. Section 6 of the SEZ Act is set out below:
"6. The areas falling within the Special Economic
Zones may be demarcated by the Central Government
or any authority specified by it as-
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RAWAL
(a) the processing area for setting up Units for
activities, being the manufacture of goods, or
rendering services; or
(b) the area exclusively for trading or
warehousing purposes; or
(c) the non-processing areas for activities other
than those specified under clause (a) or clause (b)."
42. Rule 11 of the SEZ Rules expressly provides that the
Development Commissioner would demarcate the area and issue a
demarcation order under Section 6 of the SEZ Act for specifying the
survey numbers and boundaries of the SEZ as specified in the
notification as well as the processing areas and the non-processing
areas. In the present case, there is no dispute that the processing areas
and non-processing areas had been demarcated. The petitioner had
applied for and was granted the letter of approval for its unit in the
processing area.
43. It is also relevant to refer to Rules 18 and 19 of the SEZ Rules.
Rule 18 of the SEZ Rules sets out the provisions regarding
consideration of proposals for setting up a unit in the SEZ under Section
15 of the SEZ Act. Rule 19 of the SEZ Rules contains provisions
regarding the letter of approval for setting up a unit. Rule 19(2) of the
SEZ Rules expressly provides that the letter of approval would specify
the items of manufacture or particulars of service activity. Rule 19(3)
of the SEZ Rules expressly provides that only an entrepreneur holding
the letter of approval shall be entitled to set up a unit in the processing
area of the SEZ. The proviso also expressly provides that proposals for
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RAWAL
setting up a unit in the SEZ would be entertained only after the
processing area has been demarcated under Rule 11 of the SEZ Rules.
44. The import of the contentions advanced on behalf of the
respondent is that notwithstanding that specific provisions have been
made under the SEZ Act and the Rules for demarcation of processing
and non-processing zones prior to the issuance of the letter of approval;
the Central Government can re-demarcate the areas under the SEZ Zone
as a measure to deny the benefits available to a unit in terms of the SEZ
Act. Plainly, this militates against the scheme of the SEZ Act and the
SEZ Rules and thus, the said contention is unsustainable.
45. It is material to note that two letters dated 06.04.2015 have been
placed on record. The First Letter communicates the decision of the
Government of India to withdraw the 2012 Guidelines with effect from
01.04.2015. The second paragraph of the said letter communicates the
decision to restore the 2009 Guidelines and further directs that the same
would "henceforth, be the basis for relevant policy and operational
decisions". There is no ambiguity in the language of this letter. The use
of the word 'henceforth' clearly indicates that the decision as
communicated in the said letter is required to be applied prospectively
and the 2009 Guidelines would be the basis for all relevant policy and
operational decisions.
46. It appears that this letter was forwarded under the cover of the
Second Letter. This letter as noted before is at the centre of the
controversy. The last line of the first paragraph of the Second Letter
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RAWAL
indicates that the copy of the communication regarding the decision of
the Government to withdraw the 2012 Guidelines and restore the 2009
Guidelines is enclosed. It is thus apparent, that the First Letter was sent
under the cover of this letter. Insofar as the first paragraph of this letter
is concerned, there is no controversy. The second paragraph of the
Second Letter also indicates that the communication contained therein
is pursuant to the Government's decision as communicated under the
First Letter dated 06.04.2015. This is clear from the opening words of
the second paragraph which reads as "in pursuance of the above cited
decision". This letter was circulated to all Development Commissioners
informing them that "henceforth setting up of power plants shall be
allowed only in the non-processing area of SEZs". There is no cavil
with this direction as well. The dispute essentially relates to the second
sentence of the second paragraph of this letter (the Second Letter dated
06.04.2015) which directs that those power plants which are presently
situated in the processing areas of the SEZ would be demarcated as non-
processing areas and no O&M benefits would be available to such
power plants. Clearly, this does not follow from the decision of the
Government of India as communicated in the First Letter. On the
contrary, this direction runs contrary to that decision. In terms of the
2009 Guidelines, which were directed to be restored by the First Letter,
permitted setting up of power plants in the processing areas of the SEZ
and specified that O&M benefits would be available to such units. Thus,
there is a clear repugnancy between the First Letter and the Second
Letter.
