2025 (10) TMI 875 - AT - Central Excise

Supplies to operator under international competitive bidding projects qualify for notification exemption; documents proving ICB awards suffice

CESTAT HYD - AT held that supplies made to an operator under projects awarded through International Competitive Bidding (ICB) under NELP qualify for ... Entitlement for exemption N/N 06/2006-CE or otherwise - Supply of goods in connection with petroleum operations undertaken under petroleum exploration licenses or mining leases obtained/allotted under International Competitive Bidding (ICB). - the judgment in the case of CST Ltd Vs CCE, Hyderabad [2007 (6) TMI 369 - CESTAT, BANGALORE] relied by the appellant was still pending finalization - failure to prove that the goods are supplied against ICB - time limitation. HELD THAT:- To draw a line between the exploration of oil field and petroleum operation thereon is not born out of correct appreciation of the wordings nor there is any other evidence adduced by the department that these were not used in any manner, whatsoever, by the entity who were engaged in work relating to exploration or operation of oil fields awarded under ICB route. There are also force on the reliance placed by the appellant on letter dt.26.08.2013, which the appellant received from the Director General of Hydrocarbons pursuant to RTI application filed. As per this information, it was, inter alia, clarified that awards of blocks are made through the ICB and it also invited attention to certain public information available on their website. Therefore, there is no doubt that companies were allotted oil and gas blocks only through ICB in terms of New Exploration License Policy (NELP). Once the supply has been made pursuant to purchase order issued by M/s RIL as operator, it would be obvious that the supplies are in relation to project, which has been awarded under ICB. If the department had any doubt on this aspect, they could have made enquiries from the supplier, who had placed such purchase order on the appellant, wherein, they had also clearly mentioned that there is no excise duty leviable on the said activities, presumably on the fact that they were getting these materials for the project, which has been awarded through ICB route and hence exempted. Therefore, in the facts of the case, it is found that there is no dispute that appellant as sub-contractor is also eligible to supply materials towards project allotted under ICB, as clarified by Board vide circular dt.10.07.2014. It is also found that the documents adduced by the appellant were sufficient enough to indicate that these materials were intended for use only in connection with the activity for which the work was awarded through ICB route to M/s RIL as operator. Therefore, the appellants are entitled for the benefit of notification claimed by them for non-payment of Central Excise duty. Time limitation - HELD THAT:- Since on merits itself the impugned order is not sustainable, it is not required to examine the issue from the angle of limitation. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether manufacturers of fabricated iron and steel articles who supply goods to a contractor/operator executing petroleum exploration/production projects awarded through International Competitive Bidding (ICB) are eligible for exemption under Notification No.6/2006-CE (and related notifications) from central excise duty. 2. Whether a project authority certificate and purchase orders issued by the project operator are sufficient to demonstrate that supplies made by a sub-contractor are for use in an ICB-awarded project and thus qualify for the exemption, when the sub-contractor itself was not a direct awardee under the ICB. 3. The evidentiary onus and standard of proof required to claim the exemption under the notification and whether the adjudicating authority erred in construing the notification strictly against the claimant absent further departmental inquiries. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement of sub-contractors supplying goods used in ICB-awarded petroleum projects to exemption under Notification No.6/2006-CE Legal framework: The exemption scheme grants relief from central excise duty for specified goods when supplied for use in petroleum operations undertaken under petroleum exploration licence or mining lease awarded under ICB (as reflected in notifications and the Foreign Trade Policy). Board clarifications relevantly extend exemption to sub-contractors manufacturing/supplying goods for or on behalf of the main contractor who secured the project through ICB. Precedent treatment: A prior Tribunal decision held that subcontractors supplying goods to a contractor executing work under ICB are eligible for the exemption; that decision had been challenged but the Revenue subsequently withdrew the appeal, leaving that Tribunal position intact. A Board circular dated 10.07.2014 clarified entitlement of sub-contractors. Interpretation and reasoning: The Tribunal rejected the adjudicating authority's narrow construction which drew a distinction between goods 'supplied against ICB' and goods 'supplied for use in projects procured under ICB.' The Tribunal held that where an operator/contractor awarded the project under ICB places purchase orders on sub-contractors and certifies that goods are required in connection with petroleum operations under an ICB-awarded lease/licence, the supplies are integrally connected to the ICB-awarded project. The Tribunal found that the operator's purchase orders explicitly stated excise not leviable on ordered items and the project authority certificate certified use in petroleum operations undertaken under ICB-awarded licences. Reliance on the operator's role as 'operator' in Expression of Interest documents and the public information confirming award of blocks under ICB supported the conclusion that supplies to the operator are supplies for an ICB project. Ratio vs. Obiter: Ratio - Sub-contractors who