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AUTHORITY FOR ADVANCE RULINGS
(CENTRAL EXCISE, CUSTOMS & SERVICE TAX)
Hon'ble Mr. Justice P. V. Reddi (Chairman)
Mr. A Sinha Mrs. Chitra Saha
Tuesday, the fifteenth May of two thousand seven
Ruling No. AAR/01(Cus)/2007
R U L I N G
( By Mr. Justice P. V. Reddi, Chairman )
1. The applicant Enercon (India) Limited is a company registered under the Indian Companies Act, 1956 having its corporate office at Andheri (West), Mumbai. As per the facts stated in the application, Enercon GmbH of Germany holds majority equity capital of Enercon (India) Limited - the applicant. It has entered into a collaboration agreement with the said German company and has set up a modern plant in the Union territory of Daman as a joint venture for the manufacture of wind operated electricity generators. These facts are borne out by the Joint Venture Agreement and Share-holding Agreement filed by the applicant (vide Annexures C and D to the application).
2. The applicant submits that it intends to set up independent power generation projects of different capacities across India by harnessing wind energy. The applicant also proposes to have a business tie up with an existing company/project by entering into an 'agreement to sell' in order to set up wind-energy based independent power project. The business activities proposed to be undertaken by the applicant are set out in Annexure-II to the application as follows :
"BUSINESS ACTIVITY TYPE -I - Enercon India Ltd intends and desires to set up power generation projects across India in different states by harnessing wind energy by setting up large number of independent power generation projects along with power stations, whereby electricity so generated will be connected to local grid supplying power to consumers for which a separate division called IPP division is being carved out in their organizational set up. The IPP division shall set up an independent power generation project of different capacities by importing from places outside India goods ie, machinery, instruments, apparatus, appliances, transmission equipment, auxiliary equipment, components, raw material etc. falling under chapter 98 tariff item 9801 and after installing and commissioning the same to effectively generate the electricity for the nation. Enercon India Ltd after installing and commissioning independent power projects may sell the entire project at a price, which is determinable upon prevailing market conditions in the power generation sector. The sole objective of IPP division would be to set up exclusively an independent power project with sole objective of generating clean and green power. The power so generated will not be used for the captive consumption.
BUSINESS ACTIVITY TYPE -II:. .......... Enercon (India ) Ltd. would carryout above activities whereby a business tie up would be made with an existing company / projects by way of "offer to sell" (Agreement to sell) for setting up an independent power project which would be called IPP division of the Existing company/project with whom the business tie up would materialize by accepting "such an offer to sell" and "part payment". Such an IPP division so set up for entities would be in activities other than power generation and eventually will independently sell the electricity and shall not consume the electricity captively.........."
2.1 The diagrams relating to the generator manufacturing are given in Exhibit I. The details of articles proposed to be imported are given in Exhibit J to the application.
3. It is the contention of the applicant that the articles (which are mostly components and parts of wind operated electricity generators) components to be imported by it for the purpose of setting up the wind-mill based independent power projects attract customs duty @ 5% only and no additional duty/CVD is leviable under Section 3(1) or 3(5) of the Customs Tariff Act on such imports.
4. The following questions for determination were re-framed by the applicant:
"1. Whether the goods detailed in Exhibit "J" which are proposed to be imported by the Applicants and which are required by the applicants for proposed Independent Power Project (not for captive consumption) by harnessing the wind energy described in Annexure II & Exhibit "I" will be eligible for classification under Customs Tariff Heading 9801?
2. (a) Whether the said goods referred to in Question No. 1 above will be eligible for exemption from basic customs duty in excess of 5% under Serial No. 399 (iv) of customs notification No. 21/2002-cus dated 01.03.2002?
(b) Whether the said goods referred to in question No. 1 will be eligible for exemption from the whole of the additional duty of customs under section 3(1) of the Customs Tariff Act, 1975 by virtue of serial No. 84, list 5, item 13 of Central Excise notification No. 6/2006-CE dated 01.03.2006?
(c) Whether the said goods referred to in Question No. 1 will be eligible for exemption from the whole of the additional duty of customs under section 3(5) of the Customs Tariff Act, 1975 by virtue of serial No. 11 of custom exemption notification No. 20/2006-cus dated 01.03.2006?"
