HC holds export duty not leviable on supplies by DTA to SEZ

This Tax Alert summarizes a recent ruling of the Andhra Pradesh High Court (HC) ^[1] on levy of export duty on supply of goods from Domestic Tariff Area (DTA) to Special Economic Zone (SEZ) basis fifth proviso to Rule 27(1) of Special Economic Zones Rules, 2006 (SEZ Rules).

The fifth proviso to Rule 27(1) was inserted w.e.f. 19 September 2018 to provide that supplies from DTA to SEZ shall attract export duty.

The key observations of the HC are:

• There is no charging provision for levy of export duty on supplies made from DTA to SEZ under SEZ Act unlike Section 30 of SEZ Act which specifically envisages levy of customs duty on movement of goods from SEZ to DTA.
  
  
• In the absence of any delegation of power to the Central Government to levy export duty on removal of goods from DTA to SEZ, the Government could not levy duty without any authority of law.
  
  
• Prior to the implementation of SEZ Act, Section 76F(a) under Chapter XA of Customs Act, 1962 (Customs Act) specifically envisaged levy of export duty on supplies from DTA to SEZ and section 76F(b) envisaged import duty on clearance from SEZ to DTA.
  
  
• The omission of Chapter XA pursuant to the enactment of SEZ Act reflects legislative intent to not impose export duty on supply of goods from DTA to SEZ, while Section 76F(b) came to be retained in its modified form as Section 30(a) of the SEZ Act, 2005.
  
  
• While Section 55(2)(h) of SEZ Act provides that Central Government may prescribe terms, conditions and limitations subject to which goods or services be exempted from payment of duty under Section 7 of SEZ Act, it does not authorize the Central Government to levy customs duty on account of movement of goods from DTA to SEZ.
  
  
• Section 55(1) which empowers Central Government to make rules for carrying out the provisions of SEZ Act is a general delegation without guidelines.

Accordingly, HC held that fifth proviso to Rule 27(1) of SEZ Rules is ultra vires the SEZ Act.

Comments:

In August 2025, SC^[2] dismissed appeals filed by the Revenue against various HC^[3] judgements which dealt with the question of levy of export duty on supplies from DTA to SEZ for the period prior to insertion of fifth proviso to Rule 27(1) and upheld that export duty cannot be levied on goods supplied from DTA to SEZ.

^[1] 2025 (9) TMI 1171 – Andhra Pradesh HC
^[2] Civil Appeal No. 4489 of 2023
^[3] 2010 (249) E.L.T. 3 (Guj.), 2011 (267) E.L.T. 28 (Kar.), 2011 (272) E.L.T. 209 (A.P.) and others