Reliance Industries Ltd. v. Commissioner of Central Excise, Rajkot

[Order per : M.V. Ravindran, Member (J)]. - All these six appeals are directed against Order-in-Original No. 15/Commissioner/2010, dated 31-3-2010, wherein the assessee as respective appeals. As all these appeals are arising out of the findings recorded in the same Order-in-Original, these are being disposed of by a common order.

2. The relevant facts that arise for consideration are that M/s. Reliance Jamnagar Infrastructure Limited submitted a proposal to Govt. of India for setting up a Special Economic Zone (SEZ) at Jamnagar. A formal approval was granted by the Govt. of India to the assessee on 31-3-2006 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 19-4-2006, notifying the area of 1087 Acres (440 Hectares) as SEZ. The assessee applied to the Development Commissioner for setting up of a SEZ unit in the approved SEZ and submitted details of process of acquisition of additional land. The Development Commissioner issued a letter of approval to RIL on 4-5-2006 to set up an SEZ unit. 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 3-8-2006 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. Applications were made by RIL under Rule 50(1)(e) of SEZ Rules for removal of such duty free steel for storage in the additional land, for which in-principle approval had been already granted. The authorities granted permission for storage of such goods on the additional land and the permissions were extended from time to time as per the provisions of Rule 50(1)(e) of SEZ Rules. The steel taken to the additional land was used for construction of storage tank in the area designated as Refinery Tank Form in the additional land and the said movement of steel was done under the cover of inter site gate passes. 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. DRI Ahmedabad acting on an Intelligence, visited the premises of SEZ and conducted in-depth investigation and recorded various statements of officers as well as contractors, who were executing the work of construction of SEZ unit. In the interim period between the investigation and show cause notice, Govt. of India issued a notification on 4-6-2007, 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 dated 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 appellants filed detailed reply to the said show cause notice, contesting the issue on merit and various points like jurisdiction, limitation etc. The adjudicating authority, over a period of time, granted a personal hearing and by following a process of law, passed the impugned Order-in-Original, wherein he ordered as under :-

1. Demand for Customs duty amounting to Rs. 49,37,90,415/- on the goods removed to non-SEZ area under Section 30 of the SEZ Act, 2005 read with Rule 25/34 of SEZ Rules, 2006 as detailed in Annexure A to D to show cause notice is confirmed and this amount is recoverable from M/s. Reliance Industries Ltd. and M/s. Reliance Industries Ltd. are directed to pay the said amount of Rs. 49,37,90,415/- forthwith. The amount of 44,37,90,316/- paid by M/s. Reliance Industries Ltd. during/prior to the investigation of the case by DRI as detailed in the show cause notice is appropriated against the said duty liability of Rs. 49,37,90,415/-. The remaining amount, i.e. Rs. 5,00,00,099/- is recoverable from them. M/s. Reliance Industries Ltd. is directed to pay the said amount forthwith.

2. Interest at the applicable rate for the period as mentioned in Paras 62, 62.1 and 62.3 of the show cause notice is also recoverable from M/s. Reliance Industries Ltd. on the duty confirmed as at Sr. No. 1 above, and M/s. Reliance Industries Ltd. is ordered to pay the same forthwith along with remaining amount as at Sr. No. 1 above.

3. Goods valued at Rs. 1,82,24,32,482.35 seized on 11-7-2007 under Section 110 of the Customs Act, 1962 are confiscated under Section 111(j) and 111(o) of Customs Act, 1962. However, M/s. Reliance Industries Ltd. is given an option under Section 125(1) of Customs Act, 1962 to redeem the same on payment of redemption fine of Rs. 10,00,00,000/-. Option of redemption of the goods under Section 125(2) of Customs Act, 1962 on payment of redemption fine is to be exercised within a period of 30 days. Duty, interest, etc. are to be paid in addition to the redemption fine.

4. Penalty of Rs. 20,00,000/- is imposed on M/s. Reliance Industries Ltd. under Section 112(a) of Customs Act, 1962.

5. Penalty of Rs. 5,00,000 is imposed on Shri V.K. Gandhi under Section 112(b) of Customs Act, 1962.

6. Penalty of Rs. 2,00,000 is imposed on Shri D.N. Dheer under Section 112(b) of Customs Act, 1962.

3. Aggrieved by such an order, the assessee is in appeal. Revenue is also 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.

4. Ld. Counsels Shri J.C. Patel, Shri V.K. Jain, Ms. Shilpa Balani, and Ms. Dimple - argued on behalf of the assessee and two individuals.

5. The ld. Counsel submitted as under :-

Notification dated 4-6-2007 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 dated 19-4-2006.

It is settled legal position that when an applicant satisfies the requirements, which in law entitles him to a particular status, the formal issue of an instrument certifying or recognizing such status by the prescribed authority relates back to the date of application and the time taken by the authority in issuing/granting such instrument/certificate does not deprive the applicant of the benefits of the said status during the time interval between the making of the application and the formal issue/grant of the instrument/certificate. Reliance is placed on the following decisions :

CCE v. M.P.V & Engg. Industries - (S.C.)

Santadas Indanmal & Co. v. UOI - (Del.)

3.2 In the present case there already existed an in-principle approval for the additional land of 1000 hectares to be part of the existing SEZ and the same was also thereafter formally notified as part of the SEZ. Consequently, to deny the benefit of SEZ to the appellant in respect of the said additional land in respect of the goods taken to the said additional land in the interregnum between the grant of in-principle approval and the formal notification would clearly be contrary to the ratio of the aforesaid decisions.

3.3 The principle laid down in the aforesaid decisions has in fact been applied to the case of a SEZ unit by this Hon’ble Tribunal in the case of Zydus Mayne Oncology Pvt. Ltd. reported in (Tri.-Ahmd.), in which the Tribunal has by following the aforesaid decisions laid down that there can be no duty liability in respect of goods which are received pending the grant of letter of approval by the Development Commissioner to a SEZ unit and so long as the goods are used for the purpose of the SEZ there can be no duty on such goods notwithstanding that they were received in the unit while its application for approval as SEZ unit was pending with the Development Commissioner.

3.4 Reliance is also placed on the decision of the Hon’ble Karnataka High Court in the case of Union of India v. Yokogawa Bluestar Ltd. reported in in which it is held that where a Notification is required to be issued to give effect to a policy decision already taken and there is some lapse of time between the taking of the policy decision and the issuance of the Notification, the benefit of the Notification cannot be denied for the period prior to the issuance of the Notification which must be taken to be applicable retrospectively.

3.5 The Commissioner erred in proceeding on the basis that the letter dated 31-3-2006 by which in-principle approval had been granted for the additional land cannot substitute for and be equated with the notification under the second proviso to Section 4(1) of the SEZ Act, 2005 in respect of the additional land. It Is not the Appellant’s case that the in-principle approval can be a substitute for the notification under the said second proviso to Section 4(1) and that if such notification does not materialize at all the in-principle approval by itself would suffice. The Appellant’s case is that once the in-principle approval in respect of the additional land is granted and the formal notification under the said second proviso, to Section 4(1), is also in fact thereafter issued in respect of such additional land, then no duty liability can be created in respect of the goods received in the interregnum on the additional land and used for the purpose of the SEZ. The duty liability in respect of such goods would arise only if the notification under the said second proviso to Section 4(1) does not materialize in terms of the in-principle approval which is not the case here.

3.6 The observation of the Commissioner that the appointed day for the already notified SEZ area will also become the appointed day of the additional area only after issue of the notification under the second proviso to Section 4(1) of the SEZ Act, 2005 in fact supports the Appellant’s case. It follows from this observation of the Commissioner that once the Notification under the second proviso to Section 4(1) is issued in respect of the additional land the appointed day of the original SEZ would also be the appointed day for the additional land. This means that once on 4-6-2007 the Notification was issued in respect of the additional land, the appointed day for such additional land would be 19-4-2006. This clearly supports the Appellant’s case that the once the Notification in respect of the additional land is issued on 4-6-2007 it would relate back to 19-4-2006. Consequently (sic) the on the steel taken to the additional 4-6-2007 does not arise.

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.

3.7 It is submitted that Section 2(a) of the SEZ Act, 2005 provides that the “appointed day” with reference to a Special Economic Zone means the date on which the Special Economic zone is notified by the Central Government under sub-section (1) of Section 4, which in the present case is 19-4-2006. It is evident from the said Section 2(a) that the appointed day is defined with reference to the Special Economic Zone alone and not with reference to any additional area subsequently included in a notified Special Economic Zone. Further the appointed day is defined as the date on which the Special Economic Zone is notified under Section 4(1) and it bears no reference to the date on which any additional area is included in the SEZ under the second proviso to Section 4(1). Thus as per the definition there is only one appointed day, namely the one on which the SEZ is notified under Section 4(1) and the definition does not contemplate separate and different appointed days for subsequent inclusions of additional areas to the SEZ. This is clearly for the reason that the additional area notified under the second proviso to Section 4(1) is included as a part of the existing SEZ already notified and such additional area is not a new SEZ. In the circumstances, it would follow that in the present case, the appointed day was 19-4-2006 when the SEZ comprising 1087.44 acres (440.08 hectares) was notified under Section 4(1) and once the terms of the in-principle approval for the additional area were fulfilled, any operation undertaken thereafter in the additional area has to be considered as authorized operation since such operations were admittedly undertaken after the appointed day i.e. 19-4-2006.

No Duty liability on temporary removals to DTA from SEZ in view of Rules 50 & 51 of SEZ Rules, 2006.

3.8 Without prejudice to the aforesaid submissions, and assuming while denying that the additional land (including the RTF area) could not be treated as part of the SEZ until 4-6-2007 and has to be treated as DTA until that date, even so there can be no duty liability since even in that event the goods cleared to RTF have to be treated as being in the DTA only temporarily and on temporary clearance of goods to DTA from the SEZ there cannot be duty liability in view of the provisions of Rules 50 and 51 of the SEZ Rules, 2006. The object of Rule 50 and Rule 51 of the SEZ Rules, 2006 is to permit an SEZ unit to temporarily remove goods from an SEZ to the DTA without payment of duty, subject to condition that such goods are ultimately returned to the Zone (within 120 days or extended time) for use by the SEZ unit in export production. In the present case, it cannot be denied that this substantive requirement of Rule 50 and Rule 51 stood complied with inasmuch as the goods which were removed temporarily from the Zone were in fact used for construction of RTF Tanks which became part of the SEZ refinery and were ultimately used only for export production. Since the temporary removal of goods had not been put to any other use, inconsistent with the underlying object of the permission granted under Rule 50, the breach, if any, of the conditions imposed under the permission granted under Rule 50 ought to have been considered as a technical breach, not warranting denial of the substantive benefit of the permission granted under Rule 50 of the SEZ Rules, 2006.

3.9 Rule 50(e) of the SEZ Rules, 2006 permits a unit in SEZ to temporarily remove without payment of duty any goods to DTA with the approval of the Authorized officer. By letters dated 31-8-2006 and 18-10-2006 the Appellant had sought permission for removal to and storage of goods in area of 25 acres and 416.47 acres respectively comprised in the said additional land and such permission was duly granted and extended from time to time by the Authorized officer. In fact in the application dated 18-10-2006 the Appellant had clearly pointed out that it would undertake construction activities in the additional land which was expected to be shortly notified as part of the existing SEZ. It is significant to note that clause (e) of Rule 50(1), unlike clauses (a) to (d) does not impose any restriction on the purpose for which the goods may be taken temporarily to DTA. The permission in response to the said application was duly granted by the Specified Officer under Rule 50(1)(e) and extended from time to time until the said additional land was formally notified on 4-6-2007 to be included as part of the existing SEZ. Thus at the highest the goods until 4-6-2007 temporarily remained in the DTA under a valid and subsisting permission granted by specified officer under Rule 50(1)(e) and consequently question of demanding any duty thereon doesn’t arise.

3.10 According to the Commissioner, the permission granted to the Appellant under Rule 50 did not permit the Appellant to take the goods further from the temporary storage space mentioned in the applications to the RTF area for construction activities. In the application dated 18-10-2006, the Appellant had clearly pointed out that it would undertake construction activities in the additional land which was expected to be shortly notified as part of the existing SEZ and in response to such application the permission was granted and extended from time to time. On the basis of the statement of the specified officer, the Commissioner held that the permission was granted only for storage and fabrication of partially damaged goods and not for construction activities. When the permission is read with the relevant application, there is no such restriction stipulated in the permission and such a restriction cannot be interpolated in the written permission by subsequent oral evidence of the specified officer.

3.11 Since there is no dispute that the goods remained in the DTA only temporarily and were ultimately used in the SEZ, the substantive requirement and object of the said Rules 50 and 51 is satisfied and met and in such a situation the substantive benefit of the said Rules cannot be denied on the ground that the procedure of obtaining the permission under the said Rules had not been followed.

3.12 Reliance is placed in this behalf on the following decisions of the Tribunal rendered in the context of Rule 57F of the Central Excise Rules, 1944 :

- Maschmeijer Aromatics v. CCE

- Lupin Laboratories Ltd. v. CCE

In which it is held that the purpose of stipulating the procedure of obtaining permission under Rule 57F was to ensure that the inputs are eventually received back in the factory and used in the manufacture of dutiable goods and where there is no dispute about the fact of the eventual use of the inputs in the manufacturer’s factory the mere fact that the procedure of Rule 57F was not followed would not be sufficient to deny the substantive benefit of Rule 57F. The Commissioner should have applied the ratio and principle laid down in the said decisions to the present case and he should have held that in the context of Rules 50 and 51 also, the purpose of stipulating the procedure of obtaining the permission of the authorized officer is to ensure that the goods which temporarily go to the DTA are eventually used in the SEZ and since there is no dispute in the present case about such eventual use in the SEZ the substantive benefit of the said Rules cannot be denied merely because the procedure of permission was not allegedly followed for taking the goods to the RTF.

REVENUE NEUTRALITY

3.13 Without prejudice to the aforesaid submissions, it is submitted that 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. The plea of revenue neutrality has not been upheld on the ground that the Appellant did not in the first place pay the duty. The plea of revenue neutrality would apply precisely in the situation where the duty was not paid in the first instance and if it had been paid, it would have been available to the assessee as credit/refund/rebate/drawback. Reliance is placed on the decision of the Tribunal in the case of Larsen and Toubro v. CCE - . He erred in not appreciating that in that case the correct duty was not paid at the time of clearance. However the demand for differential duty was not upheld since if the differential duty had been paid, the same was available as rebate. In the present case, the Commissioner had not disputed that if the Appellant had paid the duty, it would have been available as drawback/refund to the Appellant upon the Notification of the additional land as part of the existing SEZ.

NO MACHINERY PROVISIONS FOR RECOVERY OF DUTY LEVIABLE UNDER Section 30 of the SEZ Act, 2005

3.14 The Commissioner erred in confirming the demand for duty despite his specific finding that Section 28 of the Customs Act, 1962 under which duty was demanded by the show cause notice has no application to the present case since the charge/levy of duty in case of a SEZ is not under the Customs Act, 1962 but is under Section 30 of the SEZ Act, 2005. Having held that Section 28 of the Customs Act, 1962 under which duty was demanded by the Notice is not applicable, the Commissioner ought to have dropped the demand for duty as being without jurisdiction and authority of law.

3.15 The Commissioner should have held that once it is accepted (as held by him) that Section 28 of the Customs Act, 1962 does not apply, he should have held that there was no machinery provision for recovering the duty leviable under Section 30 of the SEZ Act, 2005 and in the absence of any machinery provision for recovery of duty under the SEZ Act and Rules, the demand made by the show cause notice was liable to fail. The Commissioner should have followed the following decisions which hold that a mere provision in a statute which creates a liability or obligation to pay an amount is not sufficient and that in the absence of a machinery provision for recovery of such amount, no proceedings can lie for demanding and recovering such amount :

Eternit Everest Limited v. UOI -

Pushpaman Forgings v. CCE - [maintained in ]

Rochees Watches v. CCE -

The Commissioner erred in not following the above decisions by making a bald observation that the said decisions are distinguishable on facts and not applicable to the present case. He has not indicated as to how according to him the said decisions are distinguishable and he has assigned no reasons or grounds to indicate as to why according to him the ratio and principle laid down in the said decisions do not apply in the present case.

3.16 The Commissioner erred in proceeding on the basis that the charge/leviability of the duty is created by Section 30 of the SEZ Act and Rules 25 and 34 of the SEZ Rules, 2006 provide for voluntary compliance and hence in the case of non-compliance recovery is implicit in the said provisions. The Commissioner erred in not appreciating that a mere provision for voluntary compliance is not sufficient for effecting recovery. There has to be an express provision for effecting recovery by adjudication in case of non-compliance. As laid down in Eternit Everest Limited v. UOI - , a mere provision which creates a liability or obligation to pay is not sufficient. The statute must further provide for machinery provision for adjudication by a specified authority in cases where such liability is disputed and a machinery provision for recovery in case of non-payment. A mere provision such as Rules 25 and 34 which as held by the Commissioner merely provide for voluntary compliance, without any provision/machinery for recovery is not sufficient.

DRI HAS NO JURISDICTION UNDER SEZ ACT TO INITIATE INVESTIGATIONS AND TO ISSUE NOTICE

3.17 Without prejudice to the aforesaid submissions, it is submitted that the entire proceedings and investigations undertaken by the DRI in the present case and the issuance of Notice by the DRI are without jurisdiction. The investigations in the present case have been carried out by officers of the DRI by purporting to invoke the powers available to them under the Customs Act, 1962 particularly under Section 108 thereof, for the purpose of recording statements under Section 110 thereof, for the purpose of seizing goods etc. The Commissioner erred in not appreciating that a reading of the above referred provisions of the Customs Act, 1962, clearly show that the powers exercisable under these Sections are available only for investigating alleged violation of the provisions of the Customs Act, 1962. The provisions relating to SEZ were part of the Customs Act, 1962 till 10-2-2006 and were appearing in a separate Chapter XA, titled ‘Special Provisions Relating to Special Economic Zones’. The said Chapter XA of the Customs Act was made inoperative with effect from 10-2-2006. Till such time as Chapter XA was part of the Customs Act, 1962, the provisions of the Customs Act relating to search and seizure, certainly could be invoked for the purpose of investigating an alleged violation of Chapter XA of the Customs Act, 1962. However, after 10-2-2006, when the SEZ Act, 2005 has been notified specifically codifying the entire law relating to SEZ, the provisions of Customs Act, 1962 are no longer invokable for investigating any alleged violation of the provisions of the SEZ Act and the Rules made thereunder. This is made amply clear by Section 52 of the SEZ Act, 2005.

