Karnataka High Court
Vikas Telecom Pvt Ltd vs The Development Commissioner on 24 July, 2024
Author: Hemant Chandangoudar
Bench: Hemant Chandangoudar
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NC: 2024:KHC:29609
WP No. 4415 of 2017
C/W WP No. 4416 of 2017
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 24TH DAY OF JULY, 2024
BEFORE
THE HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR
WRIT PETITION NO. 4415 OF 2017 (GM-RES)
C/W
WRIT PETITION NO. 4416 OF 2017 (GM-RES)
IN WRIT PETITION NO. 4415 OF 2017:
BETWEEN:
MANYATA PROMOTERS PVT. LTD.
CLASSIC COURT, 1ST FLOOR,
9/1, RICHMOND ROAD,
BENGALURU - 560 025
REPRESENTED HEREIN BY ITS
CHIEF FINANCE OFFICER,
MR. A.T.GOPINATH.
...PETITIONER
(BY SRI. T SURYANARAYANA, SENIOR COUNSEL FOR
SRI. TANMAYI RAJKUMAR, ADVOCATE)
Digitally signed by B
K
AND:
MAHENDRAKUMAR
Location: HIGH 1. THE DEVELOPMENT COMMISSIONER
COURT OF
KARNATAKA MANYATA EMBASSY BUSINESS PARK
SPECIAL ECONOMIC ZONE
MINISTRY OF COMMERCE & INDUSTRY
GOVERNMENT OF INDIA
KAKKANAD, COCHIN - 682 037.
2. THE BOARD OF APPROVAL-SEZ SECTION
DEPARTMENT OF COMMERCE
MINISTRY OF COMMERCE & INDUSTRY
GOVERNMENT OF INDIA
UDYOG BHAVAN, NEW DELHI - 110 107
REP. BY HEREIN BY ITS DIRECTOR.
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WP No. 4415 of 2017
C/W WP No. 4416 of 2017
3. INDIAN OIL CORPORATION LTD.,
C/O CHENNAI PETROLEUM CORPORATION LIMITED
TONDIARPET TERMINAL
TONDIARPET, CHENNAI - 600 081
REP. BY HEREIN ITS CHIEF DIVISIONAL
CONSUMER SALES MANAGER.
4. BHARAT PETROLEUM CORPORATION LTD.,
KOCHI REFINERY, AMBALAMUGAL
COCHIN - 682 302, REP. HEREIN BY ITS
AREA MANAGER I & C.
5. THE COMMISSIONER OF CENTRAL
EXCISE AND CUSTOMS
OFFICE OF THE COMMISSIONER OF
CENTRAL EXCISE AND CUSTOMS
LARGE TAXPAYERS UNIT
MINISTRY OF FINANCE, 1775
JAWAHARLAL NEHRU INNER RING ROAD
ANNA NAGAR WESTERN EXTENSION,
CHENNAI - 600 101.
6. THE COMMISSIONER OF CENTRAL
EXCISE AND CUSTOMS
CHOCHIN COMMISSIONERATE
CENTRAL REVENUE BUILDING
LS PRESS ROAD, COCHIN - 682 018.
...RESPONDENTS
(BY SRI. JEEVAN J NEERALGI, ADVOCATE FOR R3;
SRI. N J KUMAR, ADVOCATE FOR R4;
SRI. SHANTHIBHUSHAN H, ASGI FOR R1 & R2)
THIS WP IS FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA PRAYING TO SET ASIDE THE
IMPUGNED ORDER DTD. 28.12.2016 VIDE ANNEX-K PASSED
BY THE R-2 REJECTING THE PETITIONER'S APPEAL AND
ETC.
IN WRIT PETITION NO. 4416 OF 2017:
BETWEEN:
VIKAS TELECOM PVT LTD
EMBASSY POINT 1ST FLOOR,
150, INFANTRY ROAD
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NC: 2024:KHC:29609
WP No. 4415 of 2017
C/W WP No. 4416 of 2017
BENGALURU-560 001
REPRESENTED HEREIN BY ITS
CHEF FINANCE OFFICER
MR.A.T.GOPINATH.
...PETITIONER
(BY SRI. T SURYANARAYANA, SENIOR COUNSEL FOR
SRI. TANMAYI RAJKUMAR, ADVOCATE)
AND:
1. THE DEVELOPMENT COMMISSIONER
VIKAS TELECOM SPECIAL ECONOMIC ZONE
MINISTRY OF COMMERCE & INDUSTRY
GOVERNMENT OF INDIA
COCHIN-682 037.
