http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 15  

CASE NO.: Appeal (civil)  465 of 2002

PETITIONER: Zuari Industries Ltd

RESPONDENT: Commissioner of Central Excise & Customs

DATE OF JUDGMENT: 29/03/2007

BENCH: S. H. Kapadia & B. Sudershan Reddy

JUDGMENT:

J U D G M E N T

KAPADIA, J.

       This statutory appeal is filed by the assessee-Zuari  Industries Ltd. under section 130 E of the Customs Act, 1962  directed against Order dated 15.11.2001 passed by Customs,  Excise & Gold (Control) Appellate Tribunal ("CEGAT") in  appeal No. C/277/01-Bom denying the assessee the benefit of  exemption under Notification No. 11/1997 dated 1.3.1997.  The appeal involves the issue as to the rate of duty applicable  to the imports made for expansion of a Fertiliser Project.

       Assessee is the manufacturer of fertilizers at their facility  at Goa. It obtained registration of all their imports required for  expansion of their fertilizer project under the provisions of the  Project Import Regulations, 1986 (for short "the PIR"). In  respect of the said expansion, the goods imported were entitled  to the benefit of Project Import Assessment under Heading  98.01 of the Schedule to the Customs Tariff Act, 1975 and  correspondingly the company was entitled to the benefit of  customs exemption Notification No. 11/97 dated 1.3.1997.  The said notification specified nil rate of duty in respect of  "goods required for fertilizer plant". Ministry of Chemicals and  Fertilisers was the duly constituted Sponsoring Authority  under the said PIR. The said Ministry had issued a certificate  dated 22.10.1997 (Essentiality Certificate) to the effect that the  import of capital goods for expansion of the fertilizer project  stood examined and the list of goods annexed to the certificate  had been attested from the essentiality angle by the Deputy  Secretary to the Government of India. At this stage, it may be  noted that in their application for issuance of essentiality  certificate, the assessee had stated that on account of load  shedding in the concerned area, a Captive Power Plant was  essential for the substantial expansion of the fertilizer project.  By the said essentiality certificate dated 22.10.1997, the  sponsoring Ministry requested the Customs to exempt the  customs duty on import of equipments by the assessee vide  Notification No. 11/97. The said certificate indicated vide item  nos. 14.a and 14.b, a 6 Mega Watt Captive Power Plant. The  essentiality certificate ’recommended’ the said Captive Power  Plant as part of the entire capital goods required by the  assessee-company for substantial expansion of the fertilizer  project.

       As stated above, the dispute which arises in the present  case is the rate of duty applicable to the imports made by the  assessee for the fertilizer project. According to the Department,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 15  

the goods imported under serial nos. 14.a and 14.b of  annexure ’A’ to the essentiality certificate did not fall under  serial no. 226(i) of the said notification no. 11/97 and,  therefore, the assessee was not entitled to the benefit of nil  rate of duty in respect of 6 MW Captive Power Plant. According  to the Department, items 14.a and 14.b fell under serial no.  226(iii) which stated that Captive Power Plants of 5 MW or  more are liable to duty at 20% + 2% and additional duty of  13%. By the impugned order of adjudication, the Adjudicating  Authority held that 6 MW Captive Power Plant imported under  Heading 98.01 as part of the fertilizer project, in terms of the  essentiality certificate, cannot be given the benefit of nil rate of  duty, which was available only to fertilizer projects. In other  words, according to the Department, the fertilizer project and  the Captive Power Plant are two distinct and separate projects  as far as the rate of duty was concerned. This contention of  the Department has been accepted by all the authorities  below. It has been confirmed even by the CEGAT vide the  impugned judgment dated 15.11.2001.

       Heading 98.01 is a specific entry. It is not a general  entry. It is not a residuary entry. It finds place in the  exemption notification no. 11/97. Project imports fall under  this entry. It is for this reason that Entry 98.01 is said to be a  specific entry.

       We quote hereinbelow the relevant entry of the   Notification No. 11/97.

"S  No. Chapter  or  heading  No. or  sub- heading  no. Description of goods Stan- dard  rate Addl.  Duty  rate Con- dition  No.

226 98.01 Goods required for

i) fertilizer projects;

ii)coal mining  projects;

iii)captive power  plants of 5 MW or

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 15  

more;

iv) power generation  projects including  gas turbine power  projects (excluding  captive power plants  set up by projects  engaged in activities  other than in power  generation);

v) power  transmission  projects of 66 KV  and above;

vi) Other industrial  plants or projects."

Nil

20%

20%

20%

20%

20%

Nil

Nil

13%

Nil

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 15  

10%

13% 70

       We also quote hereinbelow the Essentiality Certificate  dated 22.10.1997 along with the attested copy of list of capital  goods to be imported for the expansion of the fertilizer project.                              "No. 15027/1/97-FP-III              Government of India Ministry of Chemicals & Fertilisers Department of Fertilisers.

                                                     Dated 22nd October, 1997

To         The Assistant Commissioner of Customs,         Mormugao, GOA-803

       Subject: Customs duty exemption for import of capital                       goods for substantial expansion of existing                       NPK Plant by M/s Zuari Agro Chemicals Ltd.                       At Zuarinagar, Goa.                                                 \005 Sir,

       I am directed to say that M/s Zuari Agro Chemicals Ltd.  has proposal for the Substantial Expansion of existing NPK  Plant at Zuarinagar, Goa. To implement the project, they  require to import capital goods. The matter has been examined  in the Department. The list of goods has been attested on  essentiality angle by Shri S. Chandra, Deputy Adviser (F), who  is equivalent to the rank of Deputy Secretary to the  Government of India. The attested copy of list of goods valued  at a CIF of US $ 544359.60 + FF 4760042.80 + FM 12764000  (C&F Mumbai) is sent herewith.

