Full Judgment Text
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CASE NO.:
Appeal (civil) 465 of 2002
PETITIONER:
Zuari Industries Ltd
RESPONDENT:
Commissioner of Central Excise & Customs
DATE OF JUDGMENT: 29/03/2007
BENCH:
S. H. Kapadia & B. Sudershan Reddy
JUDGMENT:
J U D G M E N T
KAPADIA, J.
This statutory appeal is filed by the assessee-Zuari
Industries Ltd. under section 130 E of the Customs Act, 1962
directed against Order dated 15.11.2001 passed by Customs,
Excise & Gold (Control) Appellate Tribunal ("CEGAT") in
appeal No. C/277/01-Bom denying the assessee the benefit of
exemption under Notification No. 11/1997 dated 1.3.1997.
The appeal involves the issue as to the rate of duty applicable
to the imports made for expansion of a Fertiliser Project.
Assessee is the manufacturer of fertilizers at their facility
at Goa. It obtained registration of all their imports required for
expansion of their fertilizer project under the provisions of the
Project Import Regulations, 1986 (for short "the PIR"). In
respect of the said expansion, the goods imported were entitled
to the benefit of Project Import Assessment under Heading
98.01 of the Schedule to the Customs Tariff Act, 1975 and
correspondingly the company was entitled to the benefit of
customs exemption Notification No. 11/97 dated 1.3.1997.
The said notification specified nil rate of duty in respect of
"goods required for fertilizer plant". Ministry of Chemicals and
Fertilisers was the duly constituted Sponsoring Authority
under the said PIR. The said Ministry had issued a certificate
dated 22.10.1997 (Essentiality Certificate) to the effect that the
import of capital goods for expansion of the fertilizer project
stood examined and the list of goods annexed to the certificate
had been attested from the essentiality angle by the Deputy
Secretary to the Government of India. At this stage, it may be
noted that in their application for issuance of essentiality
certificate, the assessee had stated that on account of load
shedding in the concerned area, a Captive Power Plant was
essential for the substantial expansion of the fertilizer project.
By the said essentiality certificate dated 22.10.1997, the
sponsoring Ministry requested the Customs to exempt the
customs duty on import of equipments by the assessee vide
Notification No. 11/97. The said certificate indicated vide item
nos. 14.a and 14.b, a 6 Mega Watt Captive Power Plant. The
essentiality certificate ’recommended’ the said Captive Power
Plant as part of the entire capital goods required by the
assessee-company for substantial expansion of the fertilizer
project.
As stated above, the dispute which arises in the present
case is the rate of duty applicable to the imports made by the
assessee for the fertilizer project. According to the Department,
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the goods imported under serial nos. 14.a and 14.b of
annexure ’A’ to the essentiality certificate did not fall under
serial no. 226(i) of the said notification no. 11/97 and,
therefore, the assessee was not entitled to the benefit of nil
rate of duty in respect of 6 MW Captive Power Plant. According
to the Department, items 14.a and 14.b fell under serial no.
226(iii) which stated that Captive Power Plants of 5 MW or
more are liable to duty at 20% + 2% and additional duty of
13%. By the impugned order of adjudication, the Adjudicating
Authority held that 6 MW Captive Power Plant imported under
Heading 98.01 as part of the fertilizer project, in terms of the
essentiality certificate, cannot be given the benefit of nil rate of
duty, which was available only to fertilizer projects. In other
words, according to the Department, the fertilizer project and
the Captive Power Plant are two distinct and separate projects
as far as the rate of duty was concerned. This contention of
the Department has been accepted by all the authorities
below. It has been confirmed even by the CEGAT vide the
impugned judgment dated 15.11.2001.
Heading 98.01 is a specific entry. It is not a general
entry. It is not a residuary entry. It finds place in the
exemption notification no. 11/97. Project imports fall under
this entry. It is for this reason that Entry 98.01 is said to be a
specific entry.
We quote hereinbelow the relevant entry of the
Notification No. 11/97.
"S
No.
Chapter
or
heading
No. or
sub-
heading
no.
Description of goods
Stan-
dard
rate
Addl.
Duty
rate
Con-
dition
No.
