Andhra Pradesh High Court - Amravati
Tuf Mettallurgical Private Limited vs Union Of India on 18 September, 2025
Author: R. Raghunandan Rao
Bench: R. Raghunandan Rao
APHC010295332024 Bench
IN THE HIGH COURT OF ANDHRA PRADESH
Sr.No:-1
AT AMARAVATI [3446]
WRIT PETITION NO: 15528 of 2024
M/s. TUF Metallurgical Private Limited ...Petitioner
Vs.
Union of India and others ...Respondents
**********
Advocate for Petitioner : Mr. Karan Talwar Advocates for Respondents : Mr. Suresh Kumar Routhu, Sr. Panel Counsel,Mr. Josyula Bhaskara Rao, Sr. Panel Counsel for Central Government CORAM : THE CHIEF JUSTICE DHIRAJ SINGH THAKUR SRI JUSTICE R. RAGHUNANDAN RAO DATE : 18.09.2025 Per DHIRAJ SINGH THAKUR, CJ:
The petitioner, M/s. TUF Metallurgical Private Limited, is a company, whichis engaged in the business of manufacturing Low Carbon Ferro Chrome (LCFC) falling under „HSN Code - 7202 4900‟ from its unit which is located within the Andhra Pradesh Special Economic Zone (in short, „APSEZ‟). The entire production of LCFC is stated to be intended for export outside India.
The primary raw material required for the manufacture of LCFC isChrome Concentrate which falls under „HSN Code - 2610 0040‟, which the 2 HCJ & RRRJ W.P.No.15528 of 2024 petitioner procures from a mine located in Orissa, which is a part of the Domestic Tariff Area (D.T.A.) of India.
2. The petitioner claims to have made a request to the Development Commissioner, APSEZ at Visakhapatnam/respondent No.3, to procure Chrome Concentrate from the Domestic Tariff Area without payment of the prescribed export duty. The said request was rejected vide the communication, dated 26.04.2024, by placing reliance upon the 5th proviso to sub-rule (1) of Rule 27 of the Special Economic Zones Rules, 2006 (for short, "the Rules of 2006").
3. In the present petition, the petitioner challenges the vires of the 5thproviso to sub-rule (1) of Rule 27 of the Special Economic Zones Rules, 2006, as also the decision, dated 26.04.2024, as being ultra vires the Special Economic Zones Act, 2005 (for short, "the SEZ Act of 2005").
4. The Special Economic Zones Act, 2005, was enacted primarily for promoting exports through an expeditious single window approval mechanism and to make available goods and services free of taxes and duties supported by integrated infrastructure for such export production. It was found that while there were incentives provided, it did not attract Foreign and Direct Investments and it was only with a view to provide a suitable policy framework with minimum regulatory regime and a single window clearance mechanism that the enactment was envisaged and came into force. 3
HCJ & RRRJ W.P.No.15528 of 2024
5. With a view to understand the controversy in its correct perspective it becomes necessary to briefly refer to some of the provisions of the Special Economic Zones Act, 2005, and the Rules framed therein -
Section 2(m) of the SEZ Act, 2005, defines „export‟ to mean -
"(i) taking goods, or providing services, out of India, from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise; or
(ii) supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer; or
(iii) supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone;"
Section 2(j) of the SEZ Act, 2005, defines "entrepreneur" to mean a person who has been granted a letter of approval by the Development Commissioner under sub-section (9) of section 15;
Section 2(o) of the SEZ Act, 2005, defines "import" as under:
"(i) bringing goods or receiving services, in a Special Economic Zone, by a Unit or Developer from a place outside India by land, sea or air or by any other mode, whether physical or otherwise; or
(ii) receiving goods, or services, by Unit or Developer from another Unit or Developer of the same Special Economic Zone or a different Special Economic Zone;"
Section 2(za) of the SEZ Act, 2005, defines "Special Economic Zone" to mean each Special Economic Zone notified under the proviso to sub-section 4 HCJ & RRRJ W.P.No.15528 of 2024 (4) of section 3 and sub-section (1) of section 4 (including Free Trade and Warehousing Zone) and includes an existing Special Economic Zone;
Section 2(zc) of the SEZ Act, 2005, defines "Unit" to mean a Unit set up by an entrepreneur in a Special Economic Zone and includes an existing Unit, an Offshore Banking Unit and a Unit in an International Financial Services Centre, whether established before or after commencement of the Act;
Section 26 falling under Chapter-VI of the SEZ Act, 2005, envisages exemptions, drawbacks and concessions to every developer and entrepreneur;
Section 26(a) of the SEZ Act, 2005, envisages exemptions from any duty of customs, under the Customs Act, 1962 (for short, "the Act of 1962") or the Custom Tariff Act, 1975 or any other law for the time being in force, on goods imported into, or service provided in, a Special Economic Zone or a Unit, to carry on the authorized operations by the Developer or entrepreneur;
Section 26(b) of the SEZ Act, 2005, envisages exemptions from any duty of customs on goods exported from, or services provided, from a Special Economic Zone or from a Unit, to any place outside India;
Section 26(c) of the SEZ Act, 2005, envisages exemption from any duty of excise, under the Central Excise Act, 1944, or the Central Excise Tariff Act, 1985, on goods brought from Tariff Economic Zone to a Special Economic 5 HCJ & RRRJ W.P.No.15528 of 2024 Zone or Unit, to carry on the authorized operations by the Developer or the entrepreneur;
Section 30 of the SEZ Act, 2005, provides thus:
"Domestic Clearance by Units -
Subject to the conditions specified in the rules made by the Central Government in this behalf:-
(a) any goods removed from a Special Economic Zone to the Domestic Tariff Area shall be chargeable to duties of customs including antidumping, countervailing and safeguard duties under the Customs Tariff Act, 1975, where applicable, as leviable on such goods when imported; and
(b) the rate of duty and tariff valuation, if any, applicable to goods removed from a Special Economic Zone shall be at the rate and tariff valuation in force as on the date of such removal, and where such date is not ascertainable, on the date of payment of duty."
