Professional Documents
Culture Documents
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INDEX
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20th May, 2020
NPE 2019 led to the formulation of three main schemes on Electronics System Design
and Manufacturing (ESDM):
1. Scheme for Promotion of manufacturing of Electronic Components and
Semiconductors (SPECS).
2. Production Linked Incentive Scheme (PLI) for Large Scale Electronics
Manufacturing.
3. Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme.
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SCHEME FOR PROMOTION OF MANUFACTURING OF
ELECTRONIC COMPONENTS AND SEMICONDUCTORS (SPECS):
BACKGROUND:
Electronics hardware manufacturing is one of the important pillars of “Make in
India” and “Digital India”.
Domestic electronics manufacturing is steadily moving from Semi Knocked Down
(SKD) to Completely Knocked Down (CKD) level of manufacturing.
Domestic value addition is only 10-30% due to the lack of manufacturing ecosystem
of electronic components, semiconductors, display, etc.
Components of electronic products constitute a significant part of the total value of
the Bill of Material (BOM) and a vibrant electronic component manufacturing
ecosystem is vital to achieve the net positive Balance of Payments (BOP).
The main impediments in the manufacturing of electronic
components/semiconductors include import at “NIL” Basic Customs Duty (BCD);
high cost of capital; inadequate infrastructure; lack of power and water supply at
competitive rates; lack of supply chain; lack of technology, etc.
Previous M-SIPS (scheme) provided a subsidy of 20% in SEZs units and 25% in
non-SEZs units for setting up electronics manufacturing facilities.
Objective of SPECS:
SPECS will help offset the disability for the domestic manufacturing of components
and semiconductors.
ELIGIBILITY:
SPECS will apply to investments in new units or expansion of capacity or
modernization or diversification of existing units.
Threshold Limit:
The minimum threshold investment to be eligible under this scheme is provided in
several lists in the Gazette on SPECS.
The thresholds are the same for new units or expansion of capacity or modernization
or diversification of existing units.
Periodic reviews will be undertaken for changes.
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Tenure of the Scheme: The SPECS will be open for applications initially for 3 years from
the date of its notification.
Approval and Disbursement Process:
Application under this scheme can be made by any entity registered in India.
Incentives under the schemes will be applicable from the date of acknowledgment of
the application. And the Acknowledgement shall not be construed as approval under
SPECS.
The incentive will be available for the investment made within 5 years from the date
of acknowledgement of the application and the subsequent claims for the incentive
may be submitted on a six-monthly basis.
The unit receiving incentive under SPECS will have to remain in commercial
production for at least 3 (three) years from the date of commencement of production
or 1(one) year from the date of receipt of last incentive, whichever is later.
Governance Mechanism:
The scheme will be implemented through a nodal agency and it will act as a Project
Management Agency (PMA).
PMA will put the applications that have been appraised and found eligible before the
Executive Committee (EC) to be constituted by MeitY. EC will comprise of
representatives from relevant Ministries/ Departments and organizations.
EC will recommend to PMA for approval/rejection/modification of the applications
and PMA shall issue an approval letter to the applicant, with a copy to MeitY.
MeitY shall make budgetary provisions for disbursal of incentives to approved
projects and the disbursement shall be done by the PMA.
The progress of the Scheme will be reviewed through a Governing Council (GC) to
be constituted by MeitY under the chairmanship of Secretary, MeitY.
The list of goods eligible for the incentive under the scheme, along with the
applicable thresholds, shall be reviewed and amended from time to time by the
Governing Council.
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PRODUCTION LINKED INCENTIVE SCHEME (PLI) FOR LARGE
SCALE ELECTRONICS MANUFACTURING
BACKGROUND:
India’s share in global electronic manufacturing has grown from 1.3% in 2012 to 3%
in 2018.
The domestic demand for electronics hardware is expected to rise rapidly to
approximately INR 26,00,000 crore (USD 400 billion).
The electronics hardware manufacturing sector faces the lack of a level playing field
vis-à-vis competing nations.
Electronic manufacturing sector suffers from a disability of around 8.5% to 11%.
OBJECTIVE:
The PLI Scheme proposes a financial incentive to boost domestic manufacturing.
It attracts large investments in the electronics value chain.
Quantum of Incentive:
The Scheme shall extend an incentive of 4% to 6% on incremental sales (over base
year) of goods manufactured in India and covered under target segments, to eligible
companies, for five (5) years.
Target Segments:
The Proposed scheme is likely to benefit five-six "major global players and few
domestic champions" in the field of mobile manufacturing and specified electronics
components and bring in large scale electronics manufacturing in India.
ELIGIBILITY:
This scheme shall be provided only to companies engaged in the manufacturing of
target segments in India.
Eligibility shall be subject to thresholds of incremental investment and incremental
sales of manufactured goods.
Eligibility under PLI Scheme shall affect eligibility under any other scheme and vice-
versa.
INCENTIVE OUTLAY:
The Cumulative incentive outlay under this scheme is INR 40,951 Crore.
