TaxTMI 
TaxTMI 
2026 (8) TMI 1158
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....ed 30.06.2017 [hereinafter referred as 'NN-45'] in respect of movement of equipment, to be deployed in petroleum operations, from a Special Economic Zone (SEZ)/Free Trade Warehousing Zone (FTWZ) to the Domestic Tariff Area (DTA). 2. Since the Appeals emanate from a similar lis, they are being disposed of by this common judgment, with the consent of learned counsel for the parties, treating CUSAA 43/2023 as the lead matter. 3. By way of the Impugned Rulings, Customs Authority for Advance Rulings, New Delhi (CAAR/Respondent No. 1), answered the question referred to it in the negative holding that the Appellants are not entitled to claim exemption from payment of Basic Customs Duty, Integrated Goods and Services Tax (IGST) and compensation cess under NN-45, on clearance into DTA of equipment earlier sent by the Appellant from DTA to a FTWZ. B. BRIEF BACKGROUND: 4. Pithily put, the Appellant is a service provider engaged in rendering technical mining and allied support services, in a capacity of a sub-contractor, to oil and gas exploration and production companies in India, including Oil and Natural Gas Corporation (ONGC) and Cairn India (contractors). In order to render th....
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....ng or tariff item Description of goods Standard rate Integrated Goods and Services Tax Condition No. 404 [27, 29, 31, 38, 39, 73, 82, 84, 85, 97, 89 or 90] Goods specified in column (3) of List 33 when imported by a specified person, in relation with petroleum operations or coal bed methane operations undertaken under: (a) petroleum exploration licenses or mining leases (b) the New Exploration Licensing Policy (c) the Marginal Field Policy (MFP) (d) the Coal Bed Methane Policy (e) the Hydrocarbon Exploration Licensing Policy (HELP) or Open Acreage Licensing Policy (OALP) Explanation.- - For the purposes of this notification, a specified person is a licensee, lessee, contractor or sub-contractor, as defined below:- (i) "licensee' means a person authorised to prospect for mineral oils (which include petroleum and natural gas) in pursuance of a petroleum exploration license granted under the Petroleum and Natural Gas Rules, 1959 made under the provisions of the Oilfields (Regulation and Development) Act, 1948 (53 of 1948) (ii) 'lessee means a person authorised to mine oils (which include petroleum and natura....
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....e transferee is a sub-contractor, the lessee or the lesser or the licensee or the contractor of such sub-contractor, as the case maybe, shall also give an additional undertaking to make himself liable to pay duty, fine or penalty in case the sub-contractor fails to comply with the Conditions of this notification; (d) the goods so imported are sought to be disposed after their use in unserviceable form or as scrap, the importer or the transferee, as the case may be, shall dispose of these goods, through MSTC, or any other Government agency, notified by the Central Government for this purpose, by paying a duty at the rate of 7.5% of the transaction value of such goods. Explanation .- For the purposes of this Condition, goods imported on or before the 1st day of February, 2022, claiming concessional rate of duty, either under this Condition or any preceding exemption for such goods, are to be disposed off on or after 2nd day of February, 2022, may be disposed off in accordance with clause (d) of this Condition.] NN-45: "G.S.R. 780 (E) .- In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962) the Central ....
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....nowledgement of such intimation at the time of clearance of goods; (iv) the manufacturer-exporters may be permitted clearance of such goods without payment of central excise duty or integrated tax and compensation cess under transit bond to be executed with the customs authorities at the port of importation, such bond will be cancelled on the production of certificate issued by the jurisdictional customs authority about receipt of reimported goods into their factory or the premises from where the goods were supplied. 2 Goods, other than those falling under Sl. No. 1 exported for repairs abroad Duty of customs which would be leviable if the value of re-imported goods after repairs were made up of the fair cost of repairs carried out including cost of materials used in repairs (whether such costs are actually incurred for not), insurance and freight charges, both ways. 3. Cut and polished precious and semi-precious stones exported for treatment abroad as referred to in paragraph 4a.20.1 of the foreign trade policy, other than those falling under Sl. No. 1. Duty of customs which would be leviable if the value of re-imported precious and semiprecious stones a....
