2016 (10) TMI 819 - HC - Customs

FTP - 100% EOU - deemed export benefit - DTA unit having a captive power plant supplies electricity to 100% EOU - zinc manufactured in the export oriented unit consumes electricity manufacturing process to obtain zinc - whether electricity is a consumable item as defined under para 9.15 of the FTP and as referred in para 6.6.1 of HBP-I and is entitled for exemption? - Held that - The process of obtaining zinc, clearly indicates that the electrolytic process is necessary to have zinc. For electrolytic process the essential input is electricity. It is not in dispute that the electricity is a goods and that goods, though intangible, is consumed in obtaining the final product. True it is, the electricity is not a part of end product, but it is substantially consumed in the process to manufacture the end product. Para 9.15 of the FTP in specific terms provides that any item, which participates in or is required for manufacturing process, but does not necessarily form part of end product items, but substantially or totally consumed in the process aforesaid, is a consumable . The electricity, in our considered opinion, not only participates, but is substantially consumed in manufacturing process of zinc, thus, is a consumable as per para 9.15 of FTP. Clause (a) of para 6.6.1 of HBP-I mentions raw materials, consumables, intermediates, spares and packing materials. All these terms give a general connotation and each and every term may include several goods. The electricity, as already discussed above, comes within the purview of consumables as defined under para 9.15 of the FTP, hence, we are of considered opinion that it is nothing but a goods permitted to be imported/procured from DTA. True it is, in para 6.6.1 of HBP-I, certain electricity equipments including DG sets, Captive Power Plants and transformers are specifically mentioned, but these are the equipments to generate electricity, whereas the electricity is a goods consumable for production of zinc. In view of it, it is having its separate identity which is required to be appreciated with its own qualities. The process of electrolytic cannot take place without consuming electricity and, therefore, its consumption in production of zinc is apparent - the electric power being a consumable as per para 9.15 of FTP deserves to attract clause 6.6.1 of HBP-I (6.5.1 of HBP) - the petitioner is entitled to have deemed export benefit for its Domestic Tariff Area Unit to hundred percent Export Oriented Unit - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Whether electricity is a "consumable" item under para 9.15 of the Foreign Trade Policy (FTP).
2. Whether the petitioner is entitled to deemed export benefits for the supply of electricity to its 100% Export Oriented Unit (EOU).

Detailed Analysis:

Issue 1: Whether electricity is a "consumable" item under para 9.15 of the Foreign Trade Policy (FTP).

Facts and Arguments:
The petitioner, a company incorporated under the Companies Act, 1956, claimed deemed export benefits for the electricity consumed by its 100% EOU engaged in the production of zinc. The Board of Approval for Export Oriented Unit Scheme rejected the claim, stating that electricity is not a "consumable" item and thus not eligible for exemption under para 6.5.1 of the Hand Book Procedure (HBP) 2009-14. The petitioner argued that electricity is an integral "consumable" in the zinc manufacturing process, as defined under para 9.15 of FTP, which states that a "consumable" is any item required for a manufacturing process but does not necessarily form part of the end product and is substantially consumed during the process.

Court's Appreciation:
The court meticulously examined the zinc manufacturing process, which involves electro-winning, melting and casting, leaching and purification, and roasting. It was observed that electricity is essential for the electrolysis process, which is critical for zinc production. The court noted that electricity, although intangible, is a measurable and quantifiable good that is substantially consumed in the manufacturing process. Therefore, electricity qualifies as a "consumable" under para 9.15 of FTP.

Issue 2: Whether the petitioner is entitled to deemed export benefits for the supply of electricity to its 100% Export Oriented Unit (EOU).

Facts and Arguments:
The petitioner contended that as a 100% EOU, it should be entitled to deemed export benefits for the electricity supplied from its Domestic Tariff Area (DTA) unit. The respondents argued that electrical energy, being intangible, cannot be classified as a "consumable" under para 6.6.1 of HBP-I, which lists eligible goods for deemed export benefits.

Court's Appreciation:
The court analyzed the relevant provisions of the FTP and HBP-I. Para 6.6.1 of HBP-I includes raw materials, components, consumables, intermediates, spares, and packing materials as eligible for deemed export benefits. The court emphasized that these terms have a broad connotation and can include various goods, including electricity, which fits the definition of "consumable" under para 9.15 of FTP. The court rejected the argument that the intangibility of electricity disqualifies it from being a "consumable." It was also noted that the exclusion of electricity in para 6.6.1 and the inclusion of electricity-generating equipment indicate that electricity, as a consumable, has a distinct identity.

Conclusion:
The court concluded that electricity is a "consumable" as per para 9.15 of FTP and therefore falls under the goods permitted to be imported/procured from DTA under para 6.6.1 of HBP-I. The petitioner's claim for deemed export benefits was found to be valid.

Judgment:
The petition for writ was allowed. The orders dated 6.7.2012 and 14.9.2012 were quashed. It was declared that the petitioner is entitled to deemed export benefits for its DTA unit supplying electricity to its 100% EOU. No order as to costs.