3.18 The Commissioner erred in not appreciating that SEZ Act, 2005 does not contain any referential provision making any of the provisions of the Customs Act, 1962 applicable to inquiries and proceedings under the SEZ Act, 2005. Such referential provision exists in several other Central Enactments; for instance, Section 12 of the Central Excise Act, 1944, enables application of certain provisions of the Customs Act, 1962 for proceedings under the Central Excise Act, 1944. Likewise, sub-section (8) of section 3 of the Customs Tariff Act, 1975 contains referential provisions enabling application of certain provisions of Customs Act, 1962 to proceedings under Customs Tariff Act, 1975. Similar referential provisions are to be found in Chapter V of the Finance Act, 1994, wherein the context of service tax levy, certain provisions of the Central Excise Act have been made applicable through a specific referential provision in Section 83. Referential provisions such as the ones referred to above give the requisite legal authority and sanction for application of certain proceedings under a different enactment. The SEZ Act, 2005 also contains a referential provision, it is however, only in the context of the Income-tax Act, 1961 (see Section 27). If it was the intention of the legislature to extend provisions of the Customs Act, 1962 also to SEZ Act, the SEZ Act itself would have contained a similar referential provision for invoking the provisions of the Customs Act, 1962. The absence of such referential provisions clearly indicates the legislative intent to exclude application of the Customs provision to the SEZ Act. In view of the above the Commissioner should have held that the officers of the DRI had no legal authority to initiate investigations in the present matter, as they were neither authorized officers nor specified officers, entitled to administer matters relating to SEZ. Also, the said DRI officers had no authority in law to invoke the powers available to them under the Customs Act, 1962 for the purpose of conducting a search or seizing documents/goods or for recording statements for the purpose of the SEZ Act, 2005. The entire investigation conducted and evidence relied upon in the Show Cause Notice are therefore inadmissible as evidence.

3.19 The Commissioner erred in ignoring the submissions that the SEZ Act and Rules did not confer any authority or power on the DRI officers to carry out investigations in respect of a SEZ and that the provisions of the Customs Act, 1962 in respect of investigations of violations under the Customs Act, 1962 had not been incorporated by reference in the SEZ Act. He seriously erred in holding that wherever duties of customs are not paid or not collected, the customs department does not need any authority other than the authority under the Customs Act, 1962 to investigate and adjudicate the case. The said sweeping and startling observation of the Commissioner is without any legal basis and is contrary to law. The Commissioner has himself held that the levy of duty on goods cleared from SEZ is not under the Customs Act, 1962 but is under the SEZ Act and that the provisions of Section 28 cannot apply for recovery of such duty and yet he has proceeded to hold that in case of non-payment of such duty the customs department does not require any authority other than the authority under the Customs Act, 1962. The learned Commissioner has overlooked this fact that the term “duty” has been defined in Section 2(15) of the Customs Act, 1962 to mean “a duty of Customs leviable” under the said Customs Act, 1962. In the present case the duty which has been demanded is a duty payable under Section 30 of the SEZ Act, 2005 and not duty payable under the Customs Act, 1962. The Customs Act, 1962 confers no authority whatever on the DRI officers or on the Commissioner of Customs to investigate and adjudicate on alleged contraventions under the SEZ Act, 2005.

3.20 The Commissioner erred in relying on Rule 25 of the SEZ Rules, 2006 to hold that by virtue of the said Rule 25 the DRI had jurisdiction to initiate action under the Customs Act, 1962 against a SEZ unit. He erred in not appreciating that the said Rule 25 merely stipulates that the liability of the SEZ unit to return the benefits/exemptions availed in respect of goods which are not utilized for authorized operations or which are not duly accounted for shall be without prejudice to any other action under the Customs Act, 1962. This provision by itself cannot confer on the DRI jurisdiction to initiate action in respect of alleged contravention of the SEZ Act and Rules. For any action to be initiated under the Customs Act, 1962, there should in the first place be a contravention under the Customs Act, 1962. The effect of Rule 25 of the SEZ Rules is that if there is a contravention of the Customs Act, 1962 then the liability to be proceeded against under the Customs Act, 1962 shall be independent of the liability under Rule 25 to refund the benefit of exemption. The effect of the said Rule 25 is not that even if the contravention alleged is of the SEZ Act and Rules and not of Customs Act, 1962, action can be taken under the Customs Act, 1962 for the alleged contravention of the SEZ Act and Rules.

3.21 The Commissioner erred in relying on the instructions dated 5-8-2006 of the Government of India, Ministry of Commerce to the effect that until the provisions of Sections 20, 21 and 22 of the SEZ Act are brought into operation by appointment of the investigating agency referred to in those sections, the investigating officers under the Customs Act, 1962 will have jurisdiction to conduct investigations in respect of a SEZ unit. He erred in not appreciating that a mere instruction of the government which has no statutory force cannot legally confer jurisdiction when none is vested by the statute. There is no provision either in the SEZ Act or in the Customs Act, 1962 to confer on the DRI powers to investigate in respect of a SEZ unit until such time that the investigation agencies under Sections 20, 21 and 22 of the SEZ Act are appointed.

SECTIONS 108, 110 & 111 OF THE Customs Act, 1962 NOT APPLICABLE IN THE PRESENT CASE

3.22 The Commissioner erred in not appreciating that the SEZ Act and Rules do not incorporate the provisions of Sections 108, 110 and 111 of the Customs Act, 1962 and the provisions of the SEZ Act and Rules constitute a separate code which does not empower officers of customs to carry out investigations in respect of a SEZ under the Customs Act, 1962. He erred in not appreciating that apart from the fact that Section 5 of the SEZ Act gives it overriding effect as against any other law, it is settled legal position that a Special Law would prevail over general law and that powers under the later cannot be exercised over the subject matter of the former. In the present case as between the Customs Act, 1962 which deals with imports generally, and the SEZ Act, which deals with SEZ in particular the later is a special law in respect of goods imported in SEZ or taken out of SEZ and consequently the powers and provisions under the Customs Act, 1962 are inapplicable to SEZ goods. He erred in not following in this behalf the judgment of the Hon’ble Supreme Court of India in the case of Suresh Nanda v. Central Bureau of Investigations - 2008 (3) SCC 674 which lays down that the special law will prevail over a general law.

3.23 The Commissioner erred in holding that the steel taken to the RTF by the Appellant is liable for confiscation under Section 111(i) of the Customs Act, 1962. He erred in not appreciating that Section 111(i) applies to dutiable or prohibited goods and that the goods in question are neither dutiable nor prohibited goods. Dutiable goods would by virtue of Section 2(14) and (15) mean goods on which duty leviable under the Customs Act, 1962 has not been paid. The Commissioner has himself held, while holding that the Section 28 is not applicable, that the duty on goods taken from SEZ to DTA is not duty leviable under the Customs Act, 1962. consequently he ought to have held that such goods are not dutiable goods for the purpose of Section 111(i). This is without prejudice to the Appellant’s submission that even duty under the SEZ Act is not payable in the present case. The Commissioner seriously erred in holding that in view of the expression “Unless the context otherwise requires” appearing in Section 2 of the Customs Act, 1962, duty in case of goods removed from SEZ to DTA would mean the duty leviable under the SEZ Act. He erred in not appreciating that there is nothing whatever in the context of Section 111(i) to indicate that the dutiable goods referred to therein are goods which are cleared from SEZ to DTA. Section 111(i) does not even remotely contemplate goods removed from SEZ to DTA. The Commissioner further erred in holding that Section 111(i) was attracted because the Appellant had not filed Bill of Entry under Section 46 of the Customs Act, 1962. He erred in not appreciating that Section 46 applies to import as defined in the Customs Act, 1962 which is bringing the goods into India from a place outside India and not from SEZ. The removal of goods from the SEZ to the DTA is not an act of import as understood under the Customs Act, 1962 and therefore the provisions of the Customs Act, 1962, in general and Section 46 thereof in particular are not applicable to such removals.

3.24 Commissioner has erred in holding that the provisions of Section 111(o) of the Customs Act, 1962 were attracted as there had been a violation of the conditions, subject to which the goods had been permitted to be cleared from the SEZ to the DTA without payment of duty in terms of Rule 50 of the SEZ Rules, 2006. This finding of the Commissioner overlooks the fact that the term ‘duty’ in Section 111(o) refers only to duties of Customs leviable under the Customs Act, 1962 and not to duty leviable under Section 30 of the SEZ Act, 2005. This is clear from the definition of the term ‘duty’ in Section 2(15) of the Customs Act which provides that “duty means a duty of Customs leviable under this Act”. Having already held that the duty which has been demanded from the appellant was the one leviable under Section 30 of the SEZ Act, 2005 and not under Section 12 of the Customs Act, 1962, there was no basis left for the Commissioner to come to such a conclusion.

3.25 The Commissioner erred in holding that the steel taken to the RTF is liable to confiscation under Section 111(o) of the Customs Act, 1962. The Commissioner has himself held that there has been no misuse or diversion of the said goods and the same have been used in construction of the tanks which became part of the SEZ. Consequently the goods have been put to the use subject to which the same were exempted and hence Section 111(o) has no application to the present case.

RELIANCE PLACED ON DECISION IN ESSAR STEEL LTD. BY COMMISSIONER NOT CORRECT

3.26 The Commissioner has erroneously relied upon the decision of the Gujarat High Court in the case of Essar Steel Limited v. UOI - to support his interpretation that in view of Section 51 of the SEZ Act the provisions of the Customs Act, 1962 shall apply to a SEZ. There is nothing in the said judgment to support the interpretation the provisions of the Customs Act shall apply to a SEZ. On the contrary, the High Court has clearly held that the taxable events in the two Acts are different. Accordingly where the levy/charge is created by one of the said two Acts, the provisions of the other Act are inapplicable to such levy/charge.

DEMAND FOR INTEREST NOT TENABLE IN LAW

3.27 The Commissioner erred in ordering payment of interest despite his finding that Sections 28 and 28AB of the Customs Act, 1962 - are not applicable in the present case. He erred in ordering payment of interest without indicating any provision of law in terms of which he has ordered payment of interest. Apart from the submission that no duty itself is payable in the present case, it is submitted that the SEZ Act, 2005 by which charge for levy of duty has been created has no provision for charging and recovering interest on such duty. The Commissioner erred in relying on the decision of the Hon’ble Bombay High Court in the case of Union of India v. Valecha Engineering - in support of his direction to pay interest. In the said decision as also in the decision in case of Indian Carbon Ltd. relied upon by the Bombay High Court, it is clearly held in paragraphs 14, 16 and 27 that interest would be payable only in cases where the statute makes a substantive provision for payment of interest. In para 16, the High Court has held that although collection of interest can be said to be part of machinery provision, in the absence of a statutory provision the authority would be acting without jurisdiction in demanding payment of interest. The Commissioner erred in ordering payment of interest in terms of the Bonds dated 5-5-2006 and 20-10-2006. He erred in not appreciating that when under the law itself there is no provision for payment of interest the question of recovering the same in terms of the said Bonds does not arise, which in any case have not been executed in favour of the Commissioner of Central Excise, Rajkot. In any event, in the Bond dated 5th May, 2006 there is no provision for payment of interest.

PENALTY UNDER SECTION 112(a) NOT IMPOSABLE

3.28 Penalty under Section 112(a) of the Customs Act, 1962. Apart from the submission that the provisions of Sections 111 and 112 have not been incorporated in and borrowed by the SEZ Act and have therefore no application in the present case, since as submitted hereinabove the goods are not liable to confiscation under Section 111, no penalty under Section 112(a) is imposable in the present case. Without prejudice to this submission, it is submitted that no penalty ought to have been imposed in view of the Commissioner’s own findings that there had been no misuse or diversion of the material and that the same had been used only in construction of the tanks which became part of the SEZ and that by way of abundant caution the Appellant had been paying the duty even before commencement of investigation by DRI. Further, the Commissioner has himself accepted that the material which was used in the RTF eventually became part of the SEZ and that the SEZ scheme is for export promotion. He has also accepted that in view of the in-principle approval the Appellant may be acting under a bona fide belief and commenced use of the steel in construction of the RTF to complete the project in time for which huge work force had been mobilized and that there was delay in issuance of the formal notification for the additional land. In view of these findings the Commissioner ought not to have imposed any fine and penalty.

4. SUBMISSIONS IN RESPECT OF DEPARTMENT’S APPEAL

4.1 The Department has in its appeal contended that in respect of the duty which is payable under Section 30 of the SEZ Act, 2005 in respect of goods cleared from SEZ to DTA, the provisions of Section 28 of the Customs Act, 1962 would apply and consequently interest is recoverable under Section 28AB of the Customs Act, 1962 and further that penalty should have been imposed under Section 114A of the Customs Act, 1962. The said contention of the Department is untenable in law as explained below.

4.2 The charge for levy of customs duty on goods brought from SEZ to DTA is created not by Section 12 of the Customs Act, 1962 but by the specific provisions of Section 30 of the SEZ Act, 2005. Accordingly the power to assess and recover as also the power to recover and demand (in case of non-levy) the duty for which the charge is created by Section 30 of the SEZ Act, 2005 must necessarily flow from the provisions of the SEZ Act and such a power cannot be traced to the provisions of the Customs Act, 1962. There is no provision under the SEZ Act, 2005 which confers on the DRI the jurisdiction to raise a demand for duty on goods allegedly brought from SEZ to DTA and the attempt made by the DRI in the present case to assume such jurisdiction by reference to the provisions of the Customs Act, 1962 is without authority of law since the charge of the duty in question is not created by the Customs Act, 1962.

4.3 Section 28 of the Customs Act, 1962 applies when any duty has not been levied, short-levied etc. Duty is defined under Section 2(15) of the Customs Act, 1962 as duty of customs leviable under the Customs Act, 1962. As submitted above, the duty on goods taken from SEZ to DTA is levied not under Section 12 of the Customs Act, 1962, but under the charge created by Section 30 of the SEZ Act. Consequently Section 28 of the Customs Act cannot apply to such duty.

4.4 The Department has in its appeal wrongly applied the analogy of warehoused goods and wrongly relied upon the decision of the Supreme Court in the case of Kiran Spinning Mills reported in . The analogy of warehoused goods cannot apply to goods which are taken to the SEZ and thereafter cleared from the SEZ. In the case of warehoused goods, the deposit of the goods in the warehouse and their clearance from the warehouse take place under the provisions of the Customs Act, 1962 itself and consequently the provisions of the Customs Act relating to the charge of duty under that Act and the machinery provisions for recovery of duty under that Act would apply to warehoused goods. This is not so in the case of SEZ which is governed by a separate enactment other than the Customs Act, 1962. The charge in respect of goods cleared from SEZ is not under the Customs Act but under the SEZ Act and therefore Section 28 of the Customs Act cannot apply to goods cleared from SEZ unlike in the case of goods cleared from a customs bonded warehouse which is governed by the provisions of the Customs Act.

4.5 Since as rightly held by the Commissioner Section 28 of the Customs Act does not apply it would follow that interest under Section 28A of the Customs Act, 1962 and penalty under Section 114A of the Customs Act, 1962 are not attracted in the present case.

6. Shri P.R.V. Ramanan, Special Counsel, appointed by the Revenue for arguing this matter submitted as under :-

Without prejudice to the appeals filled by the Department, the findings recorded by the Commissioner are reiterated and specific attention is invited to the following aspects :

A.1 Section 4 of the SEZ Act reads as follows :

“SECTION 4. Establishment of Special Economic Zone and approval and autharization to operate it to, Developer. -

(1) The Developer shall, after the grant of letter of approval under sub-section (10) of section 3, submit the exact particulars of the identified area referred to in sub-sections (2) to (4) of that section, to the Central Government and thereupon that Government may, after satisfying that the requirements, under sub-section (8) of section 3 and other requirements, as may be prescribed, are fulfilled, notify the specifically identified area in the State as a Special Economic Zone :

Provided that an existing Special Economic Zone shall be deemed to have been notified and established in accordance with the provisions of this Act and the provisions of this Act shall, as far as may be, apply to such Zone accordingly :

Provided further that the Central Government may, after notifying the Special Economic Zone, if it considers appropriate, notify subsequently any additional area to be included as a part of that Special Economic Zone. (emphasis supplied)

(2) After appointed day, the Board may, authorize the developer to undertake in a Special Economic Zone, such operations which the Central Government may authorize.

A.2 From the 2nd proviso, it may be seen that to make an additional area as part of the existing SEZ, a notification has to be issued by the Central Government under sub-section (1) of Section 4 of the SEZ Act, 2005 and in pursuance of Rule 8 of the SEZ Rules, 2006. Mere acquisition of land by RPL would not make the additional area as part of the already notified SEZ since 19-4-2006. Further, the contention of RPL that subsequent notification of 4-6-2007 would relate back to 19-4-2006 and all the benefits of the SEZ schemes would be available to the additional land area including RTF is misconceived and without any merit. It is only with effect from 4-6-2007, it will become SEZ as part of already notified SEZ and not with effect from 19-4-2006 and/or 3-8-2006. It is well settled law that unless otherwise specifically provided in the notifications, the notifications issued under the statute will not have retrospective effect. Therefore, this additional land area will be entitled to the benefit available to SEZ only with effect from 4-6-2007. In view of this, the Case Laws relied upon by the appellant are not applicable to the facts of the present case. During the period from 19-4-2006 (when 440 hectares area was notified as SEZ) to 4-6-2007 (when additional area was notified as SEZ), there was no notification under 2nd proviso to Section 4(1) of the SEZ Act, 2005 for this additional area to be considered as part of the already notified SEZ and therefore, this area cannot be considered as SEZ.

B. The permission granted to RPL under Rule 50 for removal of goods from the SEZ to the temporary storage area vide their applications of August, September & October, 2006 did not cover further removal of the goods from that permitted storage area. Therefore, the removal of goods from the permitted storage place to the additional land including RTF was unauthorized and was without any permission sought or permitted under Rule 50. Therefore, the question of grant of permission to carry out construction activities in the additional land area did not arise. This position has also been clearly brought out in para 46.1 of the show cause notice. Therefore duty as applicable on the goods for home consumption under Section 30 of the SEZ Act, 2005 read with Rules 25 & 34 of the SEZ Rules, 2006 is payable on such removals from the SEZ/permitted temporary storage place to the remaining additional land area which prior to 4-6-2007 was D.T.A. It is precisely for this reason that RPL had paid duty subsequently on the goods cleared initially without payment of duty.