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....cause being shown for the delay may be allowed; (d) the goods are the same which were exported; (e) in the case of goods falling under Sr. No. 2 of the Table there has been no change in ownership of the goods between the time of export of such goods and re-import thereof; (f) in the case of the goods falling under Serial numbers 1 and 3 of the Table and where the value of exported goods was counted towards fulfillment of export obligation, the amount of customs duties leviable on the duty-free inputs obtained from Nominated Agencies but for the exemption availed under the Ministry of Finance (Department of Revenue) notification No. 56/2000-Customs dated the 5th May, 2000 [vide G.S.R. 399 (E), dated the 5th May, 2000] and notification No. 57/2000-Customs dated the 8th May, 2000 [vide G.S.R. 413 (E), dated the 8th May, 2000] shall also be paid in addition to amount of duty specified in column (3) of the Table; (g) in the case of goods falling under Sl. No. 4 of the Table, the goods are returned to the owner of the aircraft without any sale; Provided further that nothing contained in this notification shall apply to re-imported goods ....
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.... from outside India at a concessional rate of duty, with BCD at NIL and IGST at 12%, under NN-50, against the Essentiality Certificate (EC) issued by the respective Contractors. It is claimed to be undisputed that the equipment will, at all times, remain under the ownership and operational control of the Appellant. 8. Against this backdrop, it has been the case of the Appellant that, upon completion of the contract for which an EC has been issued, if the Appellant foresees a need for the very same equipment in a subsequent, yet-to-be-identified contract, instead of exporting the equipment out of India altogether, it will send the equipment, without any manufacturing or processing to a Logistics Service Provider (LSP) situated within FTWZ, for safe keeping until a fresh contract is materialised. No duty drawback, rebate or other export incentive is claimed by the Appellant on this movement from DTA to FTWZ 9. Subsequently, as and when, a new contract is secured and a fresh EC is issued by the new Contractor, the Appellant proposes to clear the very same equipment, in the same form, from FTWZ back into DTA, while paying the concessional rate of duty under NN-50 and by claiming ....
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.... 'Act of 2005'], "export" and "import" have distinct statutory meanings and cannot be used interchangeably. While movement of goods from DTA to SEZ/FTWZ constitutes "export", movement from SEZ/FTWZ to DTA does not constitute "import" or "re-import" under the Act of 2005 or the Customs Act, 1962 [hereinafter referred to as 'Act of 1962']. Such movement also cannot be treated as "procurement" by FTWZ Unit, since, under Rule 18(5) of the Special Economic Zones Rules, 2006 [hereinafter referred to as 'Rules of 2006'], the Unit merely holds the goods on behalf of the owner for subsequent dispatch. iii. in terms of Rule 18(5) of the Rules of 2006, when the goods are dispatched from FTWZ to DTA, they are regarded as having been exported by FTWZ Unit. Consequently, the second proviso to NN-45, which excludes goods exported by a Unit in FTWZ from the exemption, would independently render NN-45 inapplicable. iv. Rule 48(3) of the Rules of 2006, which refers to "re- imported goods", was held to be only a procedural deeming provision and incapable of altering the substantive statutory meaning of "import" or "re-import" under the Act of 2005 and the Act of 1962. v. La....
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....g anti- dumping, countervailing and safeguard duties under the Customs Tariff Act, 1975 (51 of 1975), where applicable, as leviable on such goods when imported; and (b) the rate of duty and tariff valuation, if any, applicable to goods removed from a Special Economic Zone shall be at the rate and tariff valuation in force as on the date of such removal, and where such date is not ascertainable, on the date of payment of duty. 53. Special Economic Zones to be ports, airports, inland container depots, land stations, etc., in certain cases .- A Special Economic Zone shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorised operations. (2) A Special Economic Zone shall, with effect from such date as the Central Government may notify, be deemed to be a port, airport, inland container depot, land station and land customs stations, as the case may be, under section 7 of the Customs Act, 1962 (52 of 1962): Provided that for the purposes of this section, the Central Government may notify different dates for different Special Economic Zones. Rules of 2006 ....
