SEZ/FTWZ –AGENCIES USURPING POWER TO ARREST

      

 

By Adv. Ram Chander Sankhla, Managing partner at Sankhla Law Associates and Former Chief Commissioner of CGST & Customs

  

 

Adv. Rahul Sankhla, Partner at Sankhla Law Associates

Authors can be reached at www.rrsla.com

PRELUDE:

  1. We keep hearing that the arrests have been made in an SEZ area or for the alleged offenses committed with respect to the SEZ-FTWZ scheme/law. The burning question therefore is, whether the arresting authority mainly the DRI or DGGI has the power to arrest in SEZ-FTWZ area or for the alleged offenses committed with respect to these schemes/law. In the ensuing article, efforts have been made to understand the legal nuances of such power to arrest under Customs Law if made applicable to the SEZ-FTWZ law.

 

  1. The authors could not lay hand on any case law which is directly on the subject under consideration. Therefore, the relevant legal provisions have been analysed to come to an informed conclusion that the said authorities lack power to arrest for the alleged offenses, with respect to SEZ-FTWZ law.

 

BRIEF ABOUT SEZ/FTWZ:

  1. THE SPECIAL ECONOMIC ZONES ACT, 2005 (ACT NO. 28 OF 2005, 23rd June, 2005.) is an Act to provide for the establishment, development and management of the Special Economic Zones (in short SEZ) for the promotion of exports and for matters connected therewith or incidental thereto. Special Economic Zone means each such Zone notified under the proviso to sub-section (4) of section 3 and sub-section (1) of section 4 (including Free Trade and Warehousing Zone) and includes an existing SEZ, as defined under section 2 (za) of the SEZ Act. It includes making available goods and services free of taxes and duties, supported by integrated world class infrastructure for export production, expeditious and single window mechanism (both for Central and State Government related approvals) and a package of incentives to attract foreign and domestic investments for promoting export led growth.

 

  1. “Free Trade and Warehousing Zone” (in short FTWZ) means a Special Economic Zone wherein mainly trading and warehousing and other activities related thereto are carried on, as defined under section 2 (n) of the SEZ Act. Whereas, Rule 18 (5) of the SEZ rules states that the units in FTWZ shall be allowed to hold the goods on account of the foreign supplier for dispatches, as per the said owners instructions and shall be allowed for trading, with or without labelling, packing or repacking without any processing. It also states that these units may also resell or re-invoice or re- export the goods imported by them. However, all transactions by a unit in such zone shall only be in convertible foreign currency. Instruction No 49 issued from F.No. D-12/4/2010-SEZ-Ministry of Commerce & Industry, Department of Commerce, dated 12th March, 2010 allows, among other, Trading and Warehousing units located within FTWZ to carry out DTA (Domestic Tariff Area) to FTWZ and FTWZ to DTA transactions.

 

  1. The SEZ/FTWZ is a specified and protected area covered by high boundary walls with wire fencing having one single gate for entry inwards and outwards. This single gate is manned 24 by 7. Every entry inward and outward needs to be countersigned by the customs officials known as specified officer/authorised officer. In other words, nothing can move out from the SEZ- FTWZ area without the counter signature and specific permission of the specified officer/authorised officer who are invariably the customs officers.

 

  1. Any goods or services exported out of, or imported into, or procured from the Domestic Tariff Area by a Unit in a Special Economic Zone; or a Developer, shall, subject to such terms, conditions and limitations, as may be prescribed, is exempted from the payment of taxes, duties or cess under all enactments specified in the First Schedule- (Section 7 of SEZ Act). Section 26 ensures exemptions, drawbacks and concessions to every developer and entrepreneur from any duty of customs, under the Customs Act, 1962 (52 of 1962) or the Customs Tariff Act, 1975 (51 of 1975) or any other law for the time being in force, on goods imported into, or services provided in, a Special Economic Zone or a Unit, to carry on the authorised operations by the Developer or entrepreneur. Similar exemption is available on goods exported from, or services provided, from a Special Economic Zone or from a Unit, to any place outside India. There are drawback benefits and exemption from other kinds of taxes available to such units or developer in SEZ/FTWZ.

