By TIOL News Service

NEW DELHI, NOV 03, 2015: THE appellant had imported a naphtha based power plant with five gas turbines which was mounted on a barge which floated in a river at a Tanir Bavi Village near Mangalore for purposes of power generation. The power plant had to be kept in good running condition as the contract with KPTCL is to supply power to them continuously. For this purpose, the appellant entered into an agreement for service and supply of parts with GE, USA being a Long Term Assured Parts Supply Agreement dated 12.12.2000, ("LTAPSA"). In terms of the said agreement, the appellant was to make payments based on either fired hour charges or maintenance charges. Various parts of the Gas Turbine Hot Section of the said plant, which had to be imported under the LTAPSA were imported under two bills of entry dated 25.6.2003 after 12,500 fired hours had come to an end. The parts that were identified as having to be replaced were re-exported back to GE, USA under cover of shipping bills of the month of May, 2003 before the two bills of entry dated 25.6.2003 were presented for import of the replaced parts to the customs authorities. The appellant paid customs duty based on the value declared in the said bills of entry but did not make any payment to GE based on these invoices since their payments had already been made based on fired hour charges. The assessment of the said import was completed by the customs department after due verification of the documents produced at the time of import.

Subsequently, the department issued a Show Cause Notice demanding that 1/3rd of the value of the imported items be added to the invoice value as that was said to represent the amount of the parts that were replaced and re-exported back to GE, USA. The customs duty was said to be evaded to the tune of approximately 4.20 crores. Goods were said to be liable to confiscation.

By an order dated 2.5.2006 passed by the Commissioner of Customs, the Commissioner specifically found that as per the LTAPSA since the assessee has declared only the differential value of the returned parts and the parts imported, 1/3rd of the invoice value of the imported parts needs to be added to arrive at the correct assessable value. Thus, he confirmed the demand made in the show cause notice.

On appeal, the Tribunal upheld the order of the Commissioner. - 2007-TIOL-1878-CESTAT-BANG.

The Supreme Court found that the basis of the Commissioner's order as well as the Tribunal's order is clause 2.8 of the LTAPSA . Supreme Court was in agreement with the counsel for the assessee when he has argued that the seller is only to furnish the buyer with "information" regarding the incremental value of each refurbished part so that customs duty may be limited to the incremental value of each such refurbished part. On the facts it is found that the assessee has, in its reply to the show cause notice, made it more than clear that the price of the imported goods was a rotable exchange programme price which was a common uniform price at which such parts were supplied worldwide by GE, USA. This is clear from a document that was relied upon by the show cause notice itself, which dealt with GE's rotable exchange programme.

The Supreme Court observed, "From this document what becomes clear is that the prices stated in the invoices accompanying the bills of entry in the present case are list unit prices or catalogue prices. By no stretch of imagination can they said to be prices after re-exported items' value has been taken into account. This being the case, on facts in the present case, both the Commissioner and the Tribunal were wrong in arriving at a conclusion that the invoice price in the present case is only an incremental value price and not the price of the articles supplied by GE, USA. This being the case on facts, both the Commissioner's order and the Tribunal's order would have to be set aside on this ground alone."

So, the assessee's appeal is allowed.

Revenue is also in appeal on another part of the Tribunal's order.

Eligibility of Exemption Notification: Certificate not produced at the time of import, but produced later; exemption to be allowed. The importer was required to produce a certificate from an officer, which was not so produced at the time of import. The Tribunal had observed, " The case of the Revenue is that at the time of importation the required Certificate was not produced. The objection of the Revenue that at the time of import, the Certificate was not produced is not a very strong ground for denying the benefit of Notification. There is a plethora of decisions in which various Courts and Tribunals have accepted the production of Certificate even after the importation for granting benefits. The appellant, after representing to the concerned authorities, obtained a Certificate dated 23.01.2004 to the effect that the scheme of renovation has been examined thoroughly and approval accorded for the same. The Principal Secretary, Government of Karnataka has also recommended the exemption under the said Notification. The list of spares recommended have also been mentioned. The General Manager of the Karnataka Power Transmission Corporation Ltd. has certified that the spares listed in the letter of the appellant dated 29.09.2003 are essential for the proper upkeep of the generating units. Once the competent authority is satisfied that the impugned goods are required for renovation, the Customs Department need not go deep into hair splitting and semantic niceties to deny the benefit of Notification. The DRI had taken up the matter with the State Government who have confirmed the approval of the Scheme. Once the scheme is approved by the State Government for the Power Project, in our view, the benefit of exemption Notification cannot be denied."

The Supreme Court observed, "We find that both the requisite certificate as well as the recommendation of the Principal Secretary, Government of Karnataka, have been dealt with in the proper perspective. The Tribunal is quite correct in stating that once these authorities are satisfied that the impugned goods are required for renovation, the customs department does not need to go deep into the matter and by hairsplitting and semantic niceties deny the benefit of the exemption notification. The finding of the Commissioner has been correctly set aside by the Tribunal and hence we dismiss revenue's appeal."

(See 2015-TIOL-259-SC-CUS)