2022-TIOL-637-CESTAT-MUM
CC Vs Adani Power Maharashtra Ltd
Cus - The Assessee No 1 is a 100% subsidiary of Adani Power Limited and is engaged in operating Thermal Power Plants - It applied under the State Government's offer to establish privately-run power generation units - It acquired a parcel of land for setting up greenfield thermal power station - Implemented in 3 phases, the total capacity of the plant was 3300 MW - The dispute in the present appeal relates to the imports made by APML for Phase III - Prior to undertaking the project, the assessee had prepared project reports through M/s. SBI Capital Market Limited, which reports were approved by the lenders - The original per MW cost was worked out for each phase of the project - The assessee had entered into four Power Purchase Agreements PPA on long term basis with the Maharashtra State Electricity Distribution Company Limited MSEDCL - The bids made by assessee were accepted through a tariff based competitive bidding process - The assessee began procurement of equipment & machinery on single turnkey engineering, procurement and construction EPC basis for setting up the units - The assessee invited tenders based on International Competitive Bidding guidelines for setting up the thermal power plant, including design, procurement and commissioning thereof - Subsequently the bids of a Chinese firm were accepted - Thereafter, the assessee applied for registration of the contract under the Chapter Heading 98.01 of the Customs Tariff Act 1985, since it pertained to setting up of a mega power project - This registration of the contract allowed the imported goods to be cleared under NIL rate of duty - The entire contract for supply of BTG equipment and machinery for Phases I & II (Units 1, 2 & 3) entered between the assessee & the Chinese supplier was registered on 06.01.2010 with the Customs House at Nhava Sheva in terms of Regulation Nos.4 and 5 of the Project Import Regulations, 1986 PIR - After registration of the contract with respect of 2 units, an essentiality certificate addressed to the Commr. of Customs Nhava Sheva was issued by the Principal Secy of the Maharashtra State Govt, specifying details of the goods to be imported - The goods were imported & allowed to be cleared under CTH 98.01 of the Act - The assessee proceeded to invite similar tenders for the other two units of the thermal power plant - These bids too were given to two other Chinese firms & the contracts for the Phase III units 4 & 5 were furnished to the Commr. of Customs Nhava Sheva, Essentiality Certificates were issued - Upon import of the goods under the supply contract, the assessee filed Bills of Entry which were provisionally assessed and subject to reconciliation of the contract registered under the 2009 Regulations for Phase III - The Assessee No 2 is a subsidiary of the Assessee No 1 and was involved in execution of a similar power generation project in the State of Rajasthan for which it also went through a similar bidding process and floating of tenders for importation of machinery required for execution of the project.
An investigation was commenced against both assessees by the DRI, regarding goods imported - The investigation of the Assessee No 1 was conducted in respect of Units 4 & 5 of Phase III - Post investigation, common SCN was issued to the assessees by the DRI - It was alleged that both companies were related entities, being owned jointly by the same shareholders - The SCN further alleged that the assessees among other entities, tried to siphon off foreign exchange for benefit of related entities - It was also alleged that the assessee imported goods by declaring values which they knew to be untrue and were yet imported in contravention of the prohibition imposed in Rules 11 & 14 of the Foreign Trade (Regulation) Rules, 1993 - Hence the goods were held liable for confiscation u/s 111(d) & 111(m) of the Customs Act - The SCN proposed to reject the value of the imported goods under the rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules 2007 - On adjudication, the adjudication dropped the proceedings commenced by the SCN, holding that the relationship between the assessees could not be established or that any relation between them could not have influenced the price of the goods - It was also held that the present contract which was only for supply of goods could not be compared to an EPC contract which had several other factors therein - It was also observed that the project cost was relatively lower when compared to the other projects of super critical technology - Hence the present appeals by the Revenue.