Basis of Computation:
Assessment of incremental investment and sales of manufactured goods shall be
based on details furnished to the Departments / Ministries / Agencies and Statutory
Auditor certificates.
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Functional Guidelines will be issued by MeitY in consultation with concerned
Departments / Ministries.
Nodal Agency:
The Scheme shall be implemented through a Nodal Agency.
Nodal Agency shall act as a Project Management Agency (PMA) carrying out
responsibilities as assigned by the MeitY.
PMA would be responsible for –
Appraisal of applications and verification of eligibility,
Examination of claims eligible for disbursement of incentives,
And compilation of data regarding progress and performance under this scheme.
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MODIFIED ELECTRONICS MANUFACTURING CLUSTERS
(EMC 2.0) SCHEME
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Mode of application and eligibility criteria: The application under EMC 2.0 Scheme will
be submitted by the State Government or State Implementing Agency (SIA) or Central Public
Sector Unit (CPSU) or State Public Sector Unit (SPSU) or Industrial Corridor Development
Corporation (ICDC) such as DMICDC, etc. (as the case may be) to PMA along with the
details of the Anchor unit(s) mentioning the roles and responsibilities of PIA and the relevant
Anchor Unit(s). In the case of CPSU or SPSU; the application would be submitted along with
recommendations of the concerned Central Government or State Government
(Administrative Ministry or Department) as the case may be.
Financial Assistance:
For EMC Project - financial assistance will be restricted to 50% of the project cost
subject to a ceiling of Rs. 70 crore for every 100 acres of land. For larger areas, the
pro-rata ceiling would apply but not exceeding Rs.350 crore per project.
For Common Facility Centers (CFCs) - financial assistance will be restricted to
75% of the project cost subject to a ceiling of Rs.75 crore. The remaining project cost
will be borne by the State government/State Implementing Agency/Central Public
Sector Unit/State Public Sector Unit/Industrial Corridor Development Corporation.
Release of Funds:
First installment of 30%,
Second installment of 40%,
Third installment of 30%.
The funds will be released to PIA through PMA.
Implementation Mechanism:
The scheme will be implemented through Project Management Agency (PMA) under
MeitY.
MeitY shall make budgetary provisions for approved projects under the Scheme.
PMA will submit budgetary requirements to MeitY regularly along with details of the
project-wise requirements.
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Scheme Monitoring:
The progress of the Scheme will be reviewed through a Governing Council (GC) to
be constituted by MeitY under the chairmanship of Secretary, MeitY. GC will
comprise of experts from Government and Industry.
Scheme Duration:
The Scheme will be open for receipt of applications for three (3) years from the date
of notification. A further period of five (5) years shall be available for disbursement
of funds to the approved projects.
MeitY will issue a set of guidelines for the implementation of the Scheme.
The authority for amendment of the Scheme Guidelines shall rest with the Governing
Council.
MeitY will periodically monitor and review the progress of the Scheme and the
projects under the EMC 2.0 Scheme.
Conclusion:
The Proper implementation of NPE 2019 will lead to formulation of several schemes,
initiatives, projects, etc., in consultation with the concerned Ministries/ Departments,
for the development of ESDM sector in the country. It will enable flow of investment
and technology, leading to higher value addition in the domestically manufactured
electronic products, increased electronics hardware manufacturing in the country and
their export, while generating substantial employment opportunities.
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29th May, 2020
FACTS: The Petitioner (Jagat Gems & Jewellery) was awarded an Export House in January
2004 for achieving good export turnover. Due to the high export turnover, the office of the
Development Commissioner awarded a two-star export house certificate to the petitioner
based on their performance in December 2005 and was allotted a plot measuring 450 square
meters. Also, the LoA dated 10-03-2000 was further extended for the next 5 years up to
March 2010. In 2016, the LoA (Letter of Approval) of the petitioner was renewed twice for
six months with the condition that no request for transfer of assets and liabilities shall be
entertained and the unit shall re-start its business within the stipulated period. By a
communication dated 23-03-2016, the petitioner sought further time for starting operations on
account of the building requiring maintenance. Further extension was granted. However, the
petitioner did not start its business activities. The reasons were on account of prolonged
illness of one of its proprietors, the slump in the gold business, and the rising cost of gold in
the international market and allied reasons. The explanation report filed by the petitioner was
not found acceptable resulting in the passing of an order dated 23-03-2017, by which Noida
Export Processing Zone (NEPZ) did not renew the LoA issued to the petitioner and the
possession was taken. An appeal filed against the aforesaid order stands rejected on 12-05-
2017.
Learned senior counsel submitted that in case the request for one opportunity of hearing is
granted to the petitioner to explain his case and the appellate authority be directed to pass a
reasoned order, he would not press the prayer made with regard to the challenge to the vires
of the section 8(2)(g), 8(6) and 8(7) of the Special Economic Zones Act, 2005 (SEZ act).
ISSUE INVOLVED: Whether the order dated 12-05-2017 passed by the appellate authority
is a reasoned order or not.