C.1 It is contended by the appellant that the goods remained in the DTA only temporarily and have eventually become part of the SEZ. Duty, if any, payable at the time of removal to DTA would be eligible to be paid back to RPL as drawback. The entire situation was revenue neutral and hence, the duty demand does not survive.

C-2 In this connection, reliance has been placed by the appellant on the decision of the Tribunal in the case of Larsen & Toubro v. CCE - which has no application to the facts of this case. The above contention of the appellant cannot be accepted at this belated stage for the reason that the goods were removed w/o authorisation from the SEZ/permitted storage place to this DTA to carry on unauthorised operations in contravention of the provisions of the SEZ Act and the SEZ Rules. RPL ought to have followed the prescribed procedure at the time of removing the goods from the SEZ to the DTA. They ought to have paid duty as per provisions of Section 30 of the SEZ Act and Rules 25 & 34 of the SEZ Rules at the first instance and then asked for the benefit of drawback after the additional land including the RTF was notified as part of the SEZ. Having failed in observing the prescribed procedure at the material time, they cannot now contend that the entire exercise was one of revenue neutrality. In the facts and circumstances of the present case, the decision of the Tribunal in the case of Larsen & Toubro cited above cannot help the appellant. In that case, the appellant was following the procedure for rebate of duty and the issue related to the first payment of differential duty on export and then claiming rebate thereof. In that case, the appellant’s claim for rebate of duty originally paid was allowed upon such conditions having been satisfied. Obviously, the appellant’s claim for rebate of additional amount of duty was also liable to be allowed. Thus, the Tribunal allowed the appeal on the ground of revenue neutrality. No benefit and/or concession can be claimed on the specious plea of revenue neutrality without following the prescribed procedure, which, in this case, was mandatory.

D. In terms of Rules 25 & 34 of the SEZ Rules, 2006, RPL ought to have filed bills of entry before removal of the goods from the SEZ to the DTA which was the mandatory requirement under the provisions of Section 46 of the Customs Act, 1962. In this connection, reliance is placed on the judgment of the Hon’ble Apex Court in the case of State of Jharkhand v. Ambay Cements - (S.C.). In para 26 of the judgment, the Hon’ble Apex Court has held as follows :

“26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of the interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance of the same must result in cancelling the concession made in favour of the grantee - the respondent herein”.

The ratio of this judgment is fully applicable to the facts of the case in hand.

E.1 It is contended by the appellant that there was no machinery provision for recovery of duty under the SEZ Act and the SEZ Rules and in the absence of any machinery provision for recovery of duty under the SEZ Act and the SEZ Rules, the Commissioner ought to have dropped the demand particularly when he has held that Section 28 of the Customs Act, 1962 has no application to the present case. Reliance has been placed on certain decisions to say that in the absence of any machinery provision for recovery of duty, no proceedings can lie for demanding and recovering such amount.

E.2 It is submitted that there is no dispute that duty is chargeable on the goods removed from the SEZ under Section 30 of the SEZ Act, 2005 and that an amount of more than Rs. 44 crores out of the duty demand has already been paid. In that situation the amount of duty paid must remain with the Exchequer and the question as to whether there was any machinery provision in the Act for recovery of duty or not is irrelevant. In this connection, reliance is placed on the decision of Tribunal in the case of Supreme Woollen Mills Ltd. v. CC, Nhava Sheva - . In that case, the Tribunal was dealing with the anti-dumping duty. Prior to insertion of sub-section (8) in Section 9A of the Customs Tariff Act by the Finance Act of 2000 with effect from 12-5-2000, there was no provision under Section 9A for recovery of anti-dumping duty. However, during the investigation, the appellant in that case deposited the duty. Hence the Tribunal held that once the duty legally payable by them has been paid, the question as to whether there was any provision in the Act at the relevant time for demanding the duty or not is irrelevant. The ratio of this decision is squarely applicable to the amount of duty already paid after clearance of the goods. This submission is without prejudice to the Department’s contention that Section 28 of the Customs Act is applicable.

F.1 It is contended that the provisions of the Customs Act have not been made applicable to the provisions of the SEZ Act, 2005. In other words, the SEZ Act, 2005 does not contain any referential provision making any of the provisions of the Customs Act, 1962 applicable to inquiries and proceedings under the SEZ Act, 2005. In this connection, Rule 25 of the SEZ Rules, 2006 may be seen. Rule 25 reads as follows :

“RULE 25 : Where an entrepreneur or Developer does not utilize the goods or services on which exemptions, drawbacks, cess and concessions have been availed for the authorized operations or unable to duly account for the same, the entrepreneur or the Developer, as the case may be, shall refund an amount equal to the benefits of exemptions, drawback, cess and concessions availed without prejudice to any other action under the relevant provisions of the Customs Act, 1962, the Customs Tariff Act, 1975, the Central Excise Act, 1944, the Central Excise Tariff Act, 1985, the Central Sales Tax Act, 1956, the Foreign Trade (Development and Regulation) Act, 1992 and the Finance Act, 1994 (in respect of service tax) and the enactments specified in the First Schedule to the Act, as the case may be : {underlined & emphasis supplied)

“Provided that ………”

F.2 From the above, it would be quite clear that where an entrepreneur or developer does not utilize the goods or services on which benefits in the form of exemptions, drawback, etc. have been availed or fails to account for the same, in that event, besides action against him under the rule, action under the provisions of the Customs Act, 1962 and other enactment can also be taken against him. It would, therefore, be incorrect to say that the Customs Authorities including the DRI have no jurisdiction to initiate investigations and to issue show cause notice. In the case of non-payment of customs duty for unauthorised removal of goods from the SEZ to the DTA, the DRI Officers who are also Customs Officers are competent to initiate action under Section 108 of the Customs Act, 1962 for recording statements of the persons concerned and for production of documents relevant for the investigation and seize the same including the offending goods under Section 110 of the said Act and finally to issue show cause notice for confiscation of goods, imposition of penalties as also for recovery of duty under the relevant provisions of the Customs Act, 1962. Therefore, the action taken by the DRI and CCE, Rajkot were perfectly legal.

F.3 The stand as above is also supported by the instructions dated 3-8-2006 issued by the Ministry of Commerce & Industry, Government of India with respect to Sections 20, 21 & 22 of the SEZ Act, 2005. Relevant portion of the instructions is reproduced below :

“The provisions of Sections 20, 21 & 22 of the SEZ Act relating to Single Agency, Single Enforcement Officer and Inspection, search and seizure have not yet been operationalised. Hence, so long as these Sections are not operationalised, different agencies and officers, as empowered under the relevant Acts before enactment of the SEZ Act, will continue to operate till such time these provisions of the SEZ Act take effect.”

G.1 The Commissioner has held that the goods are liable to confiscation under Section 111(i) and (o) of the Customs Act, 1962. With respect to Section 111(i), the findings of the Commissioner are to the effect that the SEZ is a warehouse where goods were admitted without payment of duty for authorised operations. However, the said goods were removed from the SEZ to the DTA without payment of duty and without following the prescribed procedures. Bills of entry were filed much later only to regularize the irregularities. Therefore, provisions of Section 111(i) are clearly attracted, with respect to Section 111(o), the Commissioner has held that the impugned goods were brought to the SEZ by RPL after availing exemption/concession of duties for the intended purpose, i.e. for authorised operations, but the same were removed to the DTA without permission and without payment of duties and without following the prescribed procedure. Hence, the said goods attract the provisions of Section 111(o) of the Customs Act, 1962. No fault can be found with the order of the Commissioner.

G.2 Since the Commissioner has held that the goods are liable to confiscation under Section 111(j) and (o), imposition of penalties under Section 112(a) of the Customs Act, is legally valid inasmuch as clearance of the goods from the SEZ to the DTA is taken as deemed import. It is precisely for this reason that the DTA buyer requires an import licence for obtaining goods from the SEZ as per provisions of Rule 34 of the SEZ Rules.

H. Though the Commissioner has held that interest is not payable in terms of Section 28AB of the Customs Act, nevertheless it is payable along with duty in addition to redemption fine under Section 125(2) of the Customs Act, 1962 and also in terms of the conditions of Bond-cum-Legal Undertaking executed by RPL on 5-5-2006 and Double Duty Bond executed by them on 20-10-2006. In this regard, the Commissioner has relied upon the judgment of the Hon’ble Bombay High Court in the case of Union of India v. Valecha Engg. Ltd. - 2010 (249) E.L.T. 767. No fault can be found with the Commissioner’s order inasmuch as the Customs Act, 1962 makes provision for such interest in Section 28AB.

APPEALS FILED BY THE DEPARTMENT

12.1 The Commissioner has held that Sections 28, 28AB and 114A of the Customs Act, 1962 have no application to the present case. It appears that the Commissioner has not appreciated the provisions of the SEZ Act and the SEZ Rules in proper perspective, particularly, the provisions of Section 53 of the SEZ Act and Rules 26 & 34 of the SEZ Rules. In terms of sub-section (2) of Section 53 of the SEZ Act, the SEZ is deemed to be a port, airport, inland container depot, land station and land Customs stations, as the case may be, under Section 7 of the Customs Act, 1962.

12.2 Further, the SEZ is also a warehousing station. Therefore, oily goods cleared from the SEZ to the DTA is treated as deemed import in terms of Rule 34 of the SEZ Rules inasmuch as the DTA buyer requires an Import licence for obtaining any goods from the SEZ. It is, therefore, needless to say that Section 12 of the Customs Act comes into play at the time of clearance of goods from the SEZ to the DTA. Consequently, for further action, if any, such as recovery of Customs duty and interest thereon, Section 28 and Section 28AB will automatically be attracted. Similarly, Section 114A of the Customs Act will also be attracted for imposition of mandatory penalty and such actions can be taken by the Customs Officers including the DRI Officers as per provisions of Rule 25 of the SEZ Rules, 2006. The Commissioner has, therefore, clearly erred in holding that Sections 28, 28AB and 114A of the Customs Act, 1962 have no application to the facts of this case.

In view of the above submissions, the appeals filed by RPL and others may be rejected as devoid of merit. Further, the appeals filed by the Department may be upheld and suitable orders passed in the matter.

7. In continuation of this hearing, this Bench granted leave to the appellant to file rejoinder to the written submissions on behalf of the appellant. The same was submitted on 27-2-2013, which is taken on record. In said rejoinder the appellant would submit that on the facts of the case as narrated by the Revenue in their written submissions, they would like to submit that in narration of facts, the Department written submission overlooked the few relevant facts which are undisputed. It is his submission in-principle approval for expansion of SEZ into multi-product SEZ was granted to a developer with formal approval granted in respect of initial land of 440 Hectares (1087 Acres) of land. In pursuant to grant of in-principle approval, the steps were taken immediately by Gujarat Government as well as Developer for acquisition of private land and complete the acquisition of additional land, for which a notification dated 2-6-2008 was issued by Govt. of Gujarat. It is his submission this fact is recorded in Paragraph 5 of the Developer’s letter dated 3-8-2006 to Joint Secretary, Ministry of Commerce, it is his submission that by 3-8-2006, the developer had already come in possession of 1813 acres of vacant land out of which 1000 acres were earmarked for allotment to the appellant (as a unit in SEZ); and balance 813 acres of land was to be kept by the SEZ developer for setting up infrastructural facilities. It is his submission the developer submitted an application to Ministry of Commerce, seeking formal notification for 1813 acres of land as multi-product SEZ and it was pointed out in the application that the map of entire area is of 2900 acres which included 1087 acres already notified and 1813 acres of additional land which was sought to be notified. It is his submission that in view of notification for land acquisition by Govt. of Gujarat and in light of the Memorandum of Understanding with the land owners and consequent transfer of vacant possession of land, in lieu of payment of part consideration, for all legal purposes, the land stood transferred in favour of the appellant under the provisions of Transfer of Property Act. It is his submission that along with said letter, the appellant has also submitted survey number, exact measurement and the location (village, taluka, etc.) of the additional land. It is his submission that all movement of duty free steel from the SEZ to the additional land took place only after 3-8-2006. It is his submission that subsequently the appellant sought permission under Rule 50(1)(e) of SEZ Rules, 2006 for storage of goods in the additional land, informed the specified officer that permission was being sought for storage of goods in additional land and for continuation of construction activities thereon. It is his submission the said facts are put before the Bench to press home their point that additional land which was procured is a part of existing SEZ and would relate back to the date of original notification i.e. 19-4-2006.

8. It is his submission another relevant fact which has been overlooked by Revenue is that while notifying the additional land as a part of Jamnagar SEZ, Ministry of Commerce vide Notification No. S.O. 873(E), dated 4-6-2007, had specifically stated that the specified area are to be included as a part of that SEZ. It is his submission another fact which is overlooked is that all removals from SEZ to so called DTA covered by permission were, in fact, first stored in the permitted store area and thereafter the same was shifted to the RTF area for construction of spheres/tanks. It is also his submission that it is wrong to say that the notification dated 4-6-2007 cannot relate back to 19-4-2006, also it is incorrect to say that it tantamounts to giving retrospective effect to notification. It is further submitted that the clearances on which duty liability was confirmed, took place only after 3-8-2006 by which time, the requirement of in-principle approval has been fulfilled and acted upon by the Govt. of Gujarat, also by the developer by acquiring possession of specific land parcel by paying part consideration to the land owner. It is his submission that the object and the purpose of permission granted under Rule 50(1)(e) of SEZ Rules, 2006 is for temporary storage as well as for RTF which are located within the additional land in respect of which in-principle approval had been duly granted. It is his submission that the purpose of obtaining permission under Rule 50(1)(e) of SEZ Rules, 2006 for taking the goods outside SEZ was to ensure that there is no misuse or diversion of goods for purposes other than for which it was procured, and it is also not the case of the Revenue that there was diversion of goods for any other purpose or use other than that for SEZ, which has been admitted by the adjudicating authority in the impugned order. He would submit that no Bill of Entry was required to be filed in view of specific permission granted under Rule 50(1)(e) of SEZ Rules, 2006 and there is absence of machinery provisions for the recovery of duty. It is also his submission that there is no jurisdiction of the Customs authorities to collect duty and the judgment relied upon by the Revenue in the case of Oswal Agricomm Ltd. - (Guj.), is distinguishable as the said judgment of Hon’ble High Court was rendered in the context of the case where the goods were imported outside India in contravention to Customs Act, 1962 read with Hazardous Rules, 2008 and hence not applicable in this case.

9. We have considered the submissions made at length by both sides and perused the records.

10. Though arguments were advanced on issues relating to jurisdiction of the Customs authorities and the applicability of the provisions of the Customs Act to an SEZ unit, we do not consider it necessary to deal with all of them as in our view, the issue can be decided on other points.

11. 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(l)(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.

12. The first contention which has been urged on behalf of the appellant-assessee is that the additional area in the DTA within which the specified storage place and the RTF were located was finally notified to be a part of the SEZ. Though the notification in respect of such additional area was issued on 4-6-2007, it is the contention of the assessee that considering the scheme of the SEZ Act as well as the background facts, the said notification should be held as relating back to 19-4-2006 when the SEZ was first notified. If this contention is accepted and the additional area is regarding as being within SEZ from the inception, the permission granted under Rule 50 will become redundant and any violation thereof will also be of consequence, in order to examine this contention, a few facts need to be noted.

13. The undisputed facts are that the Ministry of Commerce & Industry, Department of Commerce (SEZ Section) vide letter dated 31-3-2006, granted formal approval to Reliance Infrastructure Ltd. (the Developer) to set up a product specific SEZ at Jamnagar over an area of 1087 Acres (440 Hectares of land). Since the application made by the Developer was for setting-up a Multi-product SEZ, which at the relevant time required a minimum 1,000 Hectares of land, the Approval letter dated 31-3-2006 also contained an in-principle approval for expansion of the SEZ into a Multi-product SEZ as and when minimum area of 1000 Hectares came to be acquired. The relevant clause of the letter dated 31-3-2006 is extracted below :

“I. Proposal and project details :-

To set up SEZ for petroleum and petrochemicals over an area of 1087 Acres (440 Hectares) with an in-principle approval for its expansion into multi-product SEZ as and when the minimum area of 1000 Hectares is acquired by the Developer at Jamnagar district in State of Gujarat. ….”

(Emphasis provided)

14. With a view to give effect to the above approval dated 31-3-2006, the Ministry of Commerce & Industry, (Department of Commerce) issued a Notification No. S.O. 568(E), dated 19-4-2006, which reads thus :

“In exercise of the powers conferred by sub-section (i) of Section 4 of the Special Economic Zones Act, 2005 (28 of 2005), read with Rule 8 of the Special Economic Zones Rules, 2006 and after the grant of letter of approval to M/s. Reliance Infrastructure Limited for setting up of a sector-specific Special Economic Zone for Petroleum and Petrochemicals on 31st March, 2006, the Central Government hereby notifies the following areas as Special Economic Zone at Jamnagar in the State of Gujarat, comprising the Survey numbers and size of each Survey specified below.”

15. In the above notification, Survey No. and site of each parcel of the land totalling 440.08 Hectares (1087.44 Acres) were also given. Consequent to the notification of the SEZ on 19-4-2006, the appellant was issued a Letter of Approval dated 4-5-2006 by the Development Commissioner permitting them to set up a refinery in the notified SEZ. The SEZ developer; had, in the meanwhile, started acquiring possession of additional land in and around the notified SEZ, with a executing MoUs with the land owners. Having so acquired vacant possession of the additional land, the Developer submitted a letter to the Ministry of Commerce & Industry on 3-8-2006 seeking formal approval for the said 1813 Acres of land as multi-product SEZ in continuation of the land notified for product specific SEZ. It is noted that for the reasons which have not been attributed to any fault of the appellant, there was a delay of nearly 10 months in notifying the said additional land of 1813 Acres. As mentioned above, the notification in respect of the additional land was issued on 4-6-2007. 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 19-4-2006.

16. Another set of facts which need to be mentioned relate to the disclosures made by the appellant and the Developer. While applying for final approval in respect of this additional area of the land, the Developer had in its letter dated 3-8-2006 informed “Ministry of Commerce that the appellant wanted to start construction activities in the additional land immediately, since a workforce of over 30,000 had been mobilized and any further delay could delay the commencement of the refinery. Having so informed to the Ministry of Commerce, the appellant started moving construction steel material such as M.S. Steel, Tor Steel etc. from the notified zone area to the additional area located at that time in the DTA. Such movement of steel construction material took place only after 3-8-2006 in terms of various permissions which the appellant applied for and obtained from the specified officer in terms of Rule 50(1)(e) of the SEZ Rules, 2006. On 18-10-2006, besides seeking approval for removal and storage of duty-free inputs outside the SEZ, the appellant also sought permission of the specified officer to continue with the construction activities in relation to the duty-free goods sought to be removed from the Zone. It has been contended by the assessee that the permission under Rule 50 were obtained as a matter of abundant precaution to take care of the eventuality of the Government refusing to notify the additional area as a part of the SEZ. It has also been submitted that in between December, 2006 to April, 2007, the assessee had on its own volition and as a matter of abundant precaution filed as many as 11 Bills of Entry for paying duty on the quantities of steel structural items which had been used for the construction of storage tanks located in the Refinery Tank Farm (RTF) located in the Additional area.