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....ry to Rule 48(3) of the Rules of 2006. 16.4 Further, learned senior counsel also relies on Section 30 of the Act of 2005 and the decisions in Roxul Rockwool Insulation India Pvt. Ltd. v. Union of India 2015 (320) E.L.T. 554 (Guj.) and Adani Power Ltd. v. Union of India 2015 (330) E.L.T. 883 (Guj.), to contend that clearance from SEZ to DTA is treated as an import for purposes of customs duty. Further, "import" under Section 2(23) of the Act of 1962 encompasses re-importation, which is chargeable under Section 20. Therefore, the goods, qualify for the residuary exemption under S.No. 5 of NN-45. 16.5 Raising specific challenges against the Impugned Ruling, it is argued that Respondent No. 1 erroneously relied upon NN- 50, whereas the issue concerns only NN-45. The findings in paragraph Nos.10.2 and 10.3, distinguishing warehousing from export and relying on Section 7 of the Act of 2005, are therefore irrelevant. Additionally, it is contended that Paragraph No. 10.6 merely reproduces Rule 48(3) without considering its effect or identifying any provision disentitling the Appellant from the exemption. 16.6 Further, it is contended that the SEZ scheme creates a deemed foreign te....
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....owing submissions: 18.1 It is contended that the proposed transaction is a fresh import, not a re-import since the equipment was originally imported under NN-50 at concessional duty against an EC valid only for six months and linked to a specific contract. Once that contract ends and the equipment is exported to SEZ/FTWZ, the original transaction is complete. Therefore, its subsequent DTA clearance under a fresh EC for a new contract is a fresh transaction, and the Appellant cannot claim exemption merely because IGST was paid on the original import or invoke legislative intent contrary to NN-45. 18.2 Under the SEZ Act, DTA-to-SEZ movement is an export, but SEZ-to-DTA movement is neither an "import" nor a "procurement" for the purposes relied upon by the Appellant. Hence, the reverse movement cannot automatically be characterised as a re-import. 18.3 It is contended that reliance placed on Rule 48(3) of the Rules of 2006 does not support the Appellant. The goods are exported to FTWZ for warehousing to satisfy the original EC condition, and the export is complete once they enter FTWZ. Therefore, a subsequent clearance into DTA under a fresh contract is a ne....
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....and judgment relied thereby. 20. Before proceeding, we first note that the question which falls for determination of this Court is, "whether the proposed movement of good from DTA to FTWZ and back to DTA against a fresh EC for a new contract, qualifies for exemption from BCD, IGST and compensation cess under NN-45?" 21. This Court proposes to examine the aforesaid issue under the following heads, namely: (i) the interplay between NN-45 and NN-50; (ii) the scope/scheme of Condition No.48 of NN-50; (iii) the legal character of the movement of goods to and from FTWZ; (iv) whether such movement can, in law, constitute a "re-import" in the context of NN-45; (v) the incompatibility between the simultaneous claims under NN-50 and NN-45; (vi) the "closed transaction" nature of the original EC; and (vii) the effect of reliance placed on Sections 30 and 53 of the Act of 2005, Rule 48(3) of the Rules of 2006, and the Circular of Interplay between NN-45 and NN-50 22. The proposed modus operandi by the Appellant, includes bringing the equipment to DTA upon availing the concessional rate of duty prescribed under NN-50. Howev....
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....ion, as one requiring export of the equipment upon completion of the contract. Having approached the CAAR on the specific factual premise that the EC was issued pursuant to a contractual condition requiring export of the equipment upon completion of the contract, the Appellant cannot, in the absence of any explanation or reconciliation, now contend before this Court that no such requirement exists either under the EC or under NN-50. The subsequent shift in position, without any attempt to explain or reconcile the inconsistency, cannot be countenanced. 27. The aforesaid position is further borne out by the observations made by CAAR, which proceeded on the basis that the Appellant was required to export the imported equipment upon completion of the project for which it had been imported. The aforestated position finds further corroboration in the stand taken by the Respondents in their Counter Affidavit filed before this Court, wherein it was specifically averred that the equipment was required to be exported upon completion of the said project. 28. Significantly, the Appellant, in its rejoinder, has failed to rebut or controvert the aforestated position. In these circumstances....
