Why SEZ provisions need to be reweighed

The Special Economic Zones Act, 2005, and Special Economic Zones Rules, 2006, were drafted so well that few amendments have been necessary and only to give effect to some changes in the policy. For example, the policy regarding minimum area criteria changed and so, the relevant provisions were amended.

However, the provisions relating to levy of anti-dumping duty (ADD) on goods cleared from an SEZ to the domestic tariff area (DTA) deserve a relook. For, unexpected problems have surfaced.

In Section 30(a) of the Act of 2005, "any goods removed from an SEZ to the DTA shall be chargeable to duties of customs, including anti-dumping, countervailing and safeguard duties under the Customs Tariff Act, 1975, where applicable, as leviable on such goods when imported". On this ground, some SEZ units face an ADD demand on goods they clear into a DTA.

An ADD is levied to counter the predatory pricing policy of any exporter in a foreign country. If a foreign exporter does any dumping, the domestic industry suffers material injury and there is a causal link between both. An ADD is levied after due investigation by the 'Designated Authority'. ADD is expected to be exporter-specific, as is a particular entity which does it. However, quite often, ADD is levied on imports originating from a particular country.

In any case, when an SEZ manufacturer is not dumping, why should his manufactured goods be subject to ADD only for the reason that the item in question, if imported from abroad, attracts ADD? Yet, at least to some SEZ customs authorities, the law mandates the levy of ADD on an item when cleared from SEZ to DTA, if the item attracts ADD upon import, no matter from what source.

If an item is subject to ADD upon its import and that item is brought into an SEZ without payment of any duty and is subsequently cleared into a DTA as such (i.e., without any processing), then the ADD demand is logical. Similarly, if an item is subject to ADD upon its import and is brought into an SEZ without payment of any duty, and is subsequently used in manufacture of another product that is cleared into a DTA, the demand of ADD on the imported item is logical. The law should make explicit such specific situations, when such goods cleared from an SEZ to a DTA will attract ADD, rather than ordain ADD on all clearances from an SEZ to a DTA.

In the case of Ram Krishna Exports, 2008 (224) ELT 113 (Tri.Ahmd.), the SEZ unit imported Theophylline Anhydrous BP 2000 from China. This was subject to ADD, pulverised, repacked and labelled as goods in an SEZ and cleared into the DTA. The tribunal held that the product cleared from the SEZ was different from what was imported from China and the clearance from the SEZ could not be treated as import of goods from China and subject to ADD. The customs demand was quashed.

So, a relook at the relevant provisions is necessary and the commerce ministry officials dealing with SEZs should, in consultation with finance ministry officials, study the customs exemption notifications relating to export oriented units, to learn how such situations are dealt with. And, suitably amend the SEZ law.

Email: tncrajagopalan@gmail.com