IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated 25..7..2008 Coram: The Hon'ble Mr. Justice K.CHANDRU W.P. No. 12272 of 1999 and W.M.P. No. 17520 of 1999 Coimbatore Pioneer Fertilizers Ltd. Muthugoundanpudur Post Via Sulur, Coimbatore by its Managing Director Mr. Vidyaprakash D .. Petitioner vs. 1. The Union of India Rep. by Secretary to Government Ministry of Chemicals and Fertilizers Department of Fertilizers New Delhi 2. The Development Officer Government of India Ministry of Chemicals and Fertilizers Department of Fertilizers New Delhi 3. The Commissioner of Customs Chennai .. Respondents Petition filed under Article 226 of the Constitution of India seeking for issuance of writ of Certiorarified Mandamus calling for the records comprised in the proceedings of the first respondent dated 7th July 1999 in No. 15029/2/98 FP III and quash the same and consequently, direct the respondents to forthwith consider and grant total exemption from payment of customs duty in respect of Steam turbine imported by the petitioner by treating the same as falling under Entry 261 Chapter 98.01(i) and release the bank guarantee furnished by the petitioner. For Petitioner : Mr. Rahul Balaji for Mr. Satish Parasaran For Respondents 1&2 : Mr. P. Wilson, ASGI For Respondent 3 : Mr. T. Venugopal, CGSC O R D E R Heard the arguments of the learned counsel for the parties and have perused the records. 2. The petitioner is the manufacturer of fertilizers having a plant at Muthugoundanpudur, Coimbatore District. In the present writ petition, the petitioner seeks to challenge the order dated 07.7.1999 passed by the first respondent Union of India and praying to quash the same with a consequential direction to grant total 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). 3. The petitioner is manufacturing Superphosphate and it had an initial capacity of 40,000 M.Ts. per annum. It wanted to expand its industrial programme to 80,000 M.Ts. Therefore, it also had a licence for manufacture of not only Superphosphate but also Sulphuric Acid. At the time of the filing of the writ petition, it produced 16,500 M.Ts. Sulphuric Acid per annum which was also sought to be increased to 30,000 M.Ts. per annum. The total expansion project was estimated to be Rs.215 lakhs out of which the cost of import was to the extent of Rs.58 lakhs. The petitioner, in order to save foreign exchange, decided to import only one equipment, viz., Steam Turbine. For the purpose of importing the Steam Turbine, it received quotations from three reputed Turbine manufacturers, viz., two in India and one based in Germanym, a company called M/s KKK. The petitioner was advised by the consultants to go in for the turbine manufactured by M/s KKK of Germany which suited for its technical requirements. Accordingly, the petitioner placed orders with the German Company and opened a Letter of Credit through its bankers on 23.01.1998. 4. The Government of India, with a view to accelerate industrial growth, had issued Project Imports Regulations (PIR), 1986. In respect of the petitioner's project expansion in manufacturing fertilizers, the goods imported by the petitioner company was entitled for Project Import Assessment under the heading 98.01 of the First Schedule to the Customs Tariff Act, 1975. The said Notification specified Nil rate of duty in respect of the goods required for fertilizer plant. The Ministry of Chemicals and Fertilizer was the duly constituted sponsoring authority under the Project Import Regulations. Therefore, a person, who wants to avail the said exemption will have to apply for an Essentiality Certificate from the said Ministry. Accordingly, the petitioner had applied for claiming total exemption from the payment of Customs Duty for the Steam Turbine to be imported by them at the CIF price of DM 2,69,000 as permitted under the Customs Notification. 5. Initially, the first respondent, by a letter dated 28.10.1998, informed the petitioner that as per the policy of the Government, Captive Power Plants to be installed in Fertilizer Plants will be liable to Customs Duty as applicable to Captive Power Plants and not nil duty as applicable for fertilizer Plants and, therefore, the petitioner's request was negatived. Thereafter, the first respondent, for reasons best known to them, by a letter dated 20.11.1998, wrote to the Department of Revenue, Ministry of Finance, seeking for clarification. In that clarification, they had stated that since M/s National Fertilizers Limited was having Captive Power Plant with more than 5 MW capacity, whether the same concession can be given to the petitioner plant, which is having a capacity of only 475 KW capacity. 6. On coming to know that such a clarification is sought for by the first respondent Ministry, the petitioner directly wrote a letter dated 08.12.1998 to the Department of Revenue wherein they had also brought to the notice of the Government the clarification dated 10.10.1985 issued by the Ministry. The clarification may be usefully extracted below:- "12. Eligibility of 'Power Project' exemption to captive power plants. The term 'Power Project' would be considered as any project where the end product is power itself, and 'Captive Power Plants' put up in industrial plant for their captive use would not merit classification as 'Power Project' such captive power plant would have to be treated as part of the project in which it is set up and should be assessed accordingly." Thereafter, the petitioner, also took pains to explain that the Steam Turbine was an integral part of their Fertilizer Project and the installation of it will not only be a saving in terms of electricity but the Turbine itself will be operated with the energy produced during process. 7. However, the first respondent, after their consultation with the Ministry of Finance, passed an order dated 07.7.1999, which reads as follows:- "I am directed to refer to your letter No. Indl. Lic / 1248 dt. August 7, 1998 on the subject mentioned above and to say that the matter was examined in consultation with Ministry of Finance, Department of Revenue. It is informed that the captive power plants of capacity less than 5 MW will be liable to duty at the merit rate and not the rate as applicable to Fertilizers Projects. In view of the above, the list of goods for 475 KW captive power plant does not require any attestation from the Department." Thus saying, they refused to grant an Essentiality Certificate as required. It is this order, which is under challenge in this writ petition. 