5. The Commissioner of Customs (Import), Nhava Sheva, Raigad, Maharashtra in his comments stated that Chapter heading 9801 of the First Schedule to the Customs Tariff Act, applies only to specified projects sponsored by specified sponsoring authorities with a detailed itemized list of goods to be imported duly attested by the sponsoring authority and imported under specific contracts registered prior to the import of the goods. In this application, there is no such sponsored project and there is no specific list of goods duly approved by the sponsoring authority as being required for the Project. Hence it is not possible to extend the facility of heading 9801 to the applicant. Again in para 3 it is stated that the classification under 9801 i.e. project imports starts with a sponsoring to a specified project by the specified agency and in the absence of it, the applicant cannot avail of the benefit of any of the notifications relied upon by the applicant. As regards the C.E. Notification No. 6/2006-C.E. dated 1.3.2006, it is further stated that CESTAT has already decided the matter in respect of identical entry in an earlier notification. After the questions were reframed/amended, the Commissioner of Customs (Import) JNCH, zone-II reiterated in his comments that the Customs Department in terms of Regulation 5 of the Project Import Clearance, 1986 relies upon the clearance from the concerned sponsoring authority for the purpose of assessment under Heading No. 9801.
6. With reference to the plea raised by the Departmental Representative that the CESTAT has already decided the issue in the case of Indian Charge Chrome Ltd. vs. Commissioner of Customs, Visakhapatnam, this Authority overruled the objection holding that it has no bearing on the present issue. Therefore, the show cause notice issued under the proviso to Section 28-I (2) of the Customs Act was discharged and the application was accordingly allowed for pronouncement of ruling under sub-section (4) of the said section.
7. In order to find answers to the questions formulated, it is necessary to refer to the relevant portions of the First Schedule and the notifications. Chapter 98 which forms part of the 1st Schedule to the Customs Tariff Act, 1975 (hereafter referred to as the CT Act) deals, inter-alia, with project imports. Against heading No 9801 of the Table, the description of the goods given is as follows :
* Emphasis supplied.
Note 2 of Chapter 98 is important. It lays down :
"Heading 9801 is to be taken to apply to all goods which are imported in accordance with the regulations made under Section 157 of the Customs Act, 1962 (52 of 1962) and expressions used in this heading shall have the meaning assigned to them in the said regulations."
7.1 Project Imports Regulations, 1986 were framed by the Central Board of Excise and Customs and the provisions thereof will be referred to later.
7.2 Notification No. 21/2002-Cus dated 01.03.2002 (as amended from time to time) has been issued under sub-section (1) of section 25 of the Customs Act. It exempts the goods of the description specified in column 3 of the Table and falling within the Chapter, heading or sub-heading of the First Schedule to the CT Act, 1975, as are specified in the corresponding entries in column 2 of the Table, when imported into India, (a) from so much of the duty of customs leviable thereon under the First Schedule as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the Table and (b) from so much of the additional duty leviable thereon under sub-section (1) of section 3 of the CT Act, as is in excess of the rate specified in the corresponding entry in column (5) of the Table, subject to any of the conditions, specified in the annexure to the notification.
7.3 Against Sl.No. 399, the goods falling under the heading 9801 are mentioned. The relevant columns of the Table annexed to the notification are given hereunder :
7.4 The Heading No. 9801 also occurs at some other serial numbers, but we are not concerned with them. Suffice it to refer to Sl. No. 441, which reads as follows :
Having regard to the specific Entry relating to goods required for certain projects, this general Entry will not be of relevance in the instant case.
7.5 It is seen from the notification No. 21/2002-Cus that the goods required for the power generation projects (excluding certain categories of captive power plants) are liable to bear the maximum basic duty (standard rate) at 5% and the maximum additional duty rate at 16%. Anything above that rate stands exempted. There is no doubt that this notification will apply only to the goods falling under the heading 9801 and imported in accordance with the requirements laid down in Chapter 98. When we go back to the Chapter 98, Note 2 referred to earlier assumes importance. The Note categorically declares that Heading 9801 is to be taken to apply to all goods which are imported in accordance with the regulations made under section 157 of the Customs Act. Those regulations are the Project Import Regulations, 1986. Let us now briefly advert to those regulations:
7.6 Regulation 4 enjoins that the assessment under the Heading No. 9801 of the First Schedule to the CT Act shall be available to only those goods which are imported (whether in one or more than one consignment) under one or more specific contracts which have been registered with the appropriate Customs House in the manner specified. Such contracts should have been registered before any order is made by the Custom Officer permitting the clearance of goods for home consumption. The registration of contract is provided for by Regulation 5. It, inter alia, lays down that the application should be made on or before importation of goods. The applicant shall apply to the appropriate officer at the Port concerned for registration of contract soon after he has obtained the import licence for import of articles covered by the contract and in the case of imports covered by the Open General Licence, as soon as clearance from the concerned sponsoring authority has been obtained. The accompanying documents are specified in clause (4) of Regulation 5. They include the original deed of contract and an approved list of items from the sponsoring authority. On being satisfied that the application is in order, the proper officer shall register the contract by entering the particulars thereof and communicate the registration number to the importer [vide clause (6)]. The sponsoring authorities are specified in the Table.