17. Examining the contention of the assessee in the above background, we note that all the removals which are the subject matter of the appeals, were effected during the period August, 2006 to March, 2007. The permitted storage point and the RTF were located adjacent to the already notified SEZ, in an area described in the impugned order as “Additional area/Additional land”, which was during the relevant period situated in the DTA, though an in-principle approval had been granted by the Ministry of Commerce on 31-3-2006 itself for including these locations within the SEZ. The arguments of the assessee’s counsel in support of its contention that the notification dated 4-6-2007 should be held as relating back to 19-4-2006, are revolving around following :-

(a)     The additional area was always intended to be a part of the SEZ, and an in-principle approval to this effect had been granted by the Ministry of Commerce on 31-3-2006 while approving the original SEZ;

(b)     The additional area could not be notified to be a part of the original SEZ in the first Notification dated 19-4-2006 only for the reason that the same had not come into assessee’s possession till then. Pursuant to the in-principle approval dated 31-3-2006 of the Ministry of Commerce, the additional land was acquired by the State Government on 2-6-2006 and the assessee had, by 3-8-2006 executed MoUs with the land owners and acquired possession of the additional land;

(c)     Even though the Developer submitted a formal application on 3-8-2006 for notifying the additional area to be a part of the SEZ, it took the Ministry of Commerce more than 10 months to issue the requisite Notification notifying the additional area as part of the SEZ. This delay was not attributable to any fault of the assessee;

(d)    The steel items in question were removed from the SEZ to the specified storage point located in the additional area only after 3-8-2006, when a formal application and request had been submitted to the Ministry of Commerce for notifying the additional area to be a part of the original SEZ by giving particulars of the specific land parcels comprising the additional area.

(e)     The Notification dated 4-6-2007 by which the additional area was notified was not a stand-alone or independent Notification, but one in continuation of the first Notification dated 19-4-2006. The said Notification clearly refers to the notified land as “Additional area” and says clearly that the same was being notified to be included as a part of the existing SEZ.

(f)      The SEZ Scheme does not contemplate different ‘appointed days’ for different land parcels comprising an SEZ. Once an additional piece of land is notified to be a part of an existing SEZ, the provisions of the SEZ Act will apply in respect of that additional area as if the same was always part of the SEZ. The provisions of Section 4(1) of the SEZ Act, 2005 read with the definition of the term ‘appointed day’ in Section 2(a) of the SEZ Act, 2005 was cited in support of this proposition;

(g)     The judgment of the Supreme Court in the case of CCE v. M.P.V. & Engg. Industries, (S.C.), was cited, wherein it was held that a Certificate of Registration granted to an SSI Unit should be held as applicable from the date when the application was submitted. The same principle was laid down by the Karnataka High Court in the case of Union of India v. Yokogawa Bluestar Ltd., , and has been followed by this Bench in the case of Zydus Mayne Oncology Pvt. Ltd., (Tri.-Ahmd.) in the context of an SEZ unit.

18. In reply to the assessee’s contention, the learned Special Counsel for the Revenue sought to distinguish the above-referred judgments by submitting that these decisions and judgments did not deal with a statutory notification of the kind issued under Section 4(1) of the SEZ Act. The Counsel for the assessee, however, pointed out in rejoinder that the judgment of the Karnataka High Court in the case of Union of India v. Yokogawa Bluestar Ltd., , in fact dealt with a statutory Exemption Notification.

19. The assessee’s arguments on this issue need to be seen in the context of the events leading to the issue of the Notification dated 4-6-2007. As stated above, the additional area which came to be notified on 4-6-2007 was always contemplated to be a part of the SEZ. The approval which was accorded by the Ministry of Commerce on 31-3-2006, in terms whereof the SEZ was originally notified, also contained an in-principle approval in respect of the additional area. Pursuant to this in-principle approval, the additional area was acquired by the State Government and possession thereof obtained by the assessee from its owners by 3-8-2006. The additional area therefore came into the assessee’s possession well before the subject removals were effected. An application for formal Notification of the additional land was made on 3-8-2006, wherein the additional area was identified by giving particulars of survey Nos., etc. The Notification, however, took 10 months to be issued and all the removals in dispute were made during this period. We find that the Notification dated 4-6-2007 was in continuation of the original Notification dated 19-4-2006, and not one which could be viewed independent of the earlier Notification. For coming to this conclusion, we have taken note of the language employed in the Notification dated 4-6-2007, which we are extracting below :

“S.O. 873(E) ....And whereas the Central Government, in exercise of the powers conferred by sub-section (1) of Section 4 of the Act read with ... has notified the total area of 440.08 Hectares at Jamnagar ... vide Notification No. S.O. 568(E), dated 19.04.2006; And whereas ..... Now, therefore, in exercise of the powers conferred by second proviso to sub-section (1) of Section 4 of the Act...., the Central Government hereby notifies an additional area of 784,0296 hectares at Jamnagar... to be included as a part of that SEZ, ...”

                        (Emphasis provided)

20. 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 4-6-2007 should take effect from 19-4-2006, 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. The Notification of an additional area to be a part of an SEZ is specifically provided for in the second proviso to Section 4(1). The said Section 4(1) as well as Section 4(2) are relevant for understanding the SEZ Scheme and the same are extracted below :

“4(1) The Developer shall, after the grant of letter of approval under sub-section (1) of section 3, submit the exact particulars of the identified area referred to in sub-sections (2) to (4) of that section, to the Central Government and thereupon that Government may, after satisfying that the requirements, under sub-section (8) of section 3 and other requirements, as may be prescribed, are fulfilled, notify the specifically identified area in the State as a Special Economic Zone :

Provided that an existing Special Economic Zone shall be deemed to have been notified and established in accordance with the provisions of this Act and the provisions of this Act shall, as far as may be, apply to such Zone accordingly :

Provided further that the Central Government may, after notifying the Special Economic Zone, if it considers appropriate, notify subsequently any additional area to be included as a part of that Special Economic Zone.

(2) After appointed day, the Board may, authorize the developer to undertake in a Special Economic Zone, such operations which the Central Government may authorize.”

(Emphasis provided)

21. Under sub-section (2), the Developer can be authorized to undertake authorized operations only after the “appointed day”. The “appointed day” is even otherwise an important milestone in the SEZ Scheme, as the calculation of NFE (Net Foreign Exchange earnings) is required to be made from the “appointed day”. This expression is defined in the SEZ Act in Section 2(a) in the following manner :

“(a) “appointed day” with reference to a Special Economic Zone means the date on which the Special Economic Zone is notified by the Central Government under sub-section (1) of Section 4.”

(Emphasis supplied)

22. 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 19-4-2006 and not 4-6-2007. In view of the Scheme of the SEZ Act, as also the facts noted above, we have to hold that the action of notifying an additional area to be a part of the SEZ will have the effect of deeming that additional area to be a part of the existing SEZ from the date of the initial Notification. Any other interpretation would be not in consonance with the SEZ Scheme and will also lead to a manifestly unjust and inequitable result of denying an assessee the benefit of duty exemption when admittedly the goods in question were used for the setting up of the SEZ Unit and not for any other purpose.

23. We also find that the ratio of the judgment of Hon’ble Supreme Court in the case of M.P.V. & Engg. Industries - (S.C.) supports our view taken on this subject. Their Lordship in the said judgment in Para 11 has settled the law as under :

“11. It was then submitted by the Appellant that in construing a notification granting exemption, the notification must be strictly construed without stretching the language of the notification to confer any unintended benefit. Similar argument was advanced before the Tribunal. In dealing with the submission the Tribunal noticed the decision of this Court in Collector of Central Excise v. Parle Exports (Pvt.) Ltd. reported in [] wherein this Court held that exemption should be strictly construed although the exemption clause in the notification may be construed liberally. In other words, eligibility criteria should be construed strictly but a liberal approach may be adopted in construing other conditions. Reliance was also placed in U.O.I. v. Wood Papers Ltd. reported in []. We may apply this principle to the case in hand. No doubt, so far as the authorities are concerned they must examine the claim of the respondent to be a small scale industry strictly and in accordance with the rules. However, once it is found that the industry qualifies as a small scale industry, in the matter of grant of exemption a liberal approach is permissible if it does no violence to the language of the notification. In a case of this nature it is only reasonable to take the view that the benefit of exemption will accrue to a unit found to be a small scale industrial unit from the date on which the application was made for grant of registration certificate. Such a unit should not be deprived of the benefit to which it is otherwise entitled as a small scale industrial unit merely because the authorities concerned took their own time in disposing of the application. We therefore, agree with the majority view of the Tribunal and hold that the benefit of exemption under the notification in question should be extended to the respondent with effect from the date on which the application for grant of registration was made by it before the competent authority. This is also in accord with the principle which found favour with this Court in State of U.P. & Anr. v. Haji Ismail Noor Mohammad & Co. and The Assessing Authority & Ors. v. Patiala Biscuits Manufacturers Pvt. Ltd. (supra).”

24. It is to be noted that in that case the Hon’ble Apex Court was considering the exemption granted to SSI and the question which was required to be examined, was whether the benefit of SSI Exemption under the Excise laws was to be construed from the date of receipt of certificate from the authorities or from the date of application. In our view, the ratio laid down by the Hon’ble Apex Court will fully apply to the present case.

25. In yet another case of Yokogawa Bluestar Ltd. - (Kar.), Hon’ble High Court of Karnataka was considering the effect to be given to an exemption notification issued after some delay to regularize the concessional import under the EPCG scheme already announced in the EXIM Policy which was notified as per Imports & Exports (Control) Act, 1947. Their Lordship, while upholding the judgment of single member, recorded as under :

“6. The admitted facts reveal that the Govt. of India issued a notification in the matter of Export and Import policy for a period of 5 years in terms of the power granted to the respondents. The said policy is to be effective for a period of 5 years. The writ petitioner acting upon the said policy imported capital goods and sought for concessional Customs Duty which has also been granted after being satisfied by the respondent. It is only after audit objection a show cause notice was issued and adverse orders were passed against the petitioners. Admittedly, in the case on hand concession notification u/s. 25 of the Act has also been issued by the respondent in consonance with the policy of the Union of India. However, there was some delay in issuing the said notification. The delay in issuing the notification in the light of the promissory policy decision of the government cannot come in the way of the writ petitioner availing concession in terms of the policy of the government.”

26. The ratio laid down by Hon’ble High Court applies to this case also, as there was a policy decision taken by Govt. of India, Ministry of Commerce & Industry to notify the additional area to be a part of the SEZ in Jamnagar and the said decision was given effect to in two tranches; first by way of Notification dated 19-4-2006 for the initial area and subsequently on 4-6-2007 for the additional area. In our view, the delay in notifying the area by the authorities on an application made by assessee on 3-8-2006, cannot come in way of extending the benefit of the concession as per the policy of Ministry of Commerce & Industry.

27. Following the judgment of the Hon’ble Supreme Court in the case of M.P.V. & Engg. Industries (supra), this Bench in the case of Zydus Mayne Oncology Pvt. Ltd. - (Tri.-Ahmd.), had an occasion to consider a similar issue of SEZ unit. We would like to reproduce the entire judgment.

“Appellants are manufacturing pharmaceutical products had applied for approval as a Special Economic Zone (SEZ for short) Unit vide their application dated 29-9-2006 to Kandla, SEZ Development Commissioner and Kandla SEZ notified on 28-9-2006. The Development Commissioner had approved the unit vide letter dated 27-10-2006. However, before the approval as SEZ unit, appellants had procured some excisable goods on payment of duty amounting to Rs. 87,403/- in respect of which they filed refund claim on 19-9-2007. The refund claim has been rejected by the lower authorities on the ground that the appellants obtained approval as SEZ unit only on 27-10-2006 and they were eligible for procuring duty free goods thereafter.

2. Shri J.C. Patel, learned advocate on behalf of the appellants submits that there is no dispute nor there is finding that resultant goods have not been exported. He relies on the decision of the Hon’ble Supreme Court in the case of M.P.V. & Engineering - (S.C.) to support his contention that the benefit as SEZ unit is available to the appellants with effect from the date on which application was made before the competent authority and not from the date when such approval was given. On the other hand learned SDR submits that in the absence of specific provisions in the law and as rightly observed by lower authorities, such benefit cannot be extended.

3. I have considered the submissions made by both the sides. Learned Commissioner (Appeals) has rejected the claim of the appellants with the following observations :-

“3…………….. However, I have considered their submissions and have examined the matter. It is a fact that the appellant had procured the impugned excisable goods on payment of duty on 7/10-6-2006 that is before grant of approval to them for setting up a SEZ unit for authorized operations. Unless they are in possession of this Letter of Approval, exemption and benefits provided under Section 26 of Special Economic Zones Act, 2005 or Rule 27 of the Special Economic Zones Rules, 2006, would not be applicable. The appellant obtained LOA as a SEZ unit only on 27-10-2006 and as such they were not eligible to procure duty free goods from indigenous DTA unit and they have rightly paid the duty. As they were not approved as a SEZ unit on 7/10-6-2006, they also could not have followed C.B.E. & C. Circular No. 27/2006-Cus., dated 27-12-2006 and Rule 30 of Special Economic Zone Rules, 2006 under which procedure for procurement of foods from DTA to SEZ unit have been prescribed. Duty was rightly paid on the date of removal of the goods by the DTA suppliers and refund of the same is not admissible under Rule 18 of the Central Excise Rules, 2002. There are therefore, no reasons to interfere with the impugned order-in-original.”

4. I find considerable force in the arguments advanced by learned advocate that the date of effect is to be from the date of application, in the cases like this. As pointed out by the learned advocate in the case of SSI units, even when the unit is recognized as SSI and certificate is issued by the State Governments sometime after lapse of more than six months, benefit is extended from the date of application made by the unit. In any case, if the unit is not recognized as an SSI unit or not approved as SSI unit, the department has remedy of recovering the additional duty and in this case, by not granting the refund. The objectives of setting SEZ unit is to promote exports and the Government gives refund on the duty paid on inputs in respect of goods notified not only in respect of SEZ unit but also in respect of domestic units. SEZ unit can obtain goods without payment of duty but in the absence of status as SEZ approved unit they could not have got the same and hence they have obtained goods on payment of duty. Therefore, even if the refund is not strictly admissible on the ground that procedure was not followed, it is required to examine whether appellants were eligible in the normal course for the refund if the goods have been exported. The refund claim has been blindly rejected only after examining with respect to SEZ Act and procedure prescribed by the Government. In the absence of any findings that goods have not been exported and in cases where goods have been exported, refund of duty paid on inputs is not admissible or was not admissible, the rejection of refund claim is not in order. Further, the decision of the Hon’ble Supreme Court cited by the learned advocate is very much applicable and therefore, on this ground itself appeal has to be allowed, since goods have been received after application has been made but before approval and therefore, refund has to be granted. Accordingly, appeal is allowed with consequential relief to the appellants.”

28. In the light of the above-referred decisions and judgments, we hold that the Notification dated 4-6-2007 should relate back to 19-4-2006. 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.

29. Though the assessee is entitled to succeed only on the above reasoning, we would also like to record our findings on some other points raised by both sides.

30. We note that the finding that the assessee violated the terms of the permissions granted under Rule 50(1)(e) of the SEZ Rules, 2006 cannot sustain, if the additional area in the DTA is deemed to be SEZ from 19-4-2006. The effect of treating the Additional Area a part of the SEZ from 19-4-2006 is that the disputed movement of steel materials as well as their use in construction activity all took place within the SEZ, thus rendering the grant of permission wholly unnecessary and meaningless.

31. The entire controversy in the present case can be examined from another standpoint. Hypothetical, even if we were to take the view, that Notification dated 4-6-2007 should not relate back to 19-4-2006, the next issue that we would then be called upon to determine is whether the alleged violation of the permissions granted under Rule 50(1)(e) were sufficient to justify the denial of the substantial benefit of duty exemption available to goods used for setting up of an SEZ Unit. Rule 50 of the SEZ Rules, 2006 reads as under :

“50. Temporary removals to Domestic Tariff Area. -

(1) The Unit may temporarily remove following goods to Domestic Tariff Area without payment of duty, namely :

(a)     capital goods and parts thereof for repairs and return thereof;

(b)     goods for display, export promotion, exhibition and return thereof;

(c)     goods for job work, test, repair, refining and calibration and return thereof;

(d)     laptop or notebook computers or video projection systems for use;

(e)     by authorized employees of a Unit or developer;

(f)      any other goods with the prior approval of the Authorised Officer.

(2) A Unit may transfer goods to Domestic Tariff Area or abroad for repair or replacement or testing or calibration, quality testing and research and development purposes under intimation to the Specified Officer and on maintenance of records for movement of such goods.

(3) A Unit may transfer goods for quality testing or research and development purposes, to any recognised laboratory or institution, without payment of duty, on giving an undertaking to the Authorised Officer for the return of such goods :

Provided that if such goods have been consumed or destroyed in the process of testing or at the time of research and development, a certificate from the laboratory or institution to that effect shall be furnished to the Specified Officer by the Unit.”

32. If permission is granted under the above referred Rule, the SEZ Unit is not required to file a Bill of Entry or pay duty on the goods removed temporarily under the above referred rules. The entire purpose of the above-referred rule is to ensure that the goods which are permitted to be cleared to the DTA are returned back to the SEZ, so that they are ultimately used only for the required purpose of undertaking “authorized operation” within the SEZ. The “authorized operation” within the SEZ, insofar as the assessee is concerned, is the activity of refining crude oil so as to obtain various Refined end-products such as gasoline, diesel etc. If the goods which were removed from the Zone to the DTA were ultimately received back into the SEZ and were finally used only for SEZ’s authorized operation, the object behind the permission stood achieved and fulfilled. In the present case, the steel materials were used for the purpose of construction of storage tanks in the RTF. Such storage tanks were still under construction on 4-6-2007, when the additional land was notified to be part of the SEZ. As such, neither the storage tanks nor the steel materials used for their construction had been used or utilized for any purpose other than the originally contemplated purpose of setting up a refinery in the SEZ. We also take note of the fact that before effecting any removal of goods in terms of the permission granted to it, the Developer had informed the Ministry of Commerce on 3-8-2006 that construction activity was proposed to be undertaken in the additional area. Even in the applications filed by the assessee on 18-10-2006, the fact that construction activity was being undertaken by using the steel materials was disclosed. This fact was otherwise known to the specified officer as the assessee had filed as many as 11 Bills of Entry to pay duty on such quantities of steel which is used in the construction of storage tanks. Significantly, these Bills of Entry had been filed without any direction from the Department, and on an assessee’s own understanding. In the light of these facts, we cannot hold that the mere fact of moving the steel materials from a storage point in the DTA to another point in the same DTA or its use for construction activity should ipso facto deprive the assessee of the substantive benefit of duty exemption, particularly when the RTF was subsequently notified to be part of the SEZ and the goods were exclusively and entirely used for SEZ’s authorized operation. The entire object and purpose behind Rule 50(1) of the SEZ Rules, 2006 is to ensure that there is no misuse 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 4-6-2007, the demand for duty and the consequent action of confiscation and penalties cannot sustain.

