2025 (9) TMI 1288 - AT - Customs

CBEC circular validly regularizes 'auxiliary equipment' under Project Import Regulations, 1986 and invalidates transferability restriction

Ajay Garg, Era Infra Engineering Ltd, Hem Singh Bharana, Vishesh Kumar Walia, Aravali Power Company Pvt Ltd and Om Prakash Srivastava Versus Commissioner of Excise Customs (Import), Mumbai

CESTAT MUMBAI (AT) allowed the appeal and set aside the impugned order, holding that the CBEC circular validly regularized treatment of 'auxiliary ... Jurisdiction - empowerment vesting in the customs authorities to levy duties of customs under section 28 of Customs Act, 1962, besides confiscation of such goods - absence of any specific restriction on re-deployment of goods comprising ‘project import’ - HELD THAT:- In re Jacsons Thevara [1991 (2) TMI 140 - SUPREME COURT], the issue for consideration was that imported machinery, which were not ‘auxiliary equipment’, was transferred beyond the scope of Project Import Regulations, 1986. In re NRB Bearings [2003 (4) TMI 183 - CEGAT, MUMBAI], the Tribunal followed the decision in re Jacsons Thevara as the dispute pertained to equipment that could not be categorized as ‘auxiliary equipment, and the transfer to another unit of the importer was assailed by following the judicial decisions as existing then. In re Sunshine Pulp & Papers Pvt. Ltd. [2004 (1) TMI 628 - CESTAT, BANGALORE] the ratio of the decision in re Jacsons Thevara was followed. The decision of the Hon'ble Supreme Court in re Toyo Engineering India Ltd. [2006 (8) TMI 184 - SUPREME COURT] assigned a specific disposition of ‘auxiliary equipment’ that were not intended to merge with the asset of the project itself and was determined as deserving of separate treatment. Accordingly, exception, set out in the impugned circular of Central Board of Excise and Customs (CBEC), was afforded regularization thereof. It may be noted that the said circular enlarged upon the Project Imports Regulations, 1986 primarily for the purpose of enabling assessment of ‘auxiliary equipment’ within the scope of Project Import Regulations, 1986. Though the circular did also restrict the transferability to registered projects such condition was not enshrined within the Project Import Regulations, 1986. The impugned order set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether customs authorities may, after finalization of a provisional assessment under section 18, invoke section 28 to recover customs duty and confiscate goods that were imported and assessed as 'project import' under heading 98.01 when those goods are redeployed or transferred post-installation. 2. Whether goods legitimately assessed as project imports (including 'auxiliary equipment') remain properly classified under heading 98.01 notwithstanding subsequent relocation, transfer of ownership, or redeployment to another project not registered under the Project Import Regulations, 1986. 3. Whether any obligation of 'perpetual scrutiny' or continuing restriction arises from Project Import Regulations, related notifications, or department circulars such that breach of post-import conditions permits retrospective denial of project import classification and levy of duty under section 28. 4. Whether administrative circulars (or similar executive guidance) imposing transfer restrictions can, absent specific statutory/regulatory provision, justify recovery of duty or confiscation after provisional assessment has been finalized. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Power to invoke section 28 after finalization of provisional assessment to recover duty/confiscate goods redeployed post-installation Legal framework: Section 18 (provisional assessment and finalisation), section 28 (recovery of duties), section 28AB (interest), section 111(o) (confiscation), Project Import Regulations, 1986, and tariff Heading 98.01 of the Customs Tariff Act. Precedent treatment: The Court relied on higher-court authority recognizing that goods imported as auxiliary equipment for initial project set-up may be classified under Heading 98.01 and that mere subsequent possibility of reuse elsewhere does not negate eligibility. Tribunal authorities have held that, where finalisation has occurred after compliance at threshold, subsequent disposal or transfer without a specific statutory prohibition does not automatically enable retrospective recovery. Interpretation and reasoning: The Court reasons that classification under Heading 98.01 and assessment as project import bundles goods for a collective purpose (capacity building) and that eligibility is assessed at import and at the time of finalisation. Section 28 empowers recovery of duties where duties are chargeable but not paid; however, where provisional assessment was finalised consistent with regulations and threshold conditions were met, there is no basis to treat those goods as fresh imports and re-levy duty absent a statutory provision disallowing such transfers. The Court distinguishes cases where goods plainly were not auxiliary or where eligibility was false at the time of assessment. Ratio vs. Obiter: Ratio - section 28 cannot be used to re-levy duty on goods validly classified and finally assessed as project imports merely because of later redeployment, absent statutory restriction. Obiter - observations on comparative scope of section 28 in other contexts and on interest/penalty mechanics. Conclusion: Customs cannot, merely by reason of redeployment post-finalisation, invoke section 28 to recover the duty already foregone under project import assessment, unless there is a specific statutory or regulatory provision permitting such retrospective charge. Issue 2 - Continued classification under Heading 98.01 for 'auxiliary equipment' despite subsequent relocation or change of ownership Legal framework: Heading 98.01 and the concept of 'auxiliary equipment' as contemplated by the Tariff Act; Project Import Regulations, 1986; related notifications enabling exemption/concessional duty treatment. Precedent treatment: Supreme Court authority (interpreting Heading 98.01) accepts that auxiliary equipment aiding initial setting up falls within Heading 98.01 and that the mere potential