ZUARI INDUSTRIES LTD. v. COMMISSIONER OF CENTRAL EXCISE & CUSTOMS

Citation: [2007] 4 S.C.R. 553

Court: Supreme Court of India

Bench: S.H. KAPADIA, B. SUDERSHAN REDDY

Case summary

ZUARI INDUSTRIES LTD. v. COMMISSIONER OF CENTRAL EXCISE & CUSTOMS.pdf

Judgment text

ZUARI INDUSTRIES LTD. v. COMMISSIONER OF CENTRAL EXCISE & CUSTOMS MARCH 29, 2007 [S. H. KAPADIA AND B. SUDERSHAN REDDY, JJ. ] -... l' Customs Act, 1962--Customs duty-Exemption from-Entitlement- Expansion ofFertilizer Project by assessee---Goods importedfor such project entitled to benefit ofProject Import Assessment and benefit under Notification specifying 'nil' rate ofduty in respect ofgoods required for fertilizer plant- Assessee seeking 'Essentiality Certificate' in respect of6 MW Captive Power Plant as part ofthe entire capital goods for the project-Sponsoring Ministry granting the certificate in respect of the Power Plant as well-Revenue denying the exemption on the Power Plant-Order ofRevenue upheld by the authorities and courts belo~n appeal, held: when the sponsoring Ministry ....... certifies that such Power Plant was essential for the project, the Revenue cannot go behind such certificate and deny the benefit ofexemption-Customs Exemption Notification No. 11197 dated 1. 3.

1997-Project Import Regulations-Customs Tariff Act, 1975-Heading 98. 01. Customs Tariff Act, 1975-Heading 98. 01-Nature and interpretation ofthe Heading-Held: The heading is a specific entry-It is neither general nor residuary entry-It should be interpreted liberally as it deals with industrialization-It has to be read in the context of the exemption Notification-Customs Exemption Notification No. 11197 dated 1. 3. 1997. Assessee was the manufacturer of fertilizers. It obtained registration of all its imports required for expansion of its fertilizer project under the provisions ofProject Import Regulations, 1986. The goods imported for such expansion were entitled to the benefit of Project Import Assessment under Heading 98. 01 ofSchedule to Customs Tariff Act, 1975 and also to the benefit ofCustoms Exemption Notification No. 11/97 dated 1. 3. 1997. The Notification specified nil rate of duty in respect of "goods required for fertilizer plant".

The assessee gave its project report to the sponsoring Ministry under the ~ Regulations, seeking 'Essentiality Certificate'. It was indicated therein that for the expansion of the fertilizer project they also needed 6 MW Captive Power Plant for continuous flow cf electricity which was required for the project. The sponsoring Ministry by the 'Essentiality Certificate' recommended the Power Plant as part of the entire capital goods required by the assessee for substantial exapansion of the fertilizer project. Revenue denied the assessee the benefit of 'nil' duty in respect of the Power Plant and held the same liable to duty at 20% to 2% and additional duty of 13% holding that fertilizer project and the Captive Power Plant were two distinct projects so far as the rate of duty was concerned. All the Authorities below as well as Customs, Excise and Gold (Control) Appellate Tribunal upheld the view of the Revenue. Hence the present appeal. Allowing the appeal, the Court HELD: 1. 1.

The assessee had given to the sponsoring Ministry its entire Project Report. In that 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 dependent on continuous flow ofelectricity, which could be provided by such Captive Power Plant. Therefore, it was not open to the Revenue to reject the assessee's case for nil rate ofduty on the said item, particularly when the certificate says so. 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. The essentiality certificate is also a proof that an item like Captive Power Plant in a given case could be treated as 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 ofelectricity and if that project is approved by the sponsoring Ministry p saying that such supply is needed them the Revenue cannot go behind such certificate and deny the benefit ofexemption from payment ofduty or deny nil rate of duty. Once an essentiality certificate was issued by the sponsoring authority, it was mandatory for the Revenue to register the contract. [Para 10) (564-G-H; 565-A, B, C, DJ Commissioner ofCustoms (Imports), Mumbai v. Tullow India Operations Ltd, [2005] 13 SCC 789 and Asiatic Oxygen Ltd v. Assistant Collector of Customs, (1992) 57 ELT 563, relied on. 1. 2. It cannot be said that the sponsoring Ministry had not applied its mind to the list appended to the essentiality certificate. All the items in the ZUARIINDUSTRIESLTD. '" COMMNR. OFCENTRALEXCISE&CUSTOMS[KAPADIA,J.

] 555 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 this case, 6 MW Captive Power Plant is one of the items out of 14 items constituting capital goods required 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 ofduty. (Para 11) (565-E, F; 566-A, BJ 2. 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 industriali7. ation. It has to be read in the context ofthe exemption Notification No. 11/97. (Para 12) (566-C) Appraiser, Madras Customs v. Tamil Nadu Newsprint Papers Ltd, [1988] 36 ELT 272, relied on. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 465 of2002. From the final Order No. C-1/3653/WZB/2001 dated 15.