33. Since we have held that the entire operation of the appellant was relatable back to the SEZ notification dated 19-4-2006, the impugned order confiscating the goods, levy of interest and the penalties on other two appellants is not sustainable and is liable to be set aside and we do so.

34. Since we are allowing the appeals of the assessee by accepting the assessee’s pleadings on facts, we do not consider it necessary to record our findings on the issue of jurisdiction of the Customs authorities and the question whether the provisions of the Customs Act, 1962, particularly those relating to recovery of duty, confiscation of goods and penalties could be invoked for alleged violation of a permission granted under Rule 50(1)(e) of the SEZ Rules, 2006.

35. The appeals filed by the Revenue in this case are, as already recorded by us, against the findings of the learned Commissioner that provisions of Sections 28, 28AB and 114A of Customs Act, 1962, have no application to the present case. We find that the said appeals are liable to be rejected as once we take the view the entire area to which the goods were removed were declared as SEZ, the provisions of SEZ which deal with recovery of duty on removal of goods to the OTA will become inapplicable as the disputed movement of goods would be within the SEZ and not one from the SEZ to the DTA. The provisions made in the SEZ Act for payment of duty applies only to cases of the goods being removed from SEZ to the OTA, and not otherwise. The appeals filed by the Revenue are therefore liable to be rejected.

36. Even if a view was to be taken that the provisions of Section 28 of the Customs Act are attracted, such a view will not be of any avail to the Revenue as any demand for duty under Section 28 would be clearly time-barred in view of the following admitted facts which are recorded in para 99.5 of the impugned Order and which have not been disputed by the Revenue in their appeal :

(i)      No Misuse or diversion of material - material used for operations which were otherwise authorized if carried out in SEZ;

(ii)    Some material used prior to 4-6-2007 in construction activities; goods so constructed have also become part of SEZ after notification on 4-6-2007;

(iii)   Goods lying unutilized prior to 4-6-2007 were utilized in the SEZ only after 4-6-2007;

(iv)   They started paying duty before DRI investigations;

(v)     SEZ is for export promotion;

(vi)   They may also be under a bona fide belief that a notification under Section 4 of the SEZ Act, 2005 would be issued and in view of in-principle approval, would have retrospective effect;

(vii)  Tremendous hurry to complete the project in time for which huge workforce was mobilized and employed;

(viii) Payment of part of duty liability during investigations by the DRI;

(ix)   Delay in approval of their SEZ from 3-8-2006 to 4-6-2007. This is also the period to which the show cause notice pertains.

37. We also take particular note of the fact that prior to the start of the investigation, the assessee had on their own, and as a matter of abundant precaution, filed as many as 11 Bills of Entry and paid duties on the steel items consumed for construction in the RTF. It is not in dispute that such payments were made by the assessee on their own volition and without any direction from the authorities. We have also taken note of the disclosures made by the assessee and the SEZ Developer in the various correspondences with the specified officers particularly the letters dated 3-8-2006 and dated 18-10-2006. One cannot also overlook the fact that upon notification of the additional area of the land, the assessee would have become entitled to refund of the duty payments made on the steel items used in the construction of tanks. This is for the reason that under the SEZ Rules, supply of goods from DTA to SEZ is considered as export, and export benefits in the form of drawback or rebate of duties paid are available under the said scheme. In view of the entire situation being revenue neutral, the extended period of limitation available under the proviso to Section 28 could not have been invoked. If the proviso to Section 28 will not apply, the question of imposing a mandatory penalty under Section 114A will also not arise. We, therefore, hold that the Revenue’s appeals have no merit and are liable to be rejected.

38. In view of the foregoing, we set aside the impugned order and allow the appeals filed by the assessee and the individuals and reject the appeals filed by the Revenue.

(Pronounced in Court on ________________________)

39. [Order per : B.S.V. Murthy, Member (T)]. - On going through the order recorded by the respected learned brother Member (Judicial), I find myself unable to agree with the same and therefore propose to record a separate order as under :

40. Since the facts and arguments have been reproduced by the learned brother, I do not propose to reproduce them again except in places where I find that the facts have not been presented before us correctly or interpreted correctly.

41. The first conclusion is that the Notification dated 4-6-2007 issued by the Central Government including additional land area and covering SEZ to multi product SEZ relates back to 19-4-2006. Therefore, the construction activities conducted in the additional area are deemed to have been carried out within the SEZ. Therefore the permission granted under Rule 50(1)(e) of SEZ Rules, 2006 as also the conditions laid down therein become irrelevant.

42. Before I proceed further, it would be appropriate to look at the definition in the SEZ Act. The “appointed date” with reference to the SEZ means date on which the SEZ is notified by the Central Government under sub-section (1) of Section 4.

43. According to Section 4 of SEZ Act (which has already been reproduced earlier), the developer is required to submit the exact particulars of the identified area to the Central Government and thereafter the identified area is notified as a SEZ. At this stage, it becomes necessary to understand the significance of identified area and letter of approval (LOA). According to the provisions of Section 3 of the SEZ Act, which prescribes the procedure for making a proposal to establish SEZ, the identified area is the area which is identified by the person for setting up SEZ. Therefore according to Section 3, a developer is required to identify the area and thereafter make the proposal either directly or through the State Government. This proposal will be considered by the Board for approval of SEZ. sub-section (8) of section 3 of the SEZ Act empowers the Central Government to prescribe the minimum area of land and other terms and conditions subject to which the Board can approve, modify or reject any proposal for establishing SEZ. Therefore once the proposal is received by the Board, the Board may approve the proposal with modification or without modification and forward the proposal to the Central Government. Thereafter the Central Government shall issue a LOA on such terms and conditions, obligations and entitlements. According to sub-section (13) of Section 3, once the LOA is granted to a developer, subject to the provisions of the Section, the developer may allocate space or build up area or provide infrastructure services to the approved units in accordance with the agreement entered into by him with the entrepreneurs of such units.

44. The sequences of the sub-sections of Section 3 would show that the procedure requires an application to be made and ends with the LOA to be issued by Central Government. The Section also provides for preliminary preparatory work that can be undertaken by the developer once a LOA is granted. This Section has to be seen with the provisions of Section 15 of the SEZ Act relating to setting up of a unit.

45. Section 4 of SEZ Act relates to the subsequent steps to be taken after the LOA is granted. The sub-section (1) of Section 4, first paragraph reads as under : “The developer shall, after the grant of Letter of Approval under sub-section (10) of section 3, submit the exact particulars of the identified area referred to in sub-sections (2) to (4) of that Section, to the Central Government and thereupon that Government may after satisfying the requirements, under sub-section (8) of section 3 and other requirements, as may be prescribed, are fulfilled, notify the specially identified area in the State as an SEZ. As can be seen, the terms on LOA, ‘identified area’ and ‘notification of identified area’ have great significance and all are legal terms. Obviously under Section 8, the Central Government prescribes the requirements such as minimum area of land and other terms and conditions to be fulfilled and only after satisfying with all the requirements of sub-section (8) of section 3 relating to minimum area, terms and conditions, are fulfilled, the notification is made. This would show clearly that the Act contemplates several steps to be taken by the Board of Approval and the Central Government at each stage and this is further confirmed by the Act that the LOA is not a mere letter but contains several conditions which are required to be fulfilled and also requires acceptance of the developer.

46. For example, when the LOA dated 31-3-2006 issued to RIL in this case is seen, in para 3 of the letter, the developer is required to convey acceptance of all the terms and conditions connected within 30 days from the date of issue of the letter. This would show that the LOA is only a communication to the developer from the Government conveying the approval of the proposal and also laying down the terms and conditions which are required to be accepted in writing. Only thereafter the notification is issued.

47. Another aspect that is very important to be taken note of is that the LOA is a communication from the Government to the developer whereas a notification is a public document and once a notification is published in the gazette according to the statute, it means the public is informed of the contents of the notification.

48. The discussion above would show that while the term “appointed day” is relevant for identifying an SEZ with reference to the first notification issued, whether a particular unit is located in the SEZ or not and whether it can be considered as an SEZ unit or not would depend upon the actual approval and the notification issued by the Government covering the land also. On the appointed day, no doubt an SEZ would have come into existence but as regards the land on which the SEZ has been established and the area covered by the SEZ are determined by the notification issued by the Government giving the details of the land. It has to be noted that in this case the notification issued on 19-4-2006 notified a Sector Specific Special Economy Zone (SSSEZ) for petroleum and petro-chemicals and the notification speaks specifically of the issue of notification after the grant of LOA for setting up SSSEZ. Therefore what has come into existence on 19-4-2006 is SSSEZ for petroleum and petro-chemicals.

49. The Notification dated 4-6-2007 speaks of the following : (a) notification of area of 440.08 hectares as SEZ on 19-4-2006, (b) satisfaction of the Central Government with fulfilment 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 10-1-2007, (d) approval of conversion of SSSEZ into a Multi-product SEZ on 9-5-2007 and finally (e) notification of additional area to be included as part of the

50. From the fact that the developments from 19-4-2006 to 9-5-2007 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 4-6-2007. The area covered by the SEZ was enhanced by 784.042 hectares on 4-6-2007. 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. It has to be noted that based on the notification issued by the Central Government, several benefits which accrue to the SEZ as well as the units located in the SEZ are to be extended. When multiple departments are involved and multiple agencies are involved, a notification in the gazette can be conclusive of the approval. It has to be noted that whether an SEZ unit is an SEZ unit or not can be determined only if it is located in the land approved by Central Government. Mere approval is not sufficient since such approval is communicated only to the developer. In both the cases i.e. relating to Notification dated 19-4-2006 and 4-6-2007, 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) of 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.

51. The above discussion would clearly show that the appointed day with reference to an SEZ on which the appellants relied upon extensively would not help them at all. In this case, the appointed day for the establishment of SSSEZ was on 19-4-2006 and the appointed day for establishment and coming into existence of Multi-product SEZ was 4-6-2007. It may be noted that this interpretation would be harmonious with the provisions of law and would not result in any anomalous situation.

52. Any other interpretation would result in anomalous and unwanted and unacceptable situation. If the claim of the appellants is accepted, let us assume a situation where after a period of 3 years or 4 years or subsequently, the Government comes to the conclusion that the developer did not fulfil the terms and conditions and did not deserve the land on which SEZ was situated and, therefore, issues a notification denotifying certain area of land. In such a situation, if the allocated to the developer on the appointed day, subsequent effect from appointed day. In such a case all the benefits that are already given to the units located therein will have to be recovered. Further if any industrial unit was located in the area which is ultimately converted into SEZ, that unit also can claim SEZ benefit from the appointed day which will again result in legal complications.

53. The provisions of Section 3 and Section 4 of SEZ Act are very clear. A developer is required to make an application; this application would be considered by the Board; if the Board is satisfied approval is forwarded to the Central Government; the Central Government thereafter issues a LOA laying down the terms and conditions; after receipt of acceptance and after satisfying with all the requirements and terms and conditions have been fulfilled, Central Government issues the notification. It has to be noted that Section 4 of SEZ Act in the 2nd proviso provides for notification of additional area subsequently to be included as a part of that 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 dated 4-6-2007 would be effective from 19-4-2006. I have already explained why the notification is required and why the law provides for a notification. The notification is the conclusive evidence of the fact that a LOA has been granted, developer has fulfilled the requirements and terms and conditions and a notification has been issued for the information of general public and other statutory authorities. Any other interpretation would lead to unaccepted and unwanted consequences.

54. Another ground taken by the appellants for claiming that additional land area has to be treated as part of the SEZ from 19-4-2006 is the paragraph I of the letter 31-3-2006 which has already been reproduced in para-13. However, what has been missed is the fact that the in-principle approval for expansion into Multi-product SEZ as and when the minimum area of 1000 hectares is acquired by the developer. Therefore in-principle approval will come into effect only as and when the minimum area is acquired.

55. 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 4-6-2007 and not before. Prior to that there was a SSSEZ. This was converted into Multi-product SEZ on 4-6-2007. Therefore the appointed day for the purpose of units other than petroleum and petro-chemicals would be 4-6-2007 for petroleum and petro-chemicals sector, the appointed day has to be treated as 19-4-2006. It was not merely adding additional area to the SEZ that was involved in this case. The process involved fulfilment of requirements and terms and conditions of Multi-product, multi-sector SEZ and identifying the additional area and fulfilment of requirements relating to the same and further in this case Reliance Infrastructure Ltd. also got the permission of transfer to M/s. Reliance Jamnagar Infrastructure Ltd. It is also significant that the notification dated 4-6-2007 was also issued in exercise of the powers conferred by sub-section (1) of Section 4 of the SEZ Act and the notification dated 19-4-2006 was also issued under the same Section. This would once again show that there are two appointed days in this case. The appointed day for SSSEZ is 19-4-2006 and when it became Multi-product SEZ, the appointed day became 4-6-2007. Therefore when we have to consider the units which are set up in the area of 480 hectares, the appointed day would be 19-4-2006 and the units have to be in petroleum and petro-chemical sector. As regards units in other sectors, the appointed day would be 4-6-2007 whether they are located in additional area or in the area located prior to 4-6-2007. There is no basis for concluding otherwise except that such a conclusion would be convenient for the appellants.

56. One of the reasons for coming to the conclusion that the appointed day has to be only one and has to be taken as 19-4-2006 is the appellant’s submission “any other interpretation would not be in consonance with the SEZ Scheme and will also lead to manifestly unjust and inequitable result of denying an assessee the benefit of duty exemption when admittedly the goods in question were used for the setting up of the SEZ unit and not for any other purpose”.

57. I have already shown that even this conclusion would not be in consonance with the statutory provisions and SEZ Scheme and can lead to unwanted results and complications. The interpretation as argued by the appellants no doubt would appear to be very reasonable and leading to a very satisfactory and appropriate conclusion in this case. But that would be for the appellants only and it cannot be said that it would be the case for everyone. But in my opinion, the statutory provisions have to be interpreted strictly and correctly and words have to be given the meaning which they carry.

58. Even though while interpreting statutes and benefits of exemption, as held by Hon’ble Supreme Court, what is to be seen is that provisions of law and especially exemption notifications/benefits have to be interpreted strictly, yet it would be appropriate to see whether the appellants cannot be found fault for the situation in which they find themselves. In fact, this attempt is being made in view of the arguments

59. It was submitted that the appellants had acquired possession of the additional area from the owners by 3-8-2006. This submission of hearing, our attention was drawn to the letter dated 3-8-2006 to support the claim that the additional area was acquired by the State Government and possession was obtained by the assessee from the owners. Our attention was drawn to paras 7, 9 and para 11 of the letter which are reproduced below :

“7. RIFL is now in possession of 1813 acres of land (Additional Land) as given below :

9. Out of the total Additional Land of 1813 acres, 1000 acres would be allotted to RPL as the unit in the SEZ and the balance is required by the developer, M/s. RIFL for setting up infrastructure facilities.

……….

11. The present status of the additional land of 1813 acres is that it has been notified under Section 4 of the Land Acquisition Act by the Government of Gujarat and the further process of notifying it under Section 5, Section 6 and the final transfer of the land in our name in the Revenue Record would take about 8-10 weeks. We have in the meanwhile, consequent to the notification under Section 4 of the Land Acquisition Act, approached the land owners, who have given their consent to the Government as well as to us. MOUs have been signed by us with the land owners and part consideration has also been paid to the land owners. We have been given peaceful and vacant possession of this land. The only thing that remains is the transfer of land in our name in the Revenue Records. For all legal purposes, the land has been transferred to us and we own the land. This is supported by Section 53A of the Transfer of Property Act, wherein payment of consideration and transfer of possession of the land is deemed to be transfer of the land.”

60. Further on going through the letter we find that in paragraph 12, the appellants have stated “we are in possession of aforementioned land and are in process of taking development rights from all the land owners”. If appellants were already having possession and why the appellant had to take development rights from the land owners is a question which rightly comes to the mind. Further if there is no dispute between the land owner and the purchaser, naturally the appellants will be able to take whatever steps they want to take on the land which is going to be purchased by them. For this purpose Transfer of Property Act may be irrelevant. But the question that arises is whether for the purpose of SEZ Act and for other purposes this would be sufficient. I have already reproduced and discussed the statutory provisions of SEZ Act which acquisition was only a formality, transfers right of land to the SEZ unit by the developer only after letter of approval is granted and not before. Unless the letter of approval is granted and the land is notified, a SEZ unit cannot be considered as a SEZ unit at all in terms of the statute. The very fact that the appellant had to seek developmental rights and they had not obtained it from the land owner would clearly show that claim that land was in possession of the appellants is not correct.

61. Further it is an admitted fact that the Gujarat Government had issued a notification for acquisition of land on 2-6-2006. I have considered the provisions of Gujarat Land Acquisition Act. As submitted by the appellants, the notification under Section 4 of Land Acquisition Act, 1894 was issued on 2-6-2006. According to Gujarat Land Acquisition Act, after the notice is issued under Section 4, one month time is required to be given to raise objections, if any, from the persons interested. Such objections have to be heard and decisions taken. After considering all the objections and after giving objectors opportunity of being heard and making such further enquiry, the Collector is required to submit a report. This report can be sent only after two months from the date of notification since the notification requires one month time to be given for receipt of objections and one more month for deciding on objections. Only after these statutory obligations are completed as required under Section 4 and Section 5A, declaration of intended acquisition can be issued by the Government as per the provisions of Section 6 of the Land Acquisition Act. The section provides that after such a declaration issued under Section 6 declaring that the land is required for a public purpose, the Government may acquire the land in the manner hereinafter appearing. This would show that the land acquisition process could not have been completed by 3-8-2006 the date on which the appellant claimed that the process has been completed and RPL had mobilized 30000 workforces. In reality they could not have done so in terms of the statute. According to statute, unless the letter of approval is issued, the developer cannot allot the land to any SEZ unit. In this

62. Para 13 of the above letter also is very relevant. According to this para the appellants have requested approval of contiguity relaxation, formal approval for 1813 acres of land of multi-product and have also promised that they would be submitting the development rights and sought issue of notification. The very fact that the appellants sought issue of notification would show that the appellants themselves believed that a notification by Central Government approving the multi-product SEZ and notifying the additional land is required, which in my opinion, is the correct understanding of the law.