2. THE BOARD OF APPROVAL-SEZ SECTION
DEPARTMENT OF COMMERCE
MINISTRY OF COMMERCE & INDUSTRY
GOVERNMENT OF INDIA
UDYOG BHAVAN, NEW DELHI-110 107
REP. BY HEREIN ITS DIRECTOR.
3. INDIAN OIL CORPORATION LTD
C/O CHENNAI PETROLEUM CORPORATION LIMITED
TONDIARPET TERMINAL, TONDIARPET
CHENNAI-600 081
REP. BY HEREIN ITS CHIEF DIVISIONAL
CONSUMER SALES MANAGER.
4. THE COMMISSIONER OF CENTRAL EXCISE AND
CUSTOMS, OFFICE OF THE COMMISSIONER OF
CENTRAL EXCISE AND CUSTOMS
LARGE TAXPAYERS UNIT
JAWAHARLAL NEHRU INNER RING ROAD
ANNA NAGAR WESTERN EXTENSION
CHENNAI-600 101.
...RESPONDENTS
(BY SRI. RAGHAVENDRA B HANJER, ADVOCATE FOR R3;
SRI. JEEVAN J NEERALGI, ADVOCATE FOR R4;
SRI. SHANTHIBHUSHAN H, ASGI FOR R1 AND R2)
THIS W.P IS FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA PRAYING TO SET ASIDE THE
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WP No. 4415 of 2017
C/W WP No. 4416 of 2017
IMPUGNED ORDER DTD 28.12.2016 [ANNEXURE-H] PASSD BY
THE R-2 REJECTING THE PETITIONER'S APPEAL AND ETC.
THESE PETITIONS, COMING ON FOR FURTHER
HEARING, THIS DAY, ORDER WAS MADE THEREIN AS
UNDER:
CORAM: HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR
ORAL ORDER
The issues involved in these petitions are similar. Therefore, they have been taken up together, heard and disposed of.
2. The petitioner in WP No.4415/2017 viz: Manyata Promoters Pvt. Ltd. (for short `MPPL') is a company, and a developer of Manyata Embassy Business Park Special Economic Zone, Nagavara, Bangalore (for short `SEZ'). Similarly, the petitioner in WP No.4416/2017 viz: Vikas Telecom Pvt. Ltd. (for short `VTPL') is a company and developer of Vikas Telecom Special Economic Zone, Bangalore (for short `SEZ').
3. The petitioners were granted a letter of approval by the Office of the respondent No.1 for development, operation and maintenance of SEZs vide a letter dated 16.6.2006 for MPPL and 7.4.2006 for VTPL. Pursuant to the said approvals, the petitioners setup SEZs in Bangalore and have been operating and maintaining the same as of the date.
4. As per the provisions of the Special Economic Zone Act, 2005 ('SEZ Act') read with Rule 5A (a) of the Special Economic Zones Rules, 2006 ('SEZ Rules'), one of the requirements for an SEZ in the Information Technology/Information -5- NC: 2024:KHC:29609 WP No. 4415 of 2017 C/W WP No. 4416 of 2017 Technology Enabled Services (IT/ITES) sector is the supply of 24 hours uninterrupted power to the units functioning therein. In view of this requirement, the Petitioners set-up a power generation unit in the 'processing area' of the SEZs for generating and distributing power to the other units located therein.
5. On 27.02.2009, the Director-SEZ Section, Government of India, issued guidelines for Power Generation, Transmission and Distribution in SEZs ('2009 Guidelines' for short). Under the 2009 Guidelines, it was categorically provided that units set up within the SEZ to generate power located in a processing area would be entitled to all fiscal benefits under section 26 of the SEZ Act.
6. Accordingly, the captive back-up power plant set up by the Petitioner within the 'Processing Area' of the SEZ, which was in the form of diesel generator sets ('DG sets'), was deemed to be a separate Unit within the SEZ, and the said Unit was thus entitled to all the benefits, facilities and incentives extended to the other Units operating in the SEZ.