 

  1. Section 53 of the SEZ Act defines SEZ/ FTWZ as a deemed territory outside the customs territory of India for the purposes of undertaking the authorised operations. It is also port, airport ICD, land station and land customs stations, as the case may be, under section 7 of the Customs Act, 1962 (52 of 1962). Thus, it is not a deemed foreign territory, as normally understood but a deemed territory outside the customs territory of India for the purpose of ensuring customs related benefits.

 

 

  1. It is also relevant to mention about section 51 of the SEZ Act which provides overriding force or power to the provisions of this Act with respect to any inconsistencies contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.

 

  1. It is in this background to understand if the DRI/DGGI/CUSTOMS COMMISSIONERATES has the power of Arrest for offences in the SEZ/FTWZ area or by units/developers situated thereunder. Clearly the other laws including the customs law, (Customs Act, Customs rules and Customs Tariff Act) is applicable to such units or developers unless it is so permitted under the SEZ Act. And, there is no provisions relating with Arrest under SEZ Law.

 

  1. In other words, the provisions of Customs Act can only be made applicable to SEZ/FTWZ units if SEZ law so permits. It needs further analyses if power to arrest qua section 104 of customs Act has been bestowed by SEZ Act or Rules. Further, by virtue of section 51 of the SEZ Act, it has overriding effect notwithstanding anything inconsistent there-with contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.

 

ILLEGAL ARREST BEING WITHOUT JURISDICTION?

  1. For the offences under the Customs law, arrests are made under section 104 of Customs Act, which is reproduced as under,

“Section 104. Power to arrest. –

(1) If an officer of customs empowered in this behalf by general or special order of the Principal Commissioner of Customs or Commissioner of Customs has reason to believe that any person has committed an offence punishable under section 132 or section 133 or section 135 or section 135A or section 136, he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest.

(2), (3), (4), (5), (6) (7) ……

 

 

  1. Vide Section 20, 21 and 22 of the SEZ Act, and notifications issued thereunder, various officer or agencies can be specified/authorised to carry out surveys, inspections, investigations, search and seizure for the offences under the SEZ law.

 

 

  1. As per section 20 of the SEZ Act, the central government may by notification specify any officer or agency to carry out surveys or inspections for securing of compliance with the provisions of any Central Act by a developer or an entrepreneur and such officer or agency shall submit verification and compliance reports in such manner and within such time as may be specified in the said notification. Whereas, section 21 of the SEZ Act states that the central government, by notification, may specify any act or omission made punishable under any Central Act, as notified offence for the purposes of this Act. Similarly, the central government may also authorise any officer or agency to be the enforcement officer or agency in respect of such notified offences. All such authorised officer or agency shall have all the corresponding powers of investigation, inspection, search or seizure as provided under the relevant central act in respect of the notified offences. Section 22 of SEZ Act goes on to state that the agency or officer so specified under section 20 or section 21 may with prior permission of the Development Commissioner carry out the investigation, inspection, search or seizure in a unit located in SEZ.

 

  1. It is worthwhile to reproduce section 20, 21 and 22 of the SEZ Act.

“20. Agency to inspect.- Notwithstanding anything contained in any other law for the time being in force, the Central Government may, by notification, specify any officer or agency to carry out surveys or inspections for securing of compliance with the provisions of any Central Act by a Developer or an entrepreneur, as the case may be, and such officer or agency shall submit verification and compliance reports, in such manner and within such time as may be specified in the said notification.

  1. Single enforcement officer or agency for notified offences. – (1) The Central Government may, by notification, specify any act or omission made punishable under any Central Act, as notified offence for purposes of this Act.

 (2) The Central Government may, by general or special order, authorise any officer or agency to be the enforcement officer or agency in respect of any notified offences or committed in a Special Economic Zone.

