Customs Duty on SEZ–DTA Clearances: Latest Judgments, Key Notifications & Compliance Insights

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 29.11.2025

Customs Duty on SEZ–DTA Clearances: Latest Judgments, Key Notifications & Compliance Insights

Customs duty on transactions between the Domestic Tariff Area (DTA) and Special Economic Zones (SEZs) has gone through a lot of churn in the last few years – especially around export duty on DTA→SEZ supplies and import-like duties on SEZ→DTA clearances. With the latest Supreme Court and High Court rulings, plus some important notifications and circulars, the position is now much clearer (and more taxpayer-friendly) on several issues.

1. Why DTA–SEZ Customs Duty Is Such a Hot Topic

SEZs are legally treated as deemed foreign territory for certain tax purposes. Under the SEZ framework, goods going from DTA to SEZ are treated as “exports”, while goods coming from SEZ to DTA are treated as “imports” – but that’s under the SEZ law, not automatically under the Customs Act.

This duality has created classic disputes:

• Can export duty be levied on DTA→SEZ supplies?
• How exactly are customs duties computed on SEZ→DTA clearances?
• Can returned goods from SEZ to DTA get re-import exemption (Notification 45/2017-Cus)?
• What is the interplay between Customs Act, 1962, the SEZ Act, 2005 and Customs Tariff Act, 1975 in these flows?

Recent jurisprudence – especially the 2025 Supreme Court ruling in the Adani Power matter and the Andhra Pradesh High Court’s decision striking down the fifth proviso to Rule 27(1) of the SEZ Rules – has addressed some of these issues head-on.

2. Statutory Framework: Customs Act vs SEZ Act

2.1 Key provisions of the SEZ Act, 2005

Some of the most important provisions of the SEZ Act for duty issues are:

• Section 2(m) – Defines “export” to include:
  • physical exports out of India, and
  • supplying goods from DTA to a SEZ unit or developer.
• Section 26 – Grants exemptions from customs duties, excise, service tax etc. on goods/services imported or procured from DTA for authorised operations in SEZ.
• Section 30 – Charging section for SEZ→DTA clearances: goods removed from an SEZ to DTA are chargeable to duties of customs (including ADD/CVD/SGD) as if such goods are imported into India.
• Section 51 – Gives the SEZ Act overriding effect over other laws if there is inconsistency.
• Section 53 – Deems an SEZ to be a territory outside the customs territory of India for specified purposes.

2.2 Customs Act, 1962 & Customs Tariff Act, 1975

• Section 12, Customs Act – The charging provision for customs duty on goods imported into or exported from India.
• Customs Tariff Act, 1975 – Specifies rates of BCD, export duty, ADD, CVD, safeguard duty, etc.

The core constitutional point is: no customs duty can be levied without a clear charging section in an Act of Parliament. Rules, notifications and circulars cannot create a new levy.

3. Types of DTA–SEZ Transactions & Customs Duty Treatment

3.1 DTA → SEZ: Are these “exports” and is customs duty payable?

Under the SEZ Act, supplies from DTA to SEZ are expressly treated as “exports” and SEZ units are entitled to benefits such as drawback and other export incentives.

The Central Board of Excise & Customs (now CBIC) clarified this position through Customs Circular No. 29/2006, recognising that:

• Supplies from DTA to SEZ are exports,
• They are eligible for rebate/drawback, and
• Exemptions from central excise duty apply to such supplies.

3.1.1 Export duty on DTA→SEZ: the big controversy

For years, authorities tried to levy export duty on DTA→SEZ supplies by relying on:

• The definition of “export” in Section 2(m) of SEZ Act, and
• The fifth proviso to Rule 27(1) of the SEZ Rules, 2006, inserted in 2018, which stated that supplies from DTA to SEZ shall attract export duty where leviable.

This was challenged on the ground that:

• Section 12 of the Customs Act levies export duty only when goods go out of India;
• SEZ units are still within India’s territory, even if deemed outside the customs territory for limited purposes; and
• The SEZ Act has no charging section for export duty on DTA→SEZ supplies, unlike Section 30, which specifically charges customs duty on SEZ→DTA movement.

This controversy has now largely settled in favour of the assessee (discussed in Section 5 below).