7. The Petitioners have been procuring High Speed Diesel (HSD) from the 3rd Respondent (and 4th Respondent in case of MPPL) to operate the DG sets. In view of the exemption granted under the 2009 Guidelines, the said Respondents have supplied HSD without charging any excise duty to the Petitioners under the Central Excise Act, 1944. The Petitioner furnished necessary statutory forms (Form ARE 1) to the aforementioned Respondents for the import of materials without payment of duty -6- NC: 2024:KHC:29609 WP No. 4415 of 2017 C/W WP No. 4416 of 2017 and the same were endorsed by the authorized officer of the respective SEZ.
8. The 2009 Guidelines were superseded by similar guidelines issued on 21.03.2012 ('the 2012 Guidelines'). Under the 2012 Guidelines as well, there was no material change from the 2009 Guidelines on this aspect, and the above practice of duty-free supply of HSD by the 3rd (and 4th Respondent in case of MPPL) to the Petitioners' continued without any change. The 2012 guidelines gave certain relaxations to power plants set up in a processing area while limiting the fiscal benefits in units in the non-processing area to initial setting up alone. This did not affect the Petitioners and they continued to claim the benefits as earlier.
9. Thereafter, vide communication dated 06.04.2015 ('2015 communication') issued by the SEZ Division, Government of India, the 2012 Guidelines were withdrawn with effect from 01.04.2015 and in its place, the 2009 Guidelines were restored. Pertinently, the said Circular also stated that those power plants which were situated in the 'Processing Areas' of SEZS would be demarcated as 'Non-Processing Areas' and that no operation and maintenance benefits would be available to such power plants.
10. Post the 2015 communication, the statutory form viz. Form ARE-1 issued by the Petitioner in respect of the supplies of HSD to the Respondent No. 3 (and Respondent No. 4 by MPPL) were not being endorsed in the manner stated hereinabove by the authorized officer of the SEZ. In effect, the supplies of HSD for -7- NC: 2024:KHC:29609 WP No. 4415 of 2017 C/W WP No. 4416 of 2017 power generation after 01.04.2015 were no longer exempt from excise duty.
11. Soon thereafter, on 16.02.2016, the Director-SEZ Division, Government of India, issued another guideline for power generation, transmission and distribution in SEZS ('the 2016 Guidelines') vide which the 2009 Guidelines were withdrawn and in place thereof, the 2016 Guidelines were made effective with effect from 16.02.2016. Under these guidelines it was clarified that the generation of power in SEZs will once again be carried out as a 'Unit' within the 'Processing Area' and that such Units would be entitled to all the fiscal benefits prescribed in Section 26 of the SEZ Act including, the benefit of duty-free import of raw materials and consumables for the generation of power.
12. In view of the duty-free import / procurement of raw materials and other benefits restored under the 2016 Guidelines, the Petitioner filed an application dated 07.03.2016 before the 1st Respondent seeking approval of its DG Set Unit as a SEZ Unit in terms of the SEZ Act with retrospective effect from 01.04.2015. However, the 1st Respondent issued the letter of approval applicable prospectively with effect from 09.05.2016. The appeal filed by the Petitioner against the letter of approval dated 09.05.2016 before the 2nd Respondent also came to be dismissed.
13. The Petitioner is thus aggrieved by non-grant of relief for the intervening period from 01.04.2015 until 08.05.2016.
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14. Submissions of Sri T Suryanarayana, learned Senior Counsel as follows:
i) The only question that arises for consideration by this Hon'ble Court is whether the operation and maintenance benefits as envisaged under section 26 of the SEZ Act could be denied for the intervening period from 01.04.2015 to 08.05.2016?
ii) The very issue in the present petitions have been examined by the Delhi High Court in Moser Baer India Ltd. v. Union of India [[2021] 133 taxmann.com 334 (Delhi)) (para 44 onwards) and the Madras High Court in DLF Utilities v. Union of India [(2021) 15 GSTR-OL 218] (paras 57, 58, 75 and 76), where the Courts have held that benefit for the interim period could not have been taken away by the 2015 communication. The Court further held that, the exemption / benefits to the SEZ are available by virtue of Section 26(2) of the SEZ Act and the direction to re-demarcate an already set-up power plant in the 'processing area' as a unit in the 'non-processing' area under the 2015 communication (and therefore to deny such benefit) is clearly not traceable to Section 26(2) of the SEZ Act. The Court also held that the letter dated 06.04.2015 which is a communication to the development commissioners is not line with government's first communication issued on the same date.
