Holoflex Ltd & Anr v. UoI

What happened

On 27 January 2005, Holoflex was issued an EPCG licence allowing duty-free import of capital goods worth ₹2,17,317.25 against an export obligation of ₹17,38,538, to be discharged by 27 January 2013; it imported goods saving customs duty of ₹2,11,237 under a bill of entry of 5 February 2005, for which the obligation was ₹16,89,896. Under a Product Purchase Agreement of 13 December 2007 with Nokia India Pvt. Ltd., a unit in the Nokia Telecom SEZ in Tamil Nadu, it supplied ICA holograms worth more than the obligation and received payment, filing supply invoices and BRCs as proof. The DGFT refused, saying Bills of Export were needed, and the Single Judge agreed on 22 February 2019, but the Division Bench on 28 February 2020 set that aside, applying para 5.13(b) of the Handbook, and noted the Union's counsel had conceded the point. The Union sought review, arguing that supplies to an SEZ are 'exports' and not 'deemed exports' under section 2(m)(ii) and section 53(1) of the SEZ Act, that Rules 23 and 30 of the SEZ Rules require a Bill of Export, and that Circular 29/06-Cus supported it; revenue was about ₹2 lakhs. Holoflex said deemed exports are those where goods do not leave the country.

Questions before the court

• Are supplies from a DTA unit to an SEZ unit 'exports' needing Bills of Export or 'deemed exports' for an EPCG export obligation?

Why the court ruled this way

The issue has to be decided on Chapter 8 of the Foreign Trade Policy, which does not exhaustively list the categories of deemed exports in paragraph 8.2, and paragraph 8.1 covers any supply where goods do not leave the country and payment is received (paragraphs 26 to 31). Section 2(m)(ii) of the SEZ Act defines 'export' only for that Act and cannot be read into the Policy (paragraphs 34 and 35). Section 51 gives overriding effect only to the Act, and section 53(1) deems an SEZ outside the customs territory only for authorised operations, not outside India, and a deeming fiction is limited to its purpose (paragraphs 36 to 44). Rule 23 of the SEZ Rules makes supplies eligible for export benefits under the Policy, and Rule 30, which is a rule and not the Act, does not deal with proof of EPCG obligation, and the Supreme Court in Union of India v. Asian Food Industries held that export incentives are governed by the Foreign Trade Act, the Policy and the Handbook (paragraphs 45 to 49). The DGFT Policy Circular 04/2024 of 3 June 2024 relaxed the Bill of Export requirement for supplies to SEZs under Advance Authorisations before 1 July 2017, and the Bombay High Court in Larsen & Toubro and Phoenix Industries accepted other evidence, so denying EPCG benefit only for lack of Bills would be unreasonable (paragraphs 50 and 51). No other ground for review was raised (paragraph 52).

Controlling point

No error apparent was shown and the earlier judgment stood.

Order and next steps

The Review Petition was dismissed.

Practical implications

A domestic unit supplying an SEZ unit under an export-obligation scheme can claim deemed export treatment and prove fulfilment with invoices and realisation certificates, and may refer to the DGFT's 2024 relaxation for advance authorisations.

Limits of this ruling

• The Court dealt with an EPCG licence under the 2004-2009 Policy and supplies made in 2006 and 2007; it did not decide the position under later policies or the effect of SEZ rules on other incentives.