Held - No evidence on record to doubt the transaction value as declared by the assessee and so the same merits being accepted - Merely because M V Rabade signed the contract both on behalf of APML and EIF will not have any bearing on the relationship aspect - Merely because the successful bidder had entered into an agreement with one of the original equipment manufacturer prior to submission of bid cannot be a reason to hold that the entire ICB process was a sham - documents from foreign branches of the Indian banks not admissible evidence as conditions in Sec 138C were not fulfilled - the terms and conditions of the contract between EIF and APML/APRL in respect of exposure to foreign exchange variation, stringent payment terms, higher liquidated damages in case of delay, higher interest on delayed payment, period of warranty than in the contract executed between Original Equipment Manufacturers and EIF has led to an upward escalation in price. The said two contracts cannot, therefore, be treated as comparable: CESTAT
+ The contract between APRL and EIF was signed on 02.04.2010, which was four days after Vinod Shantilal Shah became a shareholder of EIF. However, what is important to notice is that the bid for APRL was submitted by EIF much earlier on 19.11.2009. Even if it is assumed that there was a relationship between APRL and EIF, the transaction value cannot be questioned unless the department is able to prove that the relationship has influenced the price. The evidence that has been led on behalf of the respondents in the form of contemporaneous data showing the per unit MW price of other projects undertaken by the competitors is similar to or higher than per unit MW cost of APML and APRL. This establishes there was no overvaluation; (Para 35)
+ As noticed above, CERC had fixed per unit MW price of green field power project at Rs. 5.01 crores, whereas per MW cost for APML and APRL was Rs. 4.76 crores and Rs. 4.53 crores respectively, excluding the soft cost and other development cost. Thus, the per MW capax cost of APML and APRL was lower than the benchmark MW capax determined by CERC. It has also been found as a fact in the impugned order that the relationship had not influenced the price and this finding, as noticed above, does not suffer from any error; (Para 36)
+ Merely because M V Rabade signed the contract both on behalf of APML and EIF will not have any bearing on the relationship aspect. It is not in dispute that M V Rabade signed the contract on behalf of APML in the capacity of a Director and he signed the contract on behalf of EIF as an authorised representative. The authorization given to M V Rabade by EIF has not been challenged in the show cause notice and as such this will not advance the case of the department on the relationship aspect between APML/APRL and EIF. Even otherwise, there is no variation in the ultimate price paid by APML/APRL to EIF from the agreed contractual price and these contracts were arrived at through international competitive bidding process; (Para 38)
+ Merely because the successful bidder had entered into an agreement with one of the original equipment manufacturer prior to submission of bid cannot be a reason to hold that the entire ICB process was a sham. The department has not raised doubts on the bids received by APML and APRL from other independent parties pursuant to the ICB process. It was for the department to have established its case and substantiated it by producing evidence; (Para 46)
+ The submission of the department can also be rejected for the reason that the project cost of the competitors for the similar project during the same time was comparable to the project cost of APML and APRL. This apart, it has been found that the per MW capex for both APML and APRL are within the benchmark fixed by CERC. Further, the contract value at which the contract was awarded by APML to EIF was comparable to the value of previous contract dated 28.02.2008 awarded to SCMEC for Units 1, 2 and 3 (Phases I and II). The awarding of the contract has not been disputed by the revenue. The department is, therefore, not correct in asserting that the ICB Process was a sham; (Para 47)
+ The department, in order to support its claim that the transaction was a sham transaction and more in the nature of tender fixing, has also placed reliance upon the letter of credit having being opened by APML and APRL in favour of EIF. The said action of opening the letter of credit cannot in any manner establish that the transaction was a sham transaction or that there was over-valuation. The adjudicating authority correctly appreciated that the letter of credit was opened by APML and APRL in favour of EIF in terms of Annexure-2 of the contract dated 05.11.2009 and was in relation to the payments to be made to EIF for purchase of BTG. The submission that the letters of credit were opened as EIF was an intermediary invoicing agent is without any basis as the amount mentioned in the letters of credit were payable only on submission of shipping documents showing clearance of BTG consignments; (Para 48)
+ There is also force in the submission of the senior counsel for the respondent that a belated challenge to the genuineness of the ICB process at the stage of appeal should not be entertained as this was not even a charge in the show cause notice; (Para 49)
