The Bombay High Court has ruled that import of finished jewellery for the purpose of melting and remaking of fresh pieces of jewellery in a Special Economic Zone (SEZ), is an authorised operation. Therefore, the Court held that there is no prohibition on import of finished jewellery for remaking, without payment of Customs Duty, in terms of Rule 27(1) of the Special Economic Zones Rules, 2006 (SEZ Rules).
In a batch of writ petitions filed before the Bombay High Court, challenging the levy of Customs Duty along with interest and penalty under the Customs Act, 1962, the bench of Justices K.R. Shriram and A.S. Doctor were dealing with the issue as to whether the petitioners were permitted to import new/unused jewellery for remaking after melting.
The petitioner- M/s. Renaissance Global Limited, is engaged in the manufacture and export of gold, platinum and silver jewellery. Its unit is located within the Santacruz Electronic Export Processing Zone (SEEPZ), a notified export processing zone covered by the Special Economic Zone Act, 2005 (SEZ Act).
The petitioner imported a consignment of gold and silver jewellery for remaking, which was detained by the Assistant Commissioner of Customs, Air Intelligence Unit. The Assistant Commissioner issued a Show Cause Notice, proposing to confiscate the consignment under Sections 111(d) and 111 (m) under the Customs Act, 1962 and impose penalty. The Show Cause Notice also proposed to levy Customs Duty under Section 28 of the Customs Act along with interest.
The respondent no. 2/ Commissioner of Customs passed an order confirming the allegations made against the petitioner in the Show Cause Notice, levying Customs Duty along with interest, penalty and redemption fine on the petitioner.
Section 111 of the Customs Act provides for confiscation of goods which are imported or attempted to be imported contrary to any prohibition under the Customs Act or any other law for the time being in force.
The petitioner- M/s. Renaissance Global Limited, filed a writ petition before the Bombay High Court, seeking to quash the show cause notices and set aside the order of the Commissioner of Customs. The petitioner submitted before the High Court that its unit was governed by the provisions of the SEZ Act and not the Customs Act, and that respondent no.3/ Assistant Commissioner of Customs had no jurisdiction to issue the show cause notice.
The petitioner averred that it manufactures branded jewellery for international buyers and exports the same. It added that when some of the jewellery exported by the petitioner remains unsold, the said foreign buyers resell the said jewellery back to the petitioner who reimports the said jewellery on an outright purchase basis. The petitioner contended that the jewellery so imported is subsequently melted, and the precious metals derived from melting are used for the manufacture of fresh pieces of jewellery.
The revenue department argued that the petitioner was not entitled for any exemption from Customs Duty on the import of finished jewellery for remaking under the SEZ Rules; therefore, Customs Duty was recoverable from the petitioner under Section 28 of the Customs Act along with interest. It added that since the petitioner had reimported unused finished jewellery, the consignment was imported in violation of paragraph 4.A21 of the Foreign Trade Policy, 2002, which allows import of raw material only in the form of metal scrap / used jewellery. Thus, the department contended that Section 111(d) of the Customs Act was correctly invoked by the department, since the said consignment was imported contrary to the prohibition imposed under the Foreign Trade Policy.
The department added that in view of the alternate and efficacious remedy of statutory appeal available to the petitioner under the provisions of the Customs Act, the High Court must not exercise its extra-ordinary Writ Jurisdiction under Article 226 of the Constitution of India.
While holding that the availability of an alternate remedy does not prohibit the High Court from entertaining a writ petition, the Court noted that there were divergent views taken by two Government of India authorities, i.e., the Development Commissioner under the SEZ Act and the Customs Authorities. While the Development Commissioner under the SEZ Act submitted that import of new/unused jewellery for remaking by petitioner was permissible under the SEZ Act, the Customs Authorities contended that the petitioner was not entitled for any exemption from Customs Duty on the import of finished jewellery for remaking under the SEZ Rules
The Court observed that Section 11 of the Customs Act provides power to the Central Government to prohibit importation or exportation of goods. While noting that the prohibition under the Customs Act is imposed by way of notifications issued under Section 11 of the Customs Act, the Court ruled that there is no notification or prohibition issued under Section 11 prohibiting the import of finished jewellery into an SEZ for the purpose of remaking.