8. The compliance with the Project Import Regulations is mandatory before bringing the importation within the purview of Chapter 98 and claiming any benefit of exemption or concession applicable to the goods enumerated in the said Chapter. Obtaining from the sponsoring authority an approved list of items required for setting up the project, the registration of contracts with the appropriate officer of the Customs House and filing an application with the requisite particulars and documents are indispensable requirements for bringing the import of goods needed for specified projects within the fold of Heading No. 9801. If any authority is needed, we may refer to the decision of Supreme Court in Mihir Textiles Ltd vs. Collector of Customs, Bombay 1997 (92) E.L.T. 9 (S.C.). In that case, concessional tariff was claimed under Tariff Heading No. 84.66. The proviso thereto is more or less the same as Note 2 of Chapter 9801. The Supreme Court analyzed the proviso and held as follows :
"The proviso prescribes, principally, three conditions to be satisfied for enment of the concessional rate shown in the aforesaid entry. They are - (1) Goods should have been imported against a specified contract registered with the appropriate Customs House; (2) Such registration should have been made in the manner prescribed by the regulations; (3) Registration of the contract should have been obtained before the order (granting permission for clearance of the goods) was passed. Unless all the three conditions are satisfied, no importer can claim, as a matter of right, the concessional relief provided in the Entry. In these cases the contracts were not registered at all before the order of clearance was passed. That fact is not disputed before us and as the appellants were aware of position they chose to pay full customs duty for making the clearance."
The contention that the application for registration could not be made to the Collector of Customs before the clearance of goods for no fault of appellant, was negatived.
9. The comments of the Commissioner of Customs in so far as the necessity to follow the requirements of project import regulations viz. clearance from sponsoring authority and registration of contracts is unexceptionable but to say that there is no such sponsored project and there is no specific list of goods and therefore it is not possible to extend the facility of heading 9801 is untenable. It amounts to putting the cart before the horse. The compliance with the mandatory formalities under the Project Import Regulations could only arise as and when the project is actually taken up and the applicant starts importing the goods. The learned Departmental Representative has rightly clarified that if the twin requirements of Project Import Regulations are complied with, the applicant's proposed imports can be brought under the Tariff Heading 9801. When we put this aspect of the matter to the applicant's counsel, he stated that the applicant is prepared to comply with the requirements of Project Import Regulations. We then directed the applicant to file an affidavit to that effect as the application does not categorically spell it out. The affidavit has since been filed by Mr. Ajay Mehra, Director of the applicant-company. It is stated therein that "Enercon India Limited in respect of their questions on proposed business activity set out in detail in the application would follow project import regulations and shall ensure its compliance as contemplated in accordance with law" and "shall also follow and ensure compliance of other statutes in accordance with law"
10. In the light of the above statement and the foregoing discussion, there can possibly be no controversy that the goods required for power generation projects (not for captive consumption) proposed to be set up and run by the applicant by harnessing the wind energy, if imported in accordance with the Project Import Regulations 1986 will be eligible for classification under Tariff Heading No. 9801. Accordingly the first question is answered.
11. We would however like to clarify two things, firstly we have not examined with reference to each item of goods specified in annexure - "J" whether these goods are in fact required for setting up the wind energy based power plant. That is a matter which primarily has to be addressed by the sponsoring authority while preparing and approving the list. The second point which we would like to clarify to obviate possible controversy, is that the expression 'deed of contract' should not be narrowly construed as applicable only to a formal document styled as agreement or contract incorporating all the terms and conditions governing totality of supplies made from time to time. Contractual documents normally exchanged between buyer and seller in commerce such as order and acceptance containing sufficient particulars of the transaction can also be treated as 'deed of contract'.