+ A bare perusal at the aforesaid provision reveals that a computer print-out is admissible as direct evidence under the Customs Act if the condition mentioned in sub-section (2) is satisfied. Section 138 C (4) deals with cases where any document is required to be produced as an evidence in proceedings under the Customs Act and the Rules framed thereunder; (Para 58)
+ The Customs Act contains a specific provision that describes the manner in which the admissibility of computer print outs will be accepted as evidence in proceedings initiated under the Customs Act. When law requires a thing to be done in a particular manner it should be done in that manner alone. The Department had obtained the documents from foreign branches of the Indian banks, but the conditions prescribed under section 138 C (4) of the Customs Act were not fulfilled as the certificate giving the details was not produced; (Para 54)
+ The entire case of the department in the show cause notice relates to data obtained from the banks. It is not the case of the department that the said data was hand written or typed. The said data provided by the foreign branches was admittedly stored in electronic form and print outs of the same were furnished by the foreign banks. The banks may have given these documents at the behest of the investigating authority, but they were print outs of some electronic record. Nothing prevented the investigating authority from seeking the certificate as required under section 138C (4) of the Customs Act from the person responsible at the bank who was handling such electronic medium for storage of the said documents. The documents annexed to the appeal do not bear any signature nor do they bear a proper seal or signature of the issuing authority. The onus was on the department to prove the correctness and the authenticity of the same. A perusal of the documents relied upon in the show cause notice show that the ORTTs/AORs and the invoices, which form the basis of the re-determination of the transaction value, have not been signed nor attested. In relation some documents, though a seal is appended, but they do not contain signatures. Similarly, few documents other than ORTTs, bear initials without the name and designation of person signing the document. In such a situation obtaining a certificate under section 138C (4) of the Customs Act was extremely necessary to prove the authenticity of the documents but the same has not been done; (Para 56)
+ The aforesaid clauses of the contract entered into between APRL and EIF would show that the same are a part of EPC job awarded in respect of design, engineering, manufacturing, procurement, packing & forwarding, supply, transportation, receipt, unloading, installation, erection, testing, commissioning, and performance guarantee test of the equipment and machinery required for the respective power projects at a lumpsum price. APRL was concerned only with the said lumpsum price which was for the entire power project and not with the price of individual goods; (Para 74)
+ In terms of General Exemption No. 122 (Serial No. 400 of Notification dated 01.03.2002, which was amended to Serial No. 507 by Notification dated 17.03.2010), goods, equipment and machinery falling under Heading 98.01 of the Customs Tariff and required for setting up a Mega Power Project are allowed to be imported and cleared under Nil rate of duty. In order to obtain the benefit of concessional rate of customs duty for the goods to be imported for the entire contract under the aforesaid Notification, APRL had submitted an application to the Principal Secretary, Energy Department, Rajasthan. The Principal Secretary, on being satisfied as to the eligibility to avail the benefit of the aforesaid exemption, issued the Essentiality Certificate dated 01.06.2010. The said Essentiality Certificate, addressed by the Principal Secretary to the Commissioner of Customs, Kandla mentions that the list of items to be imported were essentially required for the Project and qualified for concessional rate of duty. On receipt of the Essentiality Certificate, the entire contract for supply of BTG equipment and machinery for the said power project entered between APRL and EIF, was registered on 06.07.2010 with the Customs House at Kandla as prescribed under Regulation Nos. 4 and 5 of the PIR; (Para 75)
+ It needs to be noted that the ICB process followed by APML and APRL to award the contract to EIF cannot be faulted. The scope of work mentioned in the EPC contract also clarifies beyond doubt that what was awarded by APML and APRL to SME/EIF was a complete EPC contract which included supply and service components. The entire contract was awarded on a turnkey basis and a lumpsum price was fixed for the entire contract as a whole. The execution of another contract by EIF or any of the consortium partners would, therefore, have no relevance so far as APML and APRL are concerned. It is also not the case of the department that APML and APRL paid any amount over and above the agreed contract value. The said contract was for design, engineering, manufacturing, procurements, packing & forwarding, supply, transportation, receipt, unloading, installation, erection, testing, commission and performance guarantee test and it was not merely a supply contract; (Para 78)
