2023 (9) TMI 1059 - AT - Central Excise

Manufacturer of refractory goods wins exemption case for supplying to power projects, Tribunal rules in favor.

The Tribunal ruled in favor of the appellant, a manufacturer of castable refractory goods, in a case concerning exemption under Notification No.06/2006-CE ... Refund claim - refund filed on the ground that supplies were against International Competitive Bidding and thus exempt - rejection for the reason that the project had two different units of 500 MW each whereas the exemption is applicable only to power projects of a capacity of 1000 MW. Benefit of exemption denied - project is not a mega project with more than 1000 MW power - Condition No.19 of the Notification No.06/2006 is not satisfied as the goods are not exempted, when imported, vide Notification No.21/2002-Cus as amended by Notification No.49/2009-Cus - appellant was not a party to the International Bidding and as a sub-contractor of the BHEL. Project in question is not a 1000MW project - HELD THAT:- Joint Secretary, Ministry of Power, Government of India, vide certificate dated 16-12-2009, certified that it is a case of setting up of Power plant of Capacity of 1000 MW. This should put to rest the speculation that the impugned project is of capacity of 1000 MW and not two projects of 500 MW each - CBEC vide F. No. 354/2007/2011-TRU dated 06.07.2012 has clarified that: “FM’s approval has been obtained for the issuance of suitable instructions to the Central Excise authorities based on clarification received from Ministry of Power in this case directing them to dispose of protective demand notices in the light of this clarification.” Appellant not a sub-contractor - HELD THAT:- The project authority certifies the requirement of procurement of Main Plant equipment and other items to be supplied and that the list of the Sub-Contractor along with items to be supplied with quantities shall be intimated later. It is not the case of the department that the appellant is not a sub-contractor. This Tribunal in the case of CST LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, HYDERABAD [2008 (2) TMI 755 - CESTAT, BANGALORE] and CST LTD. VERSUS COMMISSIONER OF CUS. & C. EX., HYDERABAD-I [2007 (6) TMI 369 - CESTAT, BANGALORE] held that exemption is available to the sub-contractors also. Condition No.19 of Notification no.06/2006 is not satisfied since as per Notification No 21/2002-Cus as amended by Notification No.49/2009-Cus prescribes Customs Duty @2.5% - HELD THAT:- The learned Commissioner has erred in looking at the Customs duty applicable to the project imports falling under CTH 9801 whereas the appellants have supplied castable refractory goods falling under Chapter 69 and 38 of Central Excise Tariff Act. To this extent, the findings of the Commissioner are erroneous. Moreover, Department has not also issued any show-cause notice to the similarly placed sub-contractor-suppliers involved in the same project. Once the Department has accepted nonpayment of duty for the previous and subsequent periods, it is not open for the Department to deny refund, if otherwise in order, for the short period during which the appellants have paid duty under mistaken notion of law.The Ld. Counsel also submits that the appellants are, alternatively eligible for exemption under Notification No.20/2002 as the goods were supplied to power projects. The impugned order is not sustainable and is liable to be set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether excise exemption under Notification No.06/2006 (Sl. No.91) applies to goods 'supplied against International Competitive Bidding' where the supplier is a sub-contractor to the main bidder executing the project. 2. Whether the project in question qualifies as a 1000 MW 'mega'/'ultra mega' power project for purposes of exemption, when executed as two 500 MW units forming a single project. 3. Whether Condition No.19 of Notification No.06/2006 (requiring corresponding customs exemption on import) is satisfied, having regard to the Customs Notifications relied on by the Department and the correct tariff classification of the goods supplied. 4. Whether the Department's reliance on the absence of direct participation in the international bidding, alleged collection of excise from the customer, and temporal gaps in payment of duty defeat the appellants' refund claim. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement of sub-contractors to exemption for supplies 'against International Competitive Bidding' Legal framework: Notification No.06/2006 exempts 'All goods supplied against International Competitive Bidding' (Sl. No.91) subject to condition (19). The exemption language refers to supplies against international bidding without expressly limiting entitlement to the principal bidder. Precedent Treatment: The Tribunal's prior decisions (cited in the judgment) have held that sub-contractors supplying goods to the main contractor that won the international competitive bidding are covered by the exemption; the rationale is that supplies to the main contractor effectively form part of the contract awarded by bidding and the exemption would be defeated if sub-contractors were excluded. Interpretation and reasoning: The Court accepts the precedential approach: where the main contractor is the successful bidder in an international competitive bidding process and the supplier is a listed sub-contractor supplying goods to that contractor for the project, the supply falls within 'goods supplied against International Competitive Bidding.' The fact that the sub-contractor itself did not bid is immaterial to the purpose and operation of the Notification. Ratio vs. Obiter: Ratio - Sub-contractors supplying to the main bidder are entitled to the exemption. This doctrinal point is treated as