or actual later use elsewhere does not defeat that classification. Tribunal decisions have consistently held that presence of installation and bona fide use for the intended project, and finalisation of provisional assessment, preserve the classification even where equipment is later sold or relocated, unless statutory text prescribes otherwise. Interpretation and reasoning: The Court emphasizes that Heading 98.01 is a facility to simplify bundling and classification for whole projects; the defining requirement is use in initial setting up or substantial expansion. Auxiliary equipment by definition aids the initial set-up; a subsequent change in form, structure, ownership or relocation after achieving the project objective does not undo the factual and legal basis of the original classification. The Court notes there is no regulation requiring perpetual retention of form/ownership as a condition of assessment under Heading 98.01. Ratio vs. Obiter: Ratio - eligibility for Heading 98.01 is determined by facts at import and installation (i.e., bona fide use in initial setting up or substantial expansion); later relocation or transfer does not automatically invalidate the classification. Obiter - observations on practicalities of 'bundling' and administrative burden of component-wise classification. Conclusion: Equipment legitimately qualifying as auxiliary for project import and finally assessed under Heading 98.01 retains that classification despite subsequent redeployment or transfer, absent a specific legal provision to the contrary. Issue 3 - Existence and effect of a continuing obligation ('perpetual scrutiny') under the Regulations/notifications/circulars to permit recovery upon post-import breach Legal framework: Project Import Regulations, related notifications, and departmental circulars; principle of exemption subject to conditions versus unconditional retrospective denial. Precedent treatment: Higher judicial authority and several Tribunal decisions treat the facility under Heading 98.01 as conditioned on initial eligibility and specified regulatory compliance, but do not interpret those instruments as imposing an indefinite, automatic clawback in absence of statutory language. Some authorities have upheld retrospective denial where eligibility was never present or was fraudulently claimed. Interpretation and reasoning: The Court distinguishes between a concession/facility granted on meeting threshold requirements and an open-ended perpetual liability to revisit classification absent legislative/regulatory mandate. While departmental circulars may clarify or tighten administrative practice (e.g., restricting transfers to registered projects), such circulars cannot create a legal condition that is not present in the statute or regulations, to the extent of enabling recovery/confiscation after lawful finalisation. The Court notes that circulars expanded administrative regularisation for auxiliary equipment but did not amend the Regulations to create a statutory bar on transfer; consequently, reliance solely on a circular to justify recovery is impermissible. Ratio vs. Obiter: Ratio - absent a statutory/regulatory provision creating an ongoing condition or specific prohibition, a circular cannot serve as legal basis for post-finalisation recovery/confiscation. Obiter - discussion of circumstances (e.g., absence of bona fides, fraud, disaggregation) where recovery might still be justified. Conclusion: There is no general rule of perpetual liability arising from the Regulations or notifications; administrative circulars cannot, by themselves, justify retrospective duty recovery/confiscation once provisional assessment has been finally regularised on the facts. Issue 4 - Effect of prior decisions dealing with non-auxiliary equipment and situations where transfer/assessment was improperly claimed Legal framework: Distinction between auxiliary equipment (eligible) and other imported items not integral to project set-up (ineligible); requirement that facts at import satisfy Heading 98.01. Precedent treatment: Judicial and Tribunal authorities have upheld recovery and denial of project import facility where goods were not auxiliary, where the claim of substantial expansion was unimplementable, or where eligibility was false from inception. Decisions holding transferability restrictions valid are applicable where the imported goods did not meet Heading 98.01 criteria or where statutory/regulatory conditions were breached in a manner that defeats the original assessment. Interpretation and reasoning: The Court accepts that the line of authority denying project import benefits is applicable in cases where the imported goods were not used for initial set-up, where the importer had no bona fide claim, or where statutory/regulatory conditions (not merely circulars) were contravened. Those precedents do not, however, control situations where genuine auxiliary equipment was used for the project, provisional assessment was finalised, and no statutory prohibition on subsequent transfer exists. Ratio vs. Obiter: Ratio - cases denying facility remain authoritative where the goods were ineligible at the relevant time or where statutory/regulatory conditions were expressly contravened; these do not extend to altering classification where threshold eligibility and finalisation were satisfied. Obiter - commentary on factual markers distinguishing eligible auxiliary equipment from ineligible imports. Conclusion: Decisions adverse to project import classification are distinguishable where the factual matrix shows bona fide use and compliance at the time of import/finalisation; those precedents do not justify retrospective levy/confiscation in the present circumstances. Final Disposition (derived from conclusions above) The Court set aside the revenue order that sought recovery of duty, interest and confiscation on account of post-installation redeployment, holding that, on the facts of valid auxiliary equipment imports assessed and finalised under Heading 98.01 and the Project Import Regulations, 1986, retrospective invocation of section 28 and confiscation was not permissible in absence of specific statutory/regulatory authority to that effect.