Imports for Power Projects exempt from Additional duty: Advance Ruling

AIT News Network

NEW DELHI. Justice PV Reddy Chairman of Authority for Advance Rulings (Central Excise, Customs & Service Tax) vide a significant ruling dated 15th May 2007 AIT-2007-206-AAR on Project Import has ruled that the goods required for power generation projects (not for captive consumption) proposed to be set up and run by the applicant by harnessing the wind energy, if imported in accordance with the Project Import Regulations 1986 will be eligible for classification under Tariff Heading No. 9801.

Further, the said goods will be eligible for exemption from customs duty in excess of 5% under Serial No. 399 (iv) of customs notification No. 21/2002-cus dated 01.03.2002 and will be eligible for exemption from the whole of the additional duty of customs under section 3(5) of the Customs Tariff Act, 1975 by virtue of serial No. 11 of custom exemption notification No. 20/2006-cus dated 01.03.2006.

The applicant will be eligible for exemption from the whole of additional customs duty leviable under section 3(1) of the Customs Tariff Act in respect of the parts and components of wind operated electricity generators imported by the applicant for the purpose of setting up independent power projects by harnessing wind energy. It was clarified that in regard to the other items imported under Tariff Heading 9801, the additional duty applicable will be the central excise duty in force, subject to a ceiling of 16%.

The applicant a company registered under the Indian Companies Act, 1956 entered into a collaboration agreement with the German company and has set up a modern plant in the Union territory of Daman as a joint venture for the manufacture of wind operated electricity generators. 

The applicant intends to set up independent power generation projects of different capacities across India by harnessing wind energy.  The applicant also proposes to have a business tie up with an existing company/project by entering into an ‘agreement to sell’ in order to set up wind energy based independent power project. 

It was the contention of the applicant that the articles (which are mostly components and parts of wind operated electricity generators) components to be imported by it for the purpose of setting up the wind-mill based independent power projects attract customs duty @ 5% only and no additional duty/CVD is leviable under Section 3(1) or 3(5) of the Customs Tariff Act on such imports.

The following questions for determination were re-framed by the applicant:

“1.Whether the goods detailed in Exhibit “J” which are proposed to be imported by the Applicants and which are required by the applicants for proposed Independent Power Project (not for captive consumption) by harnessing the wind energy described in Annexure II & Exhibit “I” will be eligible for classification under Customs Tariff Heading 9801?

2.(a)Whether the said goods referred to in Question No. 1 above will be eligible for exemption from customs duty in excess of 5% under Serial No. 399 (iv) of customs notification No. 21/2002-cus dated 01.03.2002?

(b)Whether the said goods referred to in question No. 1 will be eligible for exemption from the whole of the additional duty of customs under section 3(1) of the Customs Tariff Act, 1975 by virtue of serial No. 84, list 5, item 13 of Central Excise notification No. 6/2006-CE dated 01.03.2006?

(c)Whether the said goods referred to in Question No. 1 will be eligible for exemption from the whole of the additional duty of customs under section 3(5) of the Customs Tariff Act, 1975 by virtue of serial No. 11 of custom exemption notification No. 20/2006-cus dated 01.03.2006?”

T H E   R U L I N G   O F   T H E   A U T H O R I T Y:

• There can possibly be no controversy that the goods required for power generation projects (not for captive consumption) proposed to be set up and run by the applicant by harnessing the wind energy, if imported in accordance with the Project Import Regulations 1986 will be eligible for classification under Tariff Heading No. 9801.