QUESTIONS 2 (a) &(c) :
12. They are in a way linked with the answer to question No. 1. Where the imports fall under Tariff Heading No. 9801, the two notifications, namely 21/2002-Cus dated 1.3.2002 and 20/2006-Cus dated 1.3.2006 would come into the picture and enure to the benefit of the applicant in regard to the basic duty leviable under section 2 read with the First Schedule and the additional duty leviable under section 3(5) of C.T. Act.
12.1 The relevant portion of the Notification No. 21/2002-Cus has already been extracted. The basic customs duty in excess of 5% has been exempted thereunder. The goods answering the description under column 3 of the said notification are those imported in accordance with the Project Import Regulations, as clarified supra. Such goods, by virtue of Sl. No. 399, item (iv) of the Table to notification No. 21/2002-Cus, will be eligible for exemption to the extent of the duty as is in excess of 5%. Accordingly, Question 2(a) is answered.
12.2 Coming to the additional duty under section 3(5) of C.T. Act, it is meant to counter-balance the sales tax, value added tax, local tax or any other charges for the time being leviable on like article on its sale, purchase or transportation in India. The maximum rate of additional duty that can be imposed under this sub-section is 4%. In exercise of the powers under section 25(1) of the Customs Act, the Central Government issued Notification No. 20/2006-Cus exempting, inter alia, "the goods specified in item (iv) and item (vi) against Sl.No. 399 of the Table" annexed to the Notification No. 21/2002-Cus from additional customs duty leviable under section 3(5). Item (iv) is goods required for Power Generation Projects including gas turbine power projects (excluding certain captive power plants). It is again made explicit that this exemption will be attracted only if the said goods imported fall within the Tariff Heading 9801.
12.3 Once it is held that the proposed imports of the applicant fall within tariff Heading 9801 subject to the fulfillment of the Project Import Regulations, the rate of additional duty under section 3(5) will be nil. Accordingly, Question No. 2(c) is answered.
QUESTION 2(b) :
13. This question which centres round section 3(1) of the CT Act has evoked intense debate. As against the contention of the applicant's Counsel that no additional duty under section 3(1) is liable to be paid on the components and parts of wind operated electricity generator (which are imported under Chapter 98 alongwith the other goods required for setting up wind Power Projects) in view of the Central Excise Notification No. 6/2006, it is the contention of the Sr. Departmental Representative that in respect of all the goods involved in project import, the applicant can only claim the benefit of reduced rate of additional duty (16%) under the Notification No. 21/2002-Cus. Having claimed the benefit of reduced basic customs duty in relation to such project imports, it is not open to the applicant to fall back on some other notification in so far as the additional duty on some of the goods is concerned.
13.1 In order to appreciate the controversy, let us take stock of the relevant provisions. We have already referred to Notification No. 21/2002-Cus at paragraph 7.2 Supra and again while answering the question No. 2(a). The basic or standard rate of duty specified by the said notification in respect of goods required for power generation projects etc. falling within Chapter 9801 is 5% and the additional duty specified is 16%. The basic duty and additional duty in excess of the aforementioned rates stand exempted under the said notification. If the matter stood there, there would be no difficulty in holding that the additional duty exemption cannot go beyond 16%. But, the answer to the question cannot be found within the four corners of this notification. Primarily, we have to see the charging section governing the additional duty.
13.2 Section 3(1) of the Customs Tariff Act in so far as relevant for our purpose is as follows :
"Any article which is imported into India shall, in addition, be liable to a duty (hereafter in this section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article :"
"Explanation : In this sub-section, the expression "the excise duty for the time being leviable on a like article if produced or manufactured in India" means the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India or, if a like article is not so produced or manufactured, which would be leviable on the class or description of articles to which the imported article belongs, and where such duty is leviable at different rates, the highest duty."
13.3 A five Judge Bench of the Supreme Court in the case of Hyderabad Industries Limited vs. Union of India 1999 (108) E.L.T. 321 had occasion to consider Section 3(1) of C.T. Act. B.N. Kirpal, J (as he then was) who wrote the judgment for himself and two other learned judges, after having referred to section 12 of the Customs Act and sections 2 & 3 of the Customs Tariff Act analyzed and delineated the scope of section 3(1). The following observations are worth quoting:
"Section 3(1) of the Customs Tariff Act, 1975 provides for levy of an additional duty. The duty is, in other words, in addition to the customs duty leviable under Section 12 of the Customs Act read with Section 2 of the Customs Tariff Act. Secondly this duty is leviable at a rate equal to the excise duty for the time being leviable on a like article to the one which is imported if produced or manufactured in India. The explanation to this sub-section expands the meaning of the expression "the excise duty for the time being leviable on a like article if produced or manufactured in India".........."
