1 wp2980-11 agk IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.2980 OF 2011 1) Larsen & Toubro Limited an existing Company within the meaning of the Companies Act, 1956, and having its registered Office at L & T House, Ballard Estate, Mumbai – 400 036 2) L & T Sapura Shipping Pvt. Limited, a Company incorporated under the Companies Act, 1956, and having its Office at Gate No.1, L & T Powai Campus, EPC Block, 1st Floor, Powai, Mumbai – 400 072 ..Petitioners. Versus 1) The Union of India, Ministry of Finance, Department of Revenue, South Block New Delhi. 2) The Commissioner of Customs (Import), New Customs House, Ballard Estate, Mumbai – 400 001. 3) The Assistant Commissioner of Customs, Import Department, Gr. VB, New Customs House, Mumbai – 400 001. 4) The Additional Commissioner of Customs, Import Department, Gr. VB, New Customs House, Mumbai – 400 001. 2 wp2980-11 5) The Superintendent of Customs, (Prev.) Central Intelligence Unit, 10th Floor, Annex Building, New Custom House, Ballard Estate, Mumbai – 400 001. 6) The Director General of Hydrocarbons, having his Office C-139, Sector 63, Noida 201 301. 7) Oil and Natural Gas Corporation Ltd., a Company registered under the Companies Act, 19566 and having its Mumbai Regional Office at 4th Floor, 11, High ONGC Building, Bandra Sion Link Road, Sion (West), Mumbai – 17. 8) Deputy Commissioner of Customs (CIU) 10th Floor, Annexe Building, New Custom House, Mumbai 400 001 ..Respondents. Mr.V. Shridharan with Mr.Prakash Shah i/by PDS Legal for the petitioners. Mr.Pradeep S. Jetly for respondent Nos.1 to 6 & 8. Mr.Manoj Sanklecha with Mr.S.P. Bharti for respondent No.7. CORAM : J.P. Devadhar & A.A. Sayed, JJ. DATE : 6th May, 2011. JUDGMENT : (Per J.P. Devadhar, J.) 1. Rule. Rule is made returnable forthwith. By consent, taken up for final hearing. 2. Having issued the Essentiality Certificate to the effect that certain goods are required for petroleum operations, whether the Director 3 wp2980-11 General of Hydrocarbons is justified in cancelling the said certificate on a wholly extraneous ground that the importer is not a bona fide sub-contractor of ONGC, is the question raised in this writ petition. 3. Director General of Hydrocarbons (“DGH” for short) is the technical arm of the Ministry of Petroleum & Natural Gas, formed through a Cabinet Resolution in the year 1993. 4. As per Notification No.21/2002 dated 1-3-2002 issued by the Central Government, the DGH is empowered to issue Essentiality Certificate (“Certificate” for short) addressed to the concerned Customs Authorities on the application submitted by Exploration and Production Companies who have signed Production Sharing Contracts with the Government of India. 5. In the present case, the respondent No.7 (ONGC) is the Exploration & Production Company who has been nominated by the Government of India for exploration and development. The ONGC had appointed the petitioner No.1 (Larsen & Toubro Limited) as a sub-contractor for executing the petroleum project. At the instance of the petitioner No.1, the ONGC through the Customs sought the Essentiality Certificate for import of certain goods required for petroleum operations from the DGH, so that clearance of the above goods could be obtained at Nil rate of duty as per Notification No.21/02 dated 1-3-2002. 6. The DGH issued the Essentiality Certificate on 6-12-2010 4 wp2980-11 specifically recording therein that the goods in question are required for petroleum operations undertaken by the ONGC. The said certificate further records that the petitioner No.1 is the sub-contractor appointed by the ONGC for executing the petroleum project and that the petitioner No.2 (L & T Sapura Limited, a wholly owned subsidiary of the petitioner No.1) would be the importer. 7. Accordingly, the petitioner No.2 imported the goods covered under the Essentiality Certificate dated 6-12-2010 and sought clearance with the benefit of Notification No.21/02 dated 1-3-2002. The Customs Authorities were informed that the imported goods would be re-exported within six months after completing the petroleum project on behalf of ONGC. 8. As the Customs Authorities took time to investigate the matter, the petitioner No.2 filed writ petition No.10240 of 2010 in this Court. Pursuant to the order passed in the said writ petition on 23-12-2010, the Customs Authorities released the imported goods on provisional assessment on bond and bank guarantee. 9. Thereafter, the Customs Authorities were of the opinion that the importer – petitioner No.2 is not the sub-contractor evaluated by the ONGC and, therefore, the benefit of Notifications No.21/02 would not be available in respect of the imported goods. Accordingly, the Customs Authorities wrote letter to DGH and requested them to cancel the Essentiality Certificate 5 wp2980-11 granted on 6-12-2010. 10. On a notice issued by DGH to ONGC, both the ONGC as also the petitioner No.1 represented that the petitioner No.2, a wholly owned subsidiary of petitioner No.1 has imported the goods for use by petitioner No. 1 in executing the petroleum project of the ONGC. 11. However, the DGH, by the impugned order dated 6-4-2011 canceled the Essentiality Certificate dated 6-12-2010, mainly on two grounds, firstly, neither the ONGC nor the petitioner No.1 could produce in their replies any document to show that the petitioner No.2 was the sub-contractor of ONGC; and secondly the Officer of ONGC had stated that the petitioner No.2 has not been evaluated as sub-contractor of petitioner No.1 for any installation activity by the ONGC. Therefore, the petitioner No.2 cannot be termed as a bona fide sub-contractor of ONGC and consequently the benefit of Exemption Notification No.21/02 would not be available and, hence, the Essentiality Certificate dated 6-12-2010 is liable to be canceled. 12. The reasons recorded for canceling the Certificate are wholly unsustainable in law. The obligation cast upon the DGH is to ascertain as to whether the goods sought to be imported are actually required for petroleum operations or not. The Exemption under Notification No.21/01 is available only if the goods sought to be imported are required for petroleum operations and not otherwise. 