2008 (7) TMI 494 - HC - Customs

Claim for exemption from the payment of customs duty in respect of the Steam Turbine imported by the petitioners by treating the same as falling under Entry 261 Chapter 98.01(i). - the expansion project envisaged by the petitioner included the Steam Turbine which is an integral part of the petitioner s expansion project - in the present case even before deciding the issue the Sponsoring Ministry consulted the Revenue and did not take into account relevant factors and merely went by the advice of Revenue. - The impugned orders passed by the respondents will have to be necessarily set aside. Accordingly the writ petition is allowed and the impugned orders will stand set aside. The respondents are directed to grant the petitioner total exemption from the payment of customs Duty in respect of the Steam Turbine imported by them by treating the same as falling under Entry 261 Chapter 98.01. If the petitioner has already paid any duty for importing the said Steam Turbine the same shall be refunded to the petitioner

Summary

Issues Involved:
1. Challenge to the order dated 7-7-1999 passed by the Union of India.
2. Request for total exemption from the payment of customs duty for the imported Steam Turbine.
3. Interpretation and application of Project Imports Regulations (PIR), 1986.
4. Eligibility of Captive Power Plants for customs duty exemption under the Project Import Regulations.
5. Role and authority of the Ministry of Chemicals and Fertilizer and the Department of Revenue in granting Essentiality Certificates.

Issue-Wise Detailed Analysis:

1. Challenge to the order dated 7-7-1999 passed by the Union of India:
The petitioner, a fertilizer manufacturer, challenged the order dated 7-7-1999 by the Union of India, which refused to grant an Essentiality Certificate for a Steam Turbine imported by the petitioner. The order was based on the consultation with the Ministry of Finance, which stated that captive power plants of capacity less than 5 MW would be liable to duty at the merit rate and not the nil rate applicable to fertilizer projects.

2. Request for total exemption from the payment of customs duty for the imported Steam Turbine:
The petitioner sought total exemption from customs duty for the Steam Turbine under Entry 261 Chapter 98.01(i) of the First Schedule to the Customs Tariff Act, 1975, which specifies a nil rate of duty for goods required for fertilizer plants. The petitioner argued that the Steam Turbine was an integral part of their fertilizer project expansion.

3. Interpretation and application of Project Imports Regulations (PIR), 1986:
The Government of India issued the Project Imports Regulations (PIR), 1986, to accelerate industrial growth. Under these regulations, goods imported for project expansion in manufacturing fertilizers are entitled to Project Import Assessment under heading 98.01, which specifies a nil rate of duty. The petitioner applied for an Essentiality Certificate from the Ministry of Chemicals and Fertilizer, the sponsoring authority under the PIR.

4. Eligibility of Captive Power Plants for customs duty exemption under the Project Import Regulations:
The first respondent initially rejected the petitioner's request, stating that captive power plants in fertilizer plants would be liable to customs duty applicable to captive power plants, not the nil duty for fertilizer plants. The petitioner argued that the Steam Turbine was an integral part of the fertilizer project and should be exempt from customs duty. The petitioner cited a clarification dated 10-10-1985, which stated that captive power plants in industrial plants should be treated as part of the project in which they are set up and assessed accordingly.

5. Role and authority of the Ministry of Chemicals and Fertilizer and the Department of Revenue in granting Essentiality Certificates:
The petitioner contended that the first respondent's role was to grant or reject the Essentiality Certificate independently under the PIR, without seeking clarification from the Department of Revenue. The petitioner argued that the Department of Revenue's advice was focused on maximizing revenue and disregarded other norms. The petitioner cited the Supreme Court's judgment in Zuari Industries Ltd. v. Commissioner of Central Excise and Customs, which held that once an Essentiality Certificate is issued by the sponsoring Ministry, it is not open to the Revenue to go behind the certificate.

Judgment:
The court allowed the writ petition, setting aside the impugned orders. The respondents were directed to grant the petitioner total exemption from the payment of customs duty for the Steam Turbine by treating it as falling under Entry 261 Chapter 98.01. If the petitioner had already paid any duty for importing the Steam Turbine, it was to be refunded within eight weeks. The court emphasized that the Essentiality Certificate issued by the sponsoring Ministry should be treated as proof of fulfillment of eligibility conditions for obtaining the benefit of the exemption notification. The court also noted that the Revenue could not dissect the Essentiality Certificate or deny the benefit of exemption once the certificate was issued by the sponsoring Ministry.