Ratio decidendi: In the case of State of Orissa and others Vs. Chandra Nandi, the Apex
Court has held that every order passed by a judicial, quasi-judicial, tribunal, or any competent
authority, which decides the disputes between the parties must be supported by cogent
reasoning.
In this case, the appellate authority didn’t give any reasonable reason for not accepting the
explanation report filed by the petitioner and not providing the petitioner firm a fair chance of
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hearing for the same. The Division Bench without expressing any opinions on the merits of
the matter and having regards to the facts, found that the order of the appellant court was not
a reasoned order. They set aside the order of the appellate court, directed it to grant one
opportunity of hearing to the petitioner, and provided a procedure for the same.
Mittal Technopack Pvt. Ltd. And Anr Vs. Development Commissioner and Ors
[Calcutta High Court]; Writ Petition No. 179 of 2016
SEZs Act, 2005 – Section 53
SEZs Rules, 2006 – Rule 46(13)
Decided on: 17-08-2017
FACTS: The first petitioner is an Export Oriented Unit (EOU). The first petitioner was
carrying on manufacturing activity since 2006. It was receiving Central Sales Tax (CST)
refund from the Development Commissioner, Falta, SEZ. The first petitioner was entitled to
reimbursement in terms of the Foreign Trade Policy framed by the Director-General of
Foreign Trade. It had received reimbursement up to the last quarter of 2010-2011. However,
since the first quarter of 2011-2012, the authorities are rejecting the claim for a refund of
Central Sales Tax. The petitioner had a claim of Rs. 42,81,604/- in respect thereof.
Three show cause-cum-demand notices were issued to the petitioner dated 15-03-2014, 17-
04-2014 and 20-10-2014. According to the notice, the petitioner was not entitled to CST
reimbursement in view of the fact that the petitioner has purchased material from an SEZ
Unit. Paragraph 6.11(c)(i) of the FTP, 2009-2014 deals with entitlement for supplies from
DTA. DTA is not defined in the FTP of 2000-2014.
ISSUE INVOLVED: Whether the first petitioner is entitled to CST reimbursement or not in
view of the fact that the petitioner has purchased material from an SEZ Unit.
Ratio decidendi: The Policy and Procedure for FTP, 2009-2014 defines a DTA at paragraph
9.21 to mean area within India which is outside SEZ and EOU/EHTP/STP/BTP. The FTP for
the subsequent period being 2010-2015 kept the same policy of entitlement for supplies from
DTA at Paragraph 6.11 as that of the FTP of 2009-2014. However, the Policy and Procedure
for FTP for 2010-2015 specified that, EOU will be entitled to full reimbursement of CST paid
by them on purchases from SEZ also.
The respondent’s main contention was that an EOU Unit will be entitled to reimbursement of
CST on goods manufactured in India. The supply received by the first petitioner was from
SEZ Unit and not from a DTA Unit. Therefore, the petitioner was not entitled to the
reimbursement of CST. The petitioner replied that DTA is not defined in the FTP under
consideration. They further stated that FTP for 2015-2020 has included supplies out of SEZ
Units for reimbursement of CST.
The court found no reason in the contention of the respondent that purchases from SEZ by an
EOU will not be entitled to reimbursement of CST in terms of FTP of 2009-2014.
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The next ground of denial of reimbursement of CST to the first petitioner on purchases from
SEZ is an Office Memorandum dated 11-04-2014. Such Office Memorandum was quashed
by the Madras High Court in Hospira Health Care Pvt. Ltd.
Thus, the petition was disposed off accordingly.
FACTS: The Petitioner no.1 was General Manager(Works) in the petitioner no.2 company
and the company had authorized petitioner no.1 to appear in this case on behalf of the
company. The Unit of Petitioner no.2 was situated inside the Indore Special Economic Zone
at Pithampur, (Dhar) and the unit was 100% export oriented unit, dealing in the processing of
organic spices for exports. On 20-06-2011, non-applicant food inspector entered the premises
of petitioner no.2 and took the samples of two spices namely Chilly powder and organic
turmeric powder from consignment destined for exports. On 19-01-2012, petitioners received
a letter along with the report of public analyst that the samples were adulterated. Therefore,
the food inspector filed a private complaint against the petitioners which was registered as
Criminal case for the offence under Section 7(i)(iii) read with Section 16(i)A(i) of the
Prevention of Food Adulteration Act, 1954 in the court of Chief Judicial Magistrate.
ISSUE INVOLVED: Whether the provisions of the PFA Act, 1954 are applicable to the
petitioners unit.
Ratio decidendi: The Parliament in enacting the law (PFA Act) was concerned only with the
adulteration of food meant for consumption within the country. Section 5 of the Act prohibits
the import of adulterated and misbranded food there is no provision prohibiting the export of
such food. Section 16 provides for a penalty on a person who “whether himself or by another
person on his behalf, imports into India or manufactures for sale or stores, sells or distributes
any article of food”. While there is a specific mention about import, there is a significant
omission of the word “export”. This also is an indication to show that the purpose of the act is
confined to providing unadulterated articles of food to the people of the country and has no
application to commodities meant for export.