63. An impression was also given that an application for formal notification of the additional land was made on 3-8-2006 wherein the additional area was identified by giving process of certificate numbers etc. It was also submitted that the notification took 10 months to be issued. This would give an impression that the delay occurred on the part of the Government and appellant was helpless. The notification issued on 4-6-2007 by the Government is itself sufficient to show how wrong this claim is. The notification in paragraph 3 says that M/s. Reliance Infrastructure Ltd. had proposed the transfer of the approval to M/s. Reliance Jamnagar Infrastructure Ltd. This transfer proposal was approved on 10-1-2007. After requesting for a formal approval, Reliance Infrastructure Ltd. made a request for transfer of the approval to another company, unless such transfer is approved, the question of formally notifying the acquisition does not arise. In any case an examination of Land Acquisition Act clearly shows that the process could not have been completed on 3-8-2006. In fact the appellants have not given the details as to when exactly the land acquisition was completed by Gujarat Government and when the land was handed over to them officially. They have also not indicated when exactly they took the decision for transferring approval to Reliance Jamnagar Infrastructure Ltd., when they intimated of this to the Government and on what basis the request was made and when exactly they got the new company registered which applied for transfer etc., etc. The next paragraph of the notification clearly shows that the conversion also had to be formally approved before notification was issued. Such formal approval was granted on 9-5-2007. It has to be noted that in the first instance also, the letter of approval was issued on 31-3-2006 and notification was issued on 19-4-2006. Notification of converted SEZ was issued on 4-6-2007. Therefore both the claims made by the appellants that land acquisition was over and land had come into their possession on 3-8-2006 and they could not be faulted for delay in approval are wrong. Further the letter dated 3-8-2006 also clearly shows that the appellants knew that they would require a formal notification. The above discussion would clearly show that whether on

 The appellants also relied upon several decisions to submit that revisionary set up in the additional land by RPL. The first decision is M.P.V. & Engineering Industries [ (S.C.)]. In this case, the question was whether the assessee was a small scale industry in accordance with the rules. In that case assessee was a SSI unit on the date of application in accordance with the rules. Therefore the Hon’ble Supreme Court came to the conclusion that benefit will accrue to a unit found to be a small scale unit from the date on which the application was made for grant of registration certificate. The Hon’ble Supreme Court held that such a unit should not be deprived the unit to which otherwise entitled merely because authorities took time in disposing of the application.

65. In this case, during the period when the indigenous/imported goods were removed for construction work, the land has not been notified as SEZ. No evidence has been produced that the Board of Approval had approved RPL as a SEZ unit as required under Section 15 of SEZ Act. Neither the land was notified nor the unit was approved by the concerned authorities as required under SEZ Act. On the date of application i.e. 3-8-2006, I have already considered and found that land acquisition process itself could not have been over. The letter itself admits that they are seeking development rights from the authorities. No proof of evidence has been produced to come to the conclusion that for granting letter of approval, the Central Government does not require the land to have been acquired fully and handed over to the developer and possession and development right would be adequate. According to Section 3, only after grant of letter of approval, the land can be allotted to the SEZ unit. No details have been provided as to when was the land allotted to RPL by the developer. Without allotment of land and without the approval of the Board of Approval for the unit, the SEZ unit could not have been come into existence at all. Therefore contrary to the situation in the case before the Hon’ble Supreme Court, in the present case the area was neither SEZ nor there is evidence to show that unit had already been approved. Therefore this decision would not apply. In the case of Yokogawa Bluestar Ltd., both department and the assessee had believed that assessee was eligible for the benefit. That is not the situation here. In this case there is a clear dispute between the department and the assessee. Moreover in that case the gap was unintended. In this case the notification could be issued on 4-6-2007 after the completion of acquisition of land, approval of transfer of permission to RJIL. Therefore the delay in notification cannot be laid at the door of the Government and the letter written by the appellant on 3-8-2006 cannot be considered as one which had been written after completing all obligations required under the law. In the case of Zydus Mayne Oncology Pvt. Ltd. also, the unit was located in SEZ and was eligible for all the benefits at the time when the application was made to the Development Commissioner. Therefore that case was similar to the case which was under consideration before the Hon’ble Supreme Court in the case of M.P.V. & Engineering Industries. None of the decisions cited by the appellants can be applied to the present situation.

66. Further my observations above are supported by the following factors also. The contractors of the appellant paid Service Tax for carrying out work in the RTF area and duty paid diesel and cement were used in the RTF area. This would show that not only RPL but even others recorded the RTF area to be DTA.

67. The next question that arises is whether the assessee violated the terms of the permission granted under Rule 50(1)(e) of the SEZ Rules, 2006. Permission granted under Rule 50(e) for the removal of goods from SEZ was only for temporary storage for the specified area. Removal to other areas was not covered by the permission. Further officers in the SEZ also clarified that the additional area/RTF was not SEZ at the material point of time. The very fact that specified officer gave permission for temporary storage points to the belief on the part of the appellant as well as the RPL and also the officers in SEZ that everyone believed and understood that additional area was not SEZ till notified. Neither 25 acres nor 416.47 acres for which permission was granted for temporary storage was included in the RTF area and therefore the activities undertaken in the additional area were totally unauthorized and not covered by permission. No permission was given for construction activity and the specified officer has also clarified as brought out by the Commissioner in the findings in the order. As regards revenue neutrality, no provisions of law providing for the same and no provisions of law which provide that in the case of activities undertaken in DTA, refund will be available subsequently have been shown. In any case what is required to be examined for determination as to whether tax is payable or not is statutory provisions and not revenue neutrality. Revenue neutrality can be a factor when the limitation question arises and when the demand is beyond the time limit. Even in such cases there are decisions taking a view that revenue neutrality alone cannot be a ground for holding that extended period is not invocable.

68. It was contended that the permission under Rule 50 does not require bill of entry to be filed and the entire process of the rule is to ensure that the goods which are permitted to be cleared to the DTA are not to the SEZ. In this case the goods were ultimately used only for authorized operations and therefore the provisions of Rule 50 was achieved and fulfilled. The storage tanks were still under construction on 4-6-2007 when additional land was notified to be part of the SEZ. Moreover it was also contended that the appellants had intimated the Ministry of Commerce that construction activity was proposed to be undertaken and in their letter dated 18-10-2006 also they had intimated that construction activity was being undertaken. It was also submitted that assessee had filed as many as 11 bills of entry and therefore it cannot be said that specified officer was not aware of this. In my opinion on the basis of these facts and on the basis of facts observed above, we cannot sustain the claim made by the appellants. First of all from the evidence adduced in the show cause notice through documents and statements of co-persons of RPL it is clear that when the goods were actually received from the SEZ no Customs duty was paid. This has been clearly brought out from the following extracts of the statements of Shri Pushpak K. Patel, Senior Manager of M/s. RJIL.

“(x)   Normally all the goods were entered and removed after making necessary entries in the records maintained by security check-posts, but in the case of removals on the basis of bills of entry to the RTF area, the removals were effected on the directions of Shri D.N. Dheer and no entries were made in SAP computer system and the copies of the manually prepared OGP were not presented before security for making necessary entries in their records.

……

(xii)   He produced 09 files, containing 11 bills of entry and manually prepared OGP pertaining to clearance to the RTF area.”

69. Further an extract of paragraph (xiii), (xvii) and (xix) of the Shri A.K. Garg, Vice-president of RIL would also show the understanding of the appellants during the relevant time.

“(xiii) The RTF area was not a notified area under the SEZ Act then. As stated in his statement dated 28-5-2007, in May, 2007 they got a formal approval for declaring the additional area of 733 hectares covering various land survey numbers of village Navagam, Kanalus and Padana as SEZ. In this 733 hectares, they had planned for the construction of 69 tanks and 09 Horton Spherical tanks and other infrastructural facilities.

……….

(xvii) To be precise by the word SEZ he meant the RSEZ being developed on 1087.44 hectares and the additional areas proposed for notification and certain areas which were yet to be acquired/proposed/notified.

……….

(xix) He submitted three sheets containing layouts of the WBS as explained above. The sheets marked as A and B were the WBS for SEZ being developed and the sheet marked as C was

70. Further the statement of Shri D.N. Dheer, General Manager (Exim clearance) of RIL dated 28-6-2007 would clearly show the understanding of the management of the company, the procedure followed and the fact that the bills of entry were filed not at the time of removal but subsequently and goods were cleared in such a manner that there was no proper documentation when no bill of entry was filed which would show that the appellants clearly believed that they were not eligible to clear the goods without payment of duty. Para (ix) to para (xxi) of the statement are relevant are reproduced below :

“(ix)  Regarding the clearance of the goods to the RTF area, he stated that on receipt of requisition from the contractors by the stores department the stock of the material were identified by the stores for availability. They then sent to his department the list of material required to be cleared. The goods could be cleared to the contractors only after filing bill of entry with the SEZ Customs, assessment by the SEZ Customs officers and payment of applicable duty, if any, as explained by him in his earlier statement dated 27-6-2007 regarding clearance to DTA.

(x)     This procedure was not followed by them in respect of the clearances of goods to the construction site of the contractors in the RTF area prior to 4-6-2007. The goods were cleared to the construction site of the contractors in the RTF area on the basis of either an Internal Gate Pass or an Inter Site Material Transfer Gatepass issued manually by the stores department and in these cases no duty was paid at the time of clearance of the goods to the RTF area. In respect of these clearances to the contractors in the RTF area they used to file bill of entry periodically on consumption of materials/goods based on the construction forecast and progress reports received from the contractors and paid the applicable duty on these goods.

(xi)    As the goods were already cleared under an Internal Gate Pass or an Inter Site Material Transfer Gatepass, subsequently at the time of filing of bills of entry they also prepared Out Gatepass manually and submitted them with the bills of entry but actually no movement of goods took place on the OGPs as the goods

(xii) certain cases cleared goods to the RTF area after filing of bill of entry and after payment of applicable duty. When the goods were cleared to the RTF area after filing of bill of entry, the physical movement of the goods took place only under OGPs manually issued by the stores department and which were also countersigned by the SEZ Customs officer. In these cases, no Internal Gate Pass or an Inter Site Material Transfer Gatepass was issued.

(xiii)  The subsequent filing of bill of entry and payment of applicable duty in respect of goods already cleared to the RTF area prior to 4-6-2007 on the basis of the construction forecast and progress reports received from the construction forecast and progress reports received from the contractors was done on the instruction of Shri V.K. Gandhi, Senior Vice-President (Non Technical) of their company.

(xiv)  They had till 6-6-2007, in all filed 15 bills of entry in respect of the clearance of Steel Plates, TOR Steel, Structural Steel, Pipes and Fittings and Furniture to the RTF area and paid a total duty of Rs. 20.81 crores.

(xv)   Regarding bill of entry No. 488, dated 6-6-2007, he stated that this bill of entry was filed by them for payment of duty in respect of the 10800 MTs of steel plates cleared prior to 4-6-2007. As in the case of the other bills of entry filed by them the quantity was arrived at on the basis of the construction forecast and progress reports received from the contractors. No goods were cleared by them under the said bill of entry subsequent to it being filed by them and the bill of entry pertained to the goods already cleared by them to the RTF area.

(xvi)  It was not possible to ascertain the datewise quantity or the actual dates on which these 10800 MTs of steel plates were cleared to the RTF area to different contractors. He was not in the knowledge of the correct facts and had therefore, stated during the course of the panchnama dated 7-6-2007 that “once the Duplicate copy of the assessed Bill of Entry arrives at Cargo-1 Gate then the Steel Plates would be loaded sizewise into truck and the examination of which would be done at the Cargo-1 Gate by the officers of Customs”. However, he was subsequently informed by Shri V.K. Gandhi, Senior Vice-President (Non Technical) that the bill of entry was only for facilitating payment of duty and that the goods were already cleared to the RTF area.

(xvii) The first bill of entry No. 447 for clearance of goods to the RTF area was filed by them on 11-12-2006 showing clearance of 354.39 MTs of Structural Steel, 2634.98 MTs of TOR Steel and 5560.26 MTs of Steel Plates. They had paid total Customs duty of Rs. 5,55,63,127/- in respect of the clearance shown under the said bill of entry. The goods under bill of entry No. 447, dated 11-12-2006 were already cleared under Internal Gatepass/Inter Site Material Transfer Gatepass issued by the Stores department on various dates prior to 11-12-2006. The quantity of goods shown in the said bill of entry was arrived at by them on the consumption of goods based on the construction forecast and progress reports received from the contractors and duty was paid accordingly.

(xviii)      The amount of Rs. 10.50 crores was further deposited by them under TR6 Challan No. Nil dated 25-6-2007 towards the differential duty in respect of the various goods cleared to the Non-SEZ area prior to 4-6-2007

(xix)  He produced a sheet showing summary of the quantity of various goods in respect of which the differential duty was paid by them (RUD No. 24). Sr. No. 4-other items-mentioned in the said sheet covered various goods like pipes, pipe fittings, fastners, paint etc. He assured to submit the Material Code Wise/Contractor Wise break up for all the goods issued to the various users in the RTF area and other areas now notified as SEZ vide notification dated 4-6-2007, within a week’s time.

(xx)   The differential duty of Rs. 15 crores deposited on 12-6-2007 by them was towards the clearance of the goods mentioned in the aforesaid summary sheet in column No. 12 showing the particulars of the deposit of duty.

(xxi)  According to the said summary sheet produced by him, a total amount of Rs. 46.28 crores was payable as duty; out of which Rs. 20.80 crores was paid by them under 15 bills of entry (including bill of entry No. 488, dated 6-6-2007 for Rs. 5.59 crores) and the balance of Rs. 25.50 crores was paid by them under TR6 challans dated 12-6-2007 and 25-6-2007.”

71. It is also pertinent to note that once the DRI took up the investigation, RPL neither disputed quantity nor the value of the goods or the amount or duty involved. Even before us also either in the appeal memorandum or during arguments the quantum of duty was not raised as an issue.

72. In this connection the submission of the learned special consultant for the Revenue that in terms of Rules 25 and 34 of SEZ Rules, 2006 RPL ought to have filed bill of entry before removal of goods from SEZ to DTA was a mandatory requirement under the provisions of Section 46 of Customs Act, 1962 has to be considered. He has placed reliance on the judgment of the Apex Court in the case of State of Jharkhand v. Ambay Cements [ (S.C.)]. In para 26 of the judgment the Hon’ble Apex Court observed as under :

“26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of the interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance of the same must result in cancelling the concession made in favour of the grantee — the respondent herein”.

73. Another fact that has not been brought out clearly is the fact that appellants had paid only about Rs. 13 crores till the case was registered against them which is much less than more than Rs. 49 crores which was confirmed subsequently out of which more than Rs. 44 crores was paid. Subsequently portion of this amount was paid after the visit of DRI officers. This would also show that even when the appellants believed that duty liability was to be discharged, they filed bill of entry belatedly, manipulated records and did not pay the full amount of duty and did not pay at the time of clearance.

74. Under these circumstances demand for customs duty as upheld has to be sustained. Applicable statutory provisions would be discussed in subsequent paragraphs.

75. The Commissioner has not demanded the duty but has taken a view that the duty with interest is payable since the goods have been confiscated under Section 125(2) of the Customs Act, 1962. He has Therefore, it is clear that SEZ has to be treated as a port.

76. 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 filing a Bill of Entry and getting the same assessed. All the parties concerned in this case have understood the provisions correctly which is reflected by fact that the Bills of Entry, in fact, were filed and part of the duty was paid even though not properly. Once the legal procedural aspect that a Bill of Entry is required to be assessed and duty paid and thereafter, goods have to be removed, the jurisdiction of the Customs officer and the DRI to investigate the case cannot be questioned. If the goods come into DTA and enter the landmass of the country without payment of duty and without filing Bill of Entry, they become smuggled goods and once the department is able to show that the goods have been smuggled into India, the jurisdiction has to be examined from the place where the goods have been found. In this case, I have already taken a view that the goods were brought into DTA without payment of duty by the appellants and, therefore, the jurisdiction has to be examined with reference to the action of the appellants and whether the jurisdiction was available to the Customs officer in India, i.e. DTA.

77. 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 and 28AB are automatically attracted.

78. I also find the submissions regarding Sections 20, 21 and 22 of the SEZ Act, 2005 by the learned special consultant appropriate. According to the instructions dated 2-8-2006 issued by Ministry of Commerce and Industry, Government of India, “the provisions of Sections 20, 21 & 22 of the SEZ Act related to single agency or single enforcement officer and inspection, search, seizure, etc. have not yet been operationalised. Hence so long as these sections are operationalised different agencies and officers, as in the relevant Act, before enactment of SEZ Act, will continue to port till such time these provisions of SEZ Act take effect.” During the relevant time in question, Sections 20, 21 and 22 of the SEZ Act had not been operationalised. Further, as per Section 25 of SEZ Act, utilization of goods/services for unauthorized operation would attract other provisions of the relevant statute. It has been noted that the overriding effect under Section 51 of the SEZ Act comes into picture only when there is a conflict or inconsistency between the provisions of SEZ Act and other relevant Act. No such conflicts have been brought out and therefore, the applicability of provisions of Customs Act, 1962 cannot be questioned.

79. In view of the above discussion, the contention of the appellants that the DRI officer has no jurisdiction to investigate the case cannot be sustained. Further, the view taken by the Commissioner that Sections 28 and 28AB are not applicable also cannot be sustained. In these circumstances, the appellant shall be liable to pay duty on the goods which were cleared without payment of duty to the DTA prior to 4-6-2007 (the date of issue of notification by the Government of India) with interest. It is made clear that the duty is payable on all the goods which were found to have been cleared and used for construction and taken out of the area permitted for storage prior to 4-6-2007 with interest. From the orders, it is not clear whether the duty amount demanded/paid is on the entire quantity including the quantity used for construction and quantity found as such or only the quantity used for construction. As regards the quantity not used for construction and lying as such in the permitted storage area of the additional land notified by the Government of India, the discussion in subsequent paragraph would show that the confiscation cannot be sustained and consequently duty demand also cannot be sustained.

