By TIOL News Service

AHMEDABAD, JAN 21, 2014: THE assessee (Reliance Industries Ltd) as well as revenue are in appeal against the order passed by the Adjudicating Authority. The issue involved is demand of duty on the goods cleared from SEZ to the additional area before issue of a formal Notification to include the additional area in SEZ.

A formal approval was granted by the Govt. of India to the assessee on 31.03.2006 to set up the SEZ for petroleum and petrochemical products over an area of 1087 Acres (440 Hectares). An in-principle approval was also granted in the same letter for expansion of the SEZ into multi-product SEZ, as and when minimum additional area of 1000 Hectares was acquired by the assessee. As per the provisions of SEZ Act, under Section 4( i ) read with Rule 8 of SEZ Rules, 2006, a formal notification was issued on 19.04.2006, notifying the area of 1087 Acres (440 Hectares) as SEZ.

The developer also acquired the possession of additional land of 1813 Acres for expansion of SEZ for which in principle sanction had already been granted by Govt. of India.

The developer also made a request on 03.08.2006 for formalizing the in-principle approval for additional land pointing out that large work force has already been mobilized for construction activities on additional land. During the interim period, RIL received duty free steel plates, structural steel and tor steel for undertaking construction activity.

RIL , notwithstanding the in-principle approval of the additional land, as the formal notification was still pending, paid duty on their own volition on the steel taken to the additional land for construction of tank. Such duty was periodically paid against 11 Bills of Entry, based on the consumption of steel on additional land as reflected in the progress report received from the contractor.

Officers of DRI visited the SEZ and started investigations.

In the interim period between the investigation and show cause notice, Govt. of India issued a notification on 04.06.2007, notifying that additional land was to be included as a part of existing SEZ. The authorities seized the steel taken to the additional land and released the same provisionally on execution of bond. The said steel was thereafter consumed within the additional land for the construction of tanks in the existing SEZ. The show cause notice dt.20.12.2007 was issued by DRI, directing the assessee to show cause why the Customs duty under Section 28(1) of Customs Act, 1962 read with Section 30 of SEZ Act, 2005 and Rules 24 & 34 of SEZ Rules 2006 be not demanded from them and also sought imposition of penalties and for confiscation of steel which was seized. The adjudicating authority, passed the impugned Order-in-Original, confirming the duty, interest and imposed penalties. He also ordered confiscation of the goods under Sec 111(j) and 111(o) of the Customs Act, 1962.

Against the above order, both the assessee and the Revenue filed appeals. Revenue is aggrieved by such an order on the ground that the adjudicating authority has held that the provisions of Section 28, 28AB , and 114A of Customs Act, 1962 have no applications to the present case, and has filed the appeal against said order.

Appellant challenged the Order-in-Original mainly on the following grounds:

++ Notification dated 04.06.2007 which notified the additional land to be included as part of the existing SEZ notified on 19th April 2006 would relate back to the date of the original Notification dt.19.04.2006 .

++ Section 2(a) of the SEZ Act, 2005 contemplates only one appointed day which is in reference to the Notification of the original SEZ and any subsequent Notification for inclusion of additional area as part of the original SEZ would relate back to the said appointed day.

++ No Duty liability on temporary removals to DTA from SEZ in view of Rules 50 & 51 of SEZ Rules 2O06

++ Since admittedly the goods remained in the DTA only temporarily and have eventually become part of the SEZ, duty if any payable at the time of the removal to DTA would be eligible to be paid back to RPL as Drawback. The entire situation is therefore revenue neutral and therefore the duty demand does not survive.

++ No machinery provisions for recovery of duty leviable under section 30 of the SEZ Act, 2005

++ DRI has no jurisdiction under SEZ Act to initiate investigations and to issue notice

++ Sections 108, 110 & 111 of the Customs Act, 1962 not applicable in the present case

++ Penalty under section 112(a) not imposable

After hearing both sides, the Member (J) held:

The demand for duty and the consequential liability for redemption fine and penalties, all relates to steel items, both imported as well as indigenous, is on items which were procured duty free by the appellant unit for setting up a refinery in the SEZ, located at Jamnagar. Such steel items, which comprised of plates, tor steel, steel pipes etc., were removed without payment of duty from the SEZ to a storage point in the DTA as permitted by the specified officer holding jurisdiction over the SEZ, under various permissions granted under Rule 50(1)(e) of the SEZ Rules, 2006. The Revenue's case is that though the removals from the Zone to the DTA were covered by the permissions granted under Rule 50(1)(e) of the SEZ Rules, 2006, by virtue of such clearance alone no liability for duty was attracted, but the contravention occurred when such duty-free materials were further moved from the permitted storage point in the DTA to another area in the DTA called Refinery Tank Farm (RTF) and used therein for construction of storage tanks. It is the Revenue's case that the permission granted under Rule 50(1)(e) of the SEZ Rules, 2006 did not permit the appellant-unit to remove the duty-free steel materials from the specified storage point to the RTF and also did not permit the appellant to utilize such materials in construction of storage tanks. It is these two actions which , according to the Revenue, led to a contravention of the permissions granted by the specified officer and consequently rendered the goods liable to duty and confiscation.

There was a delay of nearly 10 months in notifying the additional land of 1813 Acres. The notification in respect of the additional land was issued on 04.06.2007. The said notification, however, stated that the "additional area" being notified therein was to be included as a part of the SEZ already notified on 19.04.2006.

The Notification dated 04.06.2007 was in continuation of the original Notification dated 19.04.2006, and not one which could be viewed independent of the earlier Notification.

The use of the word " Additional area" as well as the words "to be included as a part of that Special Economic Zone" impel us to take the view that the Notification dated 04.06.2007 should take effect from 19.04.2006, when the original Notification was issued. We also agree with the assessee's submission that the Scheme of the SEZ Act contemplates only one "appointed day" for a particular SEZ. This becomes clear from the definition of 'appointed day' in section 2 (a) of the SEZ Act, which defines the said term to mean the date on which the SEZ is notified by the Central Government under sub-section (1) of Section 4 of the SEZ Act

It is clear from the above definition that in respect of a particular SEZ, there can only be one appointed day. The SEZ Scheme does not contemplate existence of more than one "appointed day" for a particular SEZ. Thus, in our considered view, even in respect of an additional area notified in terms of the second proviso of section 4 ( i ), the "appointed day" will be the same as that of the originally notified land. Thus, in respect of the SEZ, where the assessee's unit is situated, the appointed day is 19.04.2006 and not 04.06.2007

The Notification dated 04.06.2007 should relate back to 19.04.2006. In view of this, the construction activities conducted in the additional area will have to be deemed as carried out within the SEZ. The permission granted under Rule 50 (1) (e) as also the conditions laid down therein will become irrelevant in view of the subsequent action of notifying the additional area as part of the existing SEZ.

The entire object and purpose behind Rule 50 (1) of the SEZ Rules, 2006 is to ensure that there is no mis -use or diversion of goods for purposes other than that of SEZ. In the instant case, it is not in dispute and the adjudicating authority has himself held that admittedly there was no diversion of goods for any purpose or use other than that of SEZ. On this ground also, and regardless of the view that we have taken with regard to the effective date of the Notification dated 04.06.2007, the demand for duty and the consequent action of confiscation and penalties cannot sustain.

However, the Member (T) differed with the above view and held:

The Notification dt . 04/06/2007 speaks of the following: (a) notification of area of 440.08 hectares as SEZ on 19/04/2006, (b) satisfaction of the Central Government with fulfillment of requirements under sub-section (8) of Section 3 and other related requirements (c) approval of transfer proposal for transferring the approval to M/s. Reliance Jamnagar Infrastructure Ltd. on 10/01/2007, (d) approval of conversion of SSSEZ into a Multi-product SEZ on 09/05/2007 and finally (e) notification of additional area to be included as part of the SEZ.

From the fact that the developments from 19/04/2006 to 09/05/2007 have been elaborated in the notification and the notification specifically contains approval for conversion of SSSEZ to Multi-product SEZ and transfer of approval to another company etc. would show clearly that any change in the area, in the character, in the name and the coverage is required to be notified. In this case the SSSEZ became Multi-product SEZ on 04/06/2007, the area covered by the SEZ was enhanced by 784.042 hectares on 04/06/2007, the developer also was changed and this has been approved in the meanwhile and this was also notified on the same day. This shows that the nature of the SEZ and the land coverage of the SEZ had to be notified and a LOA or an earlier notification as an SEZ would not serve the purpose.