QUESTIONS 2 (a) & (c) :

• Where the imports fall under Tariff Heading No. 9801, the two notifications, namely 21/2002-Cus dated 1.3.2002 and 20/2006-Cus dated 1.3.2006 would come into the picture and enure to the benefit of the applicant in regard to the basic duty leviable under section 2 read with the First Schedule and the additional duty leviable under section 3(5) of C.T. Act.
• The relevant portion of the Notification No. 21/2002-Cus has already been extracted.  The basic customs duty in excess of 5% has been exempted thereunder.  The goods answering the description under column 3 of the said notification are those imported in accordance with the Project Import Regulations, as clarified supra.  Such goods, by virtue of Sl. No. 399, item (iv) of the Table to notification No. 21/2002-Cus, will be eligible for exemption to the extent of the duty as is in excess of 5% Accordingly, Question 2(a) is answered.
• Coming to the additional duty under section 3(5) of C.T. Act, it is meant to counter-balance the sales tax, value added tax, local tax or any other charges for the time being leviable on like article on its sale, purchase or transportation in India.  The maximum rate of additional duty that can be imposed under this sub-section is 4%.  In exercise of the powers under section 25(1) of the Customs Act, the Central Government issued Notification No. 20/2006-Cus exempting, inter alia, “the goods specified in item (iv) and item (vi) against Sl. No. 399 of the Table” annexed to the Notification No. 21/2002-Cus from additional customs duty leviable under section 3(5).  Item (iv) is goods required for Power Generation Projects including gas turbine power projects (excluding certain captive power plants).  It is again made explicit that this exemption will be attracted only if the said goods imported fall within the Tariff Heading 9801.
• Once it is held that the proposed imports of the applicant fall within tariff Heading 9801 subject to the fulfillment of the Project Import Regulations, the rate of additional duty under section 3(5) will be nil. Accordingly, Question No. 2(c) is answered.

QUESTION 2(b):

• To resolve the present issue, the questions to be asked and answered are the following:

1^st Question       : What are the articles proposed to be imported?

Answer              : Broadly those falling within the description given in column 2 of Tariff heading 98001, that is to say, items of machinery, instruments, appliances, apparatus, components etc. which are required for the initial setting up of a power project.  They include components and parts of wind operated electricity generator.

2^nd Question      : What is the excise duty for the time being leviable on the said articles if manufactured in India?

Answer              : In so far as the components and parts of wind operated electricity generator are concerned, the duty will be nil in view of Notification No. 6/2006-CE.  In regard to other articles imported under Chapter 9801, the Central Excise duty is payable at varying rates.

3^rd Question      : What then will be the quantum or rate of additional customs duty under section 3(1) of the CT Act?

Answer              : (a) In relation to the components and parts of wind operated electricity generator no additional duty is leviable under section 3(1) because no excise duty is leviable on such articles by reason of Notification No. 6/2006-CE.

                            (b) In regard to the other items imported under Tariff Heading 9801, the additional duty applicable would be not more than 16% (vide Notification No. 21/2002- Cus).

• In the case of (a), the benefit of nil duty accrues to the importer by the application of the criterion or measure provided by the section itself i.e. section 3(1) read with the Central Excise Notification.

                In the case of (b), the benefit of lesser rate of 16% accrues by virtue of Notification No. 21/2002-Cus issued under section 25(1) of the Customs Act.  But for this notification, some of the goods required for power generation projects if manufactured in India would have attracted Central Excise duty at a rate higher than 16%.

• There is no legal bar to the importer getting the benefit of duty relief/concession under two different provisions.  On the other hand, if the benefit is denied to the importer on the ground that for some of the goods specified  in the same heading partial relief has been granted under a customs notification, it would amount to ignoring the mandate of charging section 3(1) and placing the notification on a higher pedestal.  The fact that the goods in question form part of the project import series is not a ground to avoid application of the criterion prescribed by section 3(1).
• The components and parts of the wind operated electricity generator which the applicant wants to import in order to set up a power plant by harnessing wind energy does not attract additional duty under section 3(1) of the C.T. Act.
• we rule that Question No. 2(b) should be answered affirmatively to the extent that the applicant will be eligible for exemption from the whole of additional customs duty leviable under section 3(1) of the Customs Tariff Act in respect of the parts and components of wind operated electricity generators imported by the applicant for the purpose of setting up independent power projects by harnessing wind energy. It is clarified that in regard to the other items imported under Tariff Heading 9801, the additional duty applicable will be the central excise duty in force, subject to a ceiling of 16%.

(Click here for full text of Ruling AIT-2007-206-AAR)