80. Even though investigations started on 28-5-2007, the seizure of stock of steel plates, structural steel, etc. was made on 11-7-2007 and the records would show that the quantity in stock as on 4-6-2007 was taken. This would show that the seizure of the goods was of the stock existing as on 4-6-2007. That was the day on which notification was issued by the Government of India notifying additional area and approving the conversion of SEZ to Multi-products Special Economic Zone. It was argued by the appellants that once additional area was notified, the whole area become SEZ and it was the submission that the whole area has to be treated as SEZ from 19-4-2006 which I have already held that the same cannot be accepted. Nevertheless, as on 4-6-2007, it has to be held that the whole area was SEZ. Therefore, the duty demand for the steel, etc. brought for construction beyond the storage area which has already been sustained with interest can be upheld but the confiscation of the goods lying in the SEZ on 4-6-2007 cannot be sustained because as on that date, the area had already been notified as SEZ and therefore, the goods were lying in SEZ at the time of seizure. It cannot be said that on that day these goods were found in DTA. No doubt, because of non-operationalised of certain sections as discussed above, the Customs officers could have exercised jurisdiction. But it cannot be forgotten that the Development Officer could have regularized such removals made earlier by exercising his power. It has been consistently held by this Tribunal that in the case of EPCG imports and DEEC imports etc., for procedural omissions for e.g. the period for fulfilment of export obligation, it is the DGFT who has to decide and therefore, before taking action, Customs officers have to consult with DGFT and therefore, action should be initiated. In this case also what was involved was a procedural omission. Once the area was notified, it was necessary for the Customs officer to wait for or consult with Development officer before proceeding further. This is procedural omission which could have been regularized. In any case, 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.

81. Coming to the penalty on the appellants, the learned brother has already taken a view that no penalty is imposable. Even though, I have taken a view that duty is payable, several mitigating factors in this case which compell me to take a view that this is not a case where penalty under Section 112 needs to be imposed.

Mitigating factors :

(a)     The contention that the area became SEZ subsequently, and therefore, appellants were entitled to a bona fide belief that they were eligible for clearing the goods without payment of duty have been accepted by the Member (Judicial) which would show that it cannot be said that the appellant have rendered the goods liable for confiscation.

(b)     The appellants were paying duty from time to time, since the process of getting approval of additional area was in progress. From the sequence of events, it appears to me that the appellant did not pay the entire duty and went on paying duty from time to time in the hope that any day, the approval would come and thereafter, they would not be liable to pay duty. This also would show that the appellants did not intend not to pay duty but were trying to pay the minimum amount possible.

(c)     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. This would leave the goods cleared without payment of duty prior to 4-6-2007 for considering penalty. Taking note of the fact that the Commissioner has felt that Rs. 20 lakhs is enough for penalty and that is after confiscation of the goods and the learned brother has taken a view that penalty is not imposable, I would also take a view that no penalty is imposable.

82. The next issue to be considered is whether penalty under Section 114A should have been imposed by the Commissioner. I have already taken a view that it cannot be said that there was an intention to evade duty in this case. In such an event, penalty under Section 114A cannot be imposed. Therefore, penalty under Section 114A cannot be sustained and the appeal filed by the Revenue on this aspect has to be rejected.

83. The learned Member has also taken a view that entire demand is time-barred. On going through the records, I find that the appellants have not raised this issue at all. Moreover, information available is not sufficient to reach any conclusion. Nevertheless it has to be noted that goods were cleared under bond and, therefore, time limit under Section 28 would not apply as submitted by the learned special consultant.

84. 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. The appeals are disposed of in the above terms. Needless to say, before finalizing quantification and issuing the order, the appellants shall be given opportunity to verify the correctness of the same and contest the same if necessary. Therefore, principle of natural justice also needs to be observed.

DIFFERENCE OF OPINION

1.      Whether duty is payable on the goods removed from SEZ and permitted storage area to the additional area for construction by the appellants with interest under Sections 28 and 28AB of the Customs Act, 1962 as held by the Member (Technical) or duty cannot be demanded as held by the Member (Judicial).

2.      Whether Customs officer have jurisdiction to investigate the case and demand duty as held by the Member (Technical) or the issue is irrelevant and need not be considered as held by the Member (Judicial).

3.      Whether the appellants can be said to have violated the terms of permission granted for storage of steel items by removing for construction as held by the Member (Technical) or they cannot be said to have violated the conditions as held by the Member (Judicial).

4.      Whether limitation as a ground was not raised by the appellants and the same need not be considered as held by the Member (Technical) or needs to be considered as held by the Member (Judicial).

5.      Whether demand can be said to be barred by limitation as held by the Member (Judicial) or demand is not barred by limitation as held by the Member (Technical).

6.      Whether the matter is required to be remanded for re-quantification of duty as held by the Member (Technical) or no duty is to be demanded as held by the Member (Judicial).

(Pronounced on 10-6-2013)

85. [Per : H.K. Thakur, Member (T)]. - As per Order F. No. 01(35)D.O.O./CESTAT/2012, dated 2-7-2013, of the Hon’ble President, CESTAT, New Delhi, following points of difference of opinion between Member (Judicial) and Member (Technical) in Customs Appeal Nos. C/313-315, 359-361/2010 have been referred to me for giving opinion :-

(1)     Whether duty is payable on the goods removed from SEZ and permitted storage area to the additional area for construction by the appellants with interest under Sections 28 and 28AB of Customs Act, 1962 as held by Member (Technical) or duty cannot be demanded as held by Member (Judicial).

(2)     Whether Customs officer have jurisdiction to investigate the case and demand duty as held by Member (Technical) or the issue is irrelevant and need not be considered as held by Member (Judicial).

(3)     Whether the appellants can be said to have violated the terms of permission granted for storage of steel items by removing for construction as held by Member (Technical) or they cannot be said to have violated the conditions as held by Member (Judicial).

(4)     Whether limitation as a ground was not raised by the appellants and the same need not be considered as held by the Member (Technical) or needs to be considered as held by Member (Judicial).

(5)     Whether demand can be said to be barred by limitation as held by the Member (Judicial) or demand is not barred by limitation as held by Member (Technical).

(6)     Whether the matter is required to be remanded for re-quantification of duty as held by Member (Technical) or no duty is to be demanded as held by Member (Judicial).

 Brief facts and the issue involved in these appeals are outlined in Para 2 of the order written by Member (Judicial) above. After recording the submissions made by the appellants and Revenue in Paras 5 to 8, Member (Judicial) recorded his decision and reasoning in Paras 9 to 38 above. Member (Technical) did not agree with the reasoning given in the order proposed by Member (Judicial) and wrote a separate order in Paras 39 to 84. Accordingly, the points of difference have been reduced in Para 84 above.

87. Shri J.C. Patel (Advocate), Shri V.K. Jain (Advocate) and Ms. Shilpa Balani (Advocate) appeared on behalf of the appellants and Shri P.R.V. Ramanan, Special Counsel appeared on behalf of the Revenue. Both sides during hearing made more or less the same submissions which were already made before the regular Bench as reflected in Paras 5 to 8 above. Shri P.R.V. Ramanan, Special Counsels during his submissions coupled his arguments on the lines of reasons recorded by Member (Technical) and emphasized that the view taken by Member (Technical) is correct. On the other hand, Advocate Shri J.C. Patel emphasized that the view taken by Member (Judicial) is the correct interpretation of law, as Notification No. S.O. 873(E), dated 4-6-2007 issued by Ministry of Commerce & Industry will relate back to 19-4-2006 when Notification No. S.O. 568(E) was issued. It was his argument that once it is held that notification dated 4-6-2007 is considered relating back to 19-4-2006 then there is no question of any unauthorized operation and accordingly the view taken by Member (Judicial) on various points of difference will be the correct interpretation of law. Sufficient time was taken by both sides in explaining the facts of the case and co-relating the same with the provisions contained in Section 2(a), 2(b), 2(m), 2(za), 3, 4, 11, 12, 21, 22, 30, 51 to 53, 54 and 57 of the Special Economic Zones Act, 2005 (SEZ Act, 2005) and Rules 2(c), 2(za), 2(zb), 2(zd), 5(2)(d), 6, 7, 8, 15, 25, 27, 29, 34, 37, 47 to 51, 75 and 76 of the Special Economic Zones Rules, 2006 (SEZ Rules, 2006), explaining their respective view points as to what should be considered as proper understanding of ‘appointed day’ and ‘authorized operations’. It was the view of the ld. Special Counsel that there can be more than one appointed days for the same SEZ area when single product SEZ is converted into multi-product SEZ. On the other hand, Advocates appearing on behalf of the appellants argued that there will be only one ‘appointed day’ when the first notification dated 19-4-2006 was issued because second Notification No. S.O. 873(E) was issued on 4-6-2007, was in continuation of Notification No. S.O. 568(E) issued on 19-4-2006. Detailed written submissions were also made by both sides before me during hearing.

88. Point No. 1

“Whether duty is payable on the goods removed from SEZ and permitted storage area to the additional area for construction by the appellants with interest under Sections 28 and 28AB of Customs Act, 1962 as held by Member (Technical) or duty cannot be demanded as held by Member (Judicial).”

88.1 The provisions regarding removal of goods from SEZ area to the Domestic Tariff Area (DTA) have been made under Section 30 of the SEZ Act, read with Rules 47 to 51 of the SEZ Rules, whether such removals to DTA should be on payment of duty or without payment of duty under ‘Authorized Operations’. Rules 47 to 49 of SEZ Rules, 2006 provide for clearance of goods to DTA sales on payment of duties. Rules 50 and 51 of the SEZ Rules talk of temporary removal of goods to DTA without payment of duty subject to following the prescribed procedure and prior approval of the ‘Authorized Officer’. The term Authorized Operations has been defined in Section 2(c) of the SEZ Act, 2005 to mean operations which may be authorized under sub-section (2) of Section 4 and sub-section (9) of Section 50. Provisions of Section 4(2) and Section 15(9) of the SEZ Act, 2005 contain need of necessary approvals from SEZ Development Commissioner and the concerned Central Government Ministry implementing the operations under SEZ Act, 2005 and SEZ Rules, 2006.

88.2 It is the case of the appellants that all the operations undertaken by them will come within the definition of ‘Authorized Operations’ of Section 2(c) of the SEZ Act, 2005 once undertaken after intimating the SEZ Authorities. Secondly, Notification No. S.O. 873(E) issued on 4-6-2007 will relate back to 19-4-2006 as the new area has been added to the existing SEZ under Second Proviso to Section 4(1) of the SEZ Act, 2005. Appellants relied upon the following case laws in support of their arguments that notification issued on 4-6-2007 will relate back to earlier notification dated 19-4-2006.

(i)      CCE v. MPV & Engineering Industries [ (S.C.)]

(ii)    Santadas Idanmal & Company v. UOI [ (Del.)]

(iii)   UOI v. Yokogawa Bluestar Ltd. [ (S.C.)]

(iv)   Zydus Mayne Oncology Pvt. Ltd. [ (Tri.-Ahmd.)]

88.3 On the above issue of relating back of the notification, it was the main argument of the Special Counsel appearing on behalf of the Revenue that notification issued on 19-4-2006 was Sector specific SEZ for petroleum and petro-chemical units whereas notification issued on 4-6-2007 was for multi-product SEZ and that both these categories of SEZ represent separate class of SEZ as per the definitions given in Rule 2(za) and 2(zb) of SEZ Rules, 2006. It was his argument that multi-product SEZ came into existence only after 4-6-2007 and all the operations of construction done in the area not notified will be considered as unauthorized operations when provisions of Section 2(a) are read with Section 4(1) of the SEZ Act and Rules 2(za), 2(zb), and Rule 5(2)(d) of the SEZ Rules. It was emphasized by the Special Counsel that Rule 5(2)(d) was introduced by the SEZ Rules, 2006 only with effect from 16-3-2007 under Notification No. S.O. 393(E), dated 16-3-2007 and before that date there was no provision for conversion of one class of SEZ to another class of SEZ. It was his case that appellants were also permitted above conversion only under Rule 5(2)(d) of the SEZ Rules, 2006.

88.3.1 In the present appeals, the period of demand is from April, 2006 to June, 2007 and according to the Special Counsel appearing on behalf of the Revenue, there was no provision for conversion of one category of SEZ to another category of SEZ before 16-3-2007. However, there is a force in the argument of the appellants that any additional land added to the SEZ under Section 4 of the SEZ Act will be considered as addition of land to the existing SEZ only. When the concerned Ministry implementing SEZ Act, 2005 was taking up the appellant’s case for change from one category of SEZ to another, it cannot be said that there was no provision in allowing such conversion before 16-3-2007 when Rule 5(2)(d) was introduced. It is further observed from the very first application dated 22-8-2005, made by the appellant to the Ministry of Commerce & Industry that there was a proposal from the appellant for setting up of a multi-product zone which was permitted by the concerned Ministry for initially setting up of a SEZ for Petroleum & Petro-chemical Sector over an area of 440 Hectares with an in-principle approval of its expansions into a multi-product SEZ as and when the minimum area of 1000 hectares is acquired by the main appellant. All the required approvals and permissions were given by the appropriate authorities implementing SEZ Act, 2005. Notification No. S.O. 873(E), dated 4-6-2007 was issued on 4-6-2007 under Section 4(1) of the SEZ Act, 2005 and was not issued under Rule 5(2)(d) of SEZ Rules, 2006. The later notification dated 4-6-2007 was also referring to the earlier Notification No. S.O. 568(E), dated 19-4-2006. It has not been brought on record by the Revenue that the concerned authorities implementing SEZ Act, 2005 and SEZ Rules, 2006 have taken any view that operation undertaken by the appellants during the relevant periods were not ‘Authorized Operations’ or that notification dated 4-6-2007 will not relate back to 19-4-2006. It is a well accepted legal proposition that in the case of a conflict between a provision contained in an Act and the one contained in the Rules made under that Act, the provisions contained in the Act will prevail over the Rules and it cannot be said that before 16-3-2007 when Rule 5(2)(d) was added, there was no provision for conversion from one category of SEZ to another category of SEZ. Prescribed Rules and procedures are made only to implement and operationalise the provisions of the Act. In view of the above observations and the case-laws relied upon by the appellants, I agree with the view taken by Member (Judicial) that notification dated 4-6-2007 will relate back to 19-4-2006 in view of the Second Proviso to Section 4(1) of SEZ Act, 2005, read with the case laws listed in Para 88.1 above.

88.4 The provisions regarding removal of goods from SEZ area to DTA without payment of duty are contained in Rules 50 and 51 of SEZ Rules, 2006. It is the argument of the appellants that they approached the Authorized officer under Rule 50(e) of the SEZ Rules, 2006 for temporary storage of goods outside SEZ area and for construction activities. It is seen from the case records that main appellant gave a Letter No. RPL/SEZ CUS/Misc, dated 18-10-2006 to the ‘Specified Officer’ with a copy of the same marked to the ‘Authorized Officer’. In this letter, following facts were specifically brought to the notice of the appropriate authorities under the SEZ Rules, 2006 :

“We have acquired a new area, near our existing SEZ area, which will be shortly notified as an area of our SEZ. A formal notification declaring the area as part of our SEZ is being awaited. As we are short of storage place in the existing declared area, we propose to store our goods in the newly acquired area and carry out construction activities for utilizing the same for authorized operations in our SEZ.”

88.4.1 Office of the Specified Officer vide F. No. VIII/48-4/Cus-T/2005-Pt.I, dated 18-10-2006 necessary permission under Rule 50(1)(e) of the SEZ Rules, 2006 with the following conditions :-

“(1)   The permission is granted for 4 months from the date of issue.

(2)     Before storage, the Authorized Officer should make sure the safety/security of the proposed storage place.

(3)     Double duty Bond should be executed.

(4)     Procedure under Rule 51 of the SEZ Rules, 2006 should be followed.

(5)     The Authorized Officer should have close visit on in and out of the above goods.

(6)     The goods should be first received in SEZ and then it may be removed to storage.

(7)     If the assessee fails to bring back the goods within stipulated time, the same should be intimated to the undersigned for proper action.

(8)     The Authorized Officer can further impose any condition, which is required for safeguarding the revenue.”

88.5 From the above facts available on record, it is evident that main appellant did ask the appropriate authorities under the SEZ Act, 2005 and SEZ Rules, 2006 for necessary approval for clearance of goods to DTA and for carrying out construction activities, without payment of duty. However, as per condition No. 7 of the permission letter dated 18-10-2006, there was a clause to intimate the specified officer if the appellant fails to bring back the goods within specified period. Accordingly, if the removal of goods and their utilization was not for ‘Authorized Operations’, as per the condition specified by the appropriate authority, then duty was demandable from the appellant by the implementing authorities under the SEZ Act, 2005 and SEZ Rules, 2006 as per recovery provisions contained in Rule 34 and Rule 51(5) of the SEZ Rules, 2006. Such duties, if any payable by the appellants, could have been recovered from the main appellant by enforcing the general bond executed by the appellant with SEZ Authorities, as observed by Member (Technical) in Paras 80 and 83 above. The SEZ Act, 2005 and SEZ Rules, 2006 is a self contained piece of legislation to be implemented exclusively by the Approval Committee and the SEZ Development Commissioner of SEZ under the Commerce Ministry. Further, whether the operations regarding sending goods to DTA and their use in further construction, under intimation and approval of the appropriate authority, will be ‘Authorized Operations’ or the appellants should be served with a demand of Customs/Central Excise duties is adequately covered within the domain of the SEZ Act, 2005 and SEZ Rules, 2006.

