2007 (3) TMI 12 - SC - Customs

Project Import- Department contended that appellant were require to pay the duty on good imported for captive Power plant that it is not part of fertilizer project- Authority after considering all the detail reject the department contention and allow the appeal.

Issues Involved:
1. Rate of duty applicable to imports made for the expansion of a Fertilizer Project.
2. Interpretation of exemption Notification No. 11/97 dated 1-3-1997.
3. Validity and binding nature of the Essentiality Certificate issued by the Sponsoring Ministry.
4. Classification of Captive Power Plant under the Customs Tariff Act, 1975.

Detailed Analysis:

1. Rate of Duty Applicable to Imports for Fertilizer Project Expansion:
The primary issue in this case is the rate of duty applicable to the imports made by the assessee for the expansion of their fertilizer project. The Department contended that the 6MW Captive Power Plant imported by the assessee did not qualify for the nil rate of duty under Serial No. 226(i) of Notification No. 11/97, which applies to goods required for fertilizer projects. Instead, the Department argued that the Captive Power Plant fell under Serial No. 226(iii), attracting a duty of 20% + 2% and an Additional duty of 13%. The Adjudicating Authority and the CEGAT upheld this view, treating the fertilizer project and the Captive Power Plant as distinct projects for duty purposes.

2. Interpretation of Exemption Notification No. 11/97:
The Notification No. 11/97 specifies different rates of duty for various projects, including a nil rate for fertilizer projects under Serial No. 226(i). The Department's interpretation was that Captive Power Plants of 5MW or more fell under Serial No. 226(iii) and thus were not eligible for the nil rate applicable to fertilizer projects. The Supreme Court, however, emphasized that Heading 98.01 is a specific entry related to project imports and should be liberally interpreted to promote industrialization. The Court held that the Captive Power Plant, being an essential part of the fertilizer project, should be included under Serial No. 226(i) and thus eligible for the nil rate of duty.

3. Validity and Binding Nature of the Essentiality Certificate:
The assessee argued that once an Essentiality Certificate is issued by the Sponsoring Ministry, it is not open to the Revenue to challenge the certificate. The Essentiality Certificate issued by the Ministry of Chemicals and Fertilisers recommended the Captive Power Plant as part of the capital goods required for the expansion of the fertilizer project. The Supreme Court supported this view, citing the judgment in Commissioner of Customs (Imports), Mumbai v. Tullow India Operations Ltd., which held that an essentiality certificate constitutes proof of fulfillment of eligibility conditions for exemption. The Court further noted that the Department accepted 13 out of 14 items listed in the certificate, indicating the Ministry's application of mind.

4. Classification of Captive Power Plant under the Customs Tariff Act, 1975:
The Department argued that the Captive Power Plant should be classified separately from the fertilizer project, as it can function independently. The Supreme Court disagreed, stating that while a power plant can be an independent entity, it can also be part of a larger project. In this case, the Captive Power Plant was deemed essential for the continuous operation of the fertilizer project due to the area's electricity shortage. The Court concluded that the Captive Power Plant should be classified under Heading 98.01 as part of the project imports for the fertilizer project, thus qualifying for the nil rate of duty under Serial No. 226(i).

Conclusion:
The Supreme Court allowed the assessee's appeal, setting aside the CEGAT's judgment. The Court held that the 6MW Captive Power Plant imported by the assessee for the expansion of their fertilizer project is entitled to the benefit of the nil rate of duty under Serial No. 226(i) of Notification No. 11/97. The Essentiality Certificate issued by the Sponsoring Ministry was deemed binding, and the Captive Power Plant was considered an integral part of the fertilizer project for duty purposes. The judgment emphasized the need for a liberal interpretation of specific entries like Heading 98.01 to promote industrialization.

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