As per case facts, the Petitioner, an SEZ developer, procured duty-exempt goods for authorized operations. After several extensions for utilization, the Petitioner sought permission to dispose of some unutilized or ...
No Acts & Articles mentioned in this case
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CWP-22284-2016
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
CWP-22284-2016
Date of Decision: September 24, 2025
M/s Quarkcity India (Pvt.) Ltd. ..... Petitioner
Versus
Union of India and others ..... Respondents
CORAM:- HON'BLE MRS. JUSTICE LISA GILL
HON'BLE MRS. JUSTICE MEENAKSHI I. MEHTA
Present: Mr. Vishal Gupta, Advocate for the petitioner.
Mr. Sourabh Goel, Advocate for the respondents.
****
LISA GILL, J.
1. Prayer in this writ petition reads as under:-
“i) writ in the nature of certiorari or any other writ, order or
direction for quashing the action of the respondents in levy of duty
of Rs.47 lacs upon the petitioner company inconsonance with the
minutes of meeting held on 22.5.2015 (Annexure P-18) and further
for quashing of the order dated 18.8.2015 (Annexure P-21),
whereby the petitioner has been asked to deposit the custom duty
amounting to Rs.6,59,700/- for the purpose of permission to
dispose of unutilized goods under Special Economic Zone Rules
2006, being illegal, arbitrary, unjust, against the settled principles of
law.
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ii) Further a writ in the nature of mandamus directing the
respondents to refund the amount of Rs.47,00,000/-, which has
been deposited by the petitioner under protest on account of custom
duties for seeking permission to dispose of unutilized goods under
SEZ Rules, which was deposited vide challan No.01/2016-17, dated
20.4.2016 and Rs.6,59,700/- deposited vide challan No.05/2015-16,
dated 29.7.2015 in the interest of justice.
iii) Or any other writ, order or direction which this Hon'ble Court
may deem fit, just and proper in the facts and circumstances of the
case may kindly be issued.
iv) Dispense with the filing of certified copies of Annexures and
permission to place photo copies of Annexures.
v) Dispense with issuance of advance notice to the respondents.
vi) Award the cost of the petition to the petitioner.”
2. Brief facts necessary for adjudication of the matter are that
petitioner claims to be a body incorporated under Companies Act, 1956,
engaged in the business of developing industrial and urban townships, other
infrastructural projects including development of First Operational Special
Economic Zone (SEZ) in Punjab that is approved for IT and ITES sector. It is
pleaded that petitioner was granted approval for setting up SEZ for an area of
13.75 hectares in plot No. A-40A, Focal Point, Industrial Area-VII Extension,
District Mohali vide notification dated 02.11.2006 issued by Ministry of
Commerce and Industry, Department of Commerce (Annexure P-1). This area
was subsequently reduced to 10.12 hectares.
3. Petitioner, it is stated, receives goods from Domestic Tariff Area
(for short – DTA) suppliers from all over the country. Notification dated
10.05.2008 was issued in exercise of powers conferred under Section 25(1) of
Customs Act, 1962 exempting goods specified in column (3) of table annexed
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CWP-22284-2016
and falling under Head of Second Schedule to Customs Tariff Act, 1975
specified in corresponding entry in column (2) of said table, when exported out
of India, from so much of the duty of customs leviable thereon under Second
Schedule as is in excess of the amount calculated at the rate specified in
corresponding entry in column (4) of table. This notification was then amended
vide subsequent notification dated 13.06.2008. It is pleaded that there was lack
of clarity about the scope and coverage of these entries and customs formations
had even sought to charge export duty on items such as forging of iron and steel
structuring and articles. Government of India, Ministry of Finance, Department
of Revenue, Tax Research Unit (SEZ Section), issued clarification that Second
Schedule of Customs Tariff Act was not aligned with Harmonized System of
Nomenclature (HSN) and in order to remove any ambiguity, coverage of these
entries were reproduced in the table. Communication dated 30.06.2008 was
issued by Government of India, Ministry of Commerce and Industry,
Department of Commerce (SEZ Section) with regard to applicability of export
duty on steel products supplied by units in DTA to SEZ. Issue regarding
imposition of custom duty on steel was statedly raised by petitioner with
respondent No. 3 vide communication in the year 2008 while requesting
movement of steel to be permitted into SEZ without payment of export duty.