(3) Every officer or agency authorised under sub-section (2) shall have all the corresponding powers of investigation, inspection or search or seizure as is provided under the relevant Central Act in respect of the notified offences.

  1. Investigation, inspection and search or seizure.- The agency or officer, specified under section 20 or section 21, may, with prior intimation to the Development Commissioner concerned, carry out the investigation or search or seizure in the Special Economic Zone or in a Unit if such agency or officer has reasons to believe (reasons to be recorded in writing) that a notified offence has been committed or is likely to be committed in the Special Economic Zone:

Provided that no investigation, search or seizure shall be carried out in a Special Economic Zone by any agency or officer other than those referred to in sub-section (2) or sub- section of section 21 without prior approval of the Development Commissioner concerned.

Provided further that any officer of agency, if so authorised by the Central Government, may carry out the investigation, inspection, search or seizure in the Special Economic Zone or Unit without prior intimation or approval of the Development Commissioner.”

 

 

  1. In other words, the offences as notified offences are specified under section 21(1) of the SEZ Act. As per Ministry of Commerce and Industry (Department of Commerce) notification, SO-2665-E dated 5 August 2016 issued from F.No. C.1/1/2009 – SEZ, the government notified the offences contained in the under mentioned sections of the Custom Act as offences under the SEZ Act i.e., Section 28, 28A, 28AA, 74, 75, 111, 113, 115, 124, 135 and 104. It is however submitted that section 135 of the Customs Act is such section, which provides various punishment for various act or omission of evasion of duty or prohibitions. Section 28 deals with cases of short levy or non-levy or short paid or non-paid customs duty. However, section 104 of the customs act is not an offence itself as it is only a power to arrest given to the authorised officer as authorised by the principal Commissioner or Commissioner of customs. Section 104, further prescribes the procedure to be followed by the officer in case of arrest on the basis of reasonable belief. Though it has been notified as notified offence under said notification dated 5th August 2016, Nevertheless, it is not an offence, but power and procedure to be followed by the authorised officer.

 

  1. Further, ONLY THE POWER OF INVESTIGATION, INSPECTION, SEARCH OR SEIZURE HAS BEEN PROVIDED IN RESPECT OF THESE NOTIFIED OFFENCES UNDER SECTION 21(3) OF THE SEZ ACT AND NOTHING MORE.

 

 

 

  1. Chapter XIII of the Custom Act deals with searches, seizure and arrest, covering sections 100 to 110AA. Further, the word investigation has not been defined under the Custom Act or under the SEZ Act. Sections 100, 101, 102, 103, 105, 106 of the customs Act deal with power to search and section 104 deals with power to arrest. There are other powers given under this chapter to the officer for seizure of goods, documents, and things and resultant disposal thereof. Thus, section 104 of customs Act is a power given to authorised officer. It cannot be an offence. More so, this power can only be exercised by the authorised officer only and not by a taxpayer/importer.

 

  1. Thus, it is very clear that the power of arrest has not been given or provided in respect of notified offences under section 21(3) of the SEZ Act. It is trite and mandated by the constitutional provisions that nobody will be deprived of his life and liberty, except according to the law.

 

ONLY ADG DRI/DGGI HAS POWER TO INVESTIGATE, INSPECT, SEARCH, AND SEIZURE, AND NO ONE ELSE:

  1. As per section 21(2) and second proviso to section 22 of the SEZ Act, the central government can authorize any officer or agency to carry out the provisions of any Central Act. As per SO- 2666-E dated 5th 2016 issued under said sections of the SEZ Act, the central government has SPECIFICALLY authorized the Additional Director General, DRI (ADG) and DGGI, ONLY. Any investigation if carried out by the officials other than the said ADGs, it will be without authority and jurisdiction smacking of arbitrariness. The said SO is reproduced, for better understanding:

