Case: Zuari Industries Ltd Vs. Commnr. Of Central Excise &amp; Customs

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 of exemption under Notification No. 11/1997 dated 1.3.1997. The appeal involves the issue as to the rate of duty applicable to the imports made for expansion of a Fertiliseris the manufacturer of fertilizers at their facility at Goa. It obtained registration of all their imports required for expansion of their fertilizer project under the provisions of the 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 of customs exemption Notification No. 11/97 dated 1.3.1997. The said notification specified nil rate of duty in respect of "goods required for fertilizer plant". Ministry of Chemicals and Fertilisers was the duly constituted Sponsoring Authority under the said PIR. The said Ministry had issued a certificate dated 22.10.1997 (Essentiality Certificate) to the effect that the import of capital goods for expansion of the 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 of India. 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 22.10.1997, the sponsoring Ministry requested the Customs to exempt the customs duty on import of equipments by the assessee vide Notification No. 11/97. 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 fertilizerstated 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. 11/97 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 stated that 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 of duty was concerned. This contention of the Department has been accepted by all the authorities below. It has been confirmed even by the CEGAT vide the impugned judgment dated 15.11.2001.

Court's reasoning:
9. We find merit in this civil appeal filed by the assessee for the following reasons.10. 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 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 of electricity, which could be provided by such Captive Power Plant. Therefore, it was not open to the Revenue to reject the assessees 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 Tullow India Operations Ltd. (supra), this Court held that essentiality certificate must be treated as a proof of fulfillment 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. It 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 object 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.11. Secondly, before us, it has been vehemently urged that although the essentiality certificate stood issued by the sponsoring Ministry, there isof 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 competent 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 the Project Imports. An item like a power plant could be in a given case in independent Plant. Generally, it is aequipment. 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.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 98.01 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 industrialization. It has to be read in the context of the above Notification No. 11/97.13. In the case of Appraiser, Madras Customs vs. 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 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 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 84.31. It was held by Madras High Court that even if the 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 that item is imported as a part of composite unit (see para 10). In our view, 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.