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....concerned Contractor certifying that the goods are intended for the specified purpose. It further secures undertakings from the concerned parties, including the sub-contractor, fastening liability for duty, fine or penalty in the event of non-compliance with the conditions of NN-50. Therefore, the concessional import is accompanied, from its inception, by a regime of continuing accountability. 33. Significantly, Condition No.48(c) expressly provides for transfer of the goods from a specified person (transferor) to another specified person (transferee). Where the importer or other specified person transfers the equipment, the transferor is required to intimate the jurisdictional customs authority and obtain discharge in respect of the goods so transferred; the transferee, in turn, assumes the obligations imposed by NN-50 as though it were itself the importer. Where such transferee is a sub-contractor, the notification further requires the corresponding undertaking from its licensee, lessee or Contractor. 34. The aforestated provision assumes significance to the extent that the provision, itself recognises that equipment once imported for one eligible petroleum operation may th....
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....ant would place FTWZ mechanism in a position of fiscal advantage over the express transfer mechanism under Condition No.48(c). If the equipment is genuinely required for another eligible petroleum operation, that provision already permits its transfer subject to the prescribed safeguards. The interposition of FTWZ cannot, merely by creating an additional procedural step, generate a further exemption under NN-45. 39. Such a construction would produce an anomalous consequence. An importer who follows the express statutory mechanism for transfer under Condition No. 48(c) would remain within the fiscal discipline of NN-50, whereas an importer who interposes FTWZ could, on the Appellant's interpretation, obtain the additional benefit of a re-import exemption. The notification cannot reasonably be construed as rewarding the adoption of an additional procedural step by conferring a benefit which is otherwise unavailable. Fiscal concessions are matters of legislative prescription, not of commercial ingenuity, and the choice of a more circuitous route cannot, per se, enlarge the exemption otherwise available. 40. The said reasoning assumes greater force because the Appellant has not i....
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....nt subsequently in another Indian petroleum operation. Therefore, its movement into FTWZ serves as an intervening warehousing arrangement between two domestic contractual deployments. 45. Notably, the statutory fiction cannot be permitted to obscure the substantive reality. In the present case, the equipment does not cease, in any meaningful commercial sense, to be available for domestic use; nor is its subsequent movement into DTA occasioned by the failure, abandonment or reversal of an overseas transaction. The eventual clearance from FTWZ is instead triggered by a new domestic contract and a fresh EC. Consequently, FTWZ movement functions as a bridge between two separate domestic transactions rather than as the outward leg of a genuine commercial continuum whose return leg constitutes a re-import. 46. Moreover, the consequence of accepting the Appellant's construction would be to permit the same equipment to pass through an indefinite succession of such cycles. After completion of the first contract, equipment could be moved into FTWZ; upon procurement of a second contract, it could be brought back against a fresh EC and a claim under both NN-50 and NN-45. Further, upon co....
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....ly after a new contract is secured and a fresh EC is issued. Accordingly, the intervening movement separates one completed contractual deployment from another and does not reverse the first. 51. The aforesaid conclusion stands reinforced by the undisputed condition requiring re-export of the equipment upon completion of its utilisation in the relevant project, since such re-export marks the exhaustion of the original import purpose. Accordingly, any subsequent contract and the corresponding fresh EC constitute a distinct transaction, and the resultant clearance into DTA cannot be regarded as a re-import for the purposes of NN-45. Incompatibility between the simultaneous claims under NN-50 and NN-45 52. The foregoing assumes particular significance in the context of the Appellant's simultaneous reliance upon NN-50 and NN-45 in respect of the very same movement of the equipment from FTWZ into DTA. In this regard, it may be noted that the two notifications proceed upon fundamentally different juridical premises, while NN-50 applies where the goods are "imported" for specified petroleum operations, NN-45, specifically applies to "re-imported" goods. As such the two expressions....
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....hile the second transaction begins only when a new domestic requirement arises. The two transactions are connected only by the identity of the equipment; they are not, in law, so connected as to make the subsequent movement a return leg of the earlier transaction. 58. As already stated in the preceding paragraphs of this judgment, on the basis of the material as it stands, this Court has proceeded on the premise that there was a condition in the EC requiring export of equipment after its utilisation in one project and upon completion of the said contract. 59. Since the equipment is required to be exported, the purpose of equipment for that particular project stands completed. Accordingly, as and when a new EC subsequent to another project comes to be issued, the said goods cannot be brought into DTA claiming exemption under NN-45, qualifying the movement as a re-import; rather, it shall constitute an import. 60. No condition to the contrary having been shown to apply, and no argument against such condition having been made by the Appellant, this fact has not been disputed before us. Hence, since the EC exclusively required export, and the Appellant fulfilled such condition....