“NOTIFICATION S.O. 2666(E) New Delhi, the 5th August, 2016.—In exercise of the powers conferred by sub-section (2) of section 21 and second proviso to section 22 of the Special Economic Zones Act, 2005 (28 of 2005) (hereinafter referred as the Act), the Central Government hereby authorises the Additional Director General, Directorate of Revenue Intelligence for offences under the Customs Act, 1962 (52 of 1962) and the Additional Director General, Directorate General of Central Excise Intelligence for offences under the Central Excise Act, 1944 (1 of 1944) and the Finance Act, 1994 (32 of 1994) to be the enforcement officer(s) in respect of any notified offence or offences committed or likely to be committed in a Special Economic Zone. The enforcement officer(s), for the reasons to be recorded in writing, may carry out the investigation, inspection, search or seizure in the Special Economic Zone or Unit and shall intimate the details of any action initiated under sub-section (3) of section 21 of the Act to the Joint Secretary in charge of Special Economic Zones Division in the Department of Commerce immediately and in any case not later than seven days of initiation of any action. [F. No. C.1/1/2009-SEZ]”

 

  1. Even said ADGs lack power to arrest as no such authority has been given to them under SEZ law.

 

  1. It must be noted here that the officials working under ADGs can act as his arms, but not his mind. In other words, every decision should emanate from the concerned ADGs and not from his officials. In needs mention that as on January 2025, there are 13 Pr. ADG/ADGs in DRI and 28 Pr. ADG/ADGs in DGGI.

 

  1. Thus, ADGs DRI/DGGI have power to investigate, inspect, search, and seizure only, however, both have no power to arrest as no such authority have been given to them under SEZ law.

 

ARREST CANNOT BE MADE FOR NON-NOTIFIED OFFENCES:

  1. As is clear now, that the offences as notified offences are specified under section 21(1) of the SEZ Act. As per Ministry of Commerce and Industry (Department of Commerce) notification, SO-2665-E dated 5 August 2016 issued from F.No. C.1/1/2009 – SEZ, the government notified the offences contained in the under mentioned section of the Custom Act as offences under the SEZ Act i.e., Section 28, 28A, 28AA, 74, 75, 111, 113, 115, 124, 135 and 104. Further, Importers are arrested, normally, for the alleged violation of section 46 (Entry of goods on importation) of the Customs Act, 1962 section 30 of the SEZ Act (domestic clearance from SEZ) read with rule 47 and 48 (sale/procedure for sale in DTA) of the SEZ rules 2006, making the goods liable for confiscation under section 111(j) (dutiable/prohibited goods removed/attempted to be removed from  customs area/warehouse without permission of the proper officer) of the Customs Act. However, section 46 of the Customs Act is not the notified offences under SEZ law. Similarly, the DRI/DGGI officials are not the authorised officials under SEZ law to implement the provisions of said law and, more specifically, section 30 of the SEZ Act read with rule 47 and 48 of the SEZ rules, 2006.

 

  1. Also, section 111(j) of the Customs Act, a notified offence under SEZ Law cannot be made operational for non-notified offences. Hence, arrest under SEZ law is fraught with danger of being termed as arbitrary without authority of law and without jurisdiction.

 

CONCLUDE:

  1. Article 21 of the constitution is a fundamental right, which ensures that no person shall be deprived of his life or personal liberty, except according to procedure established by law. However, the above analysis brings out a case where this Fundamental Right is clearly under threat from the agencies like DRI or DGGI, with respect to power of arrest, qua SEZ/FTWZ law. It is high time that the authorities concerned, take notes of such unauthorized and arbitrary use of power to arrest by these agencies. Till the time, these agencies are suitably empowered vis-à-vis power to arrest, such questions will be kept raised.

 

 

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DISCLAIMER:  The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the official policy or position of any other individual, organization, employer or Firm. The information provided in this article is accurate and true to the best of the author’s knowledge, but there may be omissions, errors, or mistakes. The authors shall not be liable for any damages, losses, or injuries arising from the use of or reliance on the information presented in this article. Readers are advised to verify any information provided here and to consult with appropriate professionals for specific advice tailored to their individual circumstances.

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