Section 22 of the SEZ Act provided that no investigation, inspection and search or seizure
carried out in an SEZ by any agency or officer other than those referred to in sub-section (2)
or sub-section (3) of section 21 without prior approval of the Development Commissioner.
Prosecution didn’t file any document to the effect that the petitioner’s unit is manufacturing
goods or services for the domestic tariff area. There was no case of complaint that the Chilly
powder and organic turmeric powder were meant for local or sell inside the country.
Thus, the court held that the provisions of the PFA shall not be applicable to the petitioner’s
unit which is a 100% export oriented unit. Therefore, taking samples from the petitioner’s
unit and taking cognizance by the CJM is without jurisdiction.
Thus, the petition was allowed and the order of taking the cognizance by the CJM was set
aside.
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Morgan Tectronics Ltd Vs. Union of India And Others
[Delhi High Court]; Writ Petition (Civil) No. 11728 of 2016
SEZ Act, 2005 – Section 5
SEZ Rules, 2006 – Rules 27(10), 54, and 74
Decided on: 22-04-2019
FACTS: In 1991, the petitioner applied to the ministry of Commerce for grant of a license
for setting up an industrial unit in the Noida Export Processing Zone (NEPZ) and a Letter
of Approval (LoA) dated 31.07.1991 was issued to the petitioner granting the aforesaid
license to the Petitioner.
The LoA was amended three times in the next twelve years: First in 1992, Second in 1995
and Third in 2003. It was again extended in the year 2012 for a further period of five years,
i.e., up to 31-03-2017 subject to various conditions.
The petitioner executed a Bond-cum-Legal Undertaking (Bond-cum-LU) and the bond was
jointly accepted by the Development Commissioner, Noida SEZ, and the Specified Officer.
On 05-01-2016, BoA (Board of Approval, Department of Commerce) informed the petitioner
that a meeting was scheduled on 06-01-2016 for personal hearing and the petitioner replied
requesting the adjournment of the meeting. The meeting took place on 06-01-2016 as
scheduled and the Unit Approval Committee (UAC) found that the petitioner had not been
manufacturing items and undertaking trading activities in terms of the letter dated 30-06-2003
and has been “regularly indulging in misdeclaration of goods in Bills of Entry”. The UAC
also held that the petitioner unit has not achieved positive NFE and has failed to abide by the
terms & conditions of the LOA/Bond-cum-LU.
The UAC concluded that the petitioner has violated the conditions of LoA and Bond-cum-
LU, and has further acted in contravention of the provisions of SEZ Act, 2005 and SEZ rules,
2006.
Under the aforesaid decision, a show-cause notice dated 14-01-2016 was issued calling upon
the petitioner to show cause as to why the LoA issued to it should not be cancelled and with
immediate effect, the UAC suspended the LoA issued to the petitioner.
The petitioner filed its reply by a letter dated 04-02-2016, denying the alleged violations
made by the petitioner and further stating that an amount of Rs. 50 Lakhs has been deposited
by the petitioner as customs duty and not towards any penalty emerging out of the
investigation.
The UAC in its meeting dated 10-02-2016 observed that the petitioner has violated the
provisions of SEZ Act/SEZ Rules and terms & conditions of LOA/Bond-cum-LU. The UAC
decided to cancel the LoA and further called upon the petitioner to complete the exit
formalities under Rule 74 of the SEZ Rules, 2006.
The Petitioner filed an application under the Right to Information Act, 2005, inter alia as to
whether its reply dated 04-02-2016 sent in response to the show cause notice dated 14-01-
2016, was forwarded to the members of the UAC before the meeting held on 10-02-2016.
The petitioner received a reply dated 08-03-2016 that the agenda presented by the Petitioner
was placed before the UAC in its meeting held on 10-02-2016 and after due deliberations, the
decision was taken by a general consensus of the members.
On 18-03-2016, the petitioner filed an appeal against the minutes of the meeting dated 10-02-
2016 before the BoA under the SEZ Rules, 2006. The said appeal was dismissed off by an
order dated 09-11-2016, whereby it was held that no case had been made out by the petitioner
for the appeal.
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ISSUES INVOLVED: Whether the act of suspension and thereafter, cancellation of LoA of
the Petitioner is justified or not.
Whether the dismissal of the appeal filed by the petitioner against the minutes of the meeting
dated 10-02-2016 before the BoA under the SEZ Rules by the BoA itself is justified or not.
Ratio decidendi: The UAC had taken the note of a letter dated 23-10-2015 sent by the Asstt.
Commissioner (SIIB) to Specified Officer (Customs) Noida SEZ, inter alia, mentioning
certain instances of import against three Bills of Entry (BoEs) which were concluded as cases
of misdeclaration by the petitioner. It was also pointed out that the petitioner had deposited
Rs. 50 Lakhs against two Bills of Entry.
In view of this information, the UAC concluded that the petitioner had acted in contravention
SEZ Act and Rules and had directed the suspension of the LoA and thereafter, cancelled the
LoA. Hence, the act of the UAC is justified.
