2025 (9) TMI 1286 - AT - Customs

Importer Entitled to Concessional Project Import Benefit Under Notification No.12/2012-Cus Despite Post-Import Contract Amendments due to exigent sourcing

M/s RKM Powergen Pvt. Ltd. Versus Principal Commissioner of Customs, Chennai

CESTAT allowed the appeal and remanded the matter to the original authority, holding that the importer is entitled to the concessional Project Import ... Benefit of project import - Denial of appellant’s request to extend the benefit of the concessional rate of duty as per Project Import Regulations while upholding the assessment of the Bill of Entry - HELD THAT:- It is not in dispute that the contract dated 18.07.2007 and 20.02.2009 was entered by the appellant with M/s. MIPP International Ltd and were registered with the authorities. Business exigencies compelled the appellant to source the goods required from a supplier other than the one indicated in the contract so registered. It is the submission of the appellant that the urgent sourcing of the required goods required that the goods be lifted by air thereby bringing about a change in CIF value which necessitated the amendment to the contract, that had since been made and the requisite letter of the sponsoring authority post such amendment, has also been submitted. When the water treatment system required for the power project had been already registered under the Project Import Regulations and were forming part of the registered contract with M/s MIPP International Ltd, it goes without saying that it is an item that already stood approved by the Sponsoring Authority as that which is required for the said Project undertaken. That apart, the Sponsoring Authority had also vide its letter dated 22.02.2013 conveyed its recommendation for registration of the contract pertaining to the imports, interalia, from M/s. Waterfront Fluid Controls Ltd, Glasgow. It is a settled principle in law, even as per the decisions in CC GST & Others Vs. Safari Retreats, Private Limited, [2024 (10) TMI 286 - SUPREME COURT] as well as the constitution bench decision in Dilip Kumar's case [2018 (7) TMI 1826 - SUPREME COURT (LB)] that exemption notifications are required to be construed strictly to cross the threshold of entitlement to the exemption notification and thereafter the court may construe the notification by giving full play bestowing wider and liberal construction. The substantial benefit under the Project Import Regulations ibid, cannot be denied on pedantic mechanical objections, which tantamount to asking for performance of the impossible considering the chronology of related events as narrated above. In these circumstances, it is opined that in line with the decision of the Constitution Bench of the Apex Court in Dilip Kumar case, the appellant has satisfactorily crossed the threshold so as to be entitled to the benefit of the Project Import Regulations - the application of the appellant for registration of the contracts post issuance of the sponsoring authorities letter dated 14.06.2013 needs to be permitted in the peculiar facts of this case by the concerned authority and the Appellant cannot be denied the benefit in the instant case on the grounds that the amendment to the contract was not registered, or that it was not registered prior to procurement of the goods. The appeal is allowed by way of remand, remitting the matter back to the original authority with directions that the benefits claimed of the Project Import Regulations and the benefit of notification No.12/2012-Cus dated 17-03-2012 as amended and prevalent during the relevant period, are to be extended. The miscellaneous application filed, and available on record, accordingly, stands disposed of. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether an importer is entitled to benefit under the Project Import Regulations and the related exemption notification for goods imported pursuant to a supplier change and amendment to the contract where the amendment/registration was pending at the time of import but a sponsoring-authority recommendation (initial and amended) existed and was subsequently filed. 2. Whether failure to have the amended contract registered prior to import is a fatal non-compliance that precludes invocation of the concessional duty benefit under the Project Import Regulations and the exemption notification. 3. How the principles of strict construction at the applicability stage and liberal construction thereafter (as articulated by the Constitutional Bench and Supreme Court) apply to the facts where administrative formalities (return of sponsoring letter for amendment and subsequent re-submission) delayed formal registration. 4. Whether the proper remedy is allowance of concessional benefit retrospectively or remand to the original authority to complete registration and grant the benefit. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to Project Import benefit when supplier changed and contract amended but registration pending at time of import Legal framework: Project Import Regulations require registration of the contract and sanction by the sponsoring authority (Regulation 5), with provision for amendment of the contract (Regulation 6). The exemption notification conditions link concessional duty treatment to registration under the Project Import Regulations. Precedent Treatment: The Court relied on the established interpretive approach in the Constitutional Bench/Supreme Court authority (strict at threshold of applicability; liberal construction once applicability is established). The Tribunal's own prior decision in a like factual matrix was treated as persuasive and supportive of granting benefit where goods cleared before registration were later found to be within project scope. Interpretation and reasoning: The Court accepted the factual findings that (a) the project and initial contracts were duly registered; (b) the item imported fell within the approved project list; (c) the sponsoring authority had issued a recommendation indicating the new supplier; (d) an amendment to CIF was required because the supplier air-lifted goods; and (e) the amended sponsoring letter was ultimately filed. Regulation 6 expressly contemplates amendments being made before or after registration and requires the proper officer to note