Routing concessionally imported oilfield equipment through an FTWZ does not qualify as “re-import” for duty exemption, Delhi HC rules

The appellants, petroleum-operation service providers and sub-contractors, proposed to import specialised equipment under Notification No. 50/2017-Customs (“NN-50”), availing concessional Basic Customs Duty and IGST against an Essentiality Certificate (“EC”) issued for a specified petroleum contract.

Upon completion of that contract, the appellants proposed to move the same equipment, without processing or claiming export incentives, from the Domestic Tariff Area (“DTA”) to a Logistics Service Provider in a Special Economic Zone/Free Trade Warehousing Zone (“SEZ/FTWZ”) for temporary storage.

After securing a subsequent contract and a fresh EC, they proposed to bring the equipment back from the FTWZ into the DTA, claiming the concessional benefit under NN-50 as well as the residuary exemption for re-imported goods under Serial No. 5 of Notification No. 45/2017-Customs (“NN-45”).

The Customs Authority for Advance Rulings (“CAAR”) answered the reference against the appellants, holding that the movement into the DTA was not an eligible re-import under NN-45 and that the FTWZ arrangement could not generate the claimed exemption.

The appellants challenged the four Advance Rulings before the High Court.

1. Whether movement of equipment from the DTA to an SEZ/FTWZ and its subsequent clearance back into the DTA pursuant to a fresh EC for a new petroleum contract constitutes a “re-import” eligible for exemption under Serial No. 5 of NN-45.

2. Whether the appellants could simultaneously claim the concessional import benefit under NN-50 and the re-import exemption under NN-45 in respect of the same inward movement of equipment.

3. Whether Sections 30 and 53 of the Special Economic Zones Act, 2005, Rule 48(3) of the SEZ Rules, 2006, or CBIC Circular No. 21/2019-Customs converted the proposed FTWZ transaction into an eligible re-import under NN-45.

Section 2(23) of the Customs Act, 1962 defines “import” as bringing goods into India from a place outside India, while Section 20 treats goods imported into India after exportation as re-imported goods subject to applicable duties and conditions.

Under Sections 30 and 53 of the Special Economic Zones Act, 2005, goods removed from an SEZ to the DTA are chargeable to customs duties as goods imported into India, and an SEZ is deemed to be outside the customs territory for specified statutory purposes; however, a legal fiction must be confined to the purpose for which it is created.

Rule 23 of the SEZ Rules, 2006 treats eligible DTA supplies to SEZ units as exports, while Rule 48(3) treats goods procured from the DTA and supplied back to the DTA, as such or without substantial processing, as re-imported goods, subject to prescribed procedure.

NN-50 grants a conditional concession for specified goods used in petroleum operations and, through Condition No. 48, regulates their continued use, transfer to another specified person, and disposal; particularly, Condition 48(c) prescribes the mechanism for transfer to another eligible specified person.

NN-45 grants exemption to specified categories of re-imported goods, with Serial No. 5 operating as a residuary provision, but the expression “re-import” requires more than mere identity of goods: it requires goods to have gone out and thereafter to return with sufficient continuity between the outward and inward movements.

Fiscal exemptions must be construed according to their text and cannot be enlarged by implication; the principle expressum facit tacitum cessare prevents introduction of an additional route where the notification expressly provides how the relevant contingency is to be addressed.

The Court accepted that NN-50 was a conditional concession linked to the original EC and the specified petroleum operation, rather than an unrestricted concession attached permanently to the equipment.

On the appellants’ own case, completion of the original contract required export of the equipment; moving it to the FTWZ merely retained it within India for possible deployment in another domestic contract and did not constitute a genuine commercial export followed by a return.

The subsequent clearance occurred only after a new contract and fresh EC, and therefore lacked the continuity necessary for a re-import; it initiated a distinct transaction.

The Court further held that NN-50 itself provided the appropriate route for subsequent eligible deployment through Condition 48(c), and that the FTWZ route could not be used to obtain an additional exemption unavailable under the express transfer mechanism.

Sections 30 and 53 of the SEZ Act determine the duty treatment of SEZ-to-DTA movements but do not decide eligibility under the distinct re-import exemption in NN-45.

Rule 48(3) was inapplicable because the FTWZ unit merely held the appellants’ equipment in custody and did not procure it; in any event, the general procedural rule could not override NN-50’s specific conditional scheme.

The appellants could not characterise the same inward movement as an “import” for NN-50 and simultaneously as a “re-import” for NN-45 to secure cumulative fiscal benefits.

The original concessional transaction under NN-50 stood concluded upon completion of the original contractual deployment and fulfilment of the export requirement; a subsequent EC gave rise to an independent transaction notwithstanding the identity of the equipment.

The Court accordingly dismissed all four appeals and disposed of the pending application(s).