2011 (3) TMI 68 - AAR - Central Excise

Grant of Exemption - The applicant has sought a ruling on the eligibility of the transformers for exemption from Central Excise duty in terms of Notification No. 6/2006-Central Excise dated 1st March, 2006 - The words parts and components imply something that which along with others make up a whole, one of the elements of which anything is made up - The scope of exemption has been restricted only to such devices or systems which have been specified in List 5 - Entry in Serial No. 84 uses the expression devices / systems because List 5 has some entries pertaining to devices and several other pertaining to systems - In fact the entry at Serial No. 21 of List 5 covers only parts and neither a device nor a system - The entry at Serial No. (13) of List 5 covers only the generator and its parts and its scope cannot be expanded to include wind operated electricity generating systems or plants and parts thereof Whether the specially designed transformer is a part of wind operated electricity generator to be eligible for exemption by virtue of it being covered under Serial No. 13 of List 5 - In the case of the specially designed transformer for the wind operated electricity generator, it is noticed that it is no doubt an essential part without which the generating system would not function - The following extracts from the sub-chapter titled Enercon Annular Generator and Grid Management System under the Chapter Grid Integration and Wind Farm Management are reproduced for an understanding of the various parts and components of wind energy convertors - The applicant is not eligible for the exemption in respect of the specially designed transformers proposed to be manufactured by it, as a part of wind operated electricity generator under Notification No. 6/2006-Central Excise dated 1st March, 2006 - Accordingly, the ruling is given

Issues Involved:
1. Eligibility of specially designed transformers for exemption from Central Excise duty under Notification No. 6/2006-Central Excise.
2. Interpretation of the term "components and parts" in the context of wind-operated electricity generators.
3. Consideration of fiscal policy and purpose of exemption in interpreting the notification.

Issue-wise Detailed Analysis:

1. Eligibility of Specially Designed Transformers for Exemption from Central Excise Duty:
The applicant, a joint venture company, sought a ruling on whether their specially designed transformers for wind-operated electricity generators (WOEG) E-48/E-53 (800 KW) are eligible for exemption from Central Excise duty under Notification No. 6/2006-Central Excise dated 1st March 2006. The notification exempts goods specified in the Table read with relevant List appended thereto from the levy of Central Excise duty. The applicant claimed that their transformers are essential parts of WOEG, designed exclusively for such generators, performing dual functions of stepping down and stepping up the voltage necessary for the operation of the generators.

2. Interpretation of the Term "Components and Parts":
The applicant argued that these transformers are integral to the WOEG and should be considered as parts thereof, citing the Tribunal's decision in Hyundai Unitech Electrical Transmission Ltd. vs Commissioner of Central Excise, Nagpur, where parts of tower and lattice masts were held to be parts of WOEG. However, the Commissioner of Central Excise, Daman, contested this claim, arguing that transformers do not fall under the category of "wind-operated electricity generators, its components and parts thereof" as specified in Serial No. 13 of List 5 appended to the Notification. The Department emphasized that the transformer has a separate and independent function of connecting the WOEG to the power grid and cannot be considered a part or component of the generator.

3. Consideration of Fiscal Policy and Purpose of Exemption:
The applicant cited the fiscal policy promoting non-conventional energy infrastructure and the case of Commissioner of Customs (Preventive), Gujarat vs Reliance Petroleum Limited to argue for a broader interpretation of the exemption notification. The applicant contended that the purpose of the exemption should be considered in its entirety, notwithstanding the need for strict construction. However, the Authority noted that the entry at Serial No. 84 of the Table in the Notification covers only specific devices and systems listed in List 5, and the transformer does not fit within these specified entries.

Judgment:
The Authority examined the items specified in List 5, which includes individual devices and complete systems but not transformers. The Authority concluded that the specially designed transformer, while essential for the functioning of the WOEG, is not a part of the generator itself but rather a part of the system working in conjunction with the generator. The transformer is an item of electrical machinery that is a part of the grid management system of a wind energy converter, not a part of the generator per se. The Authority also noted that specific mention of "rotor and wind turbine controller" in the entry confirms that the generator entry does not intend to include equipment deployed with the generator for stable power production.

Ruling:
The applicant is not eligible for the exemption in respect of the specially designed transformers proposed to be manufactured as a part of wind-operated electricity generators under Notification No. 6/2006-Central Excise dated 1st March 2006. The ruling was given and pronounced on the 18th of March, 2011.

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