In paragraph 14, the Court enumerated various types of customs duty leviable under the two Acts and observed thus :
".........Customs Act, 1962 and the Customs Tariff Act, 1975 are two separate independent statutes. Merely because the incidence of tax under Section 3 of the Customs Tariff Act, 1975 arises on the import of the articles into India it does not necessarily mean that the Customs Tariff Act cannot provide for the charging of a duty which is independent of the customs duty leviable under the Customs Act."
In paragraph 17, it was observed :
".........On a correct interpretation of the relevant provisions of the two Acts there can be no manner of doubt that additional duty which is levied under Section 3(1) of the Tariff Act is independent of the customs duty which is levied under Section 12 of the Customs Act........"
The character and object of additional duty under section 3(1) has been explained as follows :
"........Even though the impost under Section 3 is not called a countervailing duty there can be little doubt that this levy under Section 3 is with a view to levy additional duty on an imported article so as to counter-balance the excise duty leviable on the like article indigenously made. In other words Section 3 of the Customs Tariff Act has been enacted to provide for a level playing field to the present or future manufacturers of the like articles in India".
14. It is thus settled by the decision of the Supreme Court in Hyderabad Industries case that section 3(1) of the CT Act is an independent charging provision. The liability to pay additional duty under section 3(1) is co-related to the Central Excise duty "for the time being leviable" on an article similar to the one imported if it is to be manufactured in India. Therefore, if any notification is issued under the Central Excise Act, exempting or reducing the duty, that should be taken into account for the purpose of ascertaining the liability to pay additional duty under Section 3(1) of CT Act. If under the said notification, the rate applicable is nil for a similar article manufactured in India, the importer need not have to pay any additional duty under section 3(1) because no excise duty is leviable at the relevant point of time. The liability to pay the additional duty has to be first judged on the terms of section 3(1) itself read with the relevant provision/notification under the Central Excise Act. The next step is to see whether there is a notification issued under Section 25 of the Customs Act exempting or reducing the additional duty under CT Act. In either case, the importer can avail of the benefit.
14.1 That is how the provisions of the Central Excise Act including the notification issued thereunder would assume importance in the context of the computation of additional customs duty. The applicant relies on the Central Excise Notification No. 6/2006 to contend that the rate of duty on the components and parts of wind operated electricity generator is nil and therefore the rate of additional customs duty should also be nil.
14.2 We shall now refer to Central Excise Notification No. 6/2006.
"Exemption and effective rate of duty for specified goods of Chapters 84 to 96. - In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the excisable goods of the description specified in column (3) of the Table given below read with the relevant List appended hereto, as the case may be, and falling within the Chapter, heading or sub-heading or tariff item of the first Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), as are given in the corresponding entry in column (2) of the said Table, from so much of the duty of excise specified thereon under the First Schedule to the Central Excise Tariff Act, as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the said Table and subject to the relevant conditions specified in the Annexure to this notification, and condition number of which is referred to in the corresponding entry in column (5) of the Table aforesaid :
........(13) Wind operated electricity generator, its components and parts thereof including rotor and wind turbine controller......."
14.3 On a reading of item 13 of List 5, it is clear that not merely the generator (wind operated) but also its components and parts including rotor and wind turbine controller qualify for exemption. Wind operated electricity generator produces non-conventional energy. That is why it is listed alongwith other items producing such energy. Another point to be noticed is that in regard to most of the other items in List 5, components and parts of the energy producing devices/systems are not specifically mentioned as in the case of wind operated electricity generator. We are adverting to this fact for the reason that the applicant is not importing the wind operated electricity generator as a unit or in assembled condition, but it is only importing the components and parts of wind operated electricity generator to be used in the manufacture of ultimate product i.e. wind operated power generator. According to the information furnished by the applicant pursuant to the directions of the Authority, most of the goods enumerated in Annexure J are components and parts of wind operated electricity generators. However, we make it clear that we are not scanning each and every item in order to see whether they are such components and parts. That exercise has to be done by the appropriate authority. Only such of the articles which can be treated as components and parts of wind operated electricity generator would qualify for exemption under the Central Excise Notification referred to Supra.
