Appellate Authority Requires Separate Essentiality Certificates for Drill Bit Imports

The appellate authority upheld the decision that separate Essentiality Certificates (ECs) are required for the import and indigenous movement of drill bits to avail the concessional rate of tax under both customs and GST laws. The authority emphasized the need for separate ECs as the import and subsequent supply to ONGC are considered distinct transactions, despite the appellant's argument that a single EC should suffice for both purposes. The appellate authority rejected the appellant's reliance on previous judgments and stressed that compliance with the specific wording of the notifications is essential.

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Issues Involved:
1. Whether the import of drill bits for supply to ONGC involves two supplies.
2. Whether two separate Essentiality Certificates (ECs) are required for the import and indigenous movement of drill bits.
3. Whether the supply of drill bits to ONGC in India can be covered by a single EC under Notification No. 50/2017-Customs.

Issue-wise Detailed Analysis:

Issue 1: Whether the import of drill bits for supply to ONGC involves two supplies.

The appellant is engaged in supplying oilfield services and imports drill bits to supply to ONGC on a consignment basis. The Authority for Advance Ruling (AAR) held that the import and subsequent supply to ONGC are two distinct supplies as per the Customs Act and GST Acts. The appellant imports drill bits and avails benefits under Sr.404 of Notification No.50/2017-Cus, paying customs duty at 5%. The Central Government issued Notification No.3/2017-Central Tax (Rate) which taxes intra-state supply of goods to licensees at 2.5% if an EC from DGH is produced. The appellant charged and deposited GST at 18% under HSN 82071900 for the supply of imported bits.

Issue 2: Whether two separate Essentiality Certificates (ECs) are required for the import and indigenous movement of drill bits.

The AAR ruled that since the import and supply to ONGC are distinct supplies, the appellant needs to furnish different ECs: one at the time of import to the Custom Authorities and another at the time of supply to ONGC to the GST Authorities. The appellant contended that the import of drill bits is inextricably linked to the contract with ONGC and only one EC should suffice. The appellant argued that the EC issued by DGH certifies that the goods are required for petroleum operations and should be valid for both customs and GST purposes.

Issue 3: Whether the supply of drill bits to ONGC in India can be covered by a single EC under Notification No. 50/2017-Customs.

The appellant argued that the EC issued by DGH should be sufficient for both customs and GST notifications as they are identically worded. The appellant cited various judgments to support the argument that once an EC is issued for goods required for petroleum operations, it should be valid for all related transactions. The appellant emphasized that the EC certifies the goods for specific use, and obtaining a separate EC for GST purposes is unnecessary and burdensome.

Discussion and Conclusion:

The appellate authority upheld the AAR's decision, stating that the import and subsequent supply to ONGC are two distinct transactions requiring separate ECs. The authority noted that the appellant's reliance on previous judgments was misplaced as those cases dealt with different issues such as classification and applicability of exemption notifications. The authority emphasized that the operation of an enactment or notification must be judged by the words employed, not the object behind it. Therefore, separate ECs are required to avail the benefits under the respective notifications.

Order:

The appellate authority found no reason to interfere with the ruling pronounced by the Authority for Advance Ruling, Andhra Pradesh, and upheld the decision that separate ECs are required for the import and indigenous movement of drill bits to avail the concessional rate of tax under both customs and GST laws.

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