The Petitioner’s appeal was rejected by the BoA on the ground that the petitioner had not
furnished the details of import, export, and sales in the domestic tariff area in the prescribed
format. It was also observed that the petitioner had failed to provide details of Free Foreign
Exchange received from overseas and, therefore it was not possible to ascertain the Net
Foreign Exchange (NFE) position.
Based on the fact that the LoA had been extended from time to time as the petitioner has been
achieving a positive Net Foreign Exchange Position. Also, the petitioner asserted that it had
paid the penalty/fine without prejudice to its rights and the said amount of Rs. 50 Lakhs was
required to be refunded to the petitioner as he succeeded before CESTAT. The Court
considered it apposite for the BoA to re-examine the petitioner’s contention in the light of the
decision rendered by the CESTAT. Also, the court suggested the BoA to consider the
petitioner’s contention that it had achieved a positive NFE if the petitioner places the
necessary documents to establish the same.
Given the above, the impugned order was set aside and the matter was remanded to the BoA
to consider the petitioner’s appeal afresh. The Petition was also disposed of in the aforesaid
terms.
M/S. Plastic Processors and Exporter Pvt. Ltd. Vs. Union of India
[Allahabad High Court]; Writ Tax No. 708 of 2018
SEZs Act, 2005 – Sections 2(1), 30 and 55(3)
SEZs Rules, 2006 – Rules 19(6), 47(1)(a), and 53
Decided on: 07-02-2019
FACTS: The Petitioner has an established Unit for reprocessing of plastic films/scrap in the
Noida Special Economic Zone. By LoA dated 5-11-1997, the petitioner was permitted to
recycle plastic raw material from imported scrap in the Export Processing Zone and the LoA
was extended from time to time.
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The Petitioner complied with section 30 of the SEZ Act, 2005 read with Rule 47(1)(a) and
made DTA clearance against payment in foreign exchange and on payment of appropriate
customs duty fulfilled the obligation of maintaining a positive NFE.
The LoA was renewed for five years from 23-11-2013 to 29-11-2018 with a condition
imposed by the respondent by a Circular dated 17-09-2013 (all plastic recycling units
operating in SEZ to ensure that percentage of annual turnover, as mentioned in the LoA, is
physically exported out of the country) shall be applicable and is required to be complied
with for the first two years.
ISSUE INVOLVED: Whether the Respondent’s act of issuing a policy concerning plastic
manufacturers only and compelling them to remove the goods out of India is reasonable or
not.
Ratio decidendi: The Court gave its judgement in this case based on the judgement given by
the Gujarat High Court in Imperial Overseas Pvt. Ltd. case where it was held that the
conditions imposed by the respondent while issuing the LoA to each petitioner were in
consonance with the guidelines of 2013 but not with the SEZ Rules, 2006. Since, none of the
rules prohibit the unit established in SEZ to remove the goods in DTA. Under Section 55(3)
of the SEZ Act, no rules were amended and, therefore, when the petitioner units were
following the rules, particularly, Rule 53 and paying the customs duty in foreign currency,
there was no need to impose conditions as per guidelines of 2013.
When section 30 itself provided the payment of customs duty with regard to the removal of
goods manufactured in SEZ to Domestic Tariff Area and the conditions specified in the rules,
there was no reason for the authority to issue a policy with regard to plastic manufacturers
only and compelling them to remove the goods out of India.
Hence, the petition was allowed in the Imperial Overseas case. The policy issued by the
respondent dated 17-09-2013 and its conditions issued to the petitioners in the LoA were
quashed and set aside.
The court was in full agreement with the Gujarat High Court in the present case. The
respondent’s action was held not reasonable, the writ petition succeeded and was allowed.
FACTS: M/S. Sapthagiri Hospitality Pvt. Ltd. (appellant) has constructed a hotel in the non-
processing zone of Dahez SEZ on the land allotted to it and started hospitality services
therein. The hospitality services included providing rooms on tariffs, supplying
food/beverages, laundry services, housekeeping services, etc. within the premises of the
hotel.
The Appellant filed an application before the Gujarat Authority for Advance Ruling (GAAR)
and sought ruling on the following questions –
1. The hotel being located in the non-processing zone of Dahez SEZ whether liable to
pay GST on all services provided by it to its clients located in SEZ.
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2. Under extreme circumstances, if the hotel is required to provide accommodation
services to a visitor other than a visitor located in SEZ, whether GST is required to be
paid.
The GAAR vide ruling dated 30-07-2018, ruled as follows –
1. The supplies made by the applicant, an SEZ Co-developer, will be treated as zero-
rated supplies under the provisions of Section 16(1) of the Integrated Goods and
Services Tax Act, 2017 read with Section 2(m) of SEZ Act, 2005.
2. The applicant is liable to pay GST on the services from their hotel located in the non-
processing zone of Dahez SEZ to the clients located outside the territory of SEZ
under the provisions of Section 5(1) of Integrated Goods and Services Tax, 2017.