amendments if application in order. Given these regulatory provisions and the documentary evidence of sponsorship and amendment, the Court held the substantive condition of sanction/approval was met even though formal registration of amendment was not completed prior to import. Ratio vs. Obiter: Ratio - where (i) the imported goods form part of items already approved under a registered project contract, and (ii) the sponsoring authority has recommended/issued a letter covering the alternate supplier and amendment (subsequently filed), the benefit under Project Import Regulations need not be denied merely because amendment registration was pending at the time of import. Obiter - comments on administrative practice of awaiting litigation outcomes are advisory to administrative authorities. Conclusions: The importer satisfied the substantive conditions for Project Import benefit; denial solely for non-registration of the amended contract prior to import was not justified in the peculiar facts. Issue 2 - Effect of non-registration of amended contract prior to import: fatality of procedural lapse Legal framework: Regulation 6 permits amendment of registered contracts and contemplates registration of amendments before or after registration; the proper officer is required to note amendments when in order. Exemption notifications are to be strictly construed at the threshold of applicability but liberally construed thereafter. Precedent Treatment: The Court invoked the Constitutional Bench/Supreme Court doctrine (strict-liberal two-stage approach) as the governing interpretive principle for exemption clauses and relied on a prior Tribunal decision holding in similar circumstances that benefits could be granted despite clearance before formal registration. Interpretation and reasoning: The Court recognized administrative formalities but found that the sponsor's recommendation, the application for registration of the amended contracts before import, the subsequent filing of the amended sponsorship letter, and the regulatory allowance for amendment after registration together constituted substantial compliance. The Court criticized a mechanical refusal based on timing when documents and approvals existed and the delay was caused by the need to amend CIF due to exigent air shipment and subsequent administrative steps. The Court also noted the unfairness of denying benefits where the authority allegedly refrained from registering because litigation had commenced, creating a catch-22 for the importer. Ratio vs. Obiter: Ratio - procedural non-completion of amendment registration prior to import is not automatically fatal where there is substantial compliance with the regulatory scheme and the sponsoring authority's sanction exists and is filed; administratively imposed delays or litigation cannot be used to deny statutory benefits in such circumstances. Obiter - admonition to authorities to process registration applications and not await litigation outcomes as a matter of practice. Conclusions: Non-registration before import did not preclude the grant of benefit; the importer's substantial compliance and subsequent cure entitled it to relief. Issue 3 - Application of strict-then-liberal construction doctrine to exemption notifications in the Project Import context Legal framework: Exemption notifications must be strictly construed to determine whether the subject falls within the notification; if the threshold is crossed, the provisions may be construed liberally in favour of the claimant. Precedent Treatment: The Constitutional Bench/Supreme Court authority establishing the two-stage interpretive approach was explicitly followed and applied to the facts of the case. Tribunal precedent in a like factual situation was relied upon to support liberal construction after threshold satisfaction. Interpretation and reasoning: The Court applied the strict-then-liberal approach: it first examined whether the imported goods fell within the class of items approved under the registered project (strict stage) and concluded they did; having crossed that threshold, the Court employed liberal construction to give effect to the purpose of the exemption and to avoid a harsh result where administrative formalities had been substantially complied with and where sponsor approval existed and was later filed. Ratio vs. Obiter: Ratio - the two-stage interpretive approach applies and supports granting exemption where threshold conditions are substantively satisfied even if some formalities were incomplete at the precise time of import. Obiter - observations on equitable administration and avoidance of pedantic outcomes. Conclusions: The interpretive doctrine justified extending the exemption in the present factual matrix. Issue 4 - Appropriate remedy and direction to authority Legal framework: Power of the appellate/tribunal to remand to original authority for compliance with regulatory formalities and to direct extension of benefits where entitlement is established. Precedent Treatment: The Court noted and relied on its own prior decision granting benefit under similar circumstances and applied that approach to fashion relief. Interpretation and reasoning: Given the Court's conclusion that substantive entitlement existed and that failure to register the amendment before import did not defeat entitlement, the appropriate remedy was to set aside the impugned order and remit the matter to the original authority with directions to permit registration of the amended contracts and to extend the benefit of the Project Import Regulations and the exemption notification as applicable for the relevant period. The Court declined to impose an absolute monetary refund order in the headnote but mandated administrative action to grant the claimed concessions. Ratio vs. Obiter: Ratio - remand with direction to extend benefits and register the amended contract is the correct and proportionate remedy where entitlement is established but formal registration remains to be effected. Obiter - procedural guidance to avoid creating a catch-22 for future claimants. Conclusions: Appeal allowed by way of remand; original authority directed to permit registration of the contracts (inclusive of the amendment) and to extend the Project Import and notification benefits for the relevant import.