CBIC clarification fixes one SEZ anomaly, ignores another concern

CBIC's SEZ clarification eases drawback claims on re-exports, but gaps persist for DTA-to-SEZ supplies, calling for a broader, consistent tax interpretation

The Central Board of Indirect Taxes and Customs (CBIC) has clarified (through Instruction No. 06/2026-Customs dated April 27, 2026) that goods cleared from special economic zone (SEZ) into domestic tariff area (DTA) on payment of Customs duty must be treated as imported goods for the purpose of drawback under Section 74 of the Customs Act, 1962 (CA62) when they are subsequently re-exported. It will help avoid disputes and release working capital blocked in rejected/delayed drawback claims, but a similar interpretation is needed even where duty paid imported goods are supplied from DTA to SEZ.   

The issue arose because some field formations denied drawback on the ground that goods moving from SEZ to DTA are not “imports” under the definitions in either the SEZ Act, 2005 or CA62. They ignored Section 53 of the SEZ Act, which deems SEZ to be a territory outside the Customs territory of India, Section 30 of the SEZ Act, which requires Customs duties to be paid when goods are removed from SEZ to DTA, as if such goods were imported and Rule 48 of the SEZ Rules, 2006, which requires filing a bill of entry for such clearances.  

Once duty is levied and collected on that basis, it is difficult to justify denial of Section 74 drawback when the same goods are re-exported. The purpose of Section 74 is to neutralise Customs duty on imported goods that do not remain in DTA. If SEZ to DTA clearances are subjected to import duties, suitable relief should logically follow by way of Section 74 drawback when the goods leave India. 

The CBIC interpretation is, therefore, not merely technical. It has practical significance. Uniform treatment across Customs formations will reduce litigation, improve certainty and ease cash-flow pressures. It will also prevent audit objections from hardening into administrative positions that are inconsistent with the larger statutory design. 

Yet the fact that this clarification was needed in 2026, more than two decades after the SEZ Act was enacted, is troubling. The legal fiction of SEZ being outside the Customs territory has always been central to the SEZ law. The duty mechanism for DTA clearances has also been explicit. Still, field-level interpretation persisted in isolating definitions from the charging and procedural provisions. This points to a familiar problem in tax administration where intent is often clear, but its operational translation is uneven. 

A similar difficulty arises where duty-paid imported goods are supplied from DTA to SEZ, and where goods cleared from SEZ to DTA on duty payment are supplied back to SEZ. Section 2(m)(ii) of the SEZ Act, 2005 defines DTA to SEZ sup­plies as “exports” but Section 2(18) of CA62 and Rule 2(b) of Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995 do not. However, Section 51 of the SEZ Act, gives overriding effect to SEZ laws, in case of inconsistency with any other law, a fact often ignored by the Customs field formations at the operating levels. Another CBIC directive is, therefore, necessary emphasising admissibility of Section 74 drawback in all cases where Customs duty paid goods are subsequently sent out of the DTA, whether by way of physical export or by way of supply to SEZ. Such clarification would align law, procedure and economic reality. It would also reinforce the principle to “export goods, not taxes”. 

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