iii) The 2015 communication, as issued, restored the 2009 guidelines. There is nothing in the 2009 Guidelines or 2012 -9- NC: 2024:KHC:29609 WP No. 4415 of 2017 C/W WP No. 4416 of 2017 guidelines that provided for demarcating power plants treated as processing areas as non-processing areas. The letters of approval given by the 1st Respondent to the Petitioners set out a set of authorised operations, which have never been treated as 'unauthorised operations' under any of the Guidelines.
iv) The apparent contradiction arises because the 2015 communications are found in two letters. The text of the first letter does not indicate any intention of the Government to retract the benefits given under the 2009 guidelines (see, paragraph 22 of the decision in Moser Baer India (supra) for the text of the first letter). It is only in the second letter, which is a letter circulated to all Development Commissioners that in the second paragraph, there is a direction to demarcate the power plants located in processing areas as non processing areas (see, paragraph 23 of the decision in Moser Baer India (supra) for the text of the second letter as also Annexure - B to the petition). Clearly, there is an apparent error in the second letter as the statement in the second paragraph is completely contrary to the text of the first paragraph therein. The requirement of demarcating power plants as non-processing areas can at best apply to power plants in processing areas in respect of which letters of approval were not yet issued.
v) In any event, the 2016 Guidelines clearly note the fact that representations had been received for restoring the O&M
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NC: 2024:KHC:29609 WP No. 4415 of 2017 C/W WP No. 4416 of 2017 benefits to captive power plants in SEZs and had, accordingly, restored the benefits that were afforded to SEZ developers such as the Petitioners, with respect to captive power plants as they existed until 31.03.2015. The unmistakable conclusion therefore can only be that there was no intention to take away the benefits during the intervening duration between 31.03.2015 and 16.02.2016.
v) Given that the Petitioners were always entitled to the benefits under the 2009 Guidelines, whereunder units were permitted to set up power plants in processing areas and avail of all the benefits, and the position continued as such even under the 2015 communication and thereafter under 16.02.2016, the matter was in any event clarified, the question of the benefits being taken away does not arise.
vi) It is therefore prayed that this Hon'ble Court be pleased to allow the writ petitions by declaring that the Letter of Approval dated issued by the 1st Respondent (Annexure 'H') as being effective from 01.04.2015 and directing the 1st Respondent or any person authorised by him to make appropriate endorsements on the pending ARE-1 forms issued in respect of the supply of HSD by the 3rd and 4th Respondents to the Petitioner for the period from 01.04.2015 till 08.05.2016 stating that the said HSD has been admitted in full in the SEZ and to thereafter immediately forward the so endorsed ARE-1 forms to the 4th/5th and 6th Respondent for necessary action, in the interests of justice and equity.
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15. Per contra, Sri Shanthi Bhushan, learned Additional Solicitor General of India for the respondents No.1 and 3 would submit that the exemptions, concessions and drawback incentives, etc. as provided for in Section 26(1) of the SEZ Act, 2005 are subject to conditions prescribed, and the Central Government may prescribe the manner in which, and the terms and conditions subject to which, the exemption, concession, drawback or other benefits shall be granted to the developer or entrepreneur under sub-Section (1).
16. Upon examining the arguments advanced by the learned counsels for the parties, it is noted as follows:
17. The petitioner in WP No.4415/2017 and the petitioner in WP No.4416/2017 were granted with letter of approval by the office of the respondent No.1 for development, operation and maintenance of SEZ vide letter of approval dated 16.6.2006, and dated 7.4.2006 respectively. Pursuant to the said approval, the petitioners set up the SEZ in Bengaluru and have been operating and maintaining the same as of today.
18. As per the provisions of the Special Economic Zone Act, 2005 read with Rule 5A (a) of the Special Economic Zones Rules, 2006, one of the requirements for an SEZ in the Information Technology/Information Technology Enabled Services sector is the supply of 24 hours uninterrupted power to the units functioning therein, and to meet the said requirement, the petitioners set up a
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NC: 2024:KHC:29609 WP No. 4415 of 2017 C/W WP No. 4416 of 2017 power generation unit in the processing area of the SEZs for generating and distributing power to the other units located therein. The 2009 Guidelines issued by the Government of India on 27.2.2009 categorically provided that units set up within the SEZ to generate power located in a processing area would be entitled to all fiscal benefits under Section 6 of the SEZ Act. Therefore, the captive back-up power plant set up by the petitioner within the processing area of the SEZ, which was in the form of diesel generator sets was deemed to be separate unit within the SEZ, and the said unit was thus entitled to all the benefits, facilities and incentives extended to the other units operating tin the SEZ.