8. Pending the writ petition, an interim stay was granted on 20.7.1999. Subsequently, it was allowed to be continued by an order dated 20.8.1999. A direction was also given to furnish Bank Guarantee in respect of the Customs Duty and the same was furnished by the petitioner to the tune of Rs.27,89,087/-. In order to keep the bank Guarantee alive, as the petitioner was bound to pay interest to the Bank, it was prayed that the Bank Guarantee may be encashed subject to the result of the writ petition. The request of the petitioner to encash the Bank Guarantee was allowed with a condition that the petitioner should be made to pay interest up to the date. 9. Counter affidavits dated 28.4.2002 and 30.9.2002 were filed by the respondents justifying the impugned order. 10. Mr. Rahul Balaji, learned counsel appearing for the petitioner, submitted that the petitioner has sought only for Essentiality Certificate from the Ministry as required under the Project Import Regulations, 1986. Regulation 5 provides for Registration of Contracts and under Regulation 5.4, the application should be accompanied by the original deed of contract together with a true copy thereof, the import trade control licence, wherever required and an approved list of items from the concerned sponsoring authority. Therefore, the role of the first respondent is to accept or reject the grant of an Essentiality Certificate and it is an independent function which should be exercised by them under the Regulations. In the present case, they have sought for a clarification from the Department of Revenue, which was not required. 11. He further submitted that the Department of Revenue is bound to grant advise only to maximise the Revenue disregarding the other norms. The reason given by the first respondent on both the occasions was clearly erroneous and contrary to the benefit of Project Import Regulations and the exception under heading No. 98.01. It was for the first time, the Ministry mentioned about the policy of the Government to make all Captive Power Plants not eligible for nil rate duty. In the second occasion, the first respondent, in consultation with the Ministry of Finance informed that the Captive Power Plants with capacity less than 5 MW will be liable to duty at the merit rate and not nil rate as applicable to a Fertilizer Plant. This sudden introduction of an exemption based upon the capacity of power plant is not borne out by the exemption granted under the Project Import Regulations. He contended that either the respondent treated the goods (ie., Steam Turbine) required by the petitioner as part of the expansion of its fertilizer project or it should be treated as a Captive Power Plant. 12. In the present case, the expansion project envisaged by the petitioner included the Steam Turbine, which is an integral part of the petitioner's expansion project. This was not taken note of by the petitioner. While construing the scope of heading 84.66 (presently 98.01.), this Court in Appraiser, Madras Customs v. Tamil Nadu Newsprint and Papers Ltd. [(1988) 36 ELT 272 (MAD) = MANU/TN/0034/1988] held that the said heading 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. This Court also held that the items imported under the Project Imports will fall under specific entry because that item is imported as a part of a composite unit. 13. This view taken by the Division Bench of this Court was accepted by the Supreme Court in the case relating to Zuari Industries Ltd. v. Commissioner of Central Excise and Customs [2007 (5) SCALE 153]. In paragraphs 6 to 9 of the said judgment, it was held as follows:- Para 6: "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 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. Para 7: 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 fulfilment of the eligibility conditions by the importer for obtaining the benefit of exemption notification. According to the assesee, project imports fell under a specific Heading 98.01. According to the assessee, the import of capital goods indicted 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, 6 MW 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 Revene 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. India Operations Ltd. reported in MANU/SC/1697/2005. Reliance is also placed by the assessee on the judgment of the Calcutta High Court in the case of Asiatic Oxygen Ltd. v. Assistant Collecor of Customs reported in MANU/WB/0385/1991. Para 8: 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 that needed an extra item of capital goods, namely, 6 MW 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 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 Tallow 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 project 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. Para 9: 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 compent 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 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." [Emphasis added] In the Zuari Industries case (cited supra), the Essentiality Certificate granted by the Ministry was sought to be dissected by the Revenue which was disapproved by the Supreme Court. But 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. 14. In the light of the above, 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 within a period of eight weeks from the date of receipt of a copy of this order. However, there will be no order as to costs. Connected Miscellaneous Petition is closed. gri To 1. The Secretary to Government Union of India Ministry of Chemicals and Fertilizers Department of Fertilizers New Delhi 2. The Development Officer Government of India Ministry of Chemicals and Fertilizers Department of Fertilizers New Delhi 3. The Commissioner of Customs Chennai