By TIOL News Service

AHMEDABAD, NOV 26, 2015: THE petitioner had commissioned two units of 330 MW each at Mundra Plant. A part of the electricity is sold outside the SEZ to Gujarat Urja Vikas Nigam Limited (GUVNL).

The petitioners challenge the constitutionality and legality of Notification No.25/2010-Customs dated 27.2.2010, particularly the proviso thereto.

This notification read –

In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts, goods falling under Tariff item 2716 00 00 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), when imported into India, from the whole of the duty of customs leviable thereon which is specified in the said First Schedule;

Provided that nothing contained in this notification shall apply to electrical energy falling under tariff item 2716 00 00 removed from a Special Economic Zone to the Domestic Tariff Area or non-processing areas of Special Economic Zones.

This notification was rescinded by notification 60/2010-Cus dated 10.05.2010 which read –

G.S.R. (E) - In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government hereby rescinds the notification of the Government of India in the Ministry of Finance (Department of Revenue) no. 25/2010-Customs, dated the 27th February, 2010, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 138(E) dated the 27th February, 2010, except as respects things done or omitted to be done before such rescission.

Before proceeding further, a small recap –

By notification No.21/2008-Customs dated 1.3.2008, the Central Government amended Notification No.21 of 2002 and inter alia inserted the following Entry 573:-

This entry Serial No.573 was split with retrospective effect from 26.6.2009 by the Finance Bill, 2010 presented on 26.02.2010 (and declared under the Provisional Collection of Taxes Act, 1931 as having immediate effect) as below –

Based on the aforesaid retrospective imposition of duty, the Specified Officer, MPSEZ, Mundra, on 26.2.2010 demanded duty on the electrical energy removed from the Specified Economic Zone to the Domestic Tariff Area and non-processing area of SEZw.e.f. 26.6.2009.

After receipt of the letter, the petitioner Company addressed letter dated 27.2.2010 to the respondent informing that theywere working out the mechanism and procedure for fulfillment of conditions and, therefore, presented a Bond for the purpose of considering removal of electricity from Special Economic Zone to Domestic Tariff Area.

The Specified Officer on 3.3.2010 returned the bond and stated in his letter that the petitioner is not entitled to exemption provided by Notification No.25/2010-Customs dated 27.2.2010 and directed the petitioners to file the Bills of entry for electrical energy cleared from 26.6.2009 and also pay the applicable custom duty on electrical energy cleared from 27.2.2010. Both these letters have also been challenged by the petitioner on the ground that the petitioner is entitled for exemption .

The High Court after considering the exhaustive submissions extracted the provisions of the SEZ Act and inter alia observed -

++ There is no liability of developers and units situated within SEZ under the Customs Act for removal of goods from SEZ into DTA or non-processing areas because in neither case, are these "imports" as defined in Section 2(23) of the Act read with definition of "India" as defined in Section 2(27) thereof. As there is no liability under the said Act, the question of exempting partial or conditional, electrical energy removed from SEZ into DTA or non-processing area of SEZ @ 16% advalorem or any other rate does not arise at all. The impugned Notification is a piece of delegated or subordinate legislation and, therefore, cannot travel beyond the provisions of the charging Section.

++ Section 30 of the SEZ Act does not refer to the word "import". Section 30 of the SEZ Act does not provide for levy of goods imported into SEZ as per the word "import" defined in SEZ Act. For goods imported into SEZ, customs duty is levied under Section 12 of the said Act, but on account of Section 26 of the SEZ Act, there is an exemption from payment of such customs duty. The provisions of Section 12 of the said Act are applicable to SEZ only insofar as and limited to import of goods into SEZ from a place outside India.

++ The provisions of the said Act are not applicable at any stage thereafter insofar as SEZ Act is concerned. At the point of entry of the goods into the territorial waters of India from a place outside India where the provisions of the Customs Act are applicable insofar as SEZ is concerned, no customs duty is payable by virtue of the exemption under Section 26 thereof. The provisions of the Customs Act are thereafter exhausted and have no further role to play.

++ Consequently, when goods are removed from SEZ into DTA, it is the provision of Section 30 of the SEZ Act which shall prevail. This is also provided for in Section 51 of the SEZAct which contains the overriding provision. Section 51 of the SEZ Act provides that notwithstanding anything contained in any other law for the time being, the provisions of SEZ Act shall prevail.

++ Therefore, the Parliament cannot make any law providing for levy of customs duty on removing the goods from SEZ into DTA, and any such law being so made shall be ultra vires Entry 83 of List I of Schedule VII of the Constitution of India read with Section 12 of the said Act.

