By TIOL News Service

AHMEDABAD, DEC 10, 2009: IN a landmark judgement the Gujarat High Court has with high erudition and lucidity explained the concepts and demolished every theory advanced by Revenue. Wonder why the highly intelligent Revenue officers can't think like this?

The moot question for consideration is as to whether the levy of export duty on goods supplied from the Domestic Tariff Area to the Special Economic Zone is justified under law. Dealing with this question, three important aspects are to be borne in mind : -

Whether export duty can be imposed under the provisions of the Customs Act, 1962 ?

Whether Export Duty can be levied under the provisions of the Special Economic Zones Act, 2005 ?

Whether export duty can be imposed under the Customs Act, 1962 by incorporating the definition of the term 'Export' under the SEZ Act, 2005 into the Customs Act, 1962 ?

These three questions are to be dealt with hereunder:-

1. Whether such duty can be imposed under the provisions of the Customs Act, 1962 ?

The various terms used in Section 12 of the said Act, which is the charging section for the purpose of levy of duty, have been defined under the said Act itself, Section 2(18) defines export to mean taking out of India to a place outside India; Section 2(19) defines export goods as goods which are to be taken out of India to a place outside India; Section 2(27) defines India as including the territorial waters of India. Therefore, the taxable event contemplated under the Customs Act, 1962 for the purpose of levy of Export Duty is taking the goods out of the territorial waters of India to a place outside India, in which case the goods would be dutiable goods as contemplated under Section 12 of the said Act and attract levy of export duty, to be paid at the time of exportation of such goods. Export under the Customs Act, 1962, therefore, can be said to have taken place only upon movement of the goods outside the territorial waters of India.

In the absence of any amendment of the definitions of the terms 'Export' and 'India' in the Customs Act, 1962, or any amendment in the charging section i.e. S.12 or insertion of a charging provision contemplating movement of goods from the Domestic Tariff Area to the Special Economic Zone as a taxable event entailing a levy of Export Duty as in the case of export, the levy of Export Duty cannot be justified under the provisions of the Customs Act, 1962.

2. Whether Export Duty can be levied under the provisions of the Special Economic Zones Act, 2005 ?

The Department has demanded Export Duty on the subject goods by invoking the provisions of Section 12 of the Customs Act, 1962 read with Section 2 and Second Schedule- Export Tariff (Heading No.11 ) of the Customs Tariff Act, 1975 and for the purpose of considering the effective rate of duty, has taken into account Notifications issued under Section 25 of the Customs Act, 1962. Therefore even as per the Department, the levy and the procedure adopted for recovery thereof is under the Customs Act, 1962 and the aforesaid issue does not arise for consideration on the stand of the Department itself.

The provisions of the SEZ Act do not envisage the movement of goods from the Domestic Tariff Area to the Special Economic Zone to be a taxable event as the said provisions do not contain any charging provision providing for the levy and imposition of Export Duty, and the said Act does not contain any provisions for recovery of such duty. In construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the revenue establishes that the case falls strictly within the provisions of the law, the subject can be taxed and if, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or analogy or by trying the probe into the intention of the legislature and by considering what was the substance of the matter.

The contention that levy of Export Duty is impliedly contemplated under the SEZ Act, principally on account of the fact that unlike other levies, the levy of Export Duty has not been specifically exempted under the provisions of the said Act, is wholly misconceived. In the first place, there cannot be a levy of tax by implication. Secondly the necessity for exemption would arise if the subject is liable to tax in the first place. In any case an overall view of the provisions of the SEZ Act and the Rules would establish that levy of Export Duty on the movement of goods from the Domestic Tariff Area to the Special Economic Zone is not at all provided for or contemplated thereunder .

The SEZ provisions clearly establish the legislative intention recorded in the Statement of Objects and Reasons of making available goods and services to the Developer / Unit situated in the Specific Economic Zone, free of taxes and duties. A levy of export duty is neither expressly nor impliedly contemplated under the Act and cannot be read in by purported intendment, which in any case, is clearly to the contrary.

This is further evident from the provisions of Section 30, which provides for imposition of duties of Customs including anti-dumping, countervailing and safeguard duties on goods removed from a Special Economic Zone into the Domestic Tariff Area. This again establishes the legislative intent of encouraging movement of goods / services into the Special Economic Zone and operations within the Special Economic Zone for the purpose of export from the Special Economic Zone to a place outside India. Additionally, such a provision emphasises that where any levy was contemplated, the Act is express and specific in this respect and in the absence of a similar provision regarding export duty, levy thereof is wholly unjustified.