226
98.01
Goods required for
i) fertilizer projects;
ii)coal mining
projects;
iii)captive power
plants of 5 MW or
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more;
iv) power generation
projects including
gas turbine power
projects (excluding
captive power plants
set up by projects
engaged in activities
other than in power
generation);
v) power
transmission
projects of 66 KV
and above;
vi) Other industrial
plants or projects."
Nil
20%
20%
20%
20%
20%
Nil
Nil
13%
Nil
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10%
13%
70
We also quote hereinbelow the Essentiality Certificate
dated 22.10.1997 along with the attested copy of list of capital
goods to be imported for the expansion of the fertilizer project.
"No. 15027/1/97-FP-III
Government of India
Ministry of Chemicals & Fertilisers
Department of Fertilisers.
Dated 22nd October, 1997
To
The Assistant Commissioner of Customs,
Mormugao, GOA-803
Subject: Customs duty exemption for import of capital
goods for substantial expansion of existing
NPK Plant by M/s Zuari Agro Chemicals Ltd.
At Zuarinagar, Goa.
\005
Sir,
I am directed to say that M/s Zuari Agro Chemicals Ltd.
has proposal for the Substantial Expansion of existing NPK
Plant at Zuarinagar, Goa. To implement the project, they
require to import capital goods. The matter has been examined
in the Department. The list of goods has been attested on
essentiality angle by Shri S. Chandra, Deputy Adviser (F), who
is equivalent to the rank of Deputy Secretary to the
Government of India. The attested copy of list of goods valued
at a CIF of US $ 544359.60 + FF 4760042.80 + FM 12764000
(C&F Mumbai) is sent herewith.
2. You are requested to exempt the customs duty on import
of equipments being made by M/s Zuari Agro Chemicals Ltd.
under Custom Notification No. 11/97 dated 01.03.1997.
Yours faithfully,
Sd/-
(A.K. Sinha)
Development Officer
Tel:3383829
Encl: Attested list is enclosed.
Copy to: M/s Zuari Agro Chemicals Ltd., 505 Surya Kiran, 19,
Kasturba Gandhi Marg, New Delhi-110001
Sd/-
(A.K. Sinha)
Development Officer"
. . . . .
"LIST OF GOODS AND SPARES TO BE IMPORTED FOR EXPANSION OF NPK PLANT
S.No.
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Description
Vendor
Qty.
Total C&F
Price US $
Total C&F
Price FF
Total C&F
Price FM
(Finish
Marks)
1.a)
Microprocessor
based Dot
Printing
Recorder with
Battery
backup
M/s
Yokogawa
Electrical
Corpn,
2-9-32
Nakacho,
Musahino-
Shi,
Tokyo 180,
Japan
3
Nos.
5183.00
1.b)
Spares for
above.
- do -
1 Lot
518.30
2.a)
Current to
Pneumatic
Signal
Converter (1/P
Converted)
- do -
13
nos.
7582.00
2.b)
Spares for
above
- do -
1 Lot
758.20
3.a)
Magnetic Flow
meter (Remote
Type)
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Assembly with
Converter &
Signal cable.
- do -
6
nos.
18026.00
3.b)
Spares for
above.
- do -
1 Lot
1802.60
4.a)
Vibrating
Screen
complete with
static dust
casting motor
& other
accessories
M/s
Chauvin
S.A.,
13a 25 Rue
Alfred De
Vigny,
BP 2426-
38034
Grenoble,
Cedex 2,
France.
4
nos.
1076250.00
4.b)
Spares for
above.
- do -
1 Lot
107625.00
5)
Centifugal
Pump with
motor, flexible
coupling
mounted on
common
frame.
M/s A.R.
Wilfley and
Sons, Inc
Post Box No.
2330,
Denver,
Coloradi
80201,
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U.S.A.
136425.00
5.a)
Phosphoric
acid (H3PO4)
supply pump.
- do -
2
nos.
5.b)
Scrubber
Effluent Pump
- do -
2
nos.
5.c)
Fummes
Scrubber
Liquor pump
- do -
2
nos.
5.d)
Dryer
Scrubber
Liquor pump
- do -
2
nos.