+ What further needs to be noted is that the bid was awarded to a consortium headed by SME/EIF and the scope of work was divided between the consortium members as per their commercial understanding. The amount received by each consortium member or the amount paid by the consortium members to the vendors or service providers would not be relevant for APML or APRL. Even if it is assumed that the service and/or testing was to be done by the Original Equipment Manufacturers, as has been pointed out, the same will not change the nature of the contract awarded by APML and APRL to SME/EIF in as much as the responsibility to execute the contract would be that of SME/EIF only; (Para 79)
+ Note 2 to Chapter 98 clarifies that Heading 98.01 will apply to all goods which are imported in accordance with the Regulations issued under section 157 of the Customs Act. PIR has been issued by the Central Government in exercise of the powers conferred by section 157 of the Customs Act. Regulation 2 clarifies that the Regulations shall apply to assessment and clearance of goods falling under Heading 98.01 of the Tariff Act. In terms of regulation 4, assessment under Heading 98.01 shall be available only to those goods which are imported in one or more than one consignment against one or more than one specific contract, which has been registered with the appropriate Customs House as specified in regulation 5. Regulation 4 further specifies that the contract should be registered prior to the clearance of the imported goods for home consumption in terms of regulation 5. The contract under PIR has to be registered in terms of regulation 5 and the details mentioned therein have to be mentioned in the application made for the registration. Regulation 7 provides for the finalization of the contract. An importer has to within three months from the date of clearance for home consumption of the last consignment or within such extended time submit a statement indicating details of goods imported together with the necessary documents as proof regarding value and quantity of goods so imported; (Para 86)
+ A conjoint reading the aforesaid provisions makes it is clear that Heading 98.01 of the Tariff Act shall be available to the goods which are imported under a specific contract registered with the appropriate Customs House under PIR. What is evident from the provisions and requirements of PIR is that it recognises contracts of the nature that APML/APRL had executed with EIF and the other consortium members. Infact, PIR ensures that large infrastructure projects benefit from the duty exemption. As such, it is clear that what is registered is the contract as a whole. When considered in this light, the goods imported for the project become a subject matter of assessment as whole and individual consignments are not required to be separately assessed. It is, therefore, clear that PIR does not deal with import of individual consignment and the assessment of the goods imported for the project have to be dealt with together; (Para 87)
+ While rule 3 is a general rule, as the same states that the value of the imported goods shall be treated as transaction value, rule 9 is a residual rule which can be resorted to only if the other rules cannot be applied. It is also important to note that rules 4 to 9 are subject to the provisions of rule 3. This means that if the transaction value of the goods is not doubted, the same will have to be treated as the transaction value under rule 3 read with section 14 of the Customs Act and the provisions of rules 4 to 9 will not be available for the purpose of redetermination. (P 101)
+ As noticed above, the documents which formed the basis of redetermination have been held to be inadmissible as evidence. Further, the contracts which are in the nature of EPC contract were awarded by APML and APRL to EIF after following the ICB process. SME/EIF was awarded the contract, being the lowest bidder, and the price payable for the entire scope of work, which included the supply and service, was a lumpsum price. The finding of the adjudicating authority that the entre contract registered under PIR has to be assessed as a whole and the department cannot be permitted to look into assessment of individual consignment as this would be contrary to the provisions of Chapter 98.01 of the Tariff Act and PIR has also been upheld. (P 102)
+ There is, therefore, absolutely no evidence available on record which can doubt the correctness of the transaction value declared by APML/APRL. Therefore, the declared value is required to be accepted under rule 3 of the Valuation Rules read with section 14 of the Customs Act. (P 103)
+ Even otherwise, the value has to be redetermined under rule 4 by relying upon the value of identical goods. A plain reading of rule 4 would show that it speaks of identical goods imported at or about the same time as the goods being valued, which necessarily means that the identical goods should be goods other than the goods being valued and which are imported at or about the same time as the goods being valued. (P 104)
+ At the cost of repetition, it needs to be noted that the terms and conditions of the contract between EIF and APML/APRL in respect of exposure to foreign exchange variation, stringent payment terms, higher liquidated damages in case of delay, higher interest on delayed payment, period of warranty than in the contract executed between Original Equipment Manufacturers and EIF has led to an upward escalation in price. The said two contracts cannot, therefore, be treated as comparable. (P 105)
- Revenue's appeals dismissed: MUMBAI CESTAT