3.1.2 GST angle on DTA→SEZ supplies

Under the IGST Act, supplies to SEZ are treated as zero-rated supplies, and all supplies from DTA to SEZ are treated as inter-State supplies to be governed by IGST provisions.

This is separate from customs duty, but in practice many businesses mix the two. The key is:

• GST: DTA→SEZ = zero-rated inter-State supply
• Customs: DTA→SEZ = no customs/export duty after the recent rulings, absent a charging section

3.2 SEZ → DTA: Treated as “imports” for customs

When goods move from SEZ to DTA, Section 30 of the SEZ Act expressly provides that such clearances are chargeable to duties of customs (including ADD, CVD, safeguard, etc.) as if the goods were imported into India.

CESTAT in Lupin Ltd v. Commissioner of Customs held that:

• Clearances from SEZ to DTA attract customs duty under Section 30,
• Rule 48(3) of SEZ Rules (which facilitates invoices instead of Bill of Entry in certain cases) cannot override the charging section, and
• Reduced or nil duty can apply only where the tariff rate itself is nil or where a valid exemption notification so provides.

Practical implication:
Whenever goods are cleared from SEZ to DTA, treat them like imports – file a Bill of Entry (unless the specific “invoice mode” conditions are satisfied) and pay customs duty as per the Customs Tariff.

3.3 DTA → SEZ → DTA (returns of goods, “as is” or after processing)

A very tricky area is when:

1. Goods are supplied from DTA to SEZ (treated as export under SEZ Act), and
2. The same goods – either unutilised or processed – are sent back to DTA.

Key questions:

• Is this a re-import entitled to benefit of Notification 45/2017-Cus (re-import of goods exported under rebate/drawback/bond)?
• Who is the “importer” – the SEZ unit or the DTA buyer?
• What is the duty base – original export price, retained value, or full transaction value at the time of return?

The Lupin line of decisions & commentary suggests:

• Section 30 SEZ Act is the primary charging section for SEZ→DTA clearances, and
• The benefit of Notification 45/2017-Cus is not automatically available for goods returning from SEZ to DTA; in many cases the DTA entity is treated as the importer liable to duty on full value.

In short: “round-tripping” via SEZ does not automatically give a re-import exemption. Very careful structuring and documentation is required.

4. Key Customs Notifications & Circulars Relevant to DTA–SEZ Duty

This is not an exhaustive list, but covers notifications and circulars that often come up when structuring or litigating DTA–SEZ flows:

4.1 Notification No. 52/2003-Cus., dated 31.03.2003

• Grants exemption from customs duties on specified goods imported or procured by EOUs, STP, EHTP units etc. for manufacture and export.
• Subsequent amendments (e.g. Notification 33/2018-Cus) extended the benefit to IGST/Compensation cess for such units.

Though primarily for EOUs, the logic carries over when comparing SEZ vs EOU regimes and their treatment for imports and DTA clearances.

4.2 Notification No. 50/2017-Cus., dated 30.06.2017 (General Exemption)

• A comprehensive exemption notification listing effective BCD rates for hundreds of items.
• Includes specific entries where goods received from SEZ to DTA and returned to SEZ (e.g. LPG used in manufacture of polyisobutylene) may enjoy nil BCD, subject to conditions.

This shows how the Government has, in some cases, explicitly carved out SEZ–DTA–SEZ flows in the tariff/exemption structure.

4.3 Notification No. 45/2017-Cus., dated 30.06.2017 (Re-import of exported goods)

• Grants conditional exemption on re-import of goods earlier exported:
  • under duty drawback,
  • under rebate of central excise/service tax, or
  • under bond/other schemes.
• The notification is central to disputes like Lupin, where it was argued that goods returning from SEZ to DTA should be treated as re-imports eligible for this exemption.

Authorities have taken a restrictive view – in many cases, re-import exemption is denied where the transaction structure doesn’t strictly fit the notification language.

4.4 Customs Circular No. 29/2006, dated 27.12.2006

• Clarifies that supplies from DTA to SEZ are exports,
• Such supplies are eligible for rebate/drawback, and
• Specific excise notification (58/2003-CE) for SEZ supplies had become redundant.

