{"id":334292,"date":"2024-11-02T17:00:19","date_gmt":"2024-11-02T11:30:19","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=334292"},"modified":"2024-11-03T13:15:47","modified_gmt":"2024-11-03T07:45:47","slug":"re-importation-benefit-sez-return-goods","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2024\/11\/02\/re-importation-benefit-sez-return-goods\/","title":{"rendered":"Re-Importation Benefit Not Available for Return of Goods from SEZ to the DTA"},"content":{"rendered":"
\n

I<\/span>n the recent past, the Customs Excise and Service Tax Appellate Tribunal (Cestat), New Delhi, in Lupin Ltd.<\/span> v. Commr. of Customs (Lupin)<\/span>1<\/sup><\/a>, held that the duty-free re-import benefit under Notification No. 45\/2017-Cus. (NN 45) is not available to goods returning from special economic zones (SEZ) to the domestic tariff area (DTA).<\/p>\n

As per industry sources, an alert has been issued on Indian Customs Electronic Gateway (ICEGATE)\/SEZ Online in view of the decision in Lupin<\/span>2<\/sup><\/a> preventing duty-free clearance of goods from SEZ to DTA under the claim of NN 45.<\/p>\n

In result, even when goods supplied from the DTA to SEZ return back without processing, they shall attract import duties on their full value, as per Section 30<\/a> of the Special Economic Zones Act, 2005<\/a>. Integrated Goods and Services Tax (IGST) also shall be paid in terms of Section 7(5)(b<\/span>) of the IGST Act. This has the effect of encumbering local movement of goods with import duties, and for that reason is an alarming cause for concern for the industry.<\/p>\n

Rationale for Section 30 of the SEZ Act<\/h4>\n

If goods are imported into a SEZ unit from outside India, there is no requirement to pay import duties. This is because Section 26<\/a> of the Special Economic Zones Act, 2005<\/a> (SEZ Act) grants exemptions and concessions for imports into SEZ.<\/p>\n

To maintain parity between such SEZ units and units operating in the DTA, at the time of clearance of goods to the DTA, Section 30 of the SEZ Act requires payment of import duties as if such goods are being imported into India for the first time. Thus, a bill of entry for home consumption would be filed, under the claim of exemption notifications if any.<\/p>\n

Analysis of the decision in Lupin<\/h4>\n

The facts in Lupin<\/span>3<\/sup><\/a> were that pharmaceutical products were procured by an SEZ unit from the DTA for carrying on authorised operations. Since some portion of the goods remained unutilised, the same was sought to be returned to the DTA without payment of duties under the claim of NN 45.<\/p>\n

To avoid filing a bill of entry for home consumption and discharging applicable duties at the time of bringing back goods to DTA in these cases, the Special Economic Zones Rules, 2006 carve out an exception. In terms of Rule 48(3) of the SEZ Rules, when goods return to the DTA without substantial processing, no bill of entry is required to be filed, and the movement is facilitated by a simple invoice. The catch here, however, is that the prescribed tariff rate for the goods in question must be \u201cnil\u201d.<\/p>\n

What if the prescribed tariff rate is not nil, but a tariff rate of 10% is prescribed, which is not entirely neutralised by an exemption notification? Would the industry need to bear an additional 10% import duty, although it might be the same goods which have already suffered local duties, which are now moving to an SEZ unit and back to the DTA?<\/p>\n

Let us examine the issue. To fall within the wording of NN 45, there must be inter alia, \u201cre-import\u201d of goods into India.<\/p>\n

Scope of \u201cRe-import\u201d<\/h4>\n

\u201cRe-import\u201d is not defined in NN 45 or by any statutory provision either in the Customs Act or in the SEZ Act, although the word is used in the headnote to Section 20 of the Customs Act. It has been opined that \u201cre-importation\u201d is importation of goods which were exported out of India.4<\/sup><\/a><\/p>\n

Admittedly, goods are not exported \u201cout of India\u201d when they are supplied to an SEZ unit. Further, movement of goods to SEZ from the DTA does not amount to \u201cexport\u201d under the Customs Act, which requires taking goods outside India. Movement of goods from SEZ to the DTA does not amount to \u201cimport\u201d under the Customs Act, or the SEZ Act either.<\/p>\n

So, how does movement of goods from SEZ to the DTA satisfy the requirement of \u201cre-import into India\u201d for claiming the benefit of NN 45? Rule 48 of the SEZ Rules is once again helpful here since it provides that when goods return to the DTA without substantial processing, the same shall be:<\/p>\n

(1) treated as \u201cre-imported goods\u201d; and<\/p>\n

(2) subject to normal procedures for \u201cre-import of goods from outside India\u201d.<\/p>\n

Thus, by way of deeming fiction, the SEZ Rules specifically contemplate a situation where goods procured from the DTA would need to return to the DTA. If the bare text of Rule 48 were given its natural effect, the industry would be able to claim the benefit of NN 45 without any demur, avoiding the need for encumbering local movement of goods with import and export duties. Recent pronouncements in this area have jeopardised this position.<\/p>\n

Although the Cestat in Lupin<\/span>5<\/sup><\/a> ultimately remanded the matter for examination as to whether NN 45 would be available, questions have been raised in this decision as to if such clearance to the DTA would constitute \u201cre-import\u201d into India for the purpose of falling within the wording of NN 45 broadly for the following reasons:<\/p>\n

(a<\/span>) Clearance of goods to the DTA from SEZ does not constitute \u201cimport\u201d either under the Customs Act, or the SEZ Act. It has been held that the SEZ Rules, being delegated legislation, cannot supplant the definition of \u201cimport\u201d under the SEZ Act, or the Customs Act.<\/p>\n

