Supplies against International Competitive Bidding (ICB) have been on the rise with several specified projects being awarded in the recent times. In Union Budget, 2015 itself, five ultra Mega Power Projects have been announced. Considering the importance of these projects and their contribution towards economic growth, the Government has given several concessions for supplies to such projects, including benefits of deemed exports under Foreign Trade Policy, customs exemption on import of goods for the projects and also excise exemption on procurement of goods for the projects from the domestic market.
However, availment of excise duty exemption by the domestic manufacturers has remained a matter of dispute and various cases are pending before different Appellate Fora. One such issue is whether the exemption will be available to the sub-contractor, where the sub-contractor has not participated in the ICB process. The Government is trying to simplify the matter so that some clarity exists in the mind of the domestic manufacturers acting as sub-Contractors and supplying goods to contractors for projects awarded through ICB. An effort in this regard was made by the Government by issuing a clarification in Budget, 2014-15 stating that exemption under S. No. 336 of Notification No. 12/2012-CE is also available to sub-contractors for manufacture and supply of goods for or on behalf of the main contractor who has won the bid for the project through ICB.
The latest amendment by Notification No. 12/2015-C.E., dated 1-3-2015, in the condition to Notification No. 12/2012-CE dated 17.3.2012 (“Notification No. 12/2012-CE”) is another step in this direction. However, a closer scrutiny is required to analyze whether the amendment will result in reduction of the disputes or will further complicate the law for the domestic manufacturers.
A brief background
Notification No. 12/2012-CE provides exemption from payment of central excise duty to all goods supplied against ICB and classifiable under ‘Any Chapter’ of the Excise Tariff, subject to the condition that the goods when imported into India are exempted from Basic Customs Duty (BCD) and Countervailing Duty (CVD). However, a proviso to the condition has been inserted as follows: “Provided that if the goods when imported into India are so exempt from the said duties of customs subject to certain conditions prescribed under a notification issued under the Customs Act, 1962, then such conditions shall, mutatis mutandis, apply for the purposes of this exemption”. To illustrate, let us see some of the conditions as specified in the Customs Notification. With respect to S. No. 507 of Notification No. 12/2012-Cus, a certificate from the Power Ministry is required to certify that power purchasing States shall carry out distribution reforms and regulatory commission constituted to fix tariff. Similarly, a certificate from Directorate General of Hydro Carbons in the Ministry of Petroleum and Natural Gas to the effect that the imported goods are required for petroleum operations is required under S. No. 41 of Notification No. 12/2012-Cus. Sub-contractors often faced difficulties in getting the certificate from the ministries.
In the past, the Department raised disputes as to whether the manufacturer is required to satisfy all the conditions specified in the Customs Exemption Notifications. The confusion persisted for long before the matter reached the Tribunal in the case of Kent Introl Pvt. Ltd., 2014-TIOL-211-CESTAT-Mum. In this case, the Tribunal held that for the purpose of exemption under excise notification, as long as the name of the assessee figures as a sub-contractor in Project Authority Certificate (PAC) and supplies are made in respect of contract awarded under ICB, the goods would be considered as supplied against ICB. The corresponding condition under Customs Notification, which required essentiality certificate from the Directorate General of Hydro Carbons (DGHC), was held as inapplicable to domestic suppliers. Accordingly, benefit of excise exemption was allowed to the Appellant. The above view was reiterated by the Tribunal in Unique Industrial Handlers Pvt. Ltd., 2014-TIOL-408-CESTAT-Mum.
Effect of the amendment
Government has brought an amendment that the conditions of the customs notification will be mutatis mutandis applicable to domestic supplies also. The intention of the Government behind the amendment seems to bring domestic suppliers at par with the importers. However, the supplies under projects awarded under ICB usually have long gestation periods and clearances are made over several months. Thus, the amendment will have adverse impact on the manufacturers who have accepted orders and started manufacturing goods or made part dispatches without obtaining certificates required under Customs Notification in light of the Tribunal decisions. Such manufacturers will now have to pay excise duty on their clearance.
It is hoped that no one interprets the amended condition to state that where the Customs Notification exempts goods falling under Chapter Heading 9801, the goods being supplied by the domestic manufacturers will now have to be classified under Chapter Heading 9801 and the domestic manufacturers would have to be registered with Project Import Regulations, 1986. Such a view is unwarranted as there is no Chapter Heading 9801 under the Excise Tariff. In case the abovementioned interpretation is adopted by the Department, the disputes on domestic supplies will be endless and no domestic supplier will be able to claim exemption under excise law. The domestic manufactures may place reliance on the words “mutatis mutandis” in the proviso to the condition to state that only the conditions which can be fulfilled by the domestic manufacturers will be borrowed.
[The author is a Senior Associate, Lakshmikumaran & Sridharan, Delhi]