This circular has been repeatedly relied upon in litigation to demonstrate that Government’s own understanding is that DTA→SEZ supplies are exports only for benefit (drawback/rebate), not for imposition of customs/export duty.

4.5 Rule 27(1) of SEZ Rules & the Fifth Proviso (2018)

• Rule 27(1) allows units or developers to import or procure from DTA without payment of duty, taxes and cess for authorised operations.
• The fifth proviso, inserted in 2018, stated that supplies from DTA to SEZ shall attract export duty if leviable on the goods.
• The Andhra Pradesh High Court has now held this fifth proviso to be ultra vires the SEZ Act (discussed below).

5. Recent Case Law: How Courts Have Read DTA–SEZ Customs Duty

Here are some key judicial developments that anyone dealing with DTA–SEZ flows should know.

5.1 Union of India v. Adani Power Ltd & Ors – Supreme Court, 2025

In a landmark 2025 judgment, the Supreme Court dismissed the Union’s appeals and held that no export duty is leviable on DTA→SEZ supplies.

Key takeaways:

• Section 12, Customs Act is the exclusive charging provision for customs duty.
• DTA→SEZ transfers do not involve goods crossing the territorial boundary of India, hence cannot be taxed as “exports” under Section 12.
• The SEZ Act defines such supplies as “exports” only for granting benefits, not for expanding the customs duty net.
• Rules or SEZ provisions cannot create a new tax levy in the absence of a charging section in the parent Act.

This judgment aligns constitutional tax principles with the SEZ scheme and gives strong support to assessees who resisted export duty demands on DTA→SEZ supplies.

5.2 TUF Metallurgical Pvt Ltd v. Union of India – Andhra Pradesh High Court, 2025

The Andhra Pradesh High Court struck down the fifth proviso to Rule 27(1) of SEZ Rules, 2006 (which mandated export duty on DTA→SEZ supplies) as ultra vires the SEZ Act.

Ruling highlights:

• The SEZ Act contains no charging provision for export duty on DTA→SEZ supplies, unlike Section 30 for SEZ→DTA.
• Rules framed under the Act cannot create a substantive levy of export duty; they are limited to procedural aspects.
• Export duty can only be imposed under Section 12 of the Customs Act, which is not attracted to goods moving between DTA and SEZ within India.

This ruling was a major step in dismantling the export-duty-on-DTA→SEZ regime even before the Supreme Court’s Adani decision.

5.3 Lupin Ltd v. Commissioner of Customs – CESTAT Delhi, 2023

In Lupin, the Tribunal dealt with goods supplied from DTA to SEZ and later returned to DTA.

Key principles:

• Section 30 of the SEZ Act is the charging section when goods move from SEZ to DTA. Duty is payable as if the goods are imported into India.
• Rule 48(3) SEZ Rules (which allows an invoice instead of Bill of Entry for certain returns) is only a procedural facilitation; it does not override the substantive duty liability.
• Benefit of Notification 45/2017-Cus (re-import of exported goods) is not automatic for SEZ→DTA returns; it must be tested strictly against the language and conditions of the notification.

Post-Lupin, customs authorities have been wary of granting re-import exemptions on SEZ→DTA flows unless the DTA importer clearly fits within Notification 45/2017.

5.4 Government Revision / Clarificatory Orders

In revision orders under Section 35EE of the Central Excise Act (applied mutatis mutandis), the Central Government has itself acknowledged that:

• Supplies from DTA to SEZ are exports “outside the territory of India” for SEZ purposes,
• SEZ Act creates a legal fiction for giving benefits comparable to actual exports,
• But no export duty is payable in absence of a charging provision.

These orders are frequently cited in support of taxpayers in DTA–SEZ disputes.

6. Practical Compliance Pointers for Businesses

From a practitioner’s perspective, here’s how you may want to structure your advice/checklist for clients:

6.1 For DTA → SEZ supplies

• Treat supplies as exports under SEZ and GST law:
  • Use LUT/Bond or IGST-paid route for zero-rated supplies under IGST Act.
• As on date, no export duty is leviable on DTA→SEZ supplies post Adani & TUF Metallurgical, unless Parliament amends the law.
• Maintain:
  • SEZ-endorsed ARE-1/ARE-3/Invoice,
  • SEZ Approval for authorised operations,
  • Proof of receipt by SEZ unit/developer,
  • Documentation for drawback/rebate/ITC refunds.

