Gujarat High Court Grants Interim Relief To Export Units In Kandla SEZ From Cess Liability

The Gujarat High Court on 26 February, held that Esskay Niryat Corporation and RR Exports operating from the Kandla Special Economic Zone (SEZ), are protected from coercive action under the Health Security and National Security Cess Act, 2025, while the matter is pending before the Court.

A Division Bench of Justice A.S. Supehia and Justice Pranav Trivedi, while hearing petitions filed by the two units, granted interim relief by staying recovery steps and issued notice to the Union Government. The Court held:

“Prima facie, we find merit in the submissions advanced by the learned advocate for the petitioner. Hence, issue Notice making it returnable on 02.04.2026.”

Esskay Niryat Corporation and RR Exports are 100% export-oriented manufacturing units located in the Kandla SEZ, engaged in the production and export of tobacco products such as gutkha and zarda. They have been operating under approvals granted by the Development Commissioner in terms of the Special Economic Zones Act, 2005, since the financial year 2015-16.

They challenged communications issued by GST authorities directing them to register under the Health Security and National Security Cess Act, 2025 and furnish machine-wise details for levy of cess.

According to the petitions, the SEZ units are treated as territories outside the customs territory of India for authorized operations. Relying on Sections 26, 51 and 53 of the SEZ Act, Esskay Niryat Corporation and RR Exports contended that they enjoy exemptions from duties and cesses on goods meant for export, and that the SEZ Act overrides other laws in case of inconsistency.

They further submitted that the Act applies only to specified goods listed in its Schedule, which refers to “Pan Masala” under tariff heading 2106 90 20, whereas Esskay Niryat Corporation and RR Exports manufacture gutkha and related tobacco products not covered under the Schedule.

In addition, they argued that imposing the cess on export-oriented SEZ units would amount to exporting domestic taxes, contrary to internationally accepted destination-based taxation principles and India's export policy framework.

The Union Government, opposing the petitions, submitted that Section 3 of the Act 2025 defines a “taxable person” as a manufacturer of goods listed in Schedule I and contended that the levy mechanism applied to such manufacturers.

The High Court observed that Schedule I of the Act specifically referred to “Pan Masala” and did not explicitly mention gutkha. Considering the submissions of Esskay Niryat Corporation and RR Exports, the Court held that they had made out a prima facie case.

Accordingly, the Bench granted ad-interim relief, protecting the petitioners from coercive action pending further hearing.

The matter has been posted for hearing on 2 April 2026.

Counsel for Petitioner: Jamshed Kavina and S.P. Majmudar

Counsel for Respondents: Nidhi T. Vyas, Senior Standing Counsel for Union of India and Maunil G. Yajnik