The bench further noted that in terms of Rule 27(1) of the Special Economic Zones Rules, 2006 (SEZ Rules), an SEZ unit is entitled to import without payment of Customs Duty all goods which are required for its authorised operations, except goods which have been specifically prohibited under the "Import Trade Control (Harmonized System) Classifications of Export and Import Items". Also, under Rule 27(2) of the SEZ Rules, only the Development Commissioner under the SEZ Act can decide whether any goods or services as required by an SEZ unit or developer are for authorised operations or not.
The Court ruled that only those goods which are prohibited under a notification issued under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act) will be construed as being "prohibited" for the purpose of the SEZ Act.
Holding that the revenue department had failed to show any such notification issued under Section 5 of the FTDR which prohibits import of finished jewellery, the Court held that the finished jewellery imported by petitioner without payment of Customs Duty was a permissible import in terms of Rule 27(1) of the SEZ Rules.
"It is clear from Rule 29(5) of the Rules that the term 'Goods' includes jewellery and hence qualifies for import for authorized activity of manufacture of jewellery under Rules 27 (1) of the SEZ Rules", the Court said.
While noting that under the SEZ Rules, the term manufacture means and includes remaking of jewellery, the Court referred to the definition of raw material under Rule 2 (u) of the SEZ Rules. It observed that under Rule 2 (u), the term raw material also means any material or goods which are required for the manufacturing process, irrespective of whether they have actually been previously manufactured/processed or are still in a raw or natural state.
Thus, it concluded that in view of Rule 2 (u) of the SEZ Rules, read with Rule 27 (1) of the SEZ Rules, there is no restriction on the import of jewellery for authorized operations. It added that even previously manufactured items, including finished jewellery earlier exported, can be imported into an SEZ as "raw material".
Therefore, the bench ruled that import of finished jewellery for the purpose of remaking in an SEZ is a permitted / authorised operation and that there is no prohibition whatsoever on such an activity.
While holding that Section 111(d) of the Customs Act has been incorrectly invoked by the Customs Authorities, the Court added that Chapter VII of the Foreign Trade Policy, 2002, which was prevalent at that point in time, clearly provided that the Foreign Trade Policy was not applicable to the imports made into the SEZ.
Adding that Section 111(m) of the Customs Act deals with intentional misdeclaration and mismatch between what is declared on the Bill of Entry and what is actually imported by the importer, the Court held that no misdeclaration was made by the petitioner. Thus, Section 111(m) of the Customs Act was not attracted, the Court ruled.
Referring to Section 26 of the SEZ Act, the Court noted that every Developer and entrepreneur is entitled to exemption from Customs Duty, under the Customs Act, the Customs Tariff Act, or under any other law for the time being in force, on goods imported into or services provided in a Special Economic Zone/ Unit, to carry on the authorised operations.
The Court added that Customs Duty under Section 28 of the Customs Act can only be imposed on imports into SEZ if the exemption under Section 26 of the SEZ Act is withdrawn. Holding that the show causes notices failed to show withdrawal of such exemption, the Court ruled that the blanket exemption available to the petitioner in terms of Section 26 of the SEZ Act cannot be disturbed. Thus, it held that Customs Duty under Section 28 of the Customs Act cannot be demanded from the petitioner.
The Court thus allowed the writ petition, quashed the show cause notices and set aside the order passed by the Commissioner of Customs. The bench directed release of the consignments imported by the petitioner.
Case Title: M/s. Renaissance Global Limited versus Union of India & Ors. (Writ Petition No.2003 of 2009)
Dated: 18.11.2022 (Bombay High Court)
Counsel for the Petitioners: Mr. Vikram Nankani, Senior Advocate a/w. Mr. Prithwiraj Choudhuri, Mr. Malcolm Siganporia, Mr. Dhiren Durante and Mr. Sahil Namavati i/b. Lexicon Law Partners
Counsel for the Respondent: Mr. Vijay H. Kantharia a/w. Mr. Jitendra B. Mishra and Mr. Dhananjay B. Deshmukh for Custom Authorities; Mr. Advait M. Sethna a/w. Mr. Ashutosh Misra, Mr. Sandeep Raman and Mr. Rangan Majumdar i/b. Mr. A.A. Ansari for Union of India and SEEPZ