3. Whether export duty can be imposed under the Customs Act, 1962 by incorporating the definition of the term 'Export' under the SEZ Act, 2005 into the Customs Act, 1962?

The term 'export' having been defined in the Customs Act, 1962, for the purposes of that Act, there is no question of adopting or applying the meaning of the said term under another enactment for any purpose of levying duty under the Customs Act, 1962. In other words, a definition given under an Act cannot be displaced by a definition of the same term given in another enactment, more so, when the provisions of the first Act are being invoked. Even in the absence of a definition of the term in the subject statute, a definition contained in another statute cannot be adopted since a word may mean different things depending on the setting and context. In fact, the interpretation canvassed by the department is not merely the adoption of a definition of another Statute, but the incorporation of a taxable event itself, which is impermissible under the law.

The movement of goods from the Domestic Tariff Area to the Special Economic Zone has been treated as export by a legal fiction created under the SEZ Act, 2005. A legal fiction is to be restricted to the statute which creates it. [Refer - Meghraj Biscuits Industries Limited V/s. Commissioner of Central Excise U.P, ( 2007-TIOL-36-SC-CX), MORIROKU UT INDIA (P) LIMITED V/s. State of Uttar Pradesh and others ( 2008-TIOL-45-SC-CT ). Moreover, such legal fiction should be confined to the purpose for which it has been created.

Such movement has been treated as export under the SEZ Act 2005 for the purpose of making available benefits as in the case of actual exports like duty drawback, DEPB benefits, etc. to the Special Economic Zone Unit / Developer or the Domestic Tariff Area supplier at their option. Construing this movement of goods as entailing a liability of payment of duty runs absolutely counter to the purpose of the legal fiction created under the SEZ Act, 2005.

Section 51 of the SEZ Act, 2005 providing that the Act would have overriding effect does not justify adoption of a different definition in the Act for the purposes of another statute. A non-obstante clause only enables the provisions of the Act containing it to prevail over the provisions of another enactment in case of any conflict in the operation of the Act containing the non-obstante clause. In other words, if the provision/s of both the enactments apply in a given case and there is a conflict, the provisions of the Act containing the non-obstante clause would ordinarily prevail. In the present case, the movement of goods from the Domestic Tariff Area into the Special Economic Zone is treated as an export under the SEZ Act, 2005, which does not contain any provision for levy of export duty on the same. On the other hand, export duty is levied under the Customs Act, 1962 on export of goods from India to a place outside India and the said Act does not contemplate levy of duty on movement of goods from the Domestic Tariff Area to the Special Economic Zone. Therefore, there is no conflict in applying the respective definitions of export in the two enactments for the purposes of both the Acts and therefore, the non-obstante clause cannot be applied or invoked at all.

Similarly, reliance on Section 53 of the SEZ Act 2005 to contend that a Special Economic Zone is a territory outside India, is misconceived. Section 53 provides that the Zone would be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations. The term 'customs territory' cannot be equated to the territory of India and in fact, such term has been defined in the General Agreement of Tariffs & Trade, to which India is a signatory, to mean an area subject to common tariff and regulations of commerce and that there could be more than one customs territory in a country. Moreover such an interpretation would lead to a situation where a Special Economic Zone would not be subject to any laws whatsoever. The entire SEZ Act 2005 would be rendered redundant since it is stated to extend the whole of India. In any case, various provisions of the SEZ Act would be rendered redundant and unworkable if the Special Economic Zone was to be considered an area outside India. This is apart from the fact that such a declaration would be constitutionally impermissible.

In view of the above discussion and findings arrived at as well as conclusion drawn, the levy of export duty on goods supplied from the Domestic Tariff Area to the Special Economic Zone is not justified. The petitioners are, therefore, not to be called upon to pay export duty on movement of goods from Domestic Tariff Area to Special Economic Zone units or developers.

Do you think this is the end of the story? Apparently the Government is planning to appeal to the Supreme Court.

However the operation of the judgment is suspended for a period of four weeks on condition that the protection enjoyed by the petitioners shall continue.

(See 2009-TIOL-674-HC-AHM-CUS in 'Customs')