Procurement of goods by SEZ units from DTA : Confusion prevails despite an Act!
OCTOBER 30, 2006
By Joseph Prabakar
CENTRAL Excise Notification No. 58/2003 dated July 22, 2003 provides for exemption from Excise Duty for supplies effected by DTA units to SEZ Units. This notification stipulates that the DTA unit should clear the goods against a Domestic Procurement Certificate issued to the Special Economic Zone by customs authorities in the Special Economic Zone. Further this notification also provides that proof of export, duly certified by the Deputy Commissioner of Customs in the SEZ, should be submitted by the DTA unit to the Jurisdictional Central Excise officer in charge of the DTA unit within a period of one month from the date of removal of goods.
The Special Economic Zone Act, 2005 has come into force from February 10, 2006. SEZ Rules, 2006, have been notified on the same day as provided for under Section 55 of the SEZ Act. Accordingly, Special Economic Zones Rules, 2003 and Special Economic Zones (Customs Procedures) Regulations, 2003, have been rescinded with effect from February 10, 2006.
The SEZ Act, 2005 contains provisions relating to fiscal exemptions in Section 26 & Section 27 of the SEZ Act. As per SEZ Act, all the activities relating to the SEZ would be governed by the provisions contained in the SEZ Act and the SEZ Rules.
Section 51 of the SEZ Act is an important section as it contains a non-obstante clause which is reproduced below.
"51 (1) The provisions of this 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 ."
Thus, by virtue of Section 51 of the SEZ Act, the provisions of the SEZ Act and the SEZ Rules would normally have overriding effect over the provisions contained in any other Act, including Central Excise Act, 1944 or Customs Act, 1962 or any other Rules or Regulations made under these Acts with reference to SEZ.
It is important to note here that Rule 30 of the SEZ Rules, 2006, contains specific and elaborate provisions for procurement of goods by an SEZ unit from the Domestic Tariff Area (DTA). Accordingly the clearances of excisable goods by a DTA unit without payment of Central Excise Duty to SEZ would now be governed in terms of Rule 30 of the SEZ Rules, 2006. As per Rule 30, a DTA unit is expected to generate ARE 1 form which is similar to the requirement for effecting physical export. DTA unit would then clear the goods to the SEZ unit on the strength of the ARE 1 form. Rule 30 stipulates that the ARE 1 form would be endorsed by the authorized officer in the SEZ to the effect that the goods have been admitted in full in the SEZ. Thereafter the endorsed ARE1 form would be sent to the jurisdictional Central Excise Officer within a period of 45 days. Rule 30 further provides that if the endorsed ARE 1 is not received within 45 days, the Excise Officer should raise a demand against the DTA unit for the transaction.
Now, on a combined reading of Section 55 of the SEZ Act and Rule 30 of the SEZ Rules, it may be evident that a DTA unit should follow the procedure laid down under Rule 30. Thus, the DTA unit is not required to get Domestic Procurement Certificate from the SEZ unit for clearing the goods without payment of excise duty, irrespective of the fact as to whether Central Excise Notification No. 58/2003 dated July 22, 2003 is in force or not.
Though the above mentioned legal position is clear, the implementation of the new procedure for clearance of goods to SEZ has run into certain problems. The Central Excise officers in charge of the DTA units are refusing to allow the materials to be cleared against ARE 1 and they continue to demand Domestic Procurement Certificate from the SEZ units. At the same time, the officers at the SEZ are refusing to issue Domestic Procurement Certificate to the SEZ units for the obvious reason that it is not required any more since the SEZ Act and SEZ Rules have already come into force.
In this context, the Ministry of Commerce vide Instruction No 6/2006 dated August 3, 2006, addressed to all the Chief Commissioners of Central Excise and all the Chief Commissioners of Customs, had clarified that Section 55 of the SEZ Act would prevail over all other legislations and that the excise officers should not insist on Domestic Procurement Certificate, but allow the goods to be cleared to the SEZ as per Rule 30 of the SEZ Rules.
However, this communication has not solved the problem. The Central Excise officers in charge of the DTA unit contend that the relevant provisions in the Central Excise Act / Notification have not been amended to give effect to the said procedure. In the meanwhile the SEZ units and the DTA units supplying to the SEZ units, are made to suffer because of the lack of clarity in the procedures. Ministry of Commerce is under the wrong impression that by merely issuing Instruction No 6/2006 dated August 3, 2006, the issue has been settled. The right course of action for the Ministry of Commerce would be to interact with the Ministry of Finance and to request the Finance Ministry to take the following action.
- Rescind Central Excise Notification No. 58/2003 dated July 22, 2003.
- Issue a fresh Central Excise Notification for clearance of goods by DTA unit to SEZ, incorporating the procedures laid down in Rule 30 of the SEZ Rules, 2006.
- CBEC to issue a Circular to clarify the effect of Section 55 of the SEZ Act and the fact that DTA units would now have to follow the SEZ Act and SEZ Rules.
Unless and until this is done, the confusion in clearance by DTA units is bound to continue resulting in unnecessary delay in procurement of goods by SEZ units.
(The views expressed are personal of the author)
( The Author is a Chennai-based advocate)