5.e)
Molten Urea
pump
- do -
2
nos.
5.f)
Spares for
above.
- do -
1 Lot
13642.50
6.a)
Ammonia
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Sparger
M/s Maguin
S.A. 2, Rue
Pierre
Semard,
02800
Charmes,
France
1 no.
2313320.00
6.b)
Dryer Knocker
- do -
5
nos.
6.c)
Oversize
Crusher with
Motor, Base
frame and
Remote
Control
- do -
2
nos.
6.d)
Scrubber
Liquor Sprayer
- do -
1 no.
6.e)
Spares for
above
- do -
1 Lot
231332.20
7.a)
Butyll Rubber
Panels with
Polyster
Polyamide
Carcass
M/s Welby
S.A., Z.I.
Voie No. 5,
10, Rue
Claude
Chappe, BP-
53, 76302
Sotteville,
Les Routen
Cedex,
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France
24
nos.
91718.00
7.b)
Spares for
above.
- do -
1 Lot
9171.80
8.a)
Dryer pipe
Reactor (Dual
pipe cross
Reactor)
M/s Situb
S.A.,
76430
Tancarville,
St. Romain-
De-Colbose,
B.P. 123,
France
1 no.
357000.00
8.b)
Spares for
above
- do -
1 Lot
35700.00
9.a)
Link Chain No.
6859 R with
attachments
M/s Jeffrey
Chain
Corporation,
2307 Maden
Drive,
Morristown,
Tennessee
37813,
U.S.A.
900
Ft.
40100.00
9.b)
Link Chain No.
9118 P with
attachments
- do -
550
Ft.
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58150.00
9.c)
Link Chain No.
698A with
attachment
- do -
1225
Ft.
170850.00
9.d)
Sprockets
- do -
8
nos.
42050.00
9.e)
Spares for
above.
- do -
1 Lot
31115.00
10.a)
Ball Lift check
valve
M/s
Guichon
International
S.A.,
Industrial
Valves, Rue
De Choudy-
BP 401,
73104 Ax
Les Bains
Cedex,
France
10
nos.
64294.00
10.b)
Spares for
above.
- do -
1 Lot
6429.40
11.a)
Control Valve
M/s Dresser
Products
Inds. Ltd.,
Division
Masoneilan,
4, Place de
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Saverne,
92971 Paris
La Defense
Cedex,
France.
9
nos.
199769.00
11.b)
Spares for
above.
- do -
I Lot
55875.00
12.a)
Flap Valve
M/s Vraco
SA,
Zacles
Gatins, 3
AV-Du
Garigiliano,
France,
2
nos.
192324.00
12.b)
Spares for
above.
- do -
1 Lot
19232.40
13.a)
Bulk Solid
Recycle Flow
Measurement
M/s
Ramsey,
Sydney
Office,
Sydney Box
RA, Teren
Point, NSW-
Australia
2229
1 no.
16507.00
13.b)
Spares for
above.
- do -
1 Lot
1650.00
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14.a)
Equipment for
6 MW Power
Plant
consisting One
(1) Wartsila
Vasa
18V32LN,
Diesel
Generating set
with auxiliary
equipment.
M/s
Wartsila
Diesel,
Wartsila
Diesel Oy.,
P.O. Box
252, Fin-
65100,
Vaasa,
Finland
1 Lot
11382000.00
14.b)
Spares for
above.
- do -
1 Lot
1382000.00
Total without the spares
494873.00
4294677.00
11382000.00
Total Spares
49486.60
465365.80
1382000.00
Total with Spares
544359.60
4760042.80
12764000.00
This is to certify that the above goods are
most essential for the substantial expansion of
the NPK plant of Zuari Agro Chemicals Ltd., at
Zuarinagar, Goa and are hence eligible for nil rate
of Customs Duty under Customs Notification No.
11/97 dated 01.03.1997.
For ZUARI AGRO CHEMICALS LTD. For ZUARI AGRO CHEMICALS LTD.
Sd/- Sd/-
(Resident Director) (S.K. Chatterjee)
Vice President-Technical"
There is no dispute regarding other items mentioned in
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the list. Regarding those items, the Department has accepted
that they have been attested by the Sponsoring Ministry.
