2008 (3) TMI 262 - AT - Customs

Spares for project import contract - Import of spare parts on concessional rate of duty under project import contract spare parts supplied for schedule maintenance & guarantee of operation covered under contract hence imported spares are indeed covered by the contract - Moreover import value of the spares is well within the 10% limit specified in the Tariff Heading 98.01 - there is no justification for denying the benefit of concessional assessment under Project Import Regulations

Issues Involved:
1. Coverage of imported spare parts under the registered project contract.
2. Eligibility for project import concessions.
3. Interpretation of contractual terms regarding maintenance and replacement spares.
4. Compliance with Project Import Regulations and Tariff Item 98.01.
5. Timeliness and scope of the demand for differential duty.

Detailed Analysis:

Coverage of Imported Spare Parts Under the Registered Project Contract:
The primary issue was whether the imported spare parts under 17 Bills of Entry were covered by the contract registered in 1995 for the installation of a diesel generator. The appellant argued that, per Article 2.1 of the contract, operating spare parts for scheduled maintenance up to 12,000 hours should be supplied by the suppliers. This was supported by various articles within the contract, such as Articles 2.1, 2.2, 7.7, and 15.1.1, which collectively indicated that the spares for up to 12,000 hours of operation were indeed covered by the contract. The Tribunal agreed with this interpretation, noting that the contract explicitly included the supply of spares for 12,000 hours of scheduled maintenance.

Eligibility for Project Import Concessions:
The appellant contended that the project import concessions should apply to the imported spares, as they were essential for the maintenance of the equipment and were covered under the project contract. The Tribunal noted that the Tariff Item 98.01 allows for the import of essential spares up to 10% of the project value at a concessional rate. The value of the imported spares was Rs. 11,34,74,483/-, which was within the 10% limit of the contract value of Rs. 1,92,53,65,000/-. Therefore, the Tribunal concluded that the concessional assessment should be extended to these spares.

Interpretation of Contractual Terms Regarding Maintenance and Replacement Spares:
The Tribunal examined the contractual terms and concluded that the distinction made by the lower authorities between maintenance spares and replacement spares was not justified. The contract's provisions, particularly Article 7.7, indicated that a separate agreement was needed only for spares beyond 12,000 hours of operation. Since the spares in question were for use within the 12,000-hour period, they were covered by the original contract. The Tribunal emphasized that the contractual terms should be interpreted to include the supply of spares necessary for the project's operation within the specified period.

Compliance with Project Import Regulations and Tariff Item 98.01:
The Tribunal highlighted that the project import regulations and Tariff Item 98.01 allow for the import of essential spares up to 10% of the project value. The Tribunal found that the imported spares were essential for the maintenance of the project and were within the permissible limit. The Tribunal also noted that the project sponsoring authorities had certified the necessity of these spares, further supporting the appellant's claim for concessional assessment.

Timeliness and Scope of the Demand for Differential Duty:
The appellant argued that the demand for differential duty was time-barred and beyond the scope of the show cause notice. The Tribunal observed that the show cause notice was issued on the ground that the spares were imported after the commencement of commercial production. However, the Deputy Commissioner confirmed the demand on the basis that the spares were replacement parts not included in the contract. The Tribunal found that the lower authorities had failed to appreciate that the scheduled maintenance period of 12,000 hours had not been completed, and thus the spares were covered by the contract.

Conclusion:
The Tribunal concluded that the imported spares were covered by the project contract in terms of Articles 2.1, 2.2, 7.7, and 15.1.1. The value of the spares was within the 10% limit specified in Tariff Item 98.01. Therefore, the Tribunal allowed the appeal, granting the benefit of concessional assessment under the Project Import Regulations for the imported spares, and provided consequential relief to the appellant.

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