++ Thus, impugned Notification cannot provide for levy on goods removed from SEZ into DTA or non-processing areas which is a field covered and occupied by Section 30 of the SEZ Act. The impugned Notification is also ultra vires Section 30 of the SEZAct which has an overriding effect and shall prevail.

++ The impugned notification is discriminatory in as much as electrical energy imported into India from a place outside India continues to be wholly exempted from payment of customs duty. There is no rational or intelligible differentia in levying customs duty on electrical energy removed from SEZ into DTA or non-processing areas of SEZ. Even on the assumption that removal of goods from SEZ into DTA or non-processing areas of the SEZ amounts to "Import" into India, there is no difference between power producers in Nepal and Bhutan or the power producers in SEZ. Rather power producers in SEZ have contributed to the development and growth of the area and have enriched the country or capital contribution and generation of employment.

++ The Notification is also discriminatory because all MPPs(Mega Power Plants) in India enjoy the same benefits insofar as procurement or import of capital goods are concerned as in the case of power plant situated outside SEZ. To further reinforce that the MPPs plants are on par irrespective of whether they are situated outside or inside SEZ the duty is payable on the raw materials and consumables by both to the extent the power is sold in DTA. The Mundra plant being a MPP stands on the same footing and similarly circumstanced as other MPPs in India. Therefore, there is no justification for discriminating against MPP situated inside a SEZ.

++ The impugned Notification amounts to double taxation inasmuch as the petitioners continue to be liable for payment of duty of raw materials and consumables, coal etc., under Rule 47(3) of the Rules and shall now be required to pay further customs duty @ 16% on electrical energy removed from SEZ and a totally new and additional liability in respect of electricity removed into non-processing areas of SEZ although there is no liability to do so under the SEZ Act and the SEZ Rules. Therefore, the impugned Notification is violative of Article 265 of the Constitution of India.

++ Section 30(a) of the SEZ Act provides that any goods removed from SEZ to DTA shall be chargeable with customs duty and other duties under the Customs Tariff Act, 1975 where applicable, as leviable on such goods when imported. Thus, when Section 30 of the SEZ Act itself provides for levying duty on any goods removed from SEZ to DTA, as leviable on goods when imported, such a duty @ 16% could not have been made applicable inasmuch as with regard to all goods other than goods mentioned in Entry at Serial No.573 effective rate of duty is NIL. Thus, vide the said Notification, Section 30 is sought to be amended to do what could not have been done directly in view of provisions of Section 30 of the SEZ Act has been done indirectly vide the aforesaid Clause. The transaction of sale of electrical energy from unit in SEZ to DTA is, therefore, not within the ambit of the provisions of Customs Act, 1962 in as much as the same cannot be termed as a place outside India as per the provisions of Customs Act, 1962. This apart, notification issued under Section 25 of the Customs Act could not have been amended by Clause 60 of the Finance Bill, 2010 since under Section 25 of the Customs Act, the powers are with the Central Government.

++ It is not disputed by the respondents that Notification No.25/2010-Customs dated 27.2.2010 exempted electrical energy which is imported into India from the whole of payment of customs duty. Therefore, proviso to Notification No.25/2010-Customs dated 27.2.2010 is violative of provisions of Section 25(1) of the Customs Act, 1962 and arbitrarily imposes customs duty treating electrical energy falling under Tariff Item No. 27160000 removed from SEZ to DTA chargeable to Customs duty. Therefore, entire proviso to Government Notification No.25/2010-Customs dated 27.2.2010 is violative of Section 25(1) of the Customs Act, 1962 read with Section 30(a) of the SEZ Act, arbitrary and liable to be quashed. In view of the above, the said Notification No.25/2010-Customs dated 27.2.2010 as well as Notification No.21/2002-Customs as amended by Clause 60 of the Finance Bill, 2010 (Second Schedule thereto) are ultra vires Entry 83 of List I of Seventh Schedule of the Constitution of India, Section 12 of Customs Act, 1962 and Section 30 of SEZ Act, 2005 as well as Articles 14 and 265 of the Constitution of India and consequently deserves to be quashed and set aside.

Retrospective levy

++ Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lexprospicitnon respicit : law looks forward not backward.

The Writ Petition was allowed.

In passing: For the record, the UOI appeal against this order of the High Court was dismissed by the Supreme Court last Friday [See 2015-TIOL-281-SC-CUS-LB].

(See 2015-TIOL-2673-HC-AHM-CUS)