15. Broadly stated, the manufacture of goods which facilitate the production of non-conventional energy have been given complete exemption under C.E. Notification No. 6/2006. What then is the impact of such notification vis-a-vis the additional customs duty under section 3(1)? In our view, it adds a new dimension to the entire issue. When there is no liability to pay the additional duty by virtue of the operation of charging provision i.e. section 3(1) read with the Central Excise provisions, in our view, the liability to any extent cannot be fastened on the importer, by taking resort to the notification issued under the Customs Act. In other words, 16% additional duty prescribed in column 5 of Notification No. 21/2002-Cus cannot be given effect to in a situation where the importer has no liability to pay duty on the terms of the charging provision itself. To elaborate, the benefit which accrues to the importer by virtue of the application of the criteria laid down in section 3(1) cannot be taken away by taking recourse to the Notification issued under section 25 of Customs Act. The maximum rate specified in the notification which is in the nature of subordinate legislation cannot be projected into section 3(1) if the article is otherwise not chargeable to duty under the charging section itself.
16. What follows therefore is this : If all or some of the articles imported under Chapter 9801 in accordance with Project Import Regulations fall within the description of wind operated electricity generator, its components and parts mentioned in List 5 (Sl.No. 84) appended to Central Excise Notification No. 6/2006, the importer will be out of the net of additional duty imposed by section 3(1) of C.T. Act. Can it be said in the instant case that the goods proposed to be imported do not fall within the description of components and parts of wind operated electricity generator? If the answer is in the negative, as it ought to be, there is no way by which the importer can be denied the benefit of exemption. The goods required for power generation project may be of wider range and sweep than the wind operated electricity generator and its components and such goods may not qualify for exemption under the Central Excise Notification No. 6/2006. But, that cannot provide a legitimate ground to deny exemption to such of the goods which squarely fall within the description given in the Central Excise notification. There is no dichotomy between the goods required for power generation project (excluding captive power plant) and wind operated electricity generator and components parts thereof. The relief cannot also be denied on the ground that the benefit of concessional basic duty was claimed under a customs notification and the same notification puts a cap on the quantum of additional duty leviable.
17. To fortify our view point, we would like to embark on a further analysis of the problem by getting down to the specifics of the issue.
17.1 The gist of the charging provision contained section 3(1) of C.T. Act is this:
17.2 Any article imported into India shall be liable to the additional duty equal to the excise duty for the time being leviable on the like article if produced or manufactured in India.
17.3 To resolve the present issue, the questions to be asked and answered are the following :
1st Question: What are the articles proposed to be imported?
Answer : Broadly those falling within the description given in column 2 of Tariff heading 9801, that is to say, items of machinery, instruments, appliances, apparatus, components etc. which are required for the initial setting up of a power project. They include components and parts of wind operated electricity generator.
2nd Question: What is the excise duty for the time being leviable on the said articles if manufactured in India?
Answer : In so far as the components and parts of wind operated electricity generator are concerned, the duty will be nil in view of Notification No. 6/2006-CE. In regard to other articles imported under Chapter 9801, the Central Excise duty is payable at varying rates.
3rd Question: What then will be the quantum or rate of additional customs duty under section 3(1) of the C.T. Act?
Answer : (a) In relation to the components and parts of wind operated electricity generator no additional duty is leviable under section 3(1) because no excise duty is leviable on such articles by reason of Notification No. 6/2006-CE.
(b) In regard to the other items imported under Tariff Heading 9801, the additional duty applicable would be not more than 16% (vide Notification No. 21/2002-Cus).
17.4 In the case of (a), the benefit of nil duty accrues to the importer by the application of the criterion or measure provided by the section itself i.e. section 3(1) read with the Central Excise notification.
In the case of (b), the benefit of lesser rate of 16% accrues by virtue of Notification No. 21/2002-Cus issued under section 25(1) of the Customs Act. But for this notification, some of the goods required for power generation projects if manufactured in India would have attracted Central Excise duty at a rate higher than 16%.
18. There is no legal bar to the importer getting the benefit of duty relief/ concession under two different provisions. On the other hand, if the benefit is denied to the importer on the ground that for some of the goods specified in the same heading partial relief has been granted under a customs notification, it would amount to ignoring the mandate of charging section 3(1) and placing the notification on a higher pedestal. The fact that the goods in question form part of the project import series is not a ground to avoid application of the criterion prescribed by section 3(1).