manufacture and supply goods to an operator/contractor executing an ICB-awarded petroleum project are entitled to the exemption if supplies are made pursuant to purchase orders of that operator and supported by project authority certification indicating use in ICB-awarded petroleum operations. Obiter - Observations on policy background of NELP/ICB public information and ancillary factual inferences about the operator's procurement practices (useful but not the central legal holding). Conclusions: The Tribunal concluded that the appellants (as sub-contractors) were entitled to the exemption under Notification No.6/2006-CE for the goods fabricated and supplied to an operator executing an ICB-awarded petroleum project; the adjudicating authority's contrary finding was unsustainable. Issue 2: Sufficiency of project authority certificates and purchase orders as proof of entitlement to exemption Legal framework: Eligibility under the exemption rests on the factual nexus between the goods supplied and their intended use in petroleum operations under licences/leases awarded under ICB. The FTP and notification scheme envisage documentation (e.g., project authority certificates) that attest to such connection; the burden of proof is on the claimant to show entitlement, but relevant, contemporaneous documents are material. Precedent treatment: Decisions and Board clarification treat supplier documentation and project authority certificates as relevant evidence; decisions have accepted that a project authority certificate issued by the project proponent/operator can substantiate claims when it certifies goods are required for ICB-awarded operations. Interpretation and reasoning: The Tribunal held that the adjudicating authority mis-analysed the project authority certificate by limiting its scope to FTP benefits and ignoring its clear certification that goods were required in connection with petroleum operations under ICB-awarded licences. Purchase orders issued by the operator containing express terms that excise duty was not applicable on the items were significant, contemporaneous indications that the operator procured materials for an ICB-awarded project. The Tribunal noted that if the department harboured doubts, it could have queried the operator but did not; absence of departmental enquiries weakened reliance on the claim that documents were insufficient. Ratio vs. Obiter: Ratio - Project authority certificates and operator purchase orders certifying use in ICB-awarded petroleum operations constitute sufficient evidence to establish entitlement for exemption for a sub-contractor, absent contrary evidence or departmental queries. Obiter - Remarks on the department's investigative options and criticism for failure to seek clarifications are persuasive but not primary legal determinations. Conclusions: The Tribunal found that the documents produced (project authority certificates, purchase orders, EOI evidence and RTI-sourced confirmations about ICB awards) were adequate to establish the necessary nexus and entitlement; the adjudicating authority's rejection of those documents was erroneous. Issue 3: Construction of the notification, strictness of interpretation and evidentiary onus Legal framework: Exemption notifications are construed according to their terms; claimants must establish entitlement but benefit of doubt may flow from credible, contemporaneous documentary evidence. Administrative clarifications (Board circulars) inform scope and application. Precedent treatment: Higher court authority supports the principle that where customs/central excise exemptions apply under analogous conditions (e.g., deemed exports/zero duty on import), downstream relief by parity may be invoked and that claimants need not produce documents not required by the notification itself. Cases establishing interplay between customs exemptions and excise liabilities were relied upon by parties. Interpretation and reasoning: The Tribunal rejected a hyper-technical or overly literal exclusion that would deny relief to sub-contractors despite clear documentary evidence of use in ICB-awarded projects. The Tribunal emphasized that the notification and FTP contemplate supplies to projects for which the Ministry permits zero customs duty/import benefits; if the goods are specifically listed and the supply is for the permitted project, excise cannot be levied simply because the supplier was not the direct ICB awardee. The Tribunal also observed Board guidance explicitly extending exemption to sub-contractors and found departmental insistence on stricter proof unsupported by the record. Ratio vs. Obiter: Ratio - Notifications granting exemption for goods used in ICB-awarded projects should not be construed to exclude bona fide sub-contractors when documentary proof (project authority certificates, operator purchase orders) demonstrates that supplies were for the ICB project; the burden to disprove such documentary claims rests on the department. Obiter - Discussion of time-limitation (not decided on merits) and broader policy considerations regarding the FTP and customs/excise parity. Conclusions: The Tribunal held that a strict, exclusionary interpretation was inappropriate on the facts; the appellants met the evidentiary threshold to claim the exemption and the department failed to rebut the documentary evidence. Consequently, the adjudicating authority's demand for excise and penalty could not be sustained on the merits. Cross-references 1. Issue 1 and Issue 2 are interlinked: entitlement of a sub-contractor (Issue 1) depends on sufficiency of operator-issued project authority certificates and purchase orders (Issue 2), which the Tribunal treated as dispositive on the facts. 2. Issue 3 informs the approach to both Issues 1 and 2 by setting the appropriate standard of construction for the notification and the evidentiary burden - the Tribunal applied a purposive construction consistent with Board clarification extending benefit to sub-contractors.