Action of respondents regarding levy of custom duty on import of steel was
challenged by petitioner by way of CWP-18122-2008 which was admitted on
29.03.2010. Respondent by way of interim order was restrained from levying
export duty on movement of goods from Domestic Tariff Area to Special
Economic Zone subject to petitioner maintaining its accounts relating to goods
in question in accordance with provisions of law with rider that restraint order is
subject to final decision of writ petition and in case writ petition is dismissed,
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CWP-22284-2016
petitioner shall be liable to deposit requisite duties alongwith interest in
accordance with law. Said writ petition and its pendency is not an impediment in
adjudication of present matter.
4. Petitioner was granted permission for procurement of goods to
carry out authorised operations in SEZ at Mohali vide initial order dated
02.02.2007 for value of goods amounting to Rs. 32,40,81,567/-. This permission
was renewed and extended from time to time and ultimately till 19.09.2014. In
respect to request for further extension vide petitioner’s letter dated 11.09.2014,
it received reply from specified Officer to apply for extension under Rule 12(5)
of The Special Economic Zones Rules, 2006 (for short – ‘SEZ Rules’) and
sought information regarding complete list of goods procurement duty free in
respect of which extension is sought and list of material/goods out of above duty
free goods, which have become unfit for use. Such list of goods was submitted
by petitioner after segregating goods into three categories.
5. Petitioner vide letter dated 01.10.2014 (Annexure P-11) sought
extension for period of three years for utilization of goods under category A and
B and for permission to dispose of/destroy goods under category C. Vide
subsequent communication dated 31.10.2014 (Annexure P-12), petitioner stated
that goods under category C had been further divided into two categories i.e.
“C-A - These items don’t have saleable value and to be destroyed.
C-B - These items may have very small value depending upon in
case we are able to get a buyer.”
6. Petitioner sought permission to destroy the goods made under
category C-A and to hold the inventory of category C-B till it found a buyer for
the same. Petitioner was granted extension vide order dated 12.11.2014
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CWP-22284-2016
(Annexure P-14) till 31.03.2016 for utilization of goods mentioned in category A
and B of list attached with its communication dated 31.10.2014. Petitioner was,
however, called upon to refund the amount of benefit availed by it on goods
which had become damaged or unfit for use after such procurement with
reference to Rule 25 of SEZ Rules. Petitioner was again called upon vide letter
dated 26.11.2014 to refund the concession availed by it in terms of Rule 25 of
SEZ Rules.
7. Petitioner thereafter sought permission to dispose of
scrap/unutilized goods vide its communication dated 23.01.2015 while relying
on Rule 27 of SEZ Rules. Petitioner was afforded an opportunity to attend
meeting of Union Approval Committee (UAC) held under Chairmanship of
Development Commissioner Noida, SEZ Nodia. Duly authorized representative
of petitioner – Company attended the meeting so held on 22.05.2015. UAC
resolved on 22.05.2015 as under:-
“ The UAC heard the request of the SEZ Developer for
Extension/Destruction of their goods imported by them for their
authorized operations, which inter alia includes Boulder Stones.
That representative of the Customs vehemently opposed the request
of the SEZ Developer and asked for refund of applicable duties in
terms of Rule 25 of the SEZ Rules rather the request of the SEZ
Developer to destroy the goods in terms of Rule 27 (9) of SEZ
Rules 2006. The disposal of Boulder Stones (Travertine) be allowed
by Customs as per the policy in force for disposal of Boulder
Stones (Travertine) in DTA.
After due deliberations UAC directed the Developer to
refund the applicable duties on the left over goods in terms of Rule
25 of the SEZ Rules 2006.”
