• Dated 01^st December, 2025

SUPREME COURT CLARIFIES: NO EXPORT DUTY ON DTA-TO-SEZ SUPPLIES

BRIEF FACTS:

Companies were supplying goods from the Domestic Tariff Area (DTA) to units and developers located within Special Economic Zones (SEZs). The Department sought to levy export duty on these movements, contending that such supplies constituted "exports." Multiple High Courts rejected this position, holding that goods sent to SEZs remain within India's territory and do not undergo a physical export. Aggrieved, the Union of India filed appeals before the Supreme Court. The central question was whether the movement of goods from DTA to SEZ could, in law, be treated as an "export" for imposing export duty under the Customs Act, 1962 or the SEZ Act, 2005.

ASSESSEE'S CONTENTION:

The assessee argued that Section 12 of the Customs Act imposes duty only on goods physically taken out of India, and goods supplied to an SEZ do not leave India's borders. While the SEZ Act treats such movement as "export," this classification is only for administrative or incentive-related purposes. Crucially, the SEZ Act contains no charging provision to levy export duty. They contended that the wider SEZ definition cannot be grafted onto the Customs Act to artificially expand the scope of a tax levy, particularly when taxing statutes must be interpreted strictly.

DEPARTMENT'S CONTENTION:

The Department submitted that since the SEZ Act designates DTA-to-SEZ supplies as "exports," such transactions ought to attract export duty. It argued that the deeming fiction under the SEZ Act should apply for customs purposes as well, and that the movement of goods to SEZs should be treated as equivalent to their export outside India.

DECISION:

The Supreme Court held that export duty is chargeable only when goods are actually taken out of India, in accordance with the definition in Section 2(18) of the Customs Act. Goods supplied to SEZs remain within the territory of India; hence, they cannot be categorised as "export goods" for the purpose of levying duty. The Court further observed that the SEZ Act does not create any charge of export duty and its deeming definition cannot be imported into the Customs Act to broaden the reach of a taxing provision. Affirming the consistent view of various High Courts, the Court concluded that export duty is not leviable on DTA-to-SEZ supplies, and dismissed all appeals filed by the Union of India.

BTA'S COMMENT:

This judgment provides authoritative clarity on the fiscal treatment of DTA-to-SEZ transactions. It reaffirms a fundamental principle of tax law: a deeming fiction created for policy facilitation cannot be used to impose a tax without an explicit statutory mandate. The ruling ensures that businesses engaging with SEZ units are protected from unwarranted duty demands and reinforces the distinction between incentive-oriented "deemed exports" and actual exports that trigger customs duties. The decision also harmonises the position across jurisdictions, offering certainty to manufacturers, exporters, and SEZ-based enterprises in structuring their operations and maintaining compliant documentation.

Case ref-Union of India Versus Adani Power Ltd (2025) 36 Centax 257 (S.C.)

Author: Aindrila Ghosh