The appellant filed this appeal on 06-10-2018, aggrieved by the ruling of the GAAR and the
appeal was preferred against the answer given by GAAR in response to Question no. 2.
The appellant submitted that the GST is a destination-based consumption tax and the actual
destination and consumption as well as the enjoyment of services is the place where the hotel
is located, i.e., Dahej SEZ. As the supply has been made in SEZ, no IGST will be applicable.
ISSUE INVOLVED: Whether the appellant is required to pay GST on the services from
their hotel located in the non-processing zone of Dahez SEZ to the clients located outside the
territory of SEZ under the provisions of IGST, 2017.
Ratio decidendi: Under Section 16(1)(b) of the IGST Act, the supply of goods or services or
both to an SEZ unit, is covered under ‘zero-rated’ supply. Thus, to be qualified as ‘zero-
rated’ supply, the law specifically refers to the supply ‘to’ SEZ developer/unit and not ‘to or
by’ SEZ developer/unit.
The appellant referred to Section 53 and 51 of the SEZ Act, 2005. It was submitted that the
services have been provided directly in relation to immovable property in the SEZ and such
services are part of the authorized operation of the SEZ. Also, it was submitted that the IGST
should not be applicable on the services provided in SEZ to persons other than SEZ units as
the said services are received within the SEZ, which is deemed to be territory outside India.
The appellant has placed reliance on Section 53 and 51 of the SEZ Act, 2005 in support of
the contention that their activity in SEZ is not liable to IGST.
It appeared that the appellant has misconstrued that the said sub-section provides that an SEZ
shall be deemed to be a territory outside the territory of India, that too for all purposes and no
Indian Law is applicable in SEZ except the SEZ Act, 2005 and the Laws which are
specifically made applicable by SEZ Act, 2005. The said understanding of the appellant did
not appear correct before the appellate. In fact, the sub-section (1) of Section 53 provides a
deeming fiction whereby the SEZ shall be deemed to be a territory outside the customs
territory of India and that too for the specific purposes of undertaking the authorized
operations. The term “customs territory” cannot be equated to the territory of India. Further,
the interpretation advanced by the appellant would lead to a situation where an SEZ would
not be subject to any laws of India whatsoever. Section 51 of the SEZ Act provides for
overriding effect in case there is anything inconsistent in any other law. However, no
inconsistency between the provisions of the SEZ Act and the IGST Act was pointed out by
the appellant. Therefore, the reliance placed by the appellant on sections 53 and 51 of the
SEZ Act, 2005 in support of the contention that their activity in SEZ is not liable to IGST,
was held not acceptable.
Hence, the ruling of the Gujarat Authority for Advance Ruling was accepted.
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M/S. GMR Aerospace Engineering Ltd. and Another Vs. Union of India, and Others
[Telangana and Andhra Pradesh High Court]; Writ Petition No. 13546 of 2018
SEZs Act, 2005 – Sections 26, 26(1), 51, 53, and 7
SEZs Rules, 2006 – Rule 22
Decided on: 27-12-2018
FACTS: The 1st petitioner, in this case, is engaged in the business of development of MRO
facilities for various types of air crafts as a Co-Developer and the 2nd petitioner is a Developer
of GMR Hyderabad Aviation SEZ.
The Development Commissioner (4th respondent) issued a certificate to the 1st petitioner on
29-09-2010 and another certificate to the 2nd petitioner on 31-05-2010, by which the services
consumed within the SEZ for carrying out authorized operations were exempt from the levy
of service tax.
The 2nd petitioner entered into a sub-lease agreement with the 1st petitioner on 01-06-2010 for
rendering the services of (1) lease of land, (2) supply of electricity and (3) supply of water.
For the services rendered, the 2nd petitioner had been raising invoices on the 1st petitioner and
they had also been filing their returns and availing exemptions. No service tax was charged
and as a consequence, Form A1 and A2 were not filed by the 2nd petitioner, as required by
three notifications issued respectively on 01-03-2011, 20-06-2012, and 01-07-2013.
However, the concerned authorities of the service tax demanded these forms, to grant the
benefit of exemptions, and hence, the 1st petitioner requested the issue of the relevant forms
with effect from 01-06-2010. But the Board of Approval, in their meeting held on 08-03-2017
rejected the appeal of the petitioners.
The 5th respondent issued a show-cause notice dated 12-04-2017 to the 2nd petitioner alleging
that the 2nd petitioner was providing the services of the renting of immovable property to the
1st petitioner without obtaining copies of Forms A1 and A2 and that therefore, there was a
contravention of the provisions of the Finance Act, 1994 resulting in the 2nd petitioner
becoming ineligible for the grant of exemption in terms of the notifications.
Challenging the order of the BoA dated 08-03-2017 and also challenging the show cause
notice, the petitioner filed a writ petition. The writ petition was disposed of by an order 03-
01-2018 directing the 5th respondent to consider the case of the petitioners and to pass orders
after giving an opportunity of personal hearing.