In both the cases i.e. relating to notification dt . 19/04/2006 and 04/06/2007, there were preceding steps which culminated in issue of LOA to the developer first and issue of a notification subsequently. Issue of notification is a conclusive evidence that the Central Government is satisfied that the requirements of sub-section 8 Section 3 of SEZ Act have been fulfilled by the developer and terms and conditions have also been fulfilled. This is the reason why the notifications specifically mention the date and fact of grant of LOA and developer's name to whom it was approved and the nature of SEZ

If the additional area is required to be treated as the one which was part of the SEZ on the appointed day, either the notification would have to say specifically so or statutory provisions have to be there. No notification can be given retrospective effect without authority of law, the claim of the appellants if accepted, would mean, the notification dt. 04/06/2007 would be effective from 19/04/2006.

Another ground canvassed by the appellants is that there can be only one appointed day for an SEZ, even if this contention is accepted, in this case, the Multi-product SEZ came into being only on 04/06/2007 and not before. Prior to that there was a SSSEZ . This was converted into Multi-product SEZ on 04/06/2007. Therefore the appointed day for the purpose of units other than petroleum and petro-chemicals would be 04/06/2007 for petroleum and petro-chemicals sector, the appointed day has to be treated as 19/04/2006

This would once again show that there are two appointed days in this case. The appointed day for SSSEZ is 19/04/2006 and when it became Multi-product SEZ, the appointed day became 04/06/2007. Therefore when we have to consider the units which are set up in the area of 480 hectares, the appointed day would be 19/04/2006 and the units have to be in petroleum and petro-chemical sector. As regards units in other sectors, the appointed day would be 04/06/2007 whether they are located in additional area or in the area located prior to 04/06/ 2007, There is no basis for concluding otherwise except that such a conclusion would be convenient for the appellants.

The statutory provisions have to be interpreted strictly and correctly and words have to be given the meaning which they carry.

The claims made by the appellants that land acquisition was over and land had come into their possession on 03.08.2006 and they could not be faulted for delay in approval are wrong. Further the letter dated 03.08,2006 also clearly shows that the appellants knew that they would require a formal notification. The above discussion would clearly show that whether on the basis of statutory provisions or on the basis of the procedure followed or the process followed, the appellants have not made out a case for themselves.

I agree with the submission of the learned special consultant that the Commissioner has not appreciated the provisions of SEZ Act and SEZ Rules in proper perspective. According to the sub-section (2) of Section 53 of the SEZ Act, SEZ is deemed to be a port, airport, inland container depot, land station and land customs station, as the case may be, under Section 7 of the Customs Act, 1962. According to Section 7 of the Customs Act, 1962, the Central Board of Customs by notification, appoint, the ports and airports which alone shall be customs ports or customs airports and so on. Therefore, it is clear that SEZ has to be treated as a port.

Further, it is settled law that goods brought into DTA from SEZ is deemed to be import. Once these two factors are considered, any removal of goods from port to DTA has to be in accordance with law, i.e. after filling a Bill of Entry and getting the same assessed.

Further, SEZ is also a warehousing station. Therefore, any goods cleared from SEZ to DTA is treated as deemed import in terms of Rule 34 of the SEZ Rules since the DTA buyer requires an import licence for obtaining goods from SEZ. Therefore, Section 12 of the Customs Act comes into play at the time of clearance from the goods from SEZ to DTA. Consequently, for further action i.e. recovery of Customs duty and interest, Sections 28 & 28AB are automatically attracted.

After 4.6.2007, it cannot be said that the goods were unauthorisedly brought to DTA, the seizure of the goods cannot be sustained and consequential confiscation also cannot be sustained.

I have already taken a view that the stock of the goods as on 4.6.2007 could not have been seized and at the same time holding that the duty is payable on the goods used for construction prior to 4.6.2007

I would also take a view that no penalty is imposable.

In view of the above discussion, in my view, the matter has to be remanded to the original adjudicating authority for limited purpose of quantifying the duty demand and interest thereon in respect of the goods cleared prior to 4.6.2007 and used for construction of RTF and taken out of permitted storage area.

On reference to the Third Member, the Third Member agreed with the view taken by the Member (J) and by majority, the Tribunal allowed the appeals filed by the assessee and dismissed the appeal by revenue.

(See 2014-TIOL-102-CESTAT-AHM)