Exemption for oilfield equipment upheld where supply to a Special Economic Zone counted as export under SEZ law.

The exemption under Notification No. 21/2002-Cus. could not be denied where imported oil well equipment was supported by the required Directorate General of Hydrocarbons certificate and was used for the permitted petroleum operations. Although the goods were later supplied to a Special Economic Zone instead of being physically re-exported, that supply was treated as export under the SEZ Act, 2005. Because the notification did not impose an express re-export condition and the SEZ Act gives overriding effect to its export treatment, the exemption conditions were held satisfied and the demand, confiscation and penalties were unsustainable.

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Issues: Whether the benefit of Notification No. 21/2002-Cus. could be denied on the ground that the imported oil well equipment was not re-exported but was supplied to a Special Economic Zone, and whether such supply satisfied the condition attached to the exemption.

Analysis: The exemption notification required production of a certificate from the Directorate General of Hydrocarbons certifying that the goods were required for petroleum operations. The appellants had produced the certificate at the time of import and had used the capital goods for the permitted petroleum operations. After completion of use, the goods were supplied to the Visakhapatnam SEZ, and such supply is treated as export under Section 2(m) of the SEZ Act, 2005. Section 52 of the SEZ Act, 2005 gives the Act overriding effect. The absence of an express re-export condition in the notification, coupled with the deemed export treatment under the SEZ law, meant that the exemption could not be denied.

Conclusion: The appellants remained eligible for exemption under Notification No. 21/2002-Cus., and the demand, confiscation and penalties were unsustainable.

Final Conclusion: The impugned orders were set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: Where the exemption notification does not itself impose a re-export condition and the imported goods are used for the permitted purpose, their supply to a Special Economic Zone constitutes export for the purposes of the SEZ Act and cannot be treated as non-compliance with the exemption conditions.

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