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RAWAL
47. This Court is of the view that this is an apparent error as the
Second Letter was addressed to all Development Commissioners
forwarding the First Letter. As noticed above, the opening words of the
second paragraph of the Second Letter indicates that it is in pursuance
to the decision to withdraw the 2012 Guidelines and restore the 2009
Guidelines as contained in the communication enclosed - the First
Letter dated 06.04.2015. The First Letter does not contain any decision
that the processing areas of the SEZ would be re-demarcated to place
those units which are operating in the processing area of the SEZ to be
placed in a non-processing area. The purport of the Second Letter dated
06.04.2015 appears to be essentially to amplify the decision as
communicated by the First Letter. Read in the aforesaid context, the
import of the direction that the power plants which are situated in
processing areas of the SEZ would be demarcated as non-processing
areas could only be applicable to those power plants in the processing
areas in respect of which a letter of approval had not been issued or if
issued, was not renewed. As noticed above, the exercise of demarcation
is required to precede the issuance of the letter of approval.
48. Under the 2009 Guidelines, a power plant could be set up by the
developers/co-developers as a part of the infrastructure facilities only in
the non-processing area of the SEZ. However, under the 2012
Guidelines this condition was relaxed and therefore, with the
reinstatement of the 2009 Guidelines such units would now require to
be placed in the non-processing area. The Second Letter thus, would be
applicable only to such units and not the ones that were other-wise
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By:DUSHYANT
RAWAL
permissible to be established in the processing areas under the 2009
Guidelines.
49. It is essential to note that one of the principal difference between
the 2009 Guidelines and the 2012 Guidelines is that, whereas under the
2009 Guidelines, a power plant set up by a developer/co-developer as a
part of infrastructure facility was required to be placed only in a non-
processing Area of the SEZ and would not be entitled to any O&M
benefits. However, a power plant or unit set up within the SEZ to
generate power as a product or as a captive power plant could be located
in a processing area and if this was done, the power plant would be
entitled to fiscal benefits under Section 26 of the SEZ Act. The 2012
Guidelines expanded the benefit. In terms of the 2012 Guidelines,
O&M benefits were also extended to power generating units set up by
the developers/co-developers as a part of the infrastructure facility in
the processing area. With the restoration in the 2009 Guidelines, the
power units set up by developers/co-developers as a part of the facility
of the SEZ were required to be placed in the non-processing areas. It is
apparent that it is in that context that the second paragraph of the Second
Letter dated 06.04.2015 mentions that those power plants situated in
processing areas are required to be demarcated as non-processing areas.
Keeping apart the question whether such a direction is valid, it is clear
that this would be the logical sequitur for restoring the 2009 Guidelines
in respect of those power units. However, the petitioner's unit was
granted approval in the processing area under the 2009 Guidelines, and
therefore, restoration of the 2009 Guidelines cannot possibly require the
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RAWAL
petitioner's unit to be demarcated as a non-processing area. As stated
above, the direction in the second paragraph of the Second Letter must
be read as applicable only to those power plants which are set up by
developers/co-developers as a part of the facility or utility for the SEZ
and, not as a separate unit set up within the SEZ to generate power as a
product or as a captive power plant in terms of Clause (ii) of the 2009
Guidelines as set out above.
50. In view of the above, even assuming that the Central Government
had the power to re-demarcate areas post-issuance of the letter of
approvals, the Second Letter on the basis of which the petitioner has
been denied the O&M benefits with effect from 01.04.2015 to
16.02.2016, cannot be construed in the manner so as to be applicable to
the petitioner's unit which was granted the LoA under the 2009
Guidelines.
51. Insofar as the respondent's contention that the Board of Approval
is required to follow the policy decisions of the Central Government is
concerned, there is no dispute that it is required to do so. Section 9 of
the SEZ Act contains provisions regarding the duties, powers, functions
of the Board of Approval. Section 9 of the SEZ Act is set out below:
"9. Duties, powers and functions of Board.-(1) Subject
to the provisions of this Act, the Board shall have the
duty to promote and ensure orderly development of the
Special Economic Zones.