19. As already noted, according to the learned Departmental Representative, the entirety of imported goods falling under Tariff Heading 9801 and compendiously known as 'project imports' should be given the same treatment in the application of duty rates and a greater benefit/relief cannot be accorded to some of the individual items forming part of the imported series. We find it difficult to accept this contention, though plausible it is. The discussion in the preceding paragraphs is an answer to the contention of the Departmental Representative. If the contention of Department is accepted, it would amount to stifling the operation of section 3(1) and failing to give full effect to its language. Once it is found that all or some of the goods imported under 9801 are not exigible to Central excise duty if they had been manufactured in India, the additional customs duty is not leviable, on the terms of the charging section 3(1). That section cannot be denuded of its full effect and content on the reasoning that the basic duty exemption was availed of under a customs notification which also granted partial relief of additional duty. We reiterate that there is no anomaly or legal bar against some of the goods getting the additional duty relief under the Customs notification and the other goods getting relief by reason of the fact that the central excise duty is not leviable on like goods manufactured in India.
20. The theory of double advantage implicit in the argument of the Departmental Representative has to be eschewed as a plea without legal basis. In this context, we would like to refer to a Division Bench decision of Nagpur High Court in CP & Berar Provincial Corporation Bank vs. CIT (14 ITR Page 479). In that case, the assessee - Bank borrowed money for the purpose of investing in tax free and taxable securities and had to pay interest on the money so borrowed. It was held by the High Court that under the first proviso to section 8 of the Indian Income Tax Act, 1922, the whole of interest on such part of borrowed capital as was expended on the purchase of both types of securities should be deducted. It was also held that under the second proviso the whole of the interest receivable on the tax free securities should be excluded in addition to the deduction in respect of the interest on borrowed capital. The Court observed, after referring to Lord Wright's judgment, in Hughes vs. Bank of New Zealand (6 ITR Page 541), "..... there is no reason why the tax payer should not get a double advantage if that can reasonably be spelled out of an enactment". In Hughes's case, the contention of the Revenue that the assessee cannot get double advantage by getting the benefit of exemption under a particular provision and at the same getting the advantage of deducting the expenses attributable to the earning of the exempted income, was rejected, on the plain language of the relevant section.
21. The issue can also be examined from the point of view of the objective of the section and the notification. The object of section 3(1) of C.T. Act as clarified by the Supreme Court is to counter-balance the impact of excise duty that would fall on Indian manufacturers. The idea is to subject the imports to the additional duty equal to the central excise duty leviable for the time being on similar goods manufactured in the country. At the same time, it is not the intention of the legislature that the additional duty should be paid on the imported articles irrespective of the fact that similar articles manufactured in India are exempt from central excise duty. The objective behind the Central excise notification was to provide incentives to those setting up non-conventional energy plants. Not levying additional customs duty in respect of goods imported for setting up non-conventional energy based power projects would better promote this objective.
21.1 Thus, going by the plain language of section 3(1) or the object thereof, the components and parts of the wind operated electricity generator which the applicant wants to import in order to set up a power plant by harnessing wind energy does not attract additional duty under section 3(1) of the C.T. Act.
22. The decisions of Madras High Court and of Supreme Court relied upon by the Sr. Departmental Representative will not be of any help in supporting the stand of the Revenue.
22.1 The decision of the Madras High Court in Appraiser, Madras Customs vs. Tamilnadu Newsprint Papers Ltd. (36 E.L.T. 272) has no bearing on the present case. Firstly, section 3(1) of the Customs Tariff Act or equivalent provision did not come up for consideration at all in that case. Two points that arose for consideration were (i) Whether Customs Notification No. 61 or 62/83 would apply in respect of certain goods imported in accordance with the Project Import Regulations. It incidentally raised the question whether tariff item 84.66 or 84.31 was more appropriate? (ii) What is the scope of the exemption granted under Notification No. 217-Cus. As the notification specifically referred to a particular heading, it was held that the exemption does not cover another heading though the nature of the goods is broadly the same under both the headings.
22.2 The above decision was affirmed by the Supreme Court in (2000) 116 E.L.T. 3. The Supreme Court did not, however, go into the main question addressed by the High Court. The Supreme Court's conclusion rests on the following observations :
"Having so obtained that benefit by claiming the imported machinery to be covered by tariff item 84.66, it was not open to the appellant later on to canvass much less claim that the machinery in question is covered by Tariff item 84.31, for receiving the benefit of total exemption under Notification 62/83 and that it is not liable to pay auxiliary duty at the reduced rate of 20% on goods falling under Tariff item 84.66 under Notification No. 61/83."