The 5th respondent passed an Order-in-Original dated 20-02-2018 confirming the demand and
also imposing a penalty under Sections 77 and 78 of the Finance Act.
The petitioners have come up with the above writ petition challenging (1) the three
notifications, (2) the decision of the BoA dated 08-03-2017, and (3) the Order-in-Original
dated 20-02-2018.
The main ground on which the petitioners challenged the impugned proceedings is that under
Section 26(1)(e) of the SEZ Act every Developer and entrepreneur shall be entitled to
exemption from service tax under the Finance Act on taxable services provided to a
developer or unit to carry on the authorised operations in an SEZ.
ISSUE INVOLVED: Whether the availability of exemptions under section 26 of the SEZ
Act would depend not only upon the terms and conditions prescribed under Section 26, but
also upon the terms and conditions prescribed in the notifications issued under various
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enactments such as Customs Act, 1962; Central Excise Act,1944; Central Finance Act, 1994;
Central Sales Tax Act, 1956; etc.
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Sesa Sterlite Ltd. Vs. Orissa Electricity Regulatory Comm. And Others
[SUPREME COURT OF INDIA]; Civil Appeal No. 5479 of 2013
SEZs Act, 2005 – Sections 11, 12, 13, 15, 2, 3, 4, 4(1), 49, 49(1), 51, 54, and 56
Decided on: 25-04-2014
FACTS: The Appellant was engaged in the business of production and export of Aluminium.
The Appellant had set up a 1.25 MTPA capacity aluminium smelter project in a sector-
specific Special Economic Zone After getting all necessary approvals for the development of
SEZ for manufacture and export of aluminium, the Appellant set up the aforesaid plant.
These approvals included the approval of the captive power plant as well. On 27-02-2009, the
Ministry of Commerce and Industry, issued a notification declaring the unit of the Appellant
to be SEZ. By notification dated 03-03-2010, u/s 49(1) of the SEZ Act and u/s 14(b) of the
Electricity Act, 2003; the Appellant became a Deemed Electricity Distribution Licensee.
The Units of the Appellant are divided into two broad stages. One is the Domestic Tariff
Area (DTA) and the other is the VAL-SEZ. The present appeal was concerned with VAL-
SEZ which is in SEZ Area where the Appellant is stated as deemed Distribution Licensee.
For the supply of energy to this unit in SEZ Area, the Appellant entered into a Power
Purchase Agreement (PPA) on 18-08-2011 with Sterlite Energy Ltd. Since the supply of
power by a generating company to a distribution company is regulated under the provisions
of Electricity Act, 2003, the Appellant on 30-08-11 filed a petition before the State
Commission for approval of the said PPA. The State Commission rejected the petition for the
grant of deemed Distribution License and prayer for appeal of PPA also.
This order of the State Commission was upheld by the Appellate Tribunal.
ISSUE INVOLVED: Whether a developer of a notified SEZ, who has been deemed by law
to be a licensee for distribution of electricity, is required to, once again, apply to the
Electricity Regulatory Commission under the Electricity Act for grant of a license or the
deeming fiction carved out in Section 14 of the Electricity Act automatically dispenses with
this requirement and ipso facto makes such SEZ developer a distribution licensee.
Ratio decidendi: The statute makers by notification dated 03-03-2010 have inserted the
additional proviso to section 14(b) of the Electricity Act. Admittedly, the development and
operation of the SEZ are two distinct activities. Thus, the jurisdiction of the State
Commission to scrutinise the deemed distribution status of the Appellant is well established
in view of section 49(1) of SEZ Act, 2005 and the notification of the Central Government
dated 21-03-2012. Therefore, the contention of the Appellant that the State Commission dealt
with the matter relating to the grant of distribution license by going beyond its jurisdiction
was misplaced.
It was also noticed that the Ministry of Commerce and Industry has accorded SEZ status to
the Appellant for development, operation and maintenance of sector specified SEZ for
manufacture and export of Aluminium on the condition that the Appellant should establish
captive generating plant as was stipulated in the letter of Approval, but it was pointed out that
still the plant has not been established for various reasons. If the captive generating plant of
1215 MW had been established as per the condition inside the SEZ area, the question of
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power purchase from Sterlite Energy Limited under the pretext of distribution licensee status
would not have arisen.
The perusal of the notification dated 03-03-2010 made it evident that the legislation’s
intention for declaring the developer in SEZ area as deemed distribution licensee, was
confined only to section 14(b) of Electricity Act, which deals with the grant of license by the
appropriate State Commission to any person for the distribution of electricity. The said
notification had not curtailed the power of State Commission so far as the applicability of
other provisions was concerned. Therefore, the State Commission rightly acted upon those
provisions.
Also, it was established by the court that an entity that utilizes the entire quantum of
electricity for its own consumption and does not have any other consumers, cannot, by a
notification, be deemed to be distribution licensee, even by a legal virtue.
The Notification dated 03-03-2010 providing for the “developer” of SEZ being deemed as a
“Distribution Licensee” was issued keeping in view the concept of Multi-Unit SEZs and will
apply only to such cases in which the Developer is supplying the power to multiple Units in
the SEZ. The said notification didn’t apply to a developer like the Appellant who has
established the SEZ only for itself.
