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2016 (10) TMI 819 - RAJASTHAN HIGH COURT

2016 (10) TMI 819 - RAJASTHAN HIGH COURT - TMI - FTP - 100% EOU - deemed export benefit - DTA unit having a captive power plant supplies electricity to 100% EOU - zinc manufactured in the export oriented unit consumes electricity manufacturing process to obtain zinc - whether electricity is a "consumable" item as defined under para 9.15 of the FTP and as referred in para 6.6.1 of HBP-I and is entitled for exemption? - Held that: - The process of obtaining zinc, clearly indicates that the electro .....

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ut does not necessarily form part of end product items, but substantially or totally consumed in the process aforesaid, is a "consumable". The electricity, in our considered opinion, not only participates, but is substantially consumed in manufacturing process of zinc, thus, is a "consumable" as per para 9.15 of FTP. - Clause (a) of para 6.6.1 of HBP-I mentions raw materials, consumables, intermediates, spares and packing materials. All these terms give a general connotation and each and eve .....

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tricity is a goods "consumable" for production of zinc. In view of it, it is having its separate identity which is required to be appreciated with its own qualities. - The process of electrolytic cannot take place without consuming electricity and, therefore, its consumption in production of zinc is apparent - the electric power being a "consumable" as per para 9.15 of FTP deserves to attract clause 6.6.1 of HBP-I (6.5.1 of HBP) - the petitioner is entitled to have deemed export benefit for .....

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reign Trade Policy (hereinafter referred to as 'FTP'), the Board of Approval for Export Oriented Unit Scheme, rejected the appeal preferred by the petitioner by arriving at a conclusion that electricity is not a "consumable" item and as such is not entitled for exemption as referred in para 6.5.1 of the Hand Book Procedure (hereinafter referred to as 'HBP') 2009-14. The decision of the Board was communicated to the petitioner by the office of the Regional Joint Director .....

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stic Tariff Area (hereinafter referred to as 'DTA') Unit of the petitioner is having a captive power plant which supplies electricity to the export oriented unit (100%) that manufactures zinc. The zinc manufactured in the export oriented unit consumes electricity manufacturing process to obtain zinc. The claim of the petitioner, at the first instance, under a letter dated 1.6.2010, was objected on following counts - (a) no duty drawback on electricity in the past period, (b) as to how th .....

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% EOU Unit for the period 8th May 08 to 30th Sept. 2008. The said claim is the first claim as there was no supply of electric energy to 100% EOU Unit before 08th May 2008 (i.e. date of conversion into 100% EOU). (ii) This claim has been filed for fixation of brand rate of drawback under Para 8.3.3 of HBP (Hand Book of Procedure) Vol.I which provides "Where All Industry Rate of Drawback is not available or.........., an application in ANF 8 along with prescribed documents may be made to RA o .....

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Excise legislations. * Electric energy is specified in Heading 27160000 in Central Excise Tariff and hence is goods. The supply of goods to EOU is entitled for deemed export drawback as per Para 8.3 of FTP. Moreover, the Petitioner's DTA Unit has filed the claim as per Para 8.3.1 (iii) of HBP vol1 which provides "in respect of supplies under Para 8.2(b) of FTP, where supplier wants to claim benefits from RA, RA shall allow deemed export benefits to DTA supplier, or receipt of certified .....

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itioner that the claim made under letter dated 18.10.2010 is not sustainable as the power is not covered under para 6.6.1 (para material to para 6.5.1 of HBP) of the Hand Book of Procedure Volume-I. After receiving the communication aforesaid, the petitioner submitted a detailed representation dated 28.10.2010 explaining that the electrical energy is a "consumable" item in the manufacturing process of zinc and, therefore, is entitled to procure the same duty free and further to demand .....

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Oriented Unit, Ministry of Commerce and Industries, which was responded by the Ministry of Commerce and Industries with information that the Board of Approval, in its meeting dated 28.11.2011, considered the representation and rejected the same. The petitioner then preferred a review petition before the Board of Approval, which came to be considered and rejected on 6.7.2012. The Board of Approval refused to extend benefits on basis of the opinion given by NOIDA Special Economic Zone and Director .....

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(Development and Regulation) Act, 1992 (hereinafter referred to as 'the Act of 1992'), the Central Government notified FTP, Chapter VI of that pertains to Export of Oriented Units (EOUs), Electronics Hardware Technology Parks, Software Technology Parks and Bio-Technology Parks. The provisions relevant for setting up EOUs, the import/export of goods, domestic procurement of goods i.e. from DTA, sale of goods in DTA, achievement of Net Foreign Exchange etc. are given in this Chapter. This .....

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uance of this para, the Director General of Foreign Trade notified a procedure which is compiled under HBP-I. The relevant provisions contained in FTP and HBP-I relating to the period 2008-09 deserve to be quoted and those are as follows:- "(i) Para 6.11(a) of FTP : Supplies from DTA/ EOU/ EHTP/ STP/ BTP units will be regarded as "deemed exports" and DTA supplier shall be eligible for relevant entitlements under Chapter 8 of FTP..... (ii) Para 8.2 of FTP : Supply of goods of EOU/ .....