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8. Petitioner then approached Chartered Engineer for evaluation of
goods which were sought to be scrapped/destroyed. Certificate dated 27.07.2015
(Annexure P-19) was issued by Chartered Engineer and petitioner on this basis
applied for extension for use of left over stock for a period of one year.
Respondent No. 3 declined said request while stating that it has no power under
the Statute to grant the relief as sought. Petitioner still persisted and submitted
similar request again which was also rejected vide communication dated
26.10.2015. Sum of Rs.6,59,700/- was deposited by petitioner on 28.10.2015
under protest.
9. Petitioner was called upon vide letter dated 04.12.2015 to refund
the applicable duty on unutilized goods as per decision of UAC in its meeting
held on 22.05.2015. Petitioner again sought extension of time for utilization of
left over stock vide letter dated 15.02.2016 (Annexure P-25). Same was yet
again rejected on 18.02.2016 (Annexure P-26). Sum of Rs. 47 lakhs was
deposited by petitioner on 20.04.2016 as refund of custom duty on account of
goods which remained unutilized and for which extension had been denied,
again under protest. Petitioner vide letter dated 06.06.2016 asked respondents to
re-consider its case and sought copy of speaking order in this respect. This was
met with response dated 20.06.2016 of respondents that decision had already
been taken by UAC in its meeting held on 22.05.2015 and there is no question
of a separate order being passed now. Aggrieved therefrom, present writ petition
was filed in October, 2016. Same was admitted on 26.10.2016.
10. Respondents in their reply have controverted arguments as pleaded
by petitioners. It is submitted that in a situation like the present where the goods
had become defective and damaged etc. due to non-utilisation of same by the
unit or Developer, it would fall under ambit of Rule 25 of SEZ Rules. Once
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petitioner had failed to utilize the goods within the specified period and even the
extended period, action has been correctly taken by authorities. Reference is also
made to Rule 37 of SEZ Rules. It is stated that petitioner in the present case has:
“(i) Not been utilizing in spite of extensions given for the same
(ii) Never asked for disposal of the goods due to damage or being
defective or being defective during the course of use of the same in
terms of Rule 37(2) of the SEZ Rules, 2006.
(iii) In the requests for extensions nowhere it has been submitted
that the goods are defective or damaged. In fact, in the application
for extension dated 20.09.2013 for one year, a certificate of the
Chartered Engineer certifies the detail of unutilized goods and
when this extension was again going to lapse, a further extension
for 3 years was sought vide letter dated 08.09.2014. Vide all these
applications, the extensions were sought stating that the goods are
usable. It was only when the list of goods which are not fit for use
was furnished, the petitioner has declared the goods as expired from
the date mentioned in the last column of the list attached.”
11. Dismissal of writ petition was sought.
12. Learned counsel for petitioner vehemently argued that action of
respondents in levy of custom duty of Rs.47 lakhs pursuant to meeting dated
22.05.2015 and direction to deposit sum of Rs.6,59,700/- vide order dated
18.08.2015, is absolutely illegal and arbitrary. Despite certificate by the expert,
indicating unusability of certain goods, Custom Department opposed destruction
under Rule 27(9) of SEZ and insisted on refund of duties under Rule 25 of SEZ
without considering petitioner’s submission or even its pending request for
extension. It is submitted that it was due to economic slow down and other
commercial exigencies that certain goods remained unutilized and it was only to
avoid disruptions of SEZ operations that petitioner deposited amount in question
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CWP-22284-2016
under protest reserving the right to challenge it. Impugned actions, it was
submitted, are arbitrary, illegal and in breach of procedure established by the
statute and contrary to object of SEZ Policy which aims to facilitate industrial
development through exemptions and operational flexibility. Petitioner who has
acted in a bonafide manner and strictly in accordance with applicable provisions
should not be penalized for administrative lapses or non-application of mind by
respondents. It was urged that State cannot be permitted to retract from statutory
exemptions and benefits offered under SEZ Policy. Petitioner had acted in
furtherance of said permissions and assurances granted by respondents.