88.5.1 Before the creation of the SEZ Act, 2005, the working of Special Economic Zones was regulated by the provisions contained in Chapter XA of Customs Act, 1962. As per Notification No. S.O. 320(E), dated 14-3-2006, issued under Section 52(1) of SEZ Act, 2005, the provisions of Chapter XA of Customs Act, 1962 were made inapplicable to the working of the Special Economic Zones. There is, thus, no linking provision under the SEZ Act, 2005 making the provisions of Customs Act, 1962 applicable to the working of Special Economic Zones after 14-3-2006. Section 51 of SEZ Act, 2005 conveys that in the event of any inconsistency in the provision of any other law/instrument and the provisions of the SEZ Act, 2005 the provisions of SEZ Act, 2005 shall prevail. Under the above facts and circumstances, the issue raised by the Special Counsel on behalf of the Revenue that by virtue of Instructions dated 3-8-2006 issued by Ministry of Commerce & Industry, Govt. of India, the provisions of the Customs Act, 1962 will be applicable in the present case will not be the correct interpretation of law. It is observed from Section 27 of the SEZ Act, 2005 read with the Second Schedule to the SEZ Act, that provisions of the Income-tax Act, 1961 have been made applicable to the SEZ Act with certain modifications. Further, Section 57 of the SEZ Act, read with the Third Schedule of the SEZ Act, provide for applicability of certain other enactments to the SEZ Act, 2005 from a notified date with certain modifications. No provision exists in the SEZ Act, 2005 for making the provision of the Customs Act, 1962 applicable to the working of Special Economic Zones under the SEZ Act, 2005. In the absence of any clarification from the Commerce Ministry on Instructions dated 3-8-2006 it is possible that the said instructions dated 3-8-2006 are applicable only to the enactments specified in Section 57 of the SEZ Act, 2005 because under Notification No. S.O. 320(E), dated 14-3-2006, issued by the Commerce Ministry under the SEZ Act, 2005 the provision of the Customs Act, 1962 have been specifically notified to be not applicable.

88.5.2 Further, it is observed from the provisions contained in Section 30 of the SEZ Act, 2005, read with Rules 34, 50 and 51 of the SEZ Rules, 2006, that no duty is demandable even under the SEZ scheme of working from a SEZ developer if the goods brought into a SEZ area are removal to DTA for ‘Authorized Operations’ as defined in Section 2(c) of the SEZ Act, 2005. Any Customs/Central Excise Duty, on account of improper utilization or removal of goods to DTA can be demanded and recovered under the SEZ Act, 2005 and SEZ Rules, 2006. In this regard, it has to be seen whether any removals from SEZ area to DTA, made by the appellants, was within the scope of the Authorized Operations under the SEZ Act, 2005 or the SEZ Rules, 2006 or was an activity of clandestine clearance with intention to defraud Government exchequer and without the knowledge of the appropriate authorities created under the SEZ Act, 2005. Further, this distinction with respect to clandestine removal is required to be made in the light of the ‘Statement of Objects and Reasons’ contained in the beginning of the SEZ Act, 2005 and is reproduced below :

“Statement of Objects and Reasons :-

The Government of India had announced a Special Economic Zone Scheme in April, 2000 with a view to provide an internationally competitive environment for exports. The objectives of Special Economic Zones include making available goods and services free of taxes and duties supported by integrated infrastructure for export production, expeditious and single window approval mechanism and a package of incentives to attract foreign and domestic investments for promoting export-led growth.

2. There are at present eleven functioning Special Economic Zones. While seven Zones have been set up by the Central Government, four by the private/joint/State sector. In addition, approvals have been given for setting up of thirty-five new Special Economic Zones in the private/joint/State sector.

3. While the policy relating to the Special Economic Zones is contained in the Foreign Trade Policy, incentives and other facilities offered to the Special Economic Zone developer and units are implemented through various notifications and circulars issued by the concerned Ministries/Departments. The present system, therefore, does not lend enough confidence for investors to commit substantial funds for development of infrastructure and for setting up of the units in the Zones for export of goods and services. In order to give a long term and stable policy framework with minimum regulatory regime and to provide expeditious and single window clearance mechanism, a Central Act for Special Economic Zones has been found to be necessary in line with international practice. To achieve this purpose, a “Special Economic Zones Bill, 2005” is proposed. The salient features of the Bill are as under :-

(i)      matters relating to establishment of Special Economic Zone and for setting up of units therein, including requirements, obligations and entitlements;

(ii)     matters relating to requirements for setting up of off-shore banking units and units in International Financial Service Center in Special Economic Zone, including fiscal regime governing the operation of such units;

(iii)    the fiscal regime for developers of Special Economic Zones and units set up therein;

(iv)    single window clearance mechanism at the Zone level;

(v)     establishment of an Authority for each Special Economic Zone set up by the Central Government to impart greater administrative autonomy; and

(vi)    designation of special Courts and single enforcement agency to ensure speedy trial and investigation of notified offences committed in Special Economic Zones.

4. The Bill seeks to achieve the aforesaid objects.”

88.5.3 From the above objects behind creating of SEZ Act, 2005, it is evident that the Central Government wanted to provide an international competitive environment for exports, including making available goods and services free of taxes/duties, supported by integrated infrastructure for export generation, expeditious and single window approval mechanisms and a package of incentives to attract foreign and domestic investments for promotion of exports etc. With the above objectives in sight and elaborate provisions contained in the SEZ Act, 2005 and SEZ Rules, 2006, a liberal view is required to be taken, and that too by the appropriate authorities under the SEZ Act, 2005 and the SEZ Rules, 2006, whether an act or omission done by the appellants could be ‘Authorised Operations’ or a clandestine activity requiring strict action. Even after a view is taken that operations undertaken by the appellants were not within the scope of ‘Authorized Operations’ it is required to be seen whether the operations undertaken by the appellant call for only payment of appropriate duties and interest or would attract severe action under the SEZ Act, 2005 or the Customs Act, 1962. In order to protect the genuine Special Economic Zones and Units a consultation machinery has been provided between different agencies as per the provisions contained in Section 12(1)(c), read with the first proviso to Section 22 of the SEZ Act, 2005. Such provisions for mutual consultations are essential for the working environment intended for Special Economic Zones as one of the functions of SEZ Development Commissioner, under Section 12 of the SEZ Act, 2005, is to guide the entrepreneurs and to ensure taking up of suitable steps to promote export from SEZ and to monitor the performance of the Developer and the units in the SEZ. In the absence of any consultation done by the Revenue with the SEZ authorities and no action taken by the SEZ authorities under the SEZ Act, 2005 holding that operations undertaken by the appellants were not ‘Authorized Operations’, no duty and interest on the goods removed from SEZ to permitted storage area or additional area for construction, can be demanded from the appellants under Sections 28 and 28AB of Customs Act, 1962. As already opined, Notification No. S.O. 873(E), dated 4-6-2007 will relate back to 19-4-2006 when Notification No. S.O. 568(E) was issued. Accordingly, I agree with the interpretation taken by Member (Judicial).

89. Point No. 2 :-

“Whether Customs officer have jurisdiction to investigate the case and demand duty as held by Member (Technical) or the issue is irrelevant and need not be considered as held by Member (Judicial).”

89.1 The jurisdiction of a Customs officer to investigate and demand the duty from the appellants has to be examined in the light of the provisions contained in the SEZ Act, 2005, read with the SEZ Rules, 2006 and the provisions of the Customs Act, 1962. The aims and objects behind the creation of the SEZ Act, 2005 have already been brought out in Paras 88.5.1 and 88.5.2. The Customs Act, 1962 had a Chapter XA, along with a set of Rules viz. the Special Economic Zones Rules, 2003 and the Special Economic Zones (Customs Procedure) Regulations 2003, to monitor the working of Special Economic Zones in India. Under Notification No. S.O. 320(E), dated 14-3-2006, issued under Section 52(1) of the SEZ Act, 2005, the provisions of Chapter XA of Customs Act, 1962 and the set of Rules applicable earlier, were made inapplicable to the working of the Special Economic Zones. In the light of the above changes, it has to be seen whether the SEZ Act, 2005 and Rules made thereunder, provide for a machinery to recover Customs/Central Excise duties, on goods and services received duty free, if not utilized for authorized operations. Section 30 of the SEZ Act, 2005, read with Rules 34, 47 to 52 of the SEZ Rules, 2006, deal with situations where goods, received in SEZ area duty free, can be removed on payment of duty or without payment of duty. From the above provisions contained in the SEZ Act, 2005 and Rules made thereunder, the following situations can exist where duties of Customs/Central Excise can be demanded from a SEZ or the units working in a SEZ.

(i)      Removal of goods on DTA sales on payment of duties under Rule 47 of the SEZ Rules, 2006.

(ii)    Duties on goods received duty free by SEZ but not utilized for ‘Authorized Operations’ or not accounted for properly as per Rule 34 and other Rules of SEZ Rules, 2006.

(iii)   Temporary removals of goods under Rules 50 and 51 of the SEZ Rules, 2006 or removals within the SEZ area when not accounted for properly or not brought back to SEZ within the stipulated period allowed by the ‘Authorized Operations’.

(iv)   Clandestine removal of goods, received duty free in the SEZ to DTA or clearances without the knowledge/intimation of the appropriate authorities under the SEZ Act, 2005 and the Rules made thereunder.

The situations mentioned at (i), (ii) and (iii) when taken in consultation/under intimation to the appropriate authorities of the SEZ Act, 2005 and Rules will come exclusively in the domain of the authorities created under the SEZ Act, 2005 and the Rules made thereunder. However, for the situation mentioned at (iv) above, when duty free goods received in SEZ are clandestinely cleared without the knowledge of the appropriate authorities created under the SEZ Act, 2005, there could be a jurisdiction for investigating agencies of the following enactments, as per Rule 25 of the SEZ Rules 2005, either in consultation with SEZ authorities or without any consultation :-

(a)     The Customs Act, 1962.

(b)     The Customs Tariff Act, 1975

(c)     The Central Excise Act, 1944

(d)    The Central Excise Tariff Act, 1985

(e)     The Central Sales Tax Act, 1956

(f)      The Foreign Trade (Development & Regulations) Act, 1992.

(g)     Finance Act, 1994.

(h)    Other enactments specified in the First Schedule to the SEZ Act, 2005.

89.2 From the above observations, it can be safely concluded that for any removals of the goods from SEZ area to DTA or within SEZ area under intimation/approval of the appropriate authorities, if not properly accounted for or not brought back within the stipulated period, adequate recovery machinery exists under the SEZ Act, 2005 and SEZ Rules, 2006 to recover Customs/Central Excise dues. Accordingly, for all the situations mentioned at (i), (ii) and (iii) of Para 89.1 above, if approvals have been given by the SEZ authorities, the operations have to be treated as ‘Authorized Operations’ defined in Section 2(c) of the SEZ Act, 2005. Even if some of the removals/operations undertaken by the appellants are not authorized, but done with the approval/under intimation to the SEZ authorities, then also the power to demand/recover duties of Customs/Central Excise from SEZ, is vested with the authorities created under the SEZ Act, 2005 and SEZ Rules, 2006. This view is also fortified by the ‘Statements of Objects and Reasons’ given before the beginning of the SEZ Act, 2005. The spirit of these Objects and Reasons and the SEZ Act, 2005 is that SEZ and its units are required to be delicately handled to achieve the desired goals and SEZ/units cannot be exposed in their day to day working to the strict scrutiny of the Customs Act, 1962 wherein an act or omission may make the goods liable to confiscation under Section 111 and Section 113 and that act or omission as amounting to ‘smuggling’ as per Section 2(39) of Customs Act, 1962. Having said that, however, a situation as per situation (iv) of Para 89.1 above, may still exist where strict action against a defaulter could be required.

89.3 From the above facts available on record, it is evident that all operations were undertaken by the appellants with the knowledge and approvals of the appropriate authorities under the SEZ Act, 2005 and the SEZ Rules, 2006. The operations undertaken by the appellants will be covered by the situations mentioned at (i), (ii) and (iii) of Para 89.1. In case, Revenue was of the opinion that action under the Customs Act, 1962 was required then there was a need for discussions between the appropriate authorities created under the SEZ Act, 2005 and the investigating agency as per the provisions contained in the First Proviso to Section 22, read with Section 51 of the SEZ Act, 2005. This aspect of consultation with the Development Commissioner/Officer has also been touched upon by Member (Technical) in Para 80 of his reasoning that such removals could have been regularized by Development Officer and that Customs officers could have waited before proceeding further. In the absence of any approval taken by investigating agency under Section 22 and due to the fact that all operations undertaken by the appellants was after approvals and intimations to the appropriate authorities under the SEZ Act, Customs Officers had no jurisdiction to investigate this case and demand duty under Customs Act, 1962 when the entire proceedings relate back to 19-4-2006. I agree with the view taken by Member (Judicial) that the issue becomes irrelevant and need not be considered being so obvious for the observations made above.

90. Point No. 3 :

“Whether the appellants can be said to have violated the terms of permission granted for storage of steel items by removing for construction as held by Member (Technical) or they cannot be said to have violated the conditions as held by Member (Judicial).”

90.1 In view of my detailed observations given in Paras 88.4, 88.5, 88.5.2, 88.5. 3, 89.1, 89.2 and 89.3 above, removal of goods from SEZ area to DTA and operations thereon were undertaken by the appellants under due approvals/intimation of the appropriate authorities supervising the appellants under the provisions of the SEZ Act, 2005 and SEZ Rules, 2006. All the operations done by the appellants have to be considered as ‘Authorized Operations’ under the SEZ Act, 2005 and the Rules made thereunder, in view of the fact that Notification No. S.O. 873(E), dated 4-6-2007 relates back to 19-4-2006 when Notification No. S.O. 568(E), dated 19-4-2006 was issued. This view is further strengthened by the fact that appropriate authorities under the SEZ Act, 2005, and the Rules made thereunder have not opined at any stage that appellants have not undertaken Authorized Operations as defined in Section 2(za) read with Section 4(2) and 15(9) of SEZ Act, 2005 and the SEZ Rules, 2006. Accordingly, I will agree with the view taken by Member (Judicial) that appellants have not violated the conditions of the permission granted under Rule 50(1)(e) of the SEZ Rules, 2006 and also due to the fact that no action for demanding duties has been taken by the authorities monitoring the working of appellants made under the SEZ Act, 2005.

91. Point No. 4 :

“Whether limitation as a ground was not raised by the appellants and the same need not be considered as held by the Member (Technical) or needs to be considered as held by Member (Judicial).”

This point of difference is based on the observations made by Member (Technical) in Para 83 above holding that issue of time bar was not raised at all by the appellants. It was contested by the Advocates of the appellants that issue of time bar was raised under Para 42 of their reply dated 15-7-2008 made in response to the show cause notice. It is seen from Para 42 of appellant’s reply to the show cause notice that the issue of time bar, in fact, was raised without prejudice to their claim on jurisdiction of Section 28 of the Customs Act, 1962. This fact of raising the time bar issue is also getting reflected in Para 70 (xxxix) of the Order-in-Original issued on 27-4-2008. Therefore, I agree with Member (Judicial) on this point that issue of time bar was raised by the appellants and needs reconsideration.

92. Point No. 5 :

“Whether demand can be said to be barred by limitation as held by the Member (Judicial) or demand is not barred by limitation as held by Member (Technical).”

Appellants have argued in these proceedings that period of demand is from April, 2006 to June, 2007 whereas the demand show cause notice has been issued on 20-12-2007 after a normal period of six months applicable during the relevant period, under Section 28 of Customs Act, 1962. It is appellant’s case that even Member (Technical) has held that there was no intention to evade duty and Section 114A penalty has also held by Member (Technical) to be not imposable. Accordingly, it was argued that once there was no intention to evade duty and Section 114A penalty is held to be not imposable, extended period under Section 28 of Customs Act, 1962 (sic).

92.1 I have considered this issue. This point of difference is left to be considered only for academic discussion because it is already opined that in the existing facts and circumstances, provisions of the Customs Act, 1962 are not applicable. Once a view is taken that there is no intention to evade any duty on the part of the appellants, by not invoking the penal provisions, it has to be held that extended period of limitation cannot be invoked in such situations. Alternately, Member (Technical) has also observed in Para 83 of his order that appellants have cleared the goods in DTA under a Bond, therefore, time bar under Section 28 of the Customs Act, 1962 will not apply. It is evident that Member (Technical) is referring to Bond-cum-Legal undertaking in Form-D, required to be given by the Developer under Rule 22(1)(ii) and Proviso to Rule 22(1) of the SEZ Rules, 2006, as no other Bond executed by the appellants with the Customs authorities has been brought on record with respect to working of the appellants under the SEZ Act, 2005 and the SEZ Rules, 2006. Further, as per Rule 22(1)(iv)(e) of the SEZ Rules, 2006, the original Bond-cum-Legal undertaking is to be maintained by the office of the Development Commissioner and its certified copies are to be given to the ‘Specified Officer’ and the Developer. As per Condition-2 of the format of this Bond-cum-Legal undertaking given in the SEZ Rules, 2006, if the goods are not utilized as per the provisions of Rule 25 for authorized operations, then the same can be enforced by the ‘Specified Officer’. Further, Rule 51 of the SEZ Rules, 2006 also talks of recovery of duties with respect to goods which are not satisfactorily utilized or brought back to the SEZ area. Rule 75 of the SEZ Rules, 2006 gave full liberty to the appellants, when read with Rules 35 and 36 of the said Rules, to maintain inward and outward movements from SEZ area under self declaration and no routine examination of goods is required to be made without specific orders of ‘Development Commissioner’ or the ‘Specified Officer’. Only intimations of such inward and outward removals of goods from SEZ area are required to be reported to the Authorized/Specified Officer. In view of the above, it cannot be said that there is no machinery to recover the duties of Customs/Central Excise under the SEZ Act, 2005 and the Rules made thereunder and the Bond-cum-Legal undertaking, given by the appellants to the authorities implementing the SEZ Act, 2005 and the SEZ Rules, 2006, is available to enforce the dues if utilization of duty free goods received is not satisfactorily explained and such recovery will not be time-barred. However, this power to invoke and enforce the Bond-cum-Legal undertaking is available only to the appropriate authorities working under the SEZ Act, 2005 and the SEZ Rules, 2006 and cannot be made use of by other authorities working under the Customs Act, 1962 to demand duties under Section 28 to that Act.

92.2 In the light of the observations made in Para 92.1, I agree with Member (Judicial) that demand will be time-barred if duty was demanded under Customs Act, 1962 because all the operations have been undertaken by the appellants with the approvals and intimations to the appropriate authorities working under the SEZ Act, 2005.

93. Point No. 6 :

“Whether the matter is required to be remanded for re-quantification of duty as held by Member (Technical) or no duty is to be demanded as held by Member (Judicial).”

In the light of opinion recorded with respect to the Points of difference 1 to 5 above, I hold that on merits no demand is sustainable against the appellants under the Customs Act, 1962. Accordingly, there is no requirement of remanding the matter back to the original adjudicating authority for re-quantification of the duty. I will agree with the view taken by Member (Judicial) on this point that no duty is demandable from the appellant in these proceedings under the Customs Act, 1962.

94. In view of the above, I concur with the opinion given by Member (Judicial). The file is returned for placing before the Bench for a final decision.

MAJORITY ORDER

[Per : M.V. Ravindran, Member (J)]. - In view of the majority order, the impugned orders are set aside, the appeals filed by the assessee and the individuals are allowed and the appeals filed by the Revenue are rejected.