Section 53 of the SEZ Act, 2005, inter alia envisages that a Special Economic Zone, from the appointed day, shall be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations.
6. In exercise of the powers conferred by Section 55 of the SEZ Act, 2005, the Central Government framed the Special Economic Zones Rules, 2006.
Rule 27 of the said Rules of 2006, deals with import and procurement by a Unit or Developer and envisages that it may import or procure from the 6 HCJ & RRRJ W.P.No.15528 of 2024 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, all types of goods, including capital goods, raw materials, semi-finished goods component, consumables for making capital goods required for authorized operations except those which are prohibited under the Import Trade Control (Harmonized System) Classifications of Export and Import Items.
7. The 5th proviso to sub-rule (1) of Rule 27 of the Special Economic Zones Rules, 2006, which is under challenge in the present petition envisages thus:
"Provided also that supplies from Domestic Tariff Area to Special Economic Zones shall attract export duty, in case export duty is leviable on items attracting export duty."
The case of the petitioner is that the impugned proviso to Rule 27(1) of the Rules of 2006 lacks statutory backing under the Special Economic Zones Act, 2005, or for that matter, the Customs Act, 1962.
8. Section 12(1) of the Customs Act, 1962, is the charging section for customs duty and provides that duty of customs shall be levied on goods imported into or exported from India at rates specified under the Customs Tariff Act, 1975, of India or any other law for the time being in force. 7
HCJ & RRRJ W.P.No.15528 of 2024 Section 2(18) of the Act, 1962, defines "export" with its grammatical variations and cognate expressions as taking out of India to a place outside India.
Section 2(27) of the Act, 1962, defines "India" as „including the territorial water zone‟.
9. In the backdrop of the aforementioned legal provisions, learned counsel for the petitioner would submit that while Section 2(m)(ii) of the Act, 2005, deems a supply made from Domestic Tariff Area to Special Economic Zone as „Export‟, the same is made a legal fiction for the purposes of Special Economic Zones Act, 2005, and does not create a charge for export duty under the Act.
10. It is urged that there was no charging provision for levy of export duty on supplies made from Domestic Tariff Area to Special Economic Zone unlike Section 30 which specifically envisages levy of customs duty on movement of goods from Special Economic Zone to Domestic Tariff Area and further that while the erstwhile Section 76F(a) of the Customs Act, 1962, specifically envisaged levy of export duty on supplies from Domestic Tariff Area to Special Economic Zone, the same was consciously made inoperative by the Legislature vide Section 52(1) of the Special Economic Zones Act, 2005, and further that even under the Customs Act, 1962, the omission of Chapter XA containing Section 76F reflected the legislative intent to not 8 HCJ & RRRJ W.P.No.15528 of 2024 impose a levy on the supply of goods from Domestic Tariff Area to a Unit in the Special Economic Zone.
11. Learned counsel for the respondents, on the other hand, would place reliance upon Section 53(1) of the Special Economic Zones Act, 2005, to urge that a „Special Economic Zone‟ is to be construed as located „outside the customs territory of India‟ for authorized operations and therefore any supplies made from Units in a Domestic Tariff Area to a Unit in Special Economic Zone would attract customs duty, on the same analogy, as a clearance from a Special Economic Zone to Domestic Tariff Area is treated as an import which attracts import duty in terms of Section 30 of the Act, 2005, r/w Rule 47 of the Rules, 2006.