11. 2001 in Appeal No. C/277/01-Bom passed by the Customs, Excise and Gold (Control) Appellate Tribunal, West Regional Bench at Mumbai. K. N. Bhatt, U. A. Rana and Abhishek Rao (for Mis. Gagrat & Co. ) for the Appellants. · K. Radhakrishnan, P. Narasimhan and B. Krishna Prasad for the Respondents. The Judgment of the Court was delivered by KAPADIA, J. l. 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 ofexemption under Notification No. 1111997 dated 1. 3. 1997. The appeal involves the issue as to the rate of duty applicable to the imports made for (J expansion of a Fertiliser Project. 2. Assessee is the manufacturer of fertilizers at their facility at Goa.

It obtained registration ofall their imports required for expansion oftheir fertilizer project under the provisions ofthe 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 ofcustoms exemption Notification No. I 1197 dated 1. 3. 1997. The said notification specified nil rate of duty in respect of"goods required for fertilizer plant". Ministry ofChemicals and Fertilisers was the duly constituted Sponsoring Authority under the said PIR. The said Ministry had issued a certificate dated 22. l 0.

1997 (Essentiality Certificate) to the effect that the import ofcapital goods for expansion ofthe 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 ofIndia. 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. l0. 1997, the sponsoring Ministry requested the Customs to exempt the customs duty on import of equipments by the assessee vide Notification No. 11197. 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. 3. 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, 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. 11197 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 statedthat 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 ofduty was concerned. This contention of the Department has been accepted by all the authorities below. It has been conftnned even by the CEGAT vide the impugned judgment dated 15. 11. 200l. 4. Heading 98. 0l is a specific entry. It is not a general entry. It is not ZUARIINDUSTRIESLID. ". COMMNR. OFCENTRALEXCISE&CUSTOMS[KAPADIA,J. ) 557 ~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. 5. We quote hereinbelow the relevant entry of the Notification No. 11/ - "LIST OF GOODS AND SPARES TO BE IMPORTED FOR EXPANSION OFNPKPLANT S.

No. Description Vendor Qty. Total C&F Total C&F Total C&F Price US $ Price FF Price FM (Finish Marks) I. a) Microprocessor Mis 3 5183. 00 based Dot Yokogawa Nos Printing Electrical Recorder with Corpn, Battery 2-9-32 .... backup Nakacho, Musahino- Shi, Tokyo 180, Japan 1. b) Spares for - do - 518. 30 above. Lot 2. a) Current to - do - 13 7582. 00 Pneumatic nos. Signal Converter (l/P ... Converted) 2. b) Spares for - do - 758. 20 above Lot 3. a) Magnetic - do - 6 18026. 00 Flow meter nos. (Remote Type) Assembly with Converter & Signal cable. 3. b) Spares for - do - 1802. 60 above. Lot 4. a) Vibrating Mis 4 nos. 1076250. 00 Screen Chauvin complete with S. A. , ;. static dust l3a 25 casting motor Rue & other Alfred accessories De Vigny, BP 2426- 38034 Grenoble, Cedex 2, France. 4. b) Spares for - do - l Lot 107625. 00 above 5) Centifugal Mis A. R. 136425. 00 Pump with Wilfley --.. -. Saverne, ). _ 929? 1 Paris La Defense Cedex, France. 11. b) Spares for - do - I Lot 55875. 00 above. 12.

a) Flap Mis 2 nos. 192324. 00 Valve Vraco SA, Zacles Gatins, ~ 3 AV-Du ... Garigiliano, France, 12. b) Spares for - do - I Lot 19232. 40 above. 13. a) Bulk Solid Mis l no. 16507. 00 Recycle Ramsey, Flow Sydney Measurement Office, Sydney )f" Box RA, Teren Point, ZUARIINDUSTRIESLID. 1•. COMMNR. OFCENTRALEXCISE&CUS'IOMS[KAP/. DIA. J. ~ 563 NSW- Australia 2229 13. b) Spares for - do - Lot 1650. 00 above. 14. a) Equipment Mis Lot 11382000. 00 for 6 MW Wartsila Power Plant Diesel, consisting One Wartsila (l) Wartsila Diesel Vasa l8V32LN, Oy. , P. O. Diesel Box 252, Generating set Fin-65 l00, with auxiliary Vaasa, equipment. Finland 14. b) Spares for - do - l Lot 1382000. 00 above. 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 e. ssential for the substantial expansion ofthe NPK plant of Zuari Agro Chemicals Ltd.

, at Zuarinagar, Goa and are hence eligible for nil rate ofCustoms Duty under Customs Notification No. 11/97 dated 01. 03. 1997. For ZUARI AGRO CHEMICALS LTD. For ZUARI AGRO CHEMICALS LTD. Sd/- Sell (Resident Director) (S. K. Chatterjee) Vice President-Technical" 7. There is no dispute regarding other items mentioned in 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 ofthe 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. 8.

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 - 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 ofthe Project Imports. An item like a power plant could be in ~ 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 ofthe 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 -0ne 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. 12.

Before concluding, we may point out that, on behalf of 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. 0 I 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. 13. In the case ofAppraiser, 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 ofgoods. 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 p 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. 3 l. It was held by Madras High Court that even ifthe 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 ZUARllNDUSTRIESLTD. 1'. COMMNR. OFCENTRALEXCISE&CUSTOMS[KAPADIA. J. ] 567 ,__ that item is imported as a part of composite unit (see para 10). In our view, A 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. 14. 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 B assessee's appeal stands allowed with no order as to costs. K. K. T. Appeal allowed.