19. The 2009 Guidelines were superseded on 21.3.2012, and under the said 2012 Guidelines, there was no material change to the 2009 Guidelines. Thereafter, vide communication dated 6.4.2015 issued by the SEZ Division, Government of India, the 2012 Guidelines were withdrawn with effect from 1.4.2015, and the 2009 Guidelines were restored. Under the said Guidelines, the power plants, which were situated in the processing area of SEZs would be demarcated as Non-Processing Areas, and that no operation and maintenance benefits would be available to such power plants.
20. The Madras High Court in the case DLF Utilities -vs- Union of India - (2021) 15 GSTR-OL 218) ruled that mere withdrawal of 2015 Guidelines did not alter the position under the Act, and therefore, the impugned Guidelines of 2015 is neither sustainable nor enforceable against the petitioners.
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21. In a similar issue that arose for consideration before the High Court of Delhi, it was observed in the case of Moser Baer India Ltd. -vs- Union of India - [2021] 133 taxmann.com 334 (Delhi), that the directions contained in the covering letter dated 6.4.2015 for re-demarcation of processing area into a non- processing area, runs contrary and repugnant to aforesaid letter which was circulated under the said covering letter.
22. Perusal of the first letter dated 6.4.2015 indicated that the Guidelines of 2009 are hereby restored and will henceforth be the basis for relevant policy and operational decisions, and in effect, as per the revised guidelines, power plants can be set up by developer/co-developer in an SEZ only in the non-processing area of SEZ and will be entitled to fiscal benefits only for its initial setting up and no fiscal benefit would be admissible for its operation and maintenance in terms of Rule 27(3) of the SEZ Rules. The second letter dated 6.4.2015 (Annexure-B) referred to the first letter dated 6.4.2015, it was stated that henceforth setting up of power plants shall be allowed only in the non-processing area of SEZs. Further, those power plants which are presently situated in processing areas of SEZs, shall be demarcated as non-processing areas and no operation and maintenance benefits will now be available for such power plants. On perusal of the second letter dated 6.4.2015 was held to be repugnant. Therefore, the impugned communication dated 6.4.2015 which stated that those captive power plants, situated in processing areas of SEZs would be demarcated as non-processing areas and the operation and
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NC: 2024:KHC:29609 WP No. 4415 of 2017 C/W WP No. 4416 of 2017 maintenance benefits will were denied earlier shall thereupon be available for such power plants, is held to be arbitrary and hence, invalid.
23. Accordingly, I pass the following:
ORDER
i) The petitions are allowed.
ii) The impugned order dated 28.12.2015 vide Annexure-K in WP No.4415/2017 and Annexure-H in WP No.4416/2017 passed by the respondent No.2 are hereby quashed.
iii) The respondent No.1 is hereby directed to issue afresh letter of approval granting approval to the petitioners' captive back-
up power plant in MEPBPSEZ in WP No.4415/2017 and in VTSEZ in WP No.4416/2017 to be a Unit for undertaking the authorised operations of electricity/power generation in accordance with the provisions of the SEZ Act and Rules made thereunder with effect from 1.4.2015.
iv) The respondent No.1 or any person authorised by him is directed to make appropriate endorsements on the pending ARE-1 forms issued in respect of the supply of HSD by the respondent Nos.3 and 4 in WP No.4415/2017 and the respondent No.3 in WP No.4416/2017 to the petitioners for the period from 1.4.2015 till 8.5.2016 stating that the said HSD has has been admitted in full in the MEPBPSEZ AND VTSEZ and to thereafter immediately forward the so endorsed ARE-1 forms to the
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NC: 2024:KHC:29609 WP No. 4415 of 2017 C/W WP No. 4416 of 2017 respondent Nos.5 and 6 in WP No.4415/2017 and the respondent No.4 in WP No.4416/2017 for necessary action. The said exercise shall be concluded within three months from the date of receipt of certified copy of this order.
Sd/-
(HEMANT CHANDANGOUDAR) JUDGE BKM