2004 (9) TMI 278 - AT - Customs

Compliance with Project Imports Regulation 1986 (PIR) - Interpretation of Water Supply Projects and Water Treatment Plants under Heading 9801 - Validity of registration applications for project imports - HELD THAT - Once it is found that the scope of the 'Unit' or 'substantial expansion' as notified is to be limited to 'Water Treatment Plants', the imports have to be examined in light of them being required or being components parts of the 'Treatment Plant' or whether they would be instruments, appliances, Transmission Gear Equipments or auxiliary equipment (including for research testing etc) or raw material to erect a treatment plant. The declared user claims, in appeal C/678/04, is 'Improvement to Chandrapur Water Supply System' and the perusal of the map plan, relied upon by both sides shown to us, the pipes are meant as parts/components or equipment to lay additional pipelines to distribute in an improved manner the water to improve the system existing. The use in any manner in a Treatment Plant, could not be shown. There is no sponsorship certificate to cover such use. Eligibility under heading 9801 is not available. The settled law on the subject is that classification cannot be arrived at by looking at notifications of exemption of duty. However we find that the grant of exemption u/s 25(2) in exercise of powers of the Government when read with the scope of the Finance Ministers Budget speech the Boards classification fact that on Central Excise side, exemption to such pipes used anterior to Water Treatment Plant stage have been specifically granted, we find reason to conclude, that pipe lines for transfer from source of water to Water Treatment thereafter use in transfer distribution net work of drinking water are not covered by PIR or chapter 9801. Discretion of the Government to notify a project under 9801 cannot be challenged before us. A perusal of CBEC circular at 151165 instructions reveal that they provide that when practical difficulties arise they should be reported to Board for clarification. The imports in these cases should have been referred to the Board, and as in Kolkata Municipal Corporation case, Board could have suitably recommended for an ad hoc exemption. However that, itself cannot be a cause to register under PIR, contracts which are not eligible on a prima facie reading or classify the subsequent imports of the pipes in these cases under heading. Thus, the appeal of Revenue is to be allowed after setting aside the order of CC(Appeal) appeal of importer is required to be dismissed. Both appeals and all miscellaneous application stand disposed as per findings order herein above. Ordered accordingly.

Summary

Issues Involved:

1. Classification of Ductile Pipes under Customs Tariff Heading 9801.
2. Eligibility for exemption under Notification No. 21/2002-Cus.
3. Compliance with Project Imports Regulation 1986 (PIR).
4. Interpretation of "Water Supply Projects" and "Water Treatment Plants" under Heading 9801.
5. Validity of registration applications for project imports.

Summary:

1. Classification of Ductile Pipes under Customs Tariff Heading 9801:
The Dy Commissioner and Commissioner (Appeals) both found that ductile pipes are not classifiable under heading 98.01 of the Customs Tariff. The pipes are not considered machinery/equipment or components for manufacturing the same, thus not eligible for exemption under Notification No. 21/2002-Cus.

2. Eligibility for exemption under Notification No. 21/2002-Cus:
The Commissioner (Appeals) upheld the lower authority's decision, stating that the ductile pipes do not qualify for exemption as they are not machinery or raw materials. The appellants failed to provide necessary project documentation to support their claim.

3. Compliance with Project Imports Regulation 1986 (PIR):
The Tribunal emphasized that for classification under chapter head 9801, the conditions prescribed in PIR must be satisfied. The import in appeal C/678/04 was made before the registration of the contract, violating the mandatory provision of Regulation 5, which requires registration "on or before importation."

4. Interpretation of "Water Supply Projects" and "Water Treatment Plants" under Heading 9801:
The Tribunal concluded that "Drinking Water Supply Projects" encompass units like water treatment plants but not the source of water supply or distribution networks. The pipes intended for improving an existing water supply system do not qualify as components of a water treatment plant, thus not eligible under heading 9801.

5. Validity of registration applications for project imports:
In appeal C/692/04, the Tribunal found that the pipes were certified for use in transmitting water from the source to the reservoir, not for a water treatment plant. This use does not qualify under the notified project for heading 9801, leading to the rejection of the registration application.

Conclusion:
The Tribunal allowed the Revenue's appeal (C/678/04) and set aside the order of the Commissioner (Appeals). The importer's appeal (C/692/04) was dismissed. The Tribunal clarified that pipes used for water distribution or transmission do not qualify for project import benefits under heading 9801.