2025 (9) TMI 329 - AT - Central Excise

Exemption Notification No.15/2010-CE Covers All Machinery for Solar Power, Including Mounting Structures; Delayed Certificate Accepted

Commissioner of Central Tax Medchal - GST Versus M/s Seven Energies Ltd.

Commissioner of Central Tax Medchal - GST Versus M/s Seven Energies Ltd. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether module mounting structures for solar panels qualify as 'all items of machinery' and related inclusions under an exemption notification for initial setting up of a solar power generation project. 2. Whether non-production of a certificate from the Ministry of New and Renewable Energy (MNRE) prior to clearance of goods, when the assesse had applied for the certificate and obtained it subsequently, defeats substantive entitlement to the exemption and refund. 3. The proper approach to interpretation of an exemption notification: interplay between strict construction at the applicability stage and liberal construction once applicability is established, and the consequence of procedural deficiencies on substantive benefits. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Scope of 'all items of machinery' under the exemption notification Legal framework: The exemption covers 'all items of machinery required for initial setting up of a solar power generation project or facility' and further includes instruments, apparatus and appliances, control gear and transmission equipment and auxiliary equipment (including those required for testing and quality control) and components. Precedent treatment: The Court relied on the controlling principle from higher-court precedent concerning interpretation of exemption notifications that requires strict scrutiny at the applicability stage, but allows liberal construction thereafter where an item is found to fall within the notification's ambit. This settled approach was followed by the Tribunal. Interpretation and reasoning: The main (inclusive) phrase 'all items of machinery required for setting up of solar power generation' is wide and not restricted by the subsequent illustrative list. The inclusive enumeration serves to elaborate, not to limit, the main phrase. Module mounting structures, being specifically designed and required for installation of solar panels in the initial setting up of the plant, fall within 'items of machinery' necessary for the project. The Tribunal rejected the narrow reading that would exclude mounting structures merely because they are not expressly listed among the illustrative items. Ratio vs. Obiter: Ratio - the notification's main inclusive phrase is sufficiently broad to cover mounting structures; the illustrative list does not restrict the main expression. Obiter - observations about the particular design features of the mounting structures as distinguishing them from 'general equipment' are supportive but not essential beyond establishing that the structures were required specifically for the project. Conclusion: Module mounting structures qualify as exempt 'items of machinery' required for initial setting up of a solar power generation project; exemption applies to those goods. Issue 2 - Effect of late production of MNRE certificate on entitlement to exemption/refund Legal framework: The notification contained a procedural requirement that a certificate from MNRE be submitted (stated to be before clearance of goods). The question is whether failure to submit that certificate prior to clearance, despite an application having been made, deprives the assesse of substantive relief. Precedent treatment: The Tribunal applied the principle from higher-court authority that, while exemption notifications must be strictly construed at the stage of deciding applicability, substantive benefits cannot be denied on purely procedural grounds if the substantive entitlement exists and a valid certificate is ultimately produced. The Tribunal treated the cited higher-court rulings as determinative of the balance between procedural compliance and substantive rights. Interpretation and reasoning: The Assessee had applied for the MNRE certificate before clearance; bureaucratic delay led to issuance after clearance. The Tribunal held that where there is not an absolute absence of a valid certificate but only a temporal delay in obtaining it, the substantive benefit should not be forfeited. Denying exemption solely because the certificate arrived after physical clearance would elevate form over substance and frustrate the intention of the notification when substantive entitlement is established. The Tribunal found the subsequent MNRE letter confirmed intended and actual use for a solar power project. Ratio vs. Obiter: Ratio - procedural non-compliance in timing of certificate submission does not automatically negate substantive entitlement when the certificate is eventually obtained and the goods demonstrably meet the exemption criteria. Obiter - comments on bureaucratic delay and fairness may be persuasive but are ancillary to the core holding. Conclusion: Late production of the MNRE certificate did not defeat the assesse's right to exemption/refund where the certificate was applied for prior to clearance and was ultimately issued confirming the use of goods for the solar project. Issue 3 - Approach to interpretation of exemption notifications and interaction of strict and liberal construction Legal framework: Exemption notifications form part of the fiscal code and must be read with statutory context. The interpretive approach distinguishes two stages: (a) applicability - whether the subject falls within the notification - to be tested strictly; (b) post-applicability - if the item is found to fall within the notification, interpretive latitude may be exercised liberally to effect the exemption. Precedent treatment: The Tribunal followed leading authoritative guidance that mandates strict construction at the stage of determining whether a claim falls within the exemption, but once that threshold is crossed, the notification should be given liberal play to provide the substantive benefit; procedural infirmities should not ordinarily displace substantive entitlement. Interpretation and reasoning: Applying the two-stage approach, the Tribunal first examined whether mounting structures fell within the notified class and concluded they did. Having crossed the strict applicability hurdle, it then treated procedural non-compliance (timing of certificate) in a manner that preserves substantive relief given the absence of absolute lack of authorization and the presence of bureaucratic delay despite prior application. The Tribunal emphasized avoiding absurdity and preserving the purpose of the notification. Ratio vs. Obiter: Ratio - the two-stage interpretive test governs entitlement: strictness for applicability, liberality for effectuation of exemption; procedural lapses do not automatically bar substantive benefits. Obiter - references to specific policy considerations and administrative convenience are illustrative rather than binding. Conclusion: The correct interpretive approach is to apply strict construction to determine applicability but to apply liberal construction thereafter; accordingly, substantive entitlement should not be defeated by procedural delay where the assesse has otherwise established qualification and eventually produced the required certificate. OVERALL CONCLUSION OF THE COURT The Tribunal upheld the appellate authority's order granting the refund: (a) mounting structures are covered by the notification as 'all items of machinery' required for initial setting up of a solar power generation project; and (b) the late submission of the MNRE certificate did not defeat the substantive entitlement to exemption where the assesse had applied for the certificate before clearance and obtained it thereafter. The Revenue's appeal was dismissed.