(2) Without prejudice to the generality of the provisions
contained in sub-section (1), the powers and functions of
the Board shall include -
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RAWAL
(a) granting of approval or rejecting proposal or
modifying such proposals for establishment of the
Special Economic Zones;
(b) granting approval of authorised operations to be
carried out in the Special Economic Zones by the
Developer;
(c) granting of approval to the Developers or Units
(other than the Developers or the Units which are exempt
from obtaining approval under any law or by the Central
Government) for foreign collaborations and foreign
direct investments, (including investments by a person
resident outside India), in the Special Economic Zone for
its development, operation and maintenance;
(d) granting of approval or rejecting of proposal for
providing infrastructure facilities in a Special Economic
Zone or modifying such proposals;
(e) granting, notwithstanding anything contained in
the Industries (Development and Regulation) Act, 1951,
a licence to an industrial undertaking referred to in
clause (d) of section 3 of that Act, if such undertaking is
established, as a whole or part thereof, or proposed to be
established, in a Special Economic Zone;
(f) suspension of the letter of approval granted to a
Developer and appointment of an Administrator under
subsection (1) of section 10;
(g) disposing of appeals preferred under sub-
section (4) of section 15;
(h) disposing of appeals preferred under sub-
section (4) of section 16;
(i) performing such other functions as may be
assigned to it by the Central Government.
(3) The Board may if so required for purposes of this Act
or any other law for the time being in force relating to
Special Economic Zones, by notification, decide as to
whether a particular activity constitutes manufacture as
defined in clause (r) of clause 2 and such decision n of
the Board shall be binding on all Ministries and
Departments of the Central Government.
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RAWAL
(4) The Board may delegate such powers and functions
as it may deem fit to one or more Development
Commissioners for effective and proper discharge of the
functions of the Board.
(5) Without prejudice to the foregoing provisions of this
Act, the Board shall, in exercise of its powers or the
performance of its functions under this Act, be bound by
such directions on the questions of policy as the Central
Government may give in writing to it from time to time.
(6) The decision of the Central Government whether a
question is one of policy or not shall be final."
52. It is apparent from the plain language of Section 9(5) of the SEZ
Act that the Board of Approval would "in exercise of its powers or
performance of its functions" be bound by the directions of the Central
Government on the questions of policy under the SEZ Act. Clearly, if
the policy of the Central Government is not to permit power plants to
be set up in processing areas, the Board of Approval is required to
ensure that no letter of approval is granted to a unit or a developer to do
so. However, that does not mean that the Board of Approval is required
to proceed to cancel an existing letter of approval even though there is
no default on the part of the entrepreneur in complying with the terms
and conditions or its obligations subject to which, the letter of approval
was granted to him. As noticed above, the letter of approval granted to
an entrepreneur can be cancelled if the conditions as stipulated under
Section 16(1) of the SEZ Act are met and not otherwise. The letter of
approval granted to a developer for setting up an SEZ may also be
suspended in terms of Section 10 of the SEZ Act.
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RAWAL
53. However, the Board of Approval cannot for the purpose of
cancelling a letter of approval, re-demarcate the processing areas and
non-processing areas in an SEZ. Demarcation of such areas is not to be
done for the purpose of cancelling existing letter of approvals.
54. Section 26 of the SEZ Act provides for certain exemptions,
drawbacks and concessions available to developers and entrepreneurs.
Sub-section (2) of Section 26 of the SEZ Act also provides that the
Central Government may prescribe the manner and the terms and
conditions subject to which the exemptions, concessions, drawback or
other benefits shall be granted to a developer or an entrepreneur under
Section 26(1) of the SEZ Act. Chapter IV of the SEZ Rules prescribes
the terms and conditions for availing exemptions, drawbacks and
concessions and there is no dispute that the petitioner would require to
meet those terms and conditions. As noted above, the controversy in
this case is not regarding the petitioner complying with any terms and
conditions for grant of concessions under Section 26(1) of the SEZ Act.
Such concessions are available by virtue of Section 26 of the SEZ Act
as well as the SEZ Rules. The dispute in the present case relates to the
direction to re-demarcate the petitioner's power plant as a non-
processing unit for the purposes of the 2009 Guidelines. The direction
to re-demarcate is clearly not traceable to Section 26(2) of the SEZ Act.
55. In view of the above, the present petition is allowed to the limited
extent that the condition imposed by Unit Approval Committee of
refunding the O&M benefits obtained by the petitioner during the
period 01.04.2015 to 15.02.2016 by its letter dated 18.04.2016, is set
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RAWAL
aside. The impugned order upholding the said condition of the Unit
Approval Committee is also set aside.
56. The petition is disposed of in the aforesaid terms.
VIBHU BAKHRU, J
OCTOBER 25, 2021
RK
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By:DUSHYANT
RAWAL