According to the Department, the only dispute is with regard
to the Captive Power Plant. According to the Department,
Captive Power Plant needs to be segregated from the fertilizer
project on the ground that the fertilizer project can work even
without the Captive Power Plant and that the output from the
fertilizer project can be produced even without the Captive
Power Plant. According to the Department, the power plant is
a separate project by itself. According to the Department, the
power plant is not a component or an integral part of the
fertilizer project. According to the Department, 6 MW Power
Plant consisted of a generating set which operated on diesel.
According to the Department, even if on the technical side a
Captive Power Plant constituted an aid to the working of the
fertilizer project still for the purposes of chargeability one has
to go by the strict interpretation of the exemption notification
no. 11/97 under which the rate of duty is nil for the fertilizer
project whereas it is 20% for the power generation project.
According to the Department, since fertilizer project and power
generation project are two different and independent projects,
the assessee was not entitled to claim nil rate of duty in
respect of 6 MW Captive Power Plant.
On the other hand, on behalf of the assessee, the case
put up before all the authorities was that, once an Essentiality
Certificate was issued by the Sponsoring Ministry, it was not
open to the Revenue to go behind that certificate. According to
the assessee, an essentiality certificate constituted a proof of
fulfilment of the eligibility conditions by the importer for
obtaining the benefit of exemption notification. According to
the assessee, project imports fell under a specific Heading
98.01. According to the assessee, the import of capital goods
indicated in the list annexed to the essentiality certificate
showed that the sponsoring Ministry cleared the project on the
footing that, in this particular case, looking to the ground
reality in the area in which the plant was located, in which
there was paucity of electricity, 6MW Captive Power Plant was
an essential requirement for expansion of the fertilizer project.
According to the assessee, the essentiality certificate along
with the attested list constituted a proof of the need to expand
the fertilizer project and for that Captive Power Plant was an
essential part. According to the assessee, it was not open to
the Revenue to say that the Captive Power Plant was not an
essential requirement for the expansion of the fertilizer project,
once an essentiality certificate stands issued by the
sponsoring Ministry. In this connection, reliance is placed by
the assessee on the judgment of this court in the case of
Commissioner of Customs (Imports), Mumbai v. Tullow
India Operations Ltd. reported in (2005) 13 SCC 789.
Reliance is also placed by the assessee on the judgment of the
Calcutta High Court in the case of Asiatic Oxygen Ltd. v.
Assistant Collector of Customs reported in 1992 (57) ELT
563.
We find merit in this civil appeal filed by the assessee for
the following reasons.
Firstly, on the facts we find that the assessee had given
to the sponsoring Ministry its entire Project Report. In that
report they had indicated that for the expansion of the
fertilizer project they needed an extra item of capital goods,
namely, 6MW Captive Power Plant. In their application, the
assessee had made it clear that the fertilizer project was
dependant on continuous flow of electricity, which could be
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provided by such Captive Power Plant. Therefore, it was not
open to the Revenue to reject the assessee’s case for nil rate of
duty on the said item, particularly when the certificate says
so. In the judgment of this Court in the case of Tullow India
Operations Ltd. (supra), this Court held that essentiality
certificate must be treated as a proof of fulfilment of the
eligibility conditions by the importer for obtaining the benefit
of the exemption notification. We may add that, the
essentiality certificate is also a proof that an item like Captive
Power Plant in a given case could be treated as a capital goods
for the fertilizer project. It would depend upon the facts of each
case. If a project is to be installed in an area where there is
shortage of electricity supply and if the project needs
continuous flow of electricity and if that project is approved by
the sponsoring Ministry saying that such supply is needed
then the Revenue cannot go behind such certificate and deny
the benefit of exemption from payment of duty or deny nil rate
of duty. To the said effect is the judgment of the Calcutta High
Court in the case of Asiatic Oxygen Ltd. (supra) in which it
was held that the object behind the specific Heading 98.01 in
Customs Tariff Act, 1975 was to promote industrialization
and, therefore, the heading was required to be interpreted
liberally. It was further held that, once an essentiality
certificate was issued by the sponsoring authority, it was
mandatory for the Revenue to register the contract.