The Court didn’t find any merit in this appeal and was accordingly dismissed.
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5th June, 2020
Applicability of RCM:
(i) RCM in respect of the nature of the supply and/or nature of the supplier:
According to Section 9(3) of the CGST Act, 2017/ Section 5(3) of the IGST Act, 2017 –
The Government may, on the recommendations of the Council, by notification, specify
categories of supply of goods or services or both, the tax on which shall be paid on reverse
charge basis by the recipient of such goods or services or both and all the provisions of this
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Act shall apply to such recipient as if he is the person liable for paying the tax in relation to
the supply of such goods or services or both.
Time of Supply:
The Time of Supply is the point when the supply is liable to GST. One of the factors relevant
for determining the time of supply is the person who is liable to pay tax. In reverse charge,
the recipient is liable to pay GST. Thus, the time of supply for supplies under reverse charge
is different from the supplies which are under forward charge.
In the case of supply of goods, the time of supply is earlier of –
(a) Date of receipt of goods; or
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(b) Date of payment as per books of account or date of debit in the bank account,
whichever is earlier; or
(c) The date immediately following thirty days from the date of issue of invoice or
similar other documents.
In the case of supply of services, the time of supply is earliest of –
(a) Date of payment as per books of account or date of debit in the bank account,
whichever is earlier; or
(b) The date immediately following sixty days from the date of issue of invoice or similar
other documents.
Where it is not possible to determine the time of supply using the above methods, time of
supply would be the date of entry in the books of account of the recipient.
Conclusion:
Tax will be paid by the registered dealer (recipient) of goods or services or both under the
Reverse Charge Mechanism and all the provisions of the CGST/IGST/SGST/UTGST Act
will be applicable to him as if he is the supplier of the goods or services or both. The
objective of this law is to prevent tax evasion since it would not be possible to collect tax by
respective government from the unregistered persons engaged in supply of taxable goods or
services. It would increase tax compliance and promotes transparency. Input credit will be
allowed to the registered dealer of the tax paid by him under the Reverse Charge Mechanism.
But, at the same time it will increase volume of work to maintain details of receipt of goods
or services, issues of self tax invoices, payment vouchers in respect of such supplies, payment
of taxes keeping in view the time of supply, filing of returns and other compliances at the cost
of registered persons. Moreover, for the small recipient registered persons this will be little
harsh and may not be the objective of the law.
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12th June, 2020
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by a wide range of businesses/individuals including but not limited to service providers,
aggregators, e-commerce operators, agents, suppliers and/or manufacturers.
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Details of inputs and capital goods on which credit is being availed to be specified.
Details shall be duly certified by a practicing Chartered Accountant or Cost
Accountant if the aggregate credit claim exceeds Rs.2 lakhs.
Input Tax Credit claimed by the person in specified cases shall be verified with
corresponding details furnished in the supplier’s outward supply return.
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CASE LAWS
State of Uttar Pradesh v. Kay Pan Fragrance Private Limited, 2019-VIL-39-SC.
In this judgment, the Court was dealing with multiple cases where the Proper Officer seized
the goods due to improper documentation like E-way bills etc. The Allahabad High Court
passed interim orders directing release of goods without payment of any security amount (in
cash or any other form). Section 67 of the Central Goods and Services Tax Act, 2017 (‘CGST
Act’) read with Rule 140 and 141 of the Central Goods and Services Tax Rules, 2017
(‘CGST Rules’) provides the procedure for release of goods seized by a proper officer. As per
these provisions, the goods can be provisionally released on furnishing of bond of a
prescribed amount and security. The Supreme Court observed that the CGST Act read with
the CGST Rules contains a complete code for release (including provisional release) of
seized goods. The Court held that the interim orders passed by the High Court are bad in law
and erroneously allowed release of goods in contravention to the relevant provisions.
Accordingly, the High Court erred in not asking the taxpayer to comply with the prescribed
procedure and instead ordered release of goods.
Skill Lotto Solutions Pvt. Ltd. v. Union of India and Others
Layers after layers of retrospection, judicial pronouncements, and amendments are the key to
make any legislative policy a successful one. GST (Goods and Service Tax) regime is always
on a path to unravel, widening the scope of jurisprudential interpretation. One such attempt
was made by the Hon’ble Supreme Court of India recently, in the case of Skill Lotto
Solutions v. Union of India. The three-judge bench held that the levy of GST on Lottery,
betting, and gambling is not in violation of any fundamental right. In doing so the court also
said that such activities are ‘res extra commercium’; rendering such levy of GST on lottery,
betting, and gambling lawful.
CONCLUSION
ITC is expected to adequately incentivize exporters by reducing duties paid on exports and
will initiate the refund of various taxes to exporters. ITC is provided to set off tax paid on the
purchase of raw materials, consumables, goods or services that were used in the
manufacturing of goods or services. This helps in avoiding double taxation and the
cascading effect of taxes.
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