Therefore, any unilateral withdrawal or denial of benefit due to internal
administrative lapse runs contrary to principle of promissory estoppel and
legitimate expectations. It was, thus, prayed that this writ petition be allowed.
13. Learned counsel for respondents refuted the arguments as raised on
behalf of petitioner while submitting that amount in question has been correctly
demanded from petitioner. Averments in the reply to writ petition were reiterated
by learned counsel for respondents. Reference was made to Rule 25 and 37(1) of
SEZ Rules. It was submitted that petitioner had failed to utilize the goods in
spite of extensions given for the same and at the relevant time, petitioner had
never asked for disposal of goods or due to damage of goods being defective,
thus, said goods do not fall under the ambit of Rule 27(9) of SEZ Rules. Refund
from petitioner has been rightly claimed and it is correctly held liable to refund
the amount equal to benefit of exemptions, drawbacks, cess and concessions
availed by it under Rule 25 of SEZ Rules. Said amount so assessed has been
correctly deposited by it. Dismissal of writ petition is sought.
14. We heard learned counsel for parties at length and have carefully
perused the writ petition.
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CWP-22284-2016
15. Factual matrix as has been detailed in the foregoing paras is not in
dispute. At the outset, it is useful to refer to Rule 27 of SEZ Rules, which reads
as under:-
“27. Import and procurement. - (1) A Unit or Developer may
import or procure from the Domestic Tariff Area without payment
of duty, taxes or cess or procure from Domestic Tariff Area after
availing export entitlements or procure from other Units in the
same or other Special Economic Zone or from Export Oriented
Unit or Software Technology Park Unit or Electronic Hardware
Technology Park Unit or Bio-technology Park Unit [or warehouse],
all type of goods including capital goods (new or second hand), raw
materials, semi-finished goods (including semi-finished jewellery),
component, consumables, spares goods and materials for making
capital goods required for authorized operations except prohibited
items under the Import Trade Control (Harmonized System)
Classifications of Export and Import Items:
[Provided that exemptions from payment of duty, taxes or cess,
drawbacks and concessions on all types of goods and services,
required for setting up and maintenance of the factory building,
allowed to a Unit shall also be available to the contractors
appointed by such Unit and all the documents in such cases shall
bear the name of the Unit along with the contractor and these shall
be filed jointly in the name of the Unit and the contractor:
Provided further that the unit shall be responsible and liable for
proper utilization of such goods and services in all cases.]
(2) In case of any doubt as to whether any goods or services are
required by a Unit or Developer for authorized operations or not, it
shall be decided by the Development Commissioner.
(3) The import of duty free material for setting up educational
institutions, hospitals, hotels, residential and/or business complex,
leisure and entertainment facilities or any other facilities in the non-
processing area of the Special Economic Zone shall be as approved
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CWP-22284-2016
by the Board and import of no duty free material shall be permitted
for operation and maintenance of such facilities:
Provided further that any goods for the personal use of, or
consumption by officials, workmen, staff, owners or any other
person in relation to a Unit or Developer, shall not be eligible for
exemptions, drawbacks and concessions or any other benefit in
accordance with the provisions of sections 7 or 26.
(4) A Unit or Developer may also source capital goods, without
payment of duty, taxes or cess from a domestic or foreign leasing
company, under a valid lease agreement and in such cases the Unit
or Developer and the domestic or foreign leasing company shall
jointly file documents for import or domestic procurement, as the
case may be.
(5) A Unit may import or procure from Domestic Tariff Area, all
types of goods and services, without payment of duty, taxes of cess
for creating a central facility for use by Units in Special Economic
Zone and where such facility is created for software development,
the same may also be accessed by software exporters of Domestic
Tariff Area.
(6) A gem and jewellery Unit may also source on outright purchase
basis or loan basis, gold or silver or platinum through the
Nominated Agencies and where such sourcing is on loan basis, the
same shall be subjected to the conditions applicable to such
transactions under the provisions of the Foreign Trade Policy in
force:
Provided that the conditions applicable to loan transaction shall not
apply where the Unit converts such loan into outright purchase by
paying the outstanding loan amount and interest within the period
for export prescribed under the Foreign Trade Policy applicable to
the loan transaction.
(7) The goods already imported or shipped or arrived before the
issue of Letter of Approval shall be eligible for duty free clearance
provided customs duty has not been paid and goods have not been
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cleared from Customs or cleared and placed in the Bonded
Warehouses.
(8) No import or export of rough diamonds shall be permitted
unless the shipment parcel is accompanied by Kimberley Process
Certificate issued by the Development Commissioner.
(9) Where goods or parts thereof, imported or procured from
Domestic Tariff Area are found to be defective or otherwise unfit
for use or which have been damaged or become defective after such
import or procurement, may be sent outside the Special Economic
Zone without payment of duty for repairs or replacement, to the
supplier or his authorized dealer or be destroyed:
Provided that where overseas supplier or the Domestic Tariff Area
supplier of goods does not insist for re-export or for supply back to
the Domestic Tariff Area of goods, the same shall not be insisted
upon and such goods shall be destroyed with the permission of the
Specified Officer:
Provided further that the goods which are sent outside the Special
Economic Zone for repairs are returned to the Special Economic
Zone, within 180 days from the date of removal from the Special
Economic Zone, under intimation to the specified officer. In case
goods are sent out for replacement then on replaced goods, no Duty
Entitlement Passbook Scheme, duty drawback or other export
incentives shall be claimed for this purpose.
Provided further that destruction shall not be permitted in case of
precious and semi-precious stones and precious metals:
Provided also that in case of return of goods procured from the
Domestic Tariff Area, the same shall be allowed on refund of the
export entitlement which have been received or availed or claimed
by the Domestic Tariff Area supplier or the Unit or the Developer,
as the case may be.
(10) The assessment of imports and domestic procurement by a
Developer or a Unit, shall be on the basis of self-declaration and
shall not be subjected to routine examination except in case of
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procurement from the Domestic Tariff Area under the claim of
export entitlements:
Provided that where based on a prior intelligence the examination
becomes necessary the same shall be carried out by the Authorized
Officer(s) after obtaining written permission from the Development
Commissioner or the Specified Officer.
(11) If examination of any import or export of goods or goods
procured from the Domestic Tariff Area is required, the same shall
be carried out at the Special Economic Zone gate or if the same is
not possible, in an area so notified by the Specified Officer for this
purpose, and no examination shall be carried out in the premises of
the Unit unless requested by the unit and specifically permitted in
writing by the Specified Officer.”
16. Rule 25 and Rule 37 of SEZ Rules read as under:-
“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:
Provided that if there is a failure to achieve positive net foreign
exchange earning, by a Unit, such entrepreneur shall be liable for
penal action under the provisions of Foreign Trade (Development
and Regulation) Act, 1992 and the rules made thereunder.”
“37. Duration of goods or services in a Special Economic Zone.
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(1) The goods admitted to a Special Economic Zone shall be
utilized, exported or disposed off in accordance with the Act
and rules within the validity period of the Letter of Approval
issued to the Unit or in the case of a Developer within a period
of one year or such extended period as may be allowed by the
Specific Officer under sub-rule (5) of rule 12.
(2) On failure to utilize or dispose off goods as provided such
goods shall be liable for payment of duty as if the goods have
been removed to Domestic Tariff Area on the date of expiry of
the said validity period under sub-rule (1).”
17. It is apparent that fields of operation of Rule 27(9) and Rule 25 of
SEZ Rules are different. Rule 27 (9) of SEZ Rules provides that goods and parts
thereof imported or procured from Domestic Tariff Area [Domestic Tariff Area
as per Section 2(i) means the whole of India (including territorial waters and
continental shelf) but does not include area of Special Economic Zones] when
found to be defective or otherwise unfit for use or which may have been
damaged or become defective after such import or procurement may be sent
outside SEZ without payment of duty for repairs and replacement to the supplier
or its authorized dealers or be destroyed.