12. This is an argument which needs to be rejected at the very outset inasmuch as similar argument also came to be considered by a Division Bench of this Court in Tirupati Udyog Ltd. v. Union of India,1 wherein it was held as under:
"25. Under Section 53(1) of the SEZ Act a Special Economic Zone shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purpose of undertaking authorized operations. Section 53(1) of the SEZ Act creates a legal fiction but the legal fiction is limited in its scope. ...A legal fiction must be limited to the purposes for which it has been created and cannot be extended beyond its legitimate field. It is only for the limited purpose of undertaking authorized operations, i.e., operations which the Central Government may authorise to be undertaken by a developer in a Special Economic Zone, is the 1 2010 SCC OnLine AP 591 9 HCJ & RRRJ W.P.No.15528 of 2024 Special Economic Zone to be deemed as a territory outside the customs territory of India and not for the purpose of levy of customs duty."
We are also informed that an SLP preferred against the said judgment and order was dismissed.
13. Article 265 of the Constitution of India envisages that no tax shall be levied or collected except by the authority of law.
14. The Apex Court in CIT v. MCdowell and Co. Ltd., 2 held that "tax", "duty", "cess" or "fee" denote various kinds of imposts by State in its power of taxation, depending on the purpose for which they are levied. It was further held that "law" in the context of Article 265 meant an Act of legislature and not an executive order or Rule without express statutory authority. The Apex Court held:
"21. "Tax", "duty", "cess" or "fee" constituting a class denotes to various kinds of imposts by State in its sovereign power of taxation to raise revenue for the State. Within the expression of each specie each expression denotes different kind of impost depending on the purpose for which they are levied. This power can be exercised in any of its manifestation only under any law authorising levy and collection of tax as envisaged under Article 265 which uses only the expression that no "tax" shall be levied and collected except authorised by law. It in its elementary meaning conveys that to support a tax legislative action is essential, it cannot be levied and collected in the absence of any legislative sanction by exercise of executive power of State under Article 73 by the Union or Article 162 by the State.2
(2009) 10 SCC 755 10 HCJ & RRRJ W.P.No.15528 of 2024
22. Under Article 366(28) "Taxation" has been defined to include the imposition of any tax or impost whether general or local or special and tax shall be construed accordingly. "Impost" means compulsory levy. The well-known and well-settled characteristic of "tax" in its wider sense includes all imposts. Imposts in the context have following characteristics:
(i) The power to tax is an incident of sovereignty.
(ii) "Law" in the context of Article 265 means an Act of legislature and cannot comprise an executive order or rule without express statutory authority.
(iii) The term "tax" under Article 265 read with Article 366(28) includes imposts of every kind viz. tax, duty, cess or fees.
(iv) As an incident of sovereignty and in the nature of compulsory exaction, a liability founded on principle of contract cannot be a "tax" in its technical sense as an impost, general, local or special."
15. Equally settled is the principle that the power of a delegate to levy fee, ought to flow from the express authority of law as held in Ahmedabad Urban Development Authority vs. Sharadkumar Jayantikumar Pasawalla,3 wherein it was held:
"7. ...in a fiscal matter it will not be proper to hold that even in the absence of express provision, a delegated authority can impose tax or fee. In our view, such power of imposition of tax and/or fee by delegated authority must be very specific and there is no scope of implied authority for imposition of such tax or fee. It appears to us that the delegated authority must act strictly within the parameters of the authority delegated to it under Act and it will not be proper to bring the theory of implied intent or the concept of incidental and ancillary power in the matter of exercise of fiscal power. ..."3
(1992) 3 SCC 285 11 HCJ & RRRJ W.P.No.15528 of 2024
16. In the backdrop of the aforementioned settled principles of law, we proceed to consider as to whether there was any legislative authority vested in the Government in framing the impugned proviso to sub-rule (1) of Rule 27 of the Special Economic Zones Rules, 2006, framed under the Special Economic Zones Act, 2005.
17. Section 55 of the SEZ Act, 2005 envisages that the Central Government may by notification make Rules for carrying out the provisions of the Act.
Section 55 (2)(h) inter alia envisages as follows:
"(2) (h) the terms, conditions and limitations subject to which the goods or services exported out of, or imported into, or procured from the Domestic Tariff Area to, a Special Economic Zone, be exempt from payment of taxes, duties or cess under section 7;"
18. While Section 55 (2)(h) does provide that the Central Government may among others prescribe terms, conditions and limitations subject to which goods or services exported out of or imported into or procured from the Domestic Tariff Area to Special Economic Zone, be exempted from payment of tax, duty or cess under Section 7 of the Special Economic Zones Act, yet, Section 55 does not at all authorize, in any manner, the Central Government to levy customs duty on account of movement of goods from Domestic Tariff Area to Special Economic Zone.
19. A reading of Section 30 of the SEZ Act, 2005, which was reproduced in the preceding paragraphs, would make it clear that this Section 12 HCJ & RRRJ W.P.No.15528 of 2024 specifically makes goods leviable to customs duty, where such goods are removed from a Special Economic Zone to Domestic Tariff Area. There is no other provision in the Act which makes removal of goods from a Domestic Tariff Area to a Special Economic Zone susceptible to levy of such customs duty.