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d during a manufacturing process, will be deemed to be consumables. (v) Para 6.6.1 of the HBP Vol.I : Goods permitted to be imported/procured from DTA shall include: (a) Raw materials components, consumables, intermediates, spares and packing materials. .................... .................... (f) Any other items not mentioned above with approval of Board of Approval (hereinafter referred to as BoA.)" The Director General of Foreign Trade, under a policy circular No.23 dated 28.7.2008, cla .....

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on behalf of the petitioner, submits that the Board of Approval, while examining claim made by the petitioner, failed to appreciate that electric energy is nothing but a "consumable" as per para 9.15 of the FTP. The electricity, used for production of zinc, is a good required for manufacturing process to manufacture zinc ingots. The electricity in this manufacturing process does not form part of end product, but certainly satisfies the requirements as given in para 9.15 of the FTP, th .....

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of electrolysis. The details of the entire process, as given by the petitioner and accepted by the respondents, is as follows:- "1) Cell House (Electro winning) - Process Brief - From Captive Power Plant, the Electrical Energy is supplied at around 132 KV to the Rectifier where it gets converted in to DC Current and the DC is supplied at approx 470 V to the Cell House at 192 KA (peak load). Electro-winning is carried out in electrolyticd cells by passing D.C. Current. In cells, aluminum she .....

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he electro winning process is done. This high voltage electricity passed through rectifiers can only be consumed for industrial purposes and is being consumed entirely in the cell house (electro winning process). The electric energy consumed in this process is around 85% of the total energy consumed by the EOU Unit. 2) Melting & Casting - The zinc cathodes are melted in two induction melting furnaces and casted through Automatic Zinc Casting machine and wherein equipments and machines like c .....

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ated) wherein calcine is being transferred to day bins and then this calcine is transferred to various tanks & reactors where electrically operated equipments like agitators & pumps are being substantially used. In the entire process, electric energy is being consumed for the motorized equipments mentioned above being an integral part of the manufacturing process. Concentrate is transferred from RMH section to Roaster day bin through motorized conveying system run on electric energy and .....

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treated in gas cleaning plant through QT/ PGCT & WET ESP equipments which are run on electrically energy. These gases are transferred to the acid plant where sulphuric acid is being produced." It is also stated that the electricity used in the process of electrolysis stands consumed absolutely and that does not remain available for its reuse or use for any other purpose. RESPONSE BY THE RESPONDENTS TO THE CONTENTION OF THE PETITIONER - The submissions made by learned counsel for the pet .....

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he explanation as under:- "(a) The DGFT issued the policy circular no. 23/2008 dated 28.07.2008 which clearly states that the deemed export benefits under Chapter 8 of the FTP should be allowed only in respect of permissible goods as per para 6.6.1 of HBP Vol.I. (b) Being intangible in nature, its usage for manufacturing process cannot be clarified. (c) The eligible goods for deemed export benefits are not essentially excisable goods as goods covered under FTP are not governed by Central Ex .....

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Fuel (HSD and Furnace Oil) in the AIR and brand rate fixation. (e) In view of the above cited clarification, power cannot be considered as 'goods' for the purpose of deemed export benefits." Learned counsel, while relying upon the explanation extended by the drawback Directorate, Department of Revenue, emphasised that the electrical energy is certainly a goods, but not entitled to have duty drawback benefits which are available only for supply of certain restricted goods mentioned .....

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quot;consumable". APPRECIATION OF THE ISSUE BY US - Precisely, the issue under consideration is that whether in production of zinc, the electricity power is a "consumable" as defined under para 9.15 of the FTP and as referred in para 6.6.1 of HBP-I (6.5.1 of HBP)? To appreciate the issue, it is necessary to understand the entire process of obtaining the final product i.e. zinc. As per the material supplied by counsel for the parties, the zinc is processed either of two primary pro .....

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sulphuric acid is then diluted with water for reuse. Some impurities in the original concentrate have to be removed in order not to contaminate the sulphuric acid. Sulphuric acid, as such, is a major by-product of zinc smelting. The impure zinc oxide, called calcine, is then leached sulphuric acid to dissolve the zinc, producing impure zinc sulphate. In practice, the leaching process is carried out in several steps, the first step invariably being only very weakly acid. The zinc sulphate so pro .....

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ack to their metallic form. This is analogous to the schoolboy trick of putting brass coins into silver nitrate - because silver is a noble (un-reactive) metal the coins become silver-plated with, behind the scenes, a small amount of the more reactive copper dissolving. Removal of impurities from the zinc sulphate is most important. If they remain, not only will the zinc produced from the subsequent electrolysis be insufficiently pure, but their presence will interfere with the smooth running of .....

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odically the cathodes are removed and the metallic zinc is harvested i.e. peeled away from the aluminium blanks, which are then replaced in the tanks for another cycle. For electrolysis alone the electric power requirement is approximately 3300kWh per tonne of zinc produced for sale and including other electrical requirements of the smelter the total requirement is approximately 4000kWh per tonne. The metallic sheets peeled from the aluminium cathode blanks are finally melted in a furnace and th .....

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e FTP in specific terms provides that any item, which participates in or is required for manufacturing process, but does not necessarily form part of end product items, but substantially or totally consumed in the process aforesaid, is a "consumable". The electricity, in our considered opinion, not only participates, but is substantially consumed in manufacturing process of zinc, thus, is a "consumable" as per para 9.15 of FTP. We do not find any merit in the argument advance .....

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