ALO Law Office- IDT Tax I Arbitration I Litigation
Date: 25.11.2025
CESTAT Mumbai- Procedural Lapses Cannot Deny SEZ Exemption Under Section 26 of SEZ Act, 2005β
This Article has been written by Shri Ravi Shekhar Jha, Advocate based in New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email id intelconsul@gmail.com or on his Mobile +91-9999005379.
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Introduction
In a significant development, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai, has delivered a landmark judgment in the case of ACE Enterprises vs. Commissioner of CGST & Central Excise, Nashik. The ruling, issued on November 17, 2025, reaffirms the overriding authority of the Special Economic Zones (SEZ) Act, 2005, in granting exemption benefits to excisable goods supplied to SEZ units, even in cases of procedural lapses. This decision is a major win for businesses operating in SEZs and sets a precedent for similar cases in the future.
Background of the Case
The case revolved around M/s ACE Enterprises, a manufacturer of automobile parts and seat covers, which supplied goods to SEZ units without payment of central excise duty under Notification No. β 58/2003-C.E. dated July 22, 2003. β During an audit, the department alleged that the appellant failed to comply with procedural requirements, such as filing Form ARE-1 and submitting re-warehousing certificates, and did not reflect the clearances in their ER-1 returns. β Consequently, a demand for βΉ7,52,063/- in excise duty, along with interest and penalties, was raised against the appellant. β
The appellant challenged the demand, arguing that the goods were supplied to SEZ units with proper documentation and recorded in their books of accounts. β They contended that the exemption under Section 26 of the SEZ Act, 2005, should not be denied due to procedural lapses, as the SEZ Act provides overriding authority over other laws. β
Key Issues Addressed
The Tribunal examined two critical issues:
- Whether the appellant was eligible for exemption from central excise duty on goods supplied to SEZ units under the SEZ Act, 2005. β
- Whether the extended period of limitation and penalty under Section 11AC of the Central Excise Act, 1944, was applicable in this case. β
The Tribunal analyzed the legal provisions of the SEZ Act, SEZ Rules, and relevant notifications, including Notification No. β 58/2003-C.E. and Circular No. 29/2006-Cus. It also referred to landmark judgments, including GMR Aerospace Engineering Ltd. vs. Union of India and Commissioner of C. Ex. New Delhi vs. Hari Chand Shri Gopal, to arrive at its decision. β
Key Takeaways from the Judgment
- Exemption Benefits Under SEZ Act, 2005: The Tribunal emphasized that Section 26 of the SEZ Act, 2005, provides standalone exemptions for goods supplied to SEZ units. β These exemptions cannot be denied due to non-compliance with procedural requirements under other laws or notifications. β The SEZ Act has an overriding effect, as stated in Section 51, which ensures that its provisions take precedence over any inconsistent laws. β
- Procedural Lapses Are Not Grounds for Denial: The Tribunal highlighted that procedural lapses, such as non-filing of Form ARE-1 or non-submission of re-warehousing certificates, cannot be used to deny exemption benefits under the SEZ Act. β The appellant had provided substantial evidence, including invoices, transportation receipts, and SEZ gate entry records, to establish that the goods were indeed supplied to SEZ units. β
- Extended Period of Limitation and Penalty: The Tribunal rejected the department’s claim of suppression of facts and intention to evade duty. It ruled that the appellant had acted in good faith and had substantially complied with the procedural requirements, making the invocation of the extended period of limitation and imposition of penalties unsustainable.
Implications of the Ruling
This judgment is a significant win for businesses operating in SEZs, as it reinforces the principle that exemptions under the SEZ Act cannot be denied due to procedural lapses. β It also highlights the importance of the SEZ Act’s overriding effect, ensuring that its provisions are not undermined by conflicting requirements under other laws or notifications. β
The Tribunal’s decision aligns with previous rulings by the Honβble Andhra Pradesh High Court and the Honβble Supreme Court, which upheld the primacy of the SEZ Act in granting exemptions. β This consistency in judicial interpretation provides clarity and confidence to businesses, encouraging them to leverage the benefits of SEZs for their operations.
Conclusion
CESTAT Mumbai’s ruling in favor of M/s ACE Enterprises is a landmark decision that underscores the importance of the SEZ Act, 2005, in promoting exports and economic growth. By upholding the exemption benefits for SEZ supplies, the Tribunal has reinforced the principle that procedural lapses should not hinder the intent of the law. β This judgment is expected to have far-reaching implications for businesses and policymakers, ensuring a more streamlined and business-friendly environment for SEZ operations.
Source: CESTAT Mumbai
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