(b<\/span>) Further that, even if there is a purported \u201cre-import\u201d, Section 20 of the Customs Act once again provides for payment of duties as if goods are freshly imported into India.<\/p>\n

Way forward<\/h4>\n

Section 20 of the Customs Act, 1962<\/p>\n

Here, it may be argued that once Section 20 of the Customs Act is said to be invoked (per Lupin<\/span>6<\/sup><\/a>) the taxable event of \u201cimport\u201d as under the Customs Act is triggered. In that case, the argument that the words \u201cexport\u201d and \u201cimport\u201d have different meanings assigned to them in the Customs Act and the SEZ Act respectively, seems to pose no impediments for availing the benefit of NN 45.<\/p>\n

This is since, clearly, Section 20 does not lend itself to a levy. It only provides that the treatment for re-imported goods shall be as if the goods are imported afresh into India, requiring payment of applicable duties, by implication invoking Section 12 of the Customs Act, which is the charging section.<\/p>\n

Thus, the suggestion that the words \u201cre-import\u201d under the SEZ Rules would take one only as far as Section 20, but not its natural consequence, which is Section 12, seems anomalous. Naturally, when Section 12 applies, the assessee would file a bill of entry as is mandatory under Section 46 of the Customs Act. Whereas Rule 48 by way of deeming fiction has provided that such movement to the DTA would amount to \u201cre-import of goods into India\u201d, there is nothing preventing the assessee from filing such bill of entry under the claim of NN 45.<\/p>\n

Rule 49(4) of the SEZ Rules (for imported goods)<\/p>\n

Further, it may be argued that the intention has always been to avoid encumbering local movement of goods with import duties. This is evincible from Rule 49(4), which provides that if imported goods are admitted into SEZ after payment of duties, they may be removed to the SEZ without paying duty again. The only condition is that the identity of the goods must be established to the satisfaction of the specified officer.<\/p>\n

It may be argued that there is no reason to treat the situation under Rule 48(3) any differently. Even in Notification No. 50\/2017-Cus., Condition 102 as applicable for S. No. 547-A requires the importer to \u201cre-export\u201d items imported on lease. Vide Notification No. 46\/2021-Cus. dated 30-9-2021, it was clarified that where the lessor is an SEZ unit, returning goods to SEZ shall amount to such \u201cre-export\u201d.<\/p>\n

Since Notification No. 50\/2017-Cus. is issued under the framework of the Customs Act, the word \u201cexport\u201d as appearing in the Notification should mean taking goods outside of India as per the definition in the Customs Act. When the legislature has consciously treated supply of goods back to SEZ as re-export, it may be argued that the intent and scheme of such notifications is to facilitate movement of goods from and to SEZ without adding to transaction costs.<\/p>\n

Conclusion<\/h4>\n

The Cestat in Lupin<\/span>7<\/sup><\/a> ultimately remanded the matter for examination as to whether NN 45 would be available. From a perusal of the judgment, it appears that the issue was confined to whether an SEZ unit would become an importer by virtue of Rule 48(3) of the SEZ Rules. However, there are instances wherein the benefit of NN 45 is being denied on account of the decision in Lupin<\/span>8<\/sup><\/a>, even when the DTA unit would be importer on record.<\/p>\n

Recent rulings have seemed to muddy the waters of movement of goods between SEZs and the DTA, unnecessarily adding to transaction costs, hindering ease of doing business (EoDB), and seemingly being against the intention of the legislature in devising these tax mechanisms. This position also seems to defeat the fundamental premise and pillar of our taxation laws: \u201cExport goods, but not taxes\u201d.<\/p>\n<\/div>\n

\n

*Executive Partner, Lakshmikumaran & Sridharan Attorneys.<\/span><\/strong><\/p>\n

**Senior Associate, Lakshmikumaran & Sridharan Attorneys.<\/span><\/strong><\/p>\n

1.<\/a> Customs Appeal No. 54694 of 2023<\/p>\n

2.<\/a> Customs Appeal No. 54694 of 2023<\/p>\n

3.<\/a> Customs Appeal No. 54694 of 2023<\/p>\n

4.<\/a> Mandovi Pellets Ltd.<\/span> v. Collector of Customs<\/span>, 1987 SCC OnLine CEGAT 159<\/a>.<\/p>\n

5.<\/a> Customs Appeal No. 54694 of 2023<\/p>\n

6.<\/a> Customs Appeal No. 54694 of 2023<\/p>\n

7.<\/a> Customs Appeal No. 54694 of 2023<\/p>\n

8.<\/a> Customs Appeal No. 54694 of 2023<\/p>\n","protected":false},"excerpt":{"rendered":"

by Ratan Jain* and A. Rangarajan**<\/p>\n","protected":false},"author":8808,"featured_media":334347,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[20271,54388],"tags":[74762,74756,74763,59107,74765,46260,74757,74764,74759,74761,74755,52115,74760,38928,74758,74766],"class_list":["post-334292","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-experts_corner","category-lakshmikumaran-sridharan","tag-business-implications","tag-customs-duties","tag-customs-rules","tag-domestic-tariff-area","tag-duty-exemptions","tag-experts-corner","tag-export-regulations","tag-export-oriented-businesses","tag-goods-return-policy","tag-import-duties","tag-re-importation-benefit","tag-regulatory-framework","tag-sez-regulations","tag-special-economic-zone","tag-trade-compliance","tag-trade-laws"],"yoast_head":"\nRe-Importation Benefit Not Available for 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