essential to the decision. Conclusion: Exemption under Notification No.06/2006 is available to sub-contractor suppliers where supplies are to the successful international bidder executing the project. Issue 2 - Qualification of the project as a 1000 MW mega/ultra-mega power project when constituted by two 500 MW units Legal framework: Eligibility for 'mega' project benefits depends upon aggregate capacity meeting the notified threshold (1000 MW) as interpreted in administrative clarifications. Precedent/Treatment: Administrative clarifications from the Ministry of Power and CBEC were relied upon to interpret the criterion of 'total up to at least 1000 MW in one go.' Interpretation and reasoning: The Tribunal gives decisive weight to the certificate from the Ministry of Power (Joint Secretary) certifying the project as a 1000 MW power plant and to CBEC communications affirming that projects where unit capacities sum to at least 1000 MW qualify for mega status benefits. These authoritative clarifications resolve the Department's contrary view that two separate 500 MW projects do not aggregate to 1000 MW for exemption purposes. Ratio vs. Obiter: Ratio - Where the Ministry of Power certifies that separate units together constitute a 1000 MW project and CBEC/MoP clarifications treat aggregated unit capacities as meeting the 1000 MW threshold, the project qualifies for the exemption. Conclusion: The impugned project, though executed as two 500 MW units, is a single 1000 MW project for exemption purposes; the Department's contrary finding is rejected. Issue 3 - Satisfaction of Condition No.19 (requiring customs exemption on import) and correct tariff classification Legal framework: Condition No.19 of Notification No.06/2006 conditions the excise exemption on the goods being exempted from customs duties (and additional duty under Section 3) when imported into India, as per the First Schedule to the Customs Tariff Act and relevant customs notifications. Precedent/Treatment: The Department relied on Notification No.21/2002-Cus as amended by Notification No.49/2009-Cus to contend customs duty at 2.5% applied, thus failing Condition No.19. The Tribunal examined the correctness of the customs duty application vis-à-vis tariff classification. Interpretation and reasoning: The Tribunal finds the Commissioner erred by considering customs duty applicable to project imports under CTH 9801 (main plant/power project-specific entry) while the goods supplied by the appellants are castable refractory goods falling under Chapters 69 and 38. Since the customs exemption inquiry must relate to the actual tariff classification of the goods, the Department's reliance on an inapplicable customs entry undermines its Condition No.19 objection. Additionally, administrative clarifications from CBEC and Ministry of Power further support treating the project as eligible for customs benefits necessary to satisfy Condition No.19. Ratio vs. Obiter: Ratio - Condition No.19 must be assessed by reference to the correct tariff classification of the goods; misclassification by the Department cannot defeat the excise exemption. Obiter - Observations on specific customs notifications and rates are applied to the facts but hinge on classification. Conclusion: The Department's finding that Condition No.19 is not satisfied is based on an erroneous tariff application; on correct classification the Condition cannot sustain denial of the exemption. Issue 4 - Miscellaneous contentions: collection of excise from customer, temporal payment gaps, and department's inconsistent conduct Legal framework: Principles of refund for mistaken payment of excise and equitable treatment where department has accepted non-payment for other periods; administrative fairness and consistency inform adjudication of refund claims. Precedent/Treatment: The adjudicating authority pointed to the purchase order stating payment 'inclusive of Excise Duty plus 2% of CST' to suggest duty was collected from the customer. The Tribunal notes that appellants paid duty only for a limited period (Jan-Mar 2011) and sought refund for that period. Interpretation and reasoning: The Tribunal observes (i) the Department did not contest non-payment for prior and subsequent periods and did not initiate action against similarly placed sub-contractors; (ii) a brief period of mistaken payment cannot be disaggregated from the Department's acceptance of non-payment in surrounding periods such that it would be inequitable to deny refund where otherwise due; and (iii) absence of production of certain commercial documents at initial personal hearing, while relevant, does not override the documentary and authoritative certification resolving key eligibility questions. Ratio vs. Obiter: Ratio - Departmental acceptance of non-payment in adjacent periods and failure to act consistently can estop the Department from denying a refund for a short period of mistaken payment where statutory eligibility is otherwise established. Conclusion: The Department's procedural/contention-based objections do not defeat the refund claim once substantive eligibility for exemption is established; accordingly, the impugned denial is unsustainable. FINAL CONCLUSION The Tribunal holds that (a) the project qualifies as a 1000 MW mega project by Ministry of Power certification and CBEC clarification; (b) sub-contractors supplying to the successful international bidder are eligible for the excise exemption under Notification No.06/2006; (c) Condition No.19 was wrongly invoked on the basis of an incorrect customs tariff entry; and (d) departmental inconsistency and the limited period of mistaken duty payment do not preclude refund when exemption entitlement is otherwise established. The impugned order denying the refund is set aside and the appeal is allowed.