6.2 For SEZ → DTA clearances

• Treat every clearance as import into India, i.e.:
  • File Bill of Entry (except narrow cases under Rule 48(3)),
  • Pay BCD, SWS, ADD, safeguard, IGST, etc. as applicable.
• Carefully review Notification 50/2017-Cus to see if a specific concessional rate or nil duty applies for your product.

6.3 When goods are returned from SEZ to DTA

• Don’t assume automatic re-import exemption under Notification 45/2017-Cus.
• Examine:
  • Who is the exporter in the original DTA→SEZ transaction?
  • Who is the importer of record for the SEZ→DTA return?
  • Was the original export under drawback/rebate/bond satisfying Notification 45/2017 conditions?
• Consider whether it is more defensible to:
  • Treat the return as a fresh import via Section 30, claim ITC of IGST, or
  • Structure via physical export & re-import outside SEZ, if commercially feasible.

6.4 Litigation strategy pointers

• For pending or prospective demands of export duty on DTA→SEZ:
  • Rely on Adani Power (SC, 2025) + TUF Metallurgical (AP HC, 2025) + earlier revision orders & Circular 29/2006 to argue absence of charging provision.
• For SEZ→DTA issues:
  • Accept Section 30 as the charging section, but explore:
    • Product-specific exemptions in 50/2017-Cus,
    • Eligibility under 45/2017-Cus,
    • Valuation disputes (transaction value vs. cost-plus, related party, etc.).

7. Suggested Case Citations

You can safely incorporate and discuss the following real cases:

1. Union of India v. Adani Power Ltd & Ors, Supreme Court of India, 2025
   • Issue: Levy of export duty on supplies from DTA to SEZ.
   • Held: No export duty can be charged on DTA→SEZ; Section 12 Customs Act is not attracted when goods do not physically leave India.
2. TUF Metallurgical Pvt Ltd v. Union of India & Ors, Andhra Pradesh High Court, 2025
   • Issue: Validity of fifth proviso to Rule 27(1) SEZ Rules imposing export duty on DTA→SEZ supplies.
   • Held: Proviso is ultra vires the SEZ Act; there is no charging provision for export duty on such supplies in the Act.
3. Lupin Ltd v. Commissioner of Customs, CESTAT Delhi, 2023
   • Issue: Duty on goods returned from SEZ to DTA, and applicability of Notification 45/2017-Cus.
   • Held: Customs duty under Section 30 SEZ Act is payable on SEZ→DTA clearances; Rule 48(3) cannot override the charging section; re-import exemption must strictly comply with Notification conditions.
4. Government of India Revision Orders (e.g., F.No. 198/57/16-RA)
   • Issue: Treatment of supplies from DTA to SEZ as export; availability of benefits and levy of duty.
   • Held: DTA→SEZ supplies are exports by legal fiction for granting benefits, not for imposing export duty; no export duty is payable in absence of a charging provision.
5. Various High Court & CESTAT decisions following Adani / TUF Metallurgical
   • These further reinforce that export duty cannot be levied on DTA→SEZ supplies solely on the basis of SEZ rules or notifications, without an explicit charging section.

8. Conclusion

The law on customs duty in DTA–SEZ transactions is now considerably clearer:

• DTA → SEZ
  • Treated as exports under SEZ/GST law for benefits.
  • No export duty under Customs Act, in the absence of a clear charging provision (post-Adani & TUF Metallurgical).
• SEZ → DTA
  • Treated as imports into India.
  • Section 30 SEZ Act read with Customs Tariff applies; customs duty is payable unless validly exempted.
• DTA → SEZ → DTA (returns)
  • Require careful planning to determine whether re-import benefits (45/2017-Cus) are available or whether full customs duty must be paid under Section 30.

For businesses, this is the right time to:

• Re-examine historic export duty demands on DTA→SEZ transactions,
• Re-align contracts and documentation for SEZ→DTA clearances, and
• Proactively plan transaction structures around the current judicial position and key customs notifications discussed above.

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Source: CBIC, Supreme Court, Andhra Pradesh High Court, CESTAT

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