18. It is apparent that goods referred to in this provision would be those
which when received in SEZ are found to be defective or otherwise found to be
unfit and those which may have damaged or become defective after such import
or procurement i.e. during use in SEZ. There is merit in the argument raised by
learned counsel for respondents that in the present case, what is involved are
goods which have become defective or damaged due to their non-utilisation by
Unit or Developer within the stipulated period, thus, such goods would fall
within the ambit of Rule 25 of SEZ Rules. It is clearly provided in Rule 25 that
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CWP-22284-2016
in the event of Entrepreneur or Developer not utilizing the goods or services on
which exemptions, drawbacks, cess and concession have been availed for
authorized operations, it shall refund the amount equal thereto without prejudice
to any other action under relevant provisions of Statutes as are mentioned
therein. Rule 37 of SEZ Rules clearly provides that goods admitted to SEZ shall
be utilized, exported or disposed of in accordance with the Act and Rules within
the validity period of Letter of Approval issued to such Unit or in case of
development within one year or such extended period as may be allowed under
Rule 12(5) of SEZ Rules and upon failure to utilize or dispose of goods as
above, it shall be liable to pay duty as if the goods have been removed to
Domestic Tariff Area on expiry of validity period under sub Rule 1.
19. In the present case, petitioner – Company on 20.09.2013 had sought
permission for extension of unutilized goods under Rule 12(5) of SEZ Rules.
Extension was granted to petitioner for utilization of these goods upto
19.09.2014. Petitioner again submitted a request on 08.09.2014, for an extension
of three years. It is upon query of respondent (Specified Officer) that goods in
question were categorized by petitioner into three categories and thereafter the
third category was further divided into another two sub-categories. Petitioner
was granted extension till 31.03.2016 for utilization of goods mentioned in
category A and B and insofar as the third category is concerned petitioner was
asked to refund the amount of benefit availed by it on such goods which had
become damaged and unfit for use after such procurement with reference to
Rule 25 of SEZ Rules. Communication 26.11.2025 is crystal clear and categoric.
Relevant portion thereof reads as under:
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“ In this regard it was informed vide this office letter of even
C. No. dated 05.11.2014 that since you have not utilized the goods
for the authorized operations, the provisions of Rule 25 of the said
Rules are applicable.
In the letter under reference you have only given the reasons as to
how the goods have become scrap, but no justification for non
applicability of Rule 25 of the SEZ Rules, 2006 has been given.
Further, these goods were procured more than a year ago and in
some cases more than 3 to 4 years and vide your letter dated
08.09.2014, you had sought extension for use of goods under Rule
12 (5) and Rule 37 of the Rules, taking these goods as useable and
with the request for extension for their use for further 3 years. It
was only when office asked you to list out the material which is not
fit for use, you had started requesting for clearance under Rule 27
(9) of the Rules.
From the above it is clear that you had not utilised the goods and
hence are required to refund the concessions availed as per the
provision of Rule 25 of the Rules.”
20. In the given factual matrix, learned counsel for petitioner was
unable to point out any illegality or infirmity in the impugned action. Argument
raised by learned counsel for petitioner that its application for further extension
was still pending, therefore, respondent has incorrectly and arbitrarily sought
refund in question from petitioner is devoid of any merit. This is so for the
reason that respondent had admittedly taken a decision in this respect at an
earlier point of time, therefore, submission of fresh application/representation by
petitioner in this scenario cannot be of any avail whatsoever to petitioner.
21. No other argument was addressed.
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22. Keeping in view the facts and circumstances as above, we do not
find any ground whatsoever which calls for interference in this matter in
exercise of jurisdiction under Article 226 of Constitution of India.
23. Writ petition is, accordingly, dismissed.
(LISA GILL)
JUDGE
(MEENAKSHI I. MEHTA)
September 24, 2025 JUDGE
Rts
Whether speaking/reasoned: Yes/No
Whether reportable: Yes/No
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