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Cus - Power project itself cannot be said to be goods - Goods which are imported are directly used in power project, cannot be said to be 'manufactured in India', therefore, claim of petitioner of deemed export drawback is rightly rejected: HC

By TIOL News Service

AHMEDABAD, AUG 23, 2018: THE petitioner is notified as State Generating Power Plant by Government of Gujarat with the purpose of improving efficiency in the State's Electricity Generation Activities.

The petitioner sought to expand the existing power plant in order to generate additional 370 MW of power. It is the case of the petitioner that for the purpose of above expansion, the petitioner sought to procure equipment, facilities, other material etc. by way of imports.

For the purpose of selecting vendor for the above supplies i.e. equipment, facilities, other material etc. the petitioner followed the International Competitive Bidding process. That pursuant thereto the petitioner entered into a contract with the successful bidder Alstom (Switzerland) Limited, Brown Boveri Strasse 7, CH5401 Baden, Switzerland dated 27.04.2007 for the supply of offshore equipment and spare parts to the petitioner for expansion of existing power project.

It is the case of the petitioner that the scope of the contract was for the supply of equipments and spare parts which include GT Fields Assembly, HP Feed Water Pumps, Spare parts etc.; that in respect of the above imports, the bills of entries were in the name of the petitioner and were cleared on payment of appropriate duties of customs; that the equipments and spare parts imported by the petitioner were taken to the site of the project where the petitioner under the process of erection, fabrication, assembly set up a power plant for Utran 370 MW Combined Cycle Power Plant ("Power Project").

The petitioner claimed the deemed export drawback in respect of the custom duties paid on the imported equipments and spare parts as per the provisions of Chapter 8 of the Foreign Trade Policy ("FTP").

The respondent communicated to the petitioner that (a) the application for deemed export drawback has been admitted for payment; (b) the case is ripe for payment and the cheques would be issued towards settlement of the claims upon receipt of the funds from the DGFT.

It appears that thereafter a meeting of the Policy Interpretation Committee (PIC) was held, under the Chairmanship of the respondent No.2-DGFT, New Delhi, in order to decide on issues relating to grant of benefits under deemed exports. That the PIC thereafter decided not to grant deemed export benefit in cases where the bill of entry is in the name of the project authority.

The said claims have been ultimately rejected by the Joint DGFT, New Delhi considering the decision of the PIC.

It is the case on behalf of the petitioner that as such there is no provision in the FTP for denying grant of deemed export benefit in case of imports where the bill of entries is in the name of project authority. It is the case on behalf of the petitioner that inability of the respondents to grant large number of pending drawback claims owing to inadequate budget provision appears to be the sole basis for the above decision.

Thereafter, the petitioner had received the impugned letters, all dated 21.03.2011, rejecting the deemed benefit drawback claimed by the petitioner in which para 3 of the impugned minutes to hold that the petitioner is ineligible for deemed export benefits has been referred.

The High Court considered the elaborate submissions made by both sides and observed thus -

Whether the petitioner shall be entitled to the deemed export drawback as claimed in terms of provisions of Chapter 8 of the FTP or not?

+ While considering the benefits of deemed export duty drawback, the conditions to be satisfied are that the goods supplied are manufactured in India; supply of goods are to the power projects and that the benefits of deemed export shall be available under paragraphs (d), (e), (f), (g) of Chapter 8.2, only if the supply is made under procedure of ICB i.e. International Competitive Bidding.

+ In the present case the goods supplied by Alstom and imported by the petitioner was under the procedure of ICB. It is also not in dispute that the said goods imported are used in power projects. However, one essential condition that such imported goods on which the custom duty is paid and which are used in the power project shall be manufactured in India, is not satisfied.

+ "Manufacture" is defined under Chapter 9.36 of the FTP and it means to make, produce, fabricate, assemble, process or bring into existence by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, repacking, polishing, labelling, reconditioning...etc.

+ In the present case the goods which are imported by the petitioner and supplied by Alstom on which the custom duty is paid and for which the deemed export drawback is claimed, cannot be said to be manufactured in India even as per the definition of "manufacture" contained in clause/Chapter 9.36.

+ Nothing is on record that any of the activities contained in Chapter/Clause 9.36 had been carried out in India before the same is used in the power project. It appears that the goods which are imported are directly used in the power project. The power project itself cannot be said to be the goods.

+ The deemed export drawback is claimed on the import of the equipments and spare parts which include GT Fields Assembly, HP Feed Water Pumps, Spare parts etc. which is/are used directly used in the power project. The reliance paced upon clause 8.2(g) by the petitioner that supply of goods to power projects shall be regarded as deemed export under the FTP is concerned, it is required to be noted that providing the supply of goods to the power projects must be the goods which are manufactured in India as per the definition contained in Chapter 9.36 of the FTP.

+ The idea (to classify certain transactions to be deemed export) seems to be to give the benefit to the local manufacturers and when the locally manufactured goods are supplied, then they are deemed to be export and thereby idea is to provide level playing field to permit such manufacturer/supplier to drawback duty supplied by him on any inputs of such goods which are ultimately supplied to nonmega power project.

+ Even considering the statement of object and reasons of the Foreign Trade Development Regulation (hereinafter referred to as "FTDR"), it can been seen that the FTDR has been enacted to provide an adequate legal frame work for the development and promotion of India's foreign trade.

+ Therefore, considering the object and reasons of the FTDR as well as underlying intent and idea to grant the benefit of deemed export drawback and one of the essential conditions is that the goods imported and supplied to the non-Mega power project must be/shall be manufactured in India and in the present case the goods imported for which the benefit of deemed export drawback is claimed, cannot be said to be 'manufactured in India', the claim of the petitioner of deemed export drawback is rightly rejected.

+ The same seems to be absolutely in consonance with the FTP and underlying intent and idea and the object and reasons of the FTP.

+ On fair reading of the provisions of the FTP and the relevant chapter/clauses, only those goods which are manufactured in India by way of process contained in Chapter 9.36 of the FTP on such goods and subject to fulfilling other conditions mentioned in Chapter 8, benefit of export drawback shall be available.

+ The minutes of meeting dated 15.03.2011 of the Policy Interpretation Committee (PIC) cannot be said to be adding a further condition and/or change in the policy and/or review in the policy as sought to be contended on behalf of the petitioner.

+ Under the circumstances, the impugned minutes of meeting of the PIC held on 15.03.2011 more particularly para 3 cannot be said to be illegal and/or without authority under the law. The impugned PIC minutes can be said to be absolutely in consonance with the FTP more particularly Chapter 8 of the FTP, that on directly imported items the deemed export benefits shall not be available.

+ Respondent No.3 being interpreting authority is bound to follow and consider the decision of the PIC which was headed by the respondent No.2-DGFT. Therefore, the impugned decision of the respondent No.3 denying/rejecting the claim of the petitioner of deemed export benefit on the goods imported by the petitioner being Project Authority in whose name the bill of entry was issued is also just and proper, legal and as observed herein above in consonance with the provisions of Chapter 8 of the FTP.

+ As observed the impugned PIC minutes is interpreting the existing FTP and cannot be said to be adding new criteria as sought to be contended on behalf of the petitioner. As the said decision is on interpretation of the existing FTP applicable at the time of import, the same has to be made applicable from the inception and there is no question of making it applicable retrospectively.