"In the established facts and circumstances of the case, the appellant was not end to the benefit of total exemption from payment of auxiliary duty under Notification 62/83 as rightly held by the Division Bench."
No such situation as pointed out by the Supreme Court arises here.
23. Another decision relied upon by the learned Departmental Representative is that of the CESTAT, South Zonal Bench reported in 2006 (203) E.L.T. 287.
23.1 The question there was whether the 'steam turbine' can be brought within the ambit of item 16 of List 9 of a similar C.E. notification. It was held that steam turbine by itself does not produce energy and therefore do not fall within the description 'waste conversion devices producing energy'. Item 13 with which we are concerned is of wider import. As already noticed, not only the finished product, namely, wind operated electricity generators but also its components and parts including rotor and wind turbine controller are specifically mentioned. As regards the observations of the learned Tribunal that wherever the legislative Authority intended to give liberty to an importer under any exemption notification of their choice, such intent would have been expressed explicitly, we must say that it is too broadly stated. The Tribunal was interpreting a notification which specifically enabled the importer to claim relief under any other notification. The observations of the Tribunal must be confined to and understood in that context. In any case, section 3(1) of the Customs Tariff Act did not come up for consideration in that case.
23.2 The order of CEGAT, West Zonal bench reported in 2002 (145) E.L.T. 546 cited by the learned Departmental Representative was concerned more with the issue of rectification of mistake. Following the decision of Supreme Court in Tamilnadu Newsprint case, the earlier order was recalled. Beyond that, we do not have any indication of the crucial issue involved therein.
24. In the light of the foregoing discussion, we rule that Question No. 2(b) should be answered affirmatively to the extent that the applicant will be eligible for exemption from the whole of additional customs duty leviable under section 3(1) of the Customs Tariff Act in respect of the parts and components of wind operated electricity generators imported by the applicant for the purpose of setting up independent power projects by harnessing wind energy. It is clarified that in regard to the other items imported under Tariff Heading 9801, the additional duty applicable will be the central excise duty in force, subject to a ceiling of 16%.
25. The questions are thus answered in the manner set out in paragraphs 10, 12.1, 12.3 and 24, subject to the clarifications/qualifications set out therein or the text of the order.
Accordingly, the ruling on the three questions is given and the application is disposed of.
Pronounced in the open Court of the Authority on this 15th day of May, 2007.
Sd./- Sd./- Sd./-
(A. Sinha) (P.V. Reddi) (Chitra Saha)
Member Chairman Member
Registered /A D
F. No. AAR/17(Cus)/2006 Dated 15th May, 2007
(A) This copy is certified to be a true copy of the Ruling and is sent to :-
1. M/s Enercon (India) Limited, Kolsite House, Plot No. 31, Shah Industrial Estate, Veera Desai Road, Andheri (West), Mumbai-400053.
2. Commissioner of Customs (Import), Jawahar Lal Nehru Custom House, Nhava Sheva, Tal : Uran Dist : Raigad, Maharashtra-400707.
3. Mr. Deepak Garg, Senior Departmental Representative, Customs, Excise & Service Tax Appellate Tribunal, West Block-2, R.K.Puram, New Delhi-66.
4. Individual folders of Hon'ble Chairman / Members
5. Guard File
F. No. AAR/17(Cus)/2006
Dated: 22th May, 2007
(B) In view of the provisions contained in Rule 25 of the Authority for Advance Rulings (Procedure) Regulations, 2005, permission of the Authority is accorded for publication of the Advance Ruling. Copy of the Advance Ruling is forwarded to:
1. Centex Publications Pvt. Ltd., 1512-B, Bhishma Pitamah Marg,
Opp. ICICI Bank of Defence colony, New Delhi-110 003
2. Deeparchie Publications, M-93, Marg-46, Saket, New Delhi-110 017
3. Excise & Customs Cases, B-37, Sector-1, Noida-201301 (U.P.)
4. Taxindiaonline.com Private Limited., B-XI/8183, Vasant Kunj, New Delhi-110 070
5. Cen-Cus Publications, B-37, Sector-1, Noida-201301
6. Taxmann Allied Service Pvt. Ltd, 59/32, New Rohtak Road, New Delhi-110005.
7. www.allindiantaxes.com, 803, Kirti Shikhar, District Centre, Janakpuri, New Delhi-110058