6 wp2980-11 13. In the present case, it is neither the case of Customs Authorities nor the case of DGH that the goods imported on the basis of the Certificate are not required for petroleum operations. It is also not in dispute that the petitioner No.1 is in fact using the imported goods including Vessel LTS 3000 for petroleum operations for and on behalf of ONGC. However, at the instance of Customs Authorities the DGH has cancelled the Certificate on grounds which are not within their domain. Whether the petitioner No.2 is a sub-contractor of ONGC or not is not a relevant criteria for issuing the Essentiality Certificate. As noted earlier, the obligation cast upon the DGH is to ascertain as to whether the goods are actually required for petroleum operations or not. Once it is found by the DGH that the goods are required for petroleum operations, then the DGH cannot refuse to issue the Essentiality Certificate. In the present case, the DGH had issued the Certificate, but after import, purported to cancel the Certificate not on the ground that the imported goods are not required for petroleum operations, but on the ground that the benefit of the Notification is not available to the importer in the present case. Whether, benefit of the Notification is available to the importer or not, is a question to be considered by the Customs Authorities and not by the DGH. Therefore, the DGH could not have cancelled the Certificate on the ground that the benefit of the Notification is not available to the importer. 14. It was contended by Mr.Jetly, learned Counsel for the Revenue 7 wp2980-11 that since Condition No.29(c) of the Notification No.21/02 is not fulfilled in the present case, the benefit of Notification No.21/02 would not be available. We see no merit in the above contention, because, firstly, assuming there is any violation of the Conditions imposed in the Notification No.21/02, it was for the Customs to take up the issue in the assessment proceedings. The Customs Authorities ought not to have written to the DGH to cancel the Certificate on the ground that the benefit of the Notification is not available to the importer and the DGH ought not to have mechanically cancelled the Certificate by recording the reasons suggested by the Customs Authorities. Secondly, neither the ONGC nor the petitioners have represented to the Customs or the DGH that the petitioner No.2 – importer is the sub-contractor of ONGC. In fact, the Essentiality Certificate issued on 6-12-2010 specifically records that the petitioner No.1 is the sub-contractor and the petitioner No.2 is the importer. In such a case, the question of producing any document to the effect that the petitioner No.2 has been appointed as sub-contractor does not arise at all. Consequently, cancellation of the Certificate on the ground that the importer is not the bona fide sub-contractor of the ONGC cannot be sustained. 15. It is true that if the imports were made on permanent basis so as to use the imported goods not only for the approved ONGC project but also for other projects, then the benefit of the Notification would not be available. However, in the present case, the petitioner No.2 has specifically informed 8 wp2980-11 the Customs Authorities, by its letter dated 15-12-2010 that the import is being made on temporary basis for the purposes of ONGC project and that the imported goods would be re-exported after the ONGC operations are over. In these circumstances, whether on re-export the petitioner No.2 ceases to be the owner of the imported goods and if not, what would be the consequences, is a question to be considered by the Customs authorities at the time of final assessment of the Bill of Entry. But that cannot be a ground for cancelling the Essentiality Certificate. 16. The contention of Mr.Jetly that the ONGC has evaluated the petitioner No.1 as the sub-contractor and not evaluated the petitioner No.2 is also without any merit, because, it is nobody’s claim that the petitioner No.2 is the sub-contractor of ONGC and consequently there is no question of evaluating the petitioner No.2. The fact that the importer - petitioner No.2 is not the sub-contractor of ONGC may be a relevant factor for the Customs while considering the applicability of the Notification No.21/02 but not relevant for issuing the Essentiality Certificate. So long as the goods imported by the petitioner No.2 are required for petroleum operations and are in fact used by the petitioner No.1 for the petroleum operations, the question of canceling the Essentiality Certificate does not arise at all. It is not the requirement of the Notification No.21/02 that the importer should be the sub-contractor of ONGC. Similarly, evaluation made by the ONGC is in respect of the goods which the petitioner No.1 – sub-contractor claimed to be 9 wp2980-11 relevant for petroleum operations. On being satisfied that the claim of the petitioner No.1 is justified, the Essentiality Certificate was sought for and granted. Therefore, the fact that the ONGC has not evaluated the petitioner No.2 cannot be a ground to cancel the Essentiality Certificate. 17. Reliance was also placed by Mr.Jetly on clause 5.2.2 (ii) of the contract between ONGC and the petitioner No.1, which in our opinion has no relevance to the facts of the present case. That clause refers to the steps to be taken in case the sub-contractor appointed by the ONGC is unable to perform the contract. In the present case, the petitioner No.1 is the sub-contractor who is in fact executing the petroleum operations for and on behalf of the ONGC. Therefore, Clause 5.2.2 (ii) of the Contract between the ONGC and the petitioner No.1 has neither been invoked by the parties nor can it be a ground for cancelling the Essentiality Certificate. 18. For all the aforesaid reasons, we quash and set aside the order passed by DGH on 6-4-2011 which purports to cancel the Essentiality Certificate granted on 6-12-2010. 19. Accordingly, the Rule is made absolute in terms of prayer clause (a) to the petition with no order as to costs. (A.A. Sayed, J.) (J.P. Devadhar, J.)