The Andhra Pradesh High Court has ruled that the Customs authorities (Directorate General of Revenue Intelligence (DRI)) have no power or jurisdiction to inspect or seize goods in respect of units situated in the Special Economic Zone (SEZ) area for a violation under the Customs Act, 1962 committed prior to 2016.
The Bench, consisting of Justices C. Praveen Kumar and V. Sujatha, held that export goods, in respect of the SEZ unit, cannot be brought within the purview of the Customs authority merely because the said goods are taken out from the SEZ area to be transported to a Port or to a storage unit before being exported. The Court added that storage of goods outside the SEZ area cannot automatically confer power on the DRI Officers to initiate proceedings under the Customs Act.
The petitioner M/s Divine Chemtee Ltd is registered as a unit of Special Economic Zone (SEZ) with the Visakhapatnam Special Economic Zone (VSEZ).
The petitioner imported certain consignments and stored the material in a bonded warehouse. The petitioner undertook certain operations on its imported consignments in order to export it. The petitioner thereafter filed a shipping bill with VSEZ for export of the consignment manufactured by it.
The officers of the Directorate General of Revenue Intelligence (DRI) visited the bonded warehouse and drew samples of the said export material. The DRI officials held that the petitioner was attempting to export consignments without undertaking any process and without bringing the imported material to its factory premises in SEZ. The DRI held that no manufacturing activity was undertaken by the petitioner and the same constituted a violation of the Customs Act, 1962.
Subsequently, the officers of DRI detained the said export material under Section 110 of the Customs Act, 1962, which was subsequently converted into a seizure on the ground that the value of the imported consignment was grossly undervalued.
The petitioner made a representation to DRI against the illegal seizure of the export goods and requested for the release of the same on the ground that they were meant for export. The DRI allowed release of the said goods on production of a bond.
Thereafter, a show cause notice was issued to the petitioner proposing to levy penalty under Section 112(a) and Section 114 of the Customs Act, 1962. Accordingly, a consequential order was passed by the revenue authorities against the petitioner. The petitioner filed a writ petition before the Andhra Pradesh High Court against this order.
The petitioner submitted before the High Court that the DRI had no jurisdiction to initiate any action against a unit situated in SEZ as the offences under the Customs Act are not yet notified to be investigated by the DRI. The petitioner averred that offences in the SEZ unit can be dealt with only by the Development Commissioner under the Special Economic Zones Act, 2005 (SEZ Act). Hence, the petitioner contended that the said show cause notice was bad in law.
The DRI averred that no manufacturing activity was undertaken by the petitioner and the VSEZ was utilized for fraudulent purposes. The DRI added that the SEZ unit was misused to pursue fraudulent intentions, causing irreparable damage to the reputation of India. The DRI submitted that the petitioner was defeating the purpose for which the SEZ Scheme was brought into force, and thus an action was initiated by the DRI under the Customs Act, 1962 in the interest of the nation.
The revenue authorities contended that since all the operations were undertaken by the petitioner outside the SEZ area hence, the Customs Authorities had the jurisdiction to issue the show cause notice. The revenue authorities also challenged the maintainability of the Writ Petition on the ground that the petitioner has an alternative remedy of appeal.
The High Court ruled that in view of the decision of the Supreme Court in the case of Radha Krishan Industries versus State of Himachal Pradesh and others (2021), when the authority issuing a show cause notice has no jurisdiction to issue the same, a Writ Petition can be entertained by the High Court even though an alternate remedy is available to the petitioner.
The Court observed that due to the non-obstinate clause contained in Section 51 of the Customs Act, 1962, the SEZ Act would prevail over other enactments to the extent of the special provisions contained in the SEZ Act. Therefore, the Court ruled that the SEZ Act would prevail over the Customs Act, 1962 in all aspects.
The Court added that in view of the provisions of Section 53 of the Customs Act, the Customs authorities (DRI officials) have no power or jurisdiction to inspect or seize goods in respect of units situated in the SEZ area. The Court held that only the Officers empowered under Section 22 of the SEZ Act have the power to investigate any offence committed in the SEZ unit. The Court thus held that the Customs Act is not applicable in respect of the units situated in the SEZ unit.
The Court observed that before the introduction of SEZ Act, 2005, the working of SEZ was regulated by the provisions contained in Chapter XA of the Customs Act, 1962. The Court noted that the Central Government by its Notification dated 14.03.2006 declared that the provisions contained in Chapter XA of the Customs Act, 1962 shall not apply to the SEZ.
The Court added that thereafter the Central Government, in exercise of its powers under Section 21 and Section 22 of the Customs Act, issued a Notification dated 05.08.2016, authorizing the Additional Director General, Directorate of Revenue Intelligence (DRI) to investigate into the offences under the Customs Act that are committed in the SEZ. The Court held that the said notification could not be invoked as the alleged violation was committed prior to 2016.
The Court added that the said goods that were imported from U.S.A were not allegedly subjected to any physical process. However, the Court noted that the petitioner had the licence to import and trade in the said goods and, therefore, processing of the imported material was not mandatory. The Court held that the said goods cannot be brought within the purview of the Customs authority merely because they were taken out from the SEZ area to be transported to a Port or to a storage unit before being exported.
The Court ruled that the said goods, which were imported under a licence, cannot be brought within the purview of DRI officials under the Customs Act on the ground that they were removed from the SEZ area or that they were stored in a warehouse for the purpose of export. The Court added that only officials under the SEZ Act would have the jurisdiction to initiate the proceedings.
The Court, therefore, held that the DRI officials had no jurisdiction to issue the said show cause notice.
The Court thus allowed the writ petition, quashing the show cause notice and the consequential order passed by the revenue authorities against the petitioner.
Case Title: M/s Divine Chemtee Ltd and Anr. versus Principal Commissioner of Customs and Ors.
Dated: 05.05.2022 (Andhra Pradesh)
Counsel for the Petitioner: Y Sreenivasa Reddy
Counsel for the Respondent: Suresh Kumar Routhu