Unutilized Goods Not Defective: Punjab & Haryana HC Dismisses SEZ Developer's Plea, Upholds Duty Refund Under Rule 25 [Read Order]

The Punjab & Haryana High Court, in its ruling, dismissed a writ petition filed by an SEZ developer, upholding the demand for a refund of customs duty exemptions on unutilized goods. The Court held that the goods in question did not become defective but remained unused, thereby attracting the provisions of Rule 25 of the SEZ Rules, 2006, rather than Rule 27(9).

The petitioner, M/s Quarkcity India (Pvt.) Ltd is an SEZ developer, had challenged the action of the respondents in levying a duty of Rs. 47 lakhs and directing a deposit of Rs. 6,59,700/- for permission to dispose of unutilized goods. The petitioner argued that the goods had become unusable and should have been allowed for destruction under Rule 27(9), which deals with goods found defective or unfit for use. They contended that the demand for a refund of the duty benefits availed was arbitrary and contrary to the object of the SEZ policy.

The respondents, however, submitted that the goods had not been utilized within the stipulated and extended periods, and the petitioner had never claimed they were defective during the course of their use. They argued that the goods fell squarely within the ambit of Rule 25, which mandates a refund of the benefits availed when goods or services are not utilized for authorized operations.

“It is clearly provided in Rule 25 that 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”, the bench viewed.

The Division Bench of Justice Lisa Gill and Justice Meenakshi I. Mehta, after examining the statutory scheme, noted the distinct fields of operation of Rule 27(9) and Rule 25. The Court observed that Rule 27(9) applies to goods that are found defective or become damaged during use, whereas Rule 25 applies to goods that are not utilized at all.

The Court found that the petitioner had initially sought extensions for the use of the goods, treating them as usable, and only later, when questioned, categorized some as unfit for use. The authorities had already taken a decision to apply Rule 25, and the petitioner's subsequent applications could not alter this.

The High Court concluded that the goods in question became unutilized due to non-use within the permitted period, not because they were defective. Consequently, the action of the authorities in demanding a refund of the duty exemptions under Rule 25 was legally sound.

The Court found no merit in the petitioner's arguments and dismissed the writ petition, affirming the respondents' demand.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates