Industries Ltd Vs. Commissioner of Central Excise & Customs  Insc 338 (29
S. H. Kapadia & B. Sudershan Reddy
This statutory appeal is filed by the assessee-Zuari Industries Ltd. under
section 130 E of the Customs Act, 1962
directed against Order dated 15.11.2001 passed by Customs, Excise & Gold
(Control) Appellate Tribunal ("CEGAT") in appeal No. C/277/01-Bom
denying the assessee the benefit of exemption under Notification No. 11/1997
The appeal involves the issue as to the rate of duty applicable to the
imports made for expansion of a Fertiliser Project.
Assessee is the manufacturer of fertilizers at their facility at Goa. It
obtained registration of all their imports required for expansion of their
fertilizer project under the provisions of the Project Import Regulations, 1986
(for short "the PIR"). In respect of the said expansion, the goods
imported were entitled to the benefit of Project Import Assessment under
Heading 98.01 of the Schedule to the Customs Tariff
Act, 1975 and correspondingly the company was entitled to the benefit of
customs exemption Notification No. 11/97 dated 1.3.1997.
The said notification specified nil rate of duty in respect of "goods
required for fertilizer plant". Ministry of Chemicals and Fertilisers was
the duly constituted Sponsoring Authority under the said PIR. The said Ministry
had issued a certificate dated 22.10.1997 (Essentiality Certificate) to the
effect that the import of capital goods for expansion of the fertilizer project
stood examined and the list of goods annexed to the certificate had been
attested from the essentiality angle by the Deputy Secretary to the Government
of India. At this stage, it may be noted that in their application for issuance
of essentiality certificate, the assessee had stated that on account of load
shedding in the concerned area, a Captive Power Plant was essential for the
substantial expansion of the fertilizer project.
By the said essentiality certificate dated 22.10.1997, the sponsoring
Ministry requested the Customs to exempt the customs duty on import of
equipments by the assessee vide Notification No. 11/97. The said certificate
indicated vide item nos. 14.a and 14.b, a 6 Mega Watt Captive Power Plant. The
essentiality certificate 'recommended' the said Captive Power Plant as part of
the entire capital goods required by the assessee-company for substantial
expansion of the fertilizer project.
As stated above, the dispute which arises in the present case is the rate of
duty applicable to the imports made by the assessee for the fertilizer project.
According to the Department, the goods imported under serial nos. 14.a and 14.b
of annexure 'A' to the essentiality certificate did not fall under serial no.
226(i) of the said notification no. 11/97 and, therefore, the assessee was not
entitled to the benefit of nil rate of duty in respect of 6 MW Captive Power
Plant. According to the Department, items 14.a and 14.b fell under serial no.
226(iii) which stated that Captive Power Plants of 5 MW or more are liable
to duty at 20% + 2% and additional duty of 13%. By the impugned order of
adjudication, the Adjudicating Authority held that 6 MW Captive Power Plant
imported under Heading 98.01 as part of the fertilizer project, in terms of the
essentiality certificate, cannot be given the benefit of nil rate of duty,
which was available only to fertilizer projects. In other words, according to
the Department, the fertilizer project and the Captive Power Plant are two
distinct and separate projects as far as the rate of duty was concerned. This
contention of the Department has been accepted by all the authorities below. It
has been confirmed even by the CEGAT vide the impugned judgment dated
Heading 98.01 is a specific entry. It is not a general entry. It is not a
residuary entry. It finds place in the exemption notification no. 11/97.
Project imports fall under this entry. It is for this reason that Entry 98.01
is said to be a specific entry.
We quote hereinbelow the relevant entry of the Notification No. 11/97.
Chapter or heading No. or sub- heading no.
Description of goods Stan- dard rate Addl.
Duty rate Con- dition No.
226 98.01 Goods required for i) fertilizer projects;
ii)coal mining projects;
iii)captive power plants of 5 MW or more;
iv) power generation projects including gas turbine power projects
(excluding captive power plants set up by projects engaged in activities other
than in power generation);
v) power transmission projects of 66 KV and above;
vi) Other industrial plants or projects."
Nil 20% 20% 20% 20% 20% Nil Nil 13% Nil 10% 13% 70 We also quote hereinbelow
the Essentiality Certificate dated 22.10.1997 along with the attested copy of
list of capital goods to be imported for the expansion of the fertilizer
"No. 15027/1/97-FP-III Government of India Ministry of Chemicals &
Fertilisers Department of Fertilisers.
Dated 22nd October, 1997 To The Assistant Commissioner of Customs, Mormugao,
GOA-803 Subject: Customs duty exemption for import of capital goods for
substantial expansion of existing NPK Plant by M/s Zuari Agro Chemicals Ltd.
At Zuarinagar, Goa.
Sir, I am directed to say that M/s Zuari Agro Chemicals Ltd.
has proposal for the Substantial Expansion of existing NPK Plant at
Zuarinagar, Goa. To implement the project, they require to import capital
goods. The matter has been examined in the Department. The list of goods has
been attested on essentiality angle by Shri S. Chandra, Deputy Adviser (F), who
is equivalent to the rank of Deputy Secretary to the Government of India. The
attested copy of list of goods valued at a CIF of US $ 544359.60 + FF 4760042.80
+ FM 12764000 (C&F Mumbai) is sent herewith.
2. You are requested to exempt the customs duty on import of equipments
being made by M/s Zuari Agro Chemicals Ltd.
under Custom Notification No. 11/97 dated 01.03.1997.
Yours faithfully, Sd/- (A.K. Sinha) Development Officer Tel:3383829 Encl:
Attested list is enclosed.
Copy to: M/s Zuari Agro Chemicals Ltd., 505 Surya Kiran, 19, Kasturba Gandhi
Marg, New Delhi-110001 Sd/- (A.K. Sinha) Development Officer"
. . . . .
"LIST OF GOODS AND SPARES TO BE IMPORTED FOR EXPANSION OF NPK PLANT
Description Vendor Qty.
Total C&F Price US $ Total C&F Price FF Total C&F Price FM
(Finish Marks) 1.a) Microprocessor based Dot Printing Recorder with Battery
backup M/s Yokogawa Electrical Corpn, 2-9-32 Nakacho, Musahino- Shi, Tokyo 180,
Japan 3 Nos.
5183.00 1.b) Spares for above.
- do - 1 Lot 518.30 2.a) Current to Pneumatic Signal Converter (1/P
Converted) - do - 13 nos.
7582.00 2.b) Spares for above - do - 1 Lot 758.20 3.a) Magnetic Flow meter
(Remote Type) Assembly with Converter &
- do - 6 nos.
18026.00 3.b) Spares for above.
- do - 1 Lot 1802.60 4.a) Vibrating Screen complete with static dust casting
motor & other accessories M/s Chauvin S.A., 13a 25 Rue Alfred De Vigny, BP
2426- 38034 Grenoble, Cedex 2, France.
1076250.00 4.b) Spares for above.
- do - 1 Lot 107625.00 5) Centifugal Pump with motor, flexible coupling
mounted on common frame.
Wilfley and Sons, Inc Post Box No.
2330, Denver, Coloradi 80201, U.S.A.
136425.00 5.a) Phosphoric acid (H3PO4) supply pump.
- do - 2 nos.
5.b) Scrubber Effluent Pump - do - 2 nos.
5.c) Fummes Scrubber Liquor pump - do - 2 nos.
5.d) Dryer Scrubber Liquor pump - do - 2 nos.
5.e) Molten Urea pump - do - 2 nos.
5.f) Spares for above.
- do - 1 Lot 13642.50 6.a) Ammonia Sparger M/s Maguin S.A. 2, Rue Pierre
Semard, 02800 Charmes, France 1 no.
2313320.00 6.b) Dryer Knocker - do - 5 nos.
6.c) Oversize Crusher with Motor, Base frame and Remote Control - do - 2
6.d) Scrubber Liquor Sprayer - do - 1 no.
6.e) Spares for above - do - 1 Lot 231332.20 7.a) Butyll Rubber Panels with
Polyster Polyamide Carcass M/s Welby S.A., Z.I.
Voie No. 5, 10, Rue Claude Chappe, BP- 53, 76302 Sotteville, Les Routen
Cedex, France 24 nos.
91718.00 7.b) Spares for above.
- do - 1 Lot 9171.80 8.a) Dryer pipe Reactor (Dual pipe cross Reactor) M/s
Situb S.A., 76430 Tancarville, St. Romain- De-Colbose, B.P. 123, France 1 no.
357000.00 8.b) Spares for above - do - 1 Lot 35700.00 9.a) Link Chain No.
6859 R with attachments M/s Jeffrey Chain Corporation, 2307 Maden Drive,
Morristown, Tennessee 37813, U.S.A.
40100.00 9.b) Link Chain No.
9118 P with attachments - do - 550 Ft.
58150.00 9.c) Link Chain No.
698A with attachment - do - 1225 Ft.
170850.00 9.d) Sprockets - do - 8 nos.
42050.00 9.e) Spares for above.
- do - 1 Lot 31115.00 10.a) Ball Lift check valve M/s Guichon International
S.A., Industrial Valves, Rue De Choudy- BP 401, 73104 Ax Les Bains Cedex,
France 10 nos.
64294.00 10.b) Spares for above.
- do - 1 Lot 6429.40 11.a) Control Valve M/s Dresser Products Inds. Ltd.,
Division Masoneilan, 4, Place de Saverne, 92971 Paris La Defense Cedex, France.
199769.00 11.b) Spares for above.
- do - I Lot 55875.00 12.a) Flap Valve M/s Vraco SA, Zacles Gatins, 3 AV-Du
Garigiliano, France, 2 nos.
192324.00 12.b) Spares for above.
- do - 1 Lot 19232.40 13.a) Bulk Solid Recycle Flow Measurement M/s Ramsey,
Sydney Office, Sydney Box RA, Teren Point, NSW- Australia 2229 1 no.
16507.00 13.b) Spares for above.
- do - 1 Lot 1650.00 14.a) Equipment for 6 MW Power Plant consisting One (1)
Wartsila Vasa 18V32LN, Diesel Generating set with auxiliary equipment.
M/s Wartsila Diesel, Wartsila Diesel Oy., P.O. Box 252, Fin- 65100, Vaasa,
Finland 1 Lot 11382000.00 14.b) Spares for above.
- do - 1 Lot 1382000.00 Total without the spares 494873.00 4294677.00
11382000.00 Total Spares 49486.60 465365.80 1382000.00 Total with Spares
544359.60 4760042.80 12764000.00 This is to certify that the above goods are
most essential for the substantial expansion of the NPK plant of Zuari Agro
Chemicals Ltd., at Zuarinagar, Goa and are hence eligible for nil rate of
Customs Duty under Customs Notification No.
11/97 dated 01.03.1997.
For ZUARI AGRO CHEMICALS LTD. For ZUARI AGRO CHEMICALS LTD.
Sd/- Sd/- (Resident Director) (S.K. Chatterjee) Vice
There is no dispute regarding other items mentioned in the list. Regarding
those items, the Department has accepted that they have been attested by the Sponsoring
According to the Department, the only dispute is with regard to the Captive
Power Plant. According to the Department, Captive Power Plant needs to be
segregated from the fertilizer project on the ground that the fertilizer
project can work even without the Captive Power Plant and that the output from
the fertilizer project can be produced even without the Captive Power Plant.
According to the Department, the power plant is a separate project by itself.
According to the Department, the power plant is not a component or an integral
part of the fertilizer project. According to the Department, 6 MW Power Plant
consisted of a generating set which operated on diesel.
According to the Department, even if on the technical side a Captive Power
Plant constituted an aid to the working of the fertilizer project still for the
purposes of chargeability one has to go by the strict interpretation of the
exemption notification no. 11/97 under which the rate of duty is nil for the
fertilizer project whereas it is 20% for the power generation project.
According to the Department, since fertilizer project and power generation
project are two different and independent projects, the assessee was not
entitled to claim nil rate of duty in respect of 6 MW Captive Power Plant.
On the other hand, on behalf of the assessee, the case put up before all the
authorities was that, once an Essentiality Certificate was issued by the
Sponsoring Ministry, it was not open to the Revenue to go behind that
certificate. According to the assessee, an essentiality certificate constituted
a proof of fulfilment of the eligibility conditions by the importer for
obtaining the benefit of exemption notification. According to the assessee,
project imports fell under a specific Heading 98.01. According to the assessee,
the import of capital goods indicated in the list annexed to the essentiality
certificate showed that the sponsoring Ministry cleared the project on the
footing that, in this particular case, looking to the ground reality in the
area in which the plant was located, in which there was paucity of electricity,
6MW Captive Power Plant was an essential requirement for expansion of the
According to the assessee, the essentiality certificate along with the
attested list constituted a proof of the need to expand the fertilizer project
and for that Captive Power Plant was an essential part. According to the
assessee, it was not open to the Revenue to say that the Captive Power Plant
was not an essential requirement for the expansion of the fertilizer project,
once an essentiality certificate stands issued by the sponsoring Ministry. In
this connection, reliance is placed by the assessee on the judgment of this
court in the case of Commissioner of Customs (Imports), Mumbai v. Tullow India
Operations Ltd. reported in (2005) 13 SCC 789.
Reliance is also placed by the assessee on the judgment of the Calcutta High
Court in the case of Asiatic Oxygen Ltd. v.
Assistant Collector of Customs reported in 1992 (57) ELT 563.
We find merit in this civil appeal filed by the assessee for the following
Firstly, on the facts we find that the assessee had given to the sponsoring
Ministry its entire Project Report. In that report they had indicated that for
the expansion of the fertilizer project they needed an extra item of capital
goods, namely, 6MW Captive Power Plant. In their application, the assessee had
made it clear that the fertilizer project was dependant on continuous flow of
electricity, which could be provided by such Captive Power Plant. Therefore, it
was not open to the Revenue to reject the assessee's case for nil rate of duty
on the said item, particularly when the certificate says so. In the judgment of
this Court in the case of Tullow India Operations Ltd. (supra), this Court held
that essentiality certificate must be treated as a proof of fulfilment of the
eligibility conditions by the importer for obtaining the benefit of the
exemption notification. We may add that, the essentiality certificate is also a
proof that an item like Captive Power Plant in a given case could be treated as
a capital goods for the fertilizer project. It would depend upon the facts of
each case. If a project is to be installed in an area where there is shortage
of electricity supply and if the project needs continuous flow of electricity
and if that project is approved by the sponsoring Ministry saying that such
supply is needed then the Revenue cannot go behind such certificate and deny
the benefit of exemption from payment of duty or deny nil rate of duty. To the
said effect is the judgment of the Calcutta High Court in the case of Asiatic
Oxygen Ltd. (supra) in which it was held that the object behind the specific
Heading 98.01 in Customs
Tariff Act, 1975 was to promote industrialization and, therefore, the
heading was required to be interpreted liberally. It was further held that,
once an essentiality certificate was issued by the sponsoring authority, it was
mandatory for the Revenue to register the contract.
Secondly, before us, it has been vehemently urged that although the
essentiality certificate stood issued by the sponsoring Ministry, there is
non-application of mind by that Ministry with regard to the list of items
appended to the certificate. According to the Department, the said list has not
been countersigned by the competent authority in the sponsoring Ministry. We do
not find any merit in the said contention. The list consists of 14 items. The
Department has accepted 13 out of 14 items as capital goods required for the
fertilizer project, therefore, it cannot be said that the sponsoring Ministry
had not applied its mind to the list appended to the essentiality certificate.
This point needs further clarification. The power plant in the conceptual sense
or in the technical sense is certainly different from the fertilizer plant.
However, when we come to Heading 98.01 of the Customs Tariff Act,
1975, the assessment is for the Project. As stated above, Heading 98.01 is
the specific entry applicable in the case of the Project Imports. An item like
a power plant could be in a given case an independent Plant. Generally, it is a
stand-alone equipment. However, when it becomes a part of the entire
Project/System, the same power plant can also become one of the items of
capital goods. The essentiality certificate given by the sponsoring Ministry
has treated Captive Power Plant, in this case, as "capital goods"
along with 13 other items. The assessee has also treated the Captive Power
Plant as one of the capital goods required for the expansion of the fertilizer
project. In the above circumstances, all the items in the list annexed to the
certificate have been certified and recommended by the sponsoring Ministry as
the entire capital goods required for the substantial expansion of the
fertilizer project. Therefore, in our view, the assessee is right in its
contention that, in this case, 6 MW Captive Power Plant is one of the items out
of 14 items constituting capital goods required for the substantial expansion
of the fertilizer project, and, therefore, it fell under serial no. 226(i) as
goods required for the fertilizer project entitled to the benefit of nil rate
Before concluding, we may point out that, on behalf of the Department, a
large number of authorities were cited on interpretation of entries in the Customs Tariff Act,
1975. It is not necessary to examine those authorities on interpretation.
Suffice it to state that, Heading 98.01 is a specific entry. It is not a
general entry. It is not a residuary entry. It needs to be liberally
interpreted as it deals with industrialization. It has to be read in the
context of the above Notification No. 11/97.
In the case of Appraiser, Madras Customs v. Tamil Nadu Newsprint Papers Ltd.
reported in 1988 (36) ELT 272 it has been held that Heading 84.66 (now 98.01)
is not a residuary heading or a general heading relating to any class of goods.
It is the specific entry introduced with a purpose and it relates to goods
imported for initial setting up of a unit or a substantial expansion of an
existing unit. It was held that when an importer registers a contract under the
specific entry no. 84.66 (now 98.01), all the goods imported by him under that
contract will be subjected to duty only as per that entry and it will not be
open for the Revenue to pick out some of the goods imported under that contract
and impose a different rate of duty on the footing that they are covered by a
different heading. If the conditions prescribed under Heading 84.66 are
satisfied, the duty shall be imposed on the goods under the said Heading 84.66
as if the said goods formed the composite unit. In that case there was another
Heading 84.31 which referred also to 'paper making machinery'. The Department
contended that duty was payable on the said item under Heading 84.31. It was
held by Madras High Court that even if the rate of duty under Heading 84.31 was
different from the rate of duty under Heading 84.66, still the rate applicable
to the paper making machinery imported for producing papers under the PIR has
to fall under specific Heading 84.66 (now 98.01) and not under Heading 84.31,
even if paper making machinery came under both the headings. This is because
once an item is imported under Project Imports then that items will fall under
the specific entry because that item is imported as a part of composite unit
(see para 10). In our view, the said judgment of the Madras High Court on
interpretation of Heading 98.01 is squarely applicable to the present case,
particularly on the interpretation of the entries in the Customs Tariff Act, 1975.
For the above reasons, we set aside the impugned judgment of the CEGAT dated
15.11.2001 in appeal no.
C/277/01-Bom and accordingly the assessee's appeal stands allowed with no
order as to costs.
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