20. It is also not out of place here to mention that prior to the enactment of the Special Economic Zones Act, 2005, the Customs Act, 1962, contained Chapter XA, which specifically dealt with Special Economic Zones. This Chapter inter alia contained Section 76F dealing with levy of duties of customs and provided as under:
"76F. Subject to the conditions as may be specified in the rules made in this behalf, --
a. any goods admitted to a special economic zone from the domestic tariff area shall be chargeable to export duties at such rates as are leviable on such goods when exported;
b. any goods removed from a special economic zone for home consumption shall be chargeable to duties of customs including anti-dumping, countervailing and safeguard duties under the Customs Tariff Act, 1975 (51 of 1975), where applicable, as leviable on such goods when imported; and c. the rate of duty and tariff valuation, if any, applicable to goods admitted to, or removed from, a special economic zone shall be the rate and tariff valuation in force as on the date of such admission or removal, as the case may be, and where such date is not ascertainable, on the date of payment of the duty."13
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21. On the Special Economic Zones Act, 2005, coming into force, Section 52 whereof, the provisions contained in Chapter XA of the Customs Act, 1962, the Special Economic Zones Rules, 2003 and the Special Economic Zones (Customs Procedure) Regulations, 2003, were held not to apply to the Special Economic Zones with effect from the date as the Central Government may by notification appoint.
22. This Chapter XA containing Section 76F, however, was omitted by the Act of 2007 with effect from 11.05.2007.
23. The Scheme of the Customs Act, 1962, especially in the backdrop of the effect of the enactment of the Special Economic Zones Act, 2005, led to the omission of Section 76F (a) contained in Chapter XA with effect from 11.05.2007, by Act of 2007, clearly goes to show that removal of goods to a Special Economic Zone from Domestic Tariff Area which was otherwise chargeable to export duties at such rates as were leviable on such goods when exported was not envisaged at all as per the Special Economic Zones Act, 2005, while Section 76F (b) of the 1962 Act, came to be retained in its modified form as Section 30(a) of the SEZ Act, 2005.
24. In the absence of any delegation of power to the Central Government to levy customs duty on removal of goods from the Domestic Tariff Area to Special Economic Zone Unit, the Central Government in exercise of such delegated powers could not have thus envisaged levying a duty which is clearly without any authority of law. 14
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25. Further Section 55(1) which empowers "the Central Government to make Rules for carrying out the provisions of the Act by notification" is a general delegation without guidelines. In Kunj Behari Lal Butail vs. State of H.P.,4 the Apex Court held:
"14. We are also of the opinion that a delegated power to legislate by making rules „for carrying out the purposes of the Act‟ is a general delegation without laying down any guidelines; it cannot be so exercised as to bring into existence substantive rights or obligations or disabilities not contemplated by the provisions of the Act itself."
26. The Apex Court in Gupta Modern Breweries vs. State of J&K and others 5 , was considering a challenge to Rule 17 of the Jammu and Kashmir Distillery Rules, 1946, under which the Excise Commissioner demanded that distillery licensees deposit amounts towards the salaries and allowances of Excise Department staff posted at their units. The issue was whether Rule 17 could validly impose what was, in substance, a tax absent clear statutory authorization. The Apex Court examined the provisions of similar such statutes in the states of Andhra Pradesh and Bombay, and noted that those Statues had expressly provided for such levy. The Apex Court observed that the J&K statute did not expressly provide for such levy, and held:
"20. It is now a well-settled principle of law that the regulatory powers are generally to be widely construed. However, empowering the State Government to impose taxes, fees or duties and such 4 (2000) 3 SCC 40 5 (2007) 6 SCC 317 15 HCJ & RRRJ W.P.No.15528 of 2024 demands must be authorized by the statute and must contain sufficient guidelines."
27. Be that as it may, we set aside the decision dated 26.04.2024 and hold that 5th proviso to sub-rule (1) of Rule 27 of the Special Economic Zone Rules, 2006, as ultra vires the Special Economic Zone Act, 2005 and is accordingly, struck down. This writ petition is accordingly allowed.
No order as to costs. Pending miscellaneous applications, if any, in this petition, shall stand closed.
DHIRAJ SINGH THAKUR, CJ R. RAGHUNANDAN RAO, J Kbs/Ssn 16 HCJ & RRRJ W.P.No.15528 of 2024 15 HON'BLE MR. JUSTICE DHIRAJ SINGH THAKUR, CHIEF JUSTICE & HON'BLE MR. JUSTICE R.RAGHUNANDAN RAO W.P.No.15528 of 2024 Dt: 18.09.2025 Kbs/Ssn