Secondly, before us, it has been vehemently urged that
although the essentiality certificate stood issued by the
sponsoring Ministry, there is non-application of mind by that
Ministry with regard to the list of items appended to the
certificate. According to the Department, the said list has not
been countersigned by the competent authority in the
sponsoring Ministry. We do not find any merit in the said
contention. The list consists of 14 items. The Department has
accepted 13 out of 14 items as capital goods required for the
fertilizer project, therefore, it cannot be said that the
sponsoring Ministry had not applied its mind to the list
appended to the essentiality certificate. This point needs
further clarification. The power plant in the conceptual sense
or in the technical sense is certainly different from the fertilizer
plant. However, when we come to Heading 98.01 of the
Customs Tariff Act, 1975, the assessment is for the Project. As
stated above, Heading 98.01 is the specific entry applicable in
the case of the Project Imports. An item like a power plant
could be in a given case an independent Plant. Generally, it is
a stand-alone equipment. However, when it becomes a part of
the entire Project/System, the same power plant can also
become one of the items of capital goods. The essentiality
certificate given by the sponsoring Ministry has treated
Captive Power Plant, in this case, as "capital goods" along with
13 other items. The assessee has also treated the Captive
Power Plant as one of the capital goods required for the
expansion of the fertilizer project. In the above circumstances,
all the items in the list annexed to the certificate have been
certified and recommended by the sponsoring Ministry as the
entire capital goods required for the substantial expansion of
the fertilizer project. Therefore, in our view, the assessee is
right in its contention that, in this case, 6 MW Captive Power
Plant is one of the items out of 14 items constituting capital
goods required for the substantial expansion of the fertilizer
project, and, therefore, it fell under serial no. 226(i) as goods
required for the fertilizer project entitled to the benefit of nil
rate of duty.
Before concluding, we may point out that, on behalf of
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the Department, a large number of authorities were cited on
interpretation of entries in the Customs Tariff Act, 1975. It is
not necessary to examine those authorities on interpretation.
Suffice it to state that, Heading 98.01 is a specific entry. It is
not a general entry. It is not a residuary entry. It needs to be
liberally interpreted as it deals with industrialization. It has to
be read in the context of the above Notification No. 11/97.
In the case of Appraiser, Madras Customs v. Tamil
Nadu Newsprint Papers Ltd. reported in 1988 (36) ELT 272 it
has been held that Heading 84.66 (now 98.01) is not a
residuary heading or a general heading relating to any class of
goods. It is the specific entry introduced with a purpose and it
relates to goods imported for initial setting up of a unit or a
substantial expansion of an existing unit. It was held that
when an importer registers a contract under the specific entry
no. 84.66 (now 98.01), all the goods imported by him under
that contract will be subjected to duty only as per that entry
and it will not be open for the Revenue to pick out some of the
goods imported under that contract and impose a different
rate of duty on the footing that they are covered by a different
heading. If the conditions prescribed under Heading 84.66 are
satisfied, the duty shall be imposed on the goods under the
said Heading 84.66 as if the said goods formed the composite
unit. In that case there was another Heading 84.31 which
referred also to ’paper making machinery’. The Department
contended that duty was payable on the said item under
Heading 84.31. It was held by Madras High Court that even if
the rate of duty under Heading 84.31 was different from the
rate of duty under Heading 84.66, still the rate applicable to
the paper making machinery imported for producing papers
under the PIR has to fall under specific Heading 84.66 (now
98.01) and not under Heading 84.31, even if paper making
machinery came under both the headings. This is because
once an item is imported under Project Imports then that
items will fall under the specific entry because that item is
imported as a part of composite unit (see para 10). In our view,
the said judgment of the Madras High Court on interpretation
of Heading 98.01 is squarely applicable to the present case,
particularly on the interpretation of the entries in the Customs
Tariff Act, 1975.
For the above reasons, we set aside the impugned
judgment of the CEGAT dated 15.11.2001 in appeal no.
C/277/01-Bom and accordingly the assessee’s appeal stands
allowed with no order as to costs.