2.      You are requested to exempt the customs duty on import  of equipments being made by M/s Zuari Agro Chemicals Ltd.  under Custom Notification No. 11/97 dated 01.03.1997.

                                                                            Yours faithfully,                                                                                  Sd/-                                                                         (A.K. Sinha)                                                                 Development Officer                                                                             Tel:3383829 Encl: Attested list is enclosed.

Copy to: M/s Zuari Agro Chemicals Ltd., 505 Surya Kiran, 19,               Kasturba Gandhi Marg, New Delhi-110001                                                                                              

                                                                             Sd/-                                                                         (A.K. Sinha)                                                                 Development Officer"                                            . . . . .  "LIST OF GOODS AND SPARES TO BE IMPORTED FOR EXPANSION OF NPK PLANT

S.No.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 15  

Description Vendor Qty. Total C&F Price US $ Total C&F Price FF Total C&F  Price FM  (Finish  Marks) 1.a) Microprocessor  based Dot  Printing  Recorder with  Battery  backup M/s  Yokogawa  Electrical  Corpn,  2-9-32  Nakacho, Musahino- Shi, Tokyo 180,  Japan 3  Nos. 5183.00

1.b) Spares for  above.    - do - 1 Lot  518.30

2.a) Current to  Pneumatic  Signal  Converter (1/P  Converted)   -  do  - 13  nos. 7582.00

2.b) Spares for  above   -  do  - 1 Lot  758.20

3.a) Magnetic Flow  meter (Remote  Type)

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 15  

Assembly with  Converter &  Signal cable.   -  do  - 6  nos. 18026.00

3.b) Spares for  above.   -  do  - 1 Lot  1802.60

4.a) Vibrating  Screen  complete with  static dust  casting motor  & other  accessories M/s  Chauvin  S.A., 13a 25 Rue  Alfred De  Vigny, BP 2426- 38034  Grenoble,  Cedex 2,  France. 4  nos.

1076250.00

4.b) Spares for  above.   -  do  - 1 Lot

107625.00

5) Centifugal  Pump with  motor, flexible  coupling  mounted on  common  frame. M/s A.R.  Wilfley and  Sons, Inc  Post Box No.  2330,  Denver,  Coloradi  80201,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 15  

U.S.A.

136425.00

5.a) Phosphoric  acid (H3PO4)  supply pump.  - do - 2  nos.

5.b) Scrubber  Effluent Pump  - do - 2  nos.

5.c) Fummes  Scrubber  Liquor pump

- do - 2  nos.

5.d) Dryer  Scrubber  Liquor pump

- do - 2  nos.

5.e) Molten Urea  pump  - do - 2  nos.

5.f) Spares for  above.  - do - 1 Lot 13642.50

6.a) Ammonia

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 15  

Sparger M/s Maguin  S.A. 2, Rue  Pierre  Semard,  02800  Charmes,  France 1 no.

2313320.00

6.b) Dryer Knocker  - do - 5  nos.

6.c) Oversize  Crusher with  Motor, Base  frame and  Remote  Control  - do - 2  nos.

6.d) Scrubber  Liquor Sprayer  - do - 1 no.

6.e) Spares for  above  - do - 1 Lot

231332.20

7.a) Butyll Rubber  Panels with  Polyster  Polyamide  Carcass M/s Welby  S.A., Z.I.  Voie No. 5,  10, Rue  Claude  Chappe, BP- 53, 76302  Sotteville,  Les Routen  Cedex,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 15  

France 24  nos.

91718.00

7.b) Spares for  above.  - do - 1 Lot

 9171.80

8.a) Dryer pipe  Reactor (Dual  pipe cross  Reactor) M/s Situb  S.A., 76430  Tancarville, St. Romain- De-Colbose, B.P. 123,  France 1 no.

357000.00

8.b) Spares for  above  - do - 1 Lot

 35700.00

9.a) Link Chain No.  6859 R with  attachments M/s Jeffrey  Chain  Corporation,  2307 Maden  Drive,  Morristown,  Tennessee  37813,  U.S.A. 900  Ft.  40100.00

9.b) Link Chain No.  9118 P with  attachments  - do - 550  Ft.   

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 15  

58150.00

9.c) Link Chain No.  698A with  attachment  - do - 1225  Ft. 170850.00

9.d) Sprockets  - do - 8  nos.  42050.00

9.e) Spares for  above.  - do - 1 Lot  31115.00

10.a) Ball Lift check  valve M/s  Guichon  International  S.A.,  Industrial  Valves, Rue  De Choudy-  BP 401,  73104 Ax  Les Bains  Cedex,  France 10  nos.

 64294.00

10.b) Spares for  above.  - do - 1 Lot

  6429.40

11.a) Control Valve M/s Dresser  Products  Inds. Ltd.,  Division  Masoneilan,  4, Place de

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 15  

Saverne,  92971 Paris  La Defense  Cedex,  France. 9  nos.

199769.00

11.b) Spares for  above.  - do - I Lot

 55875.00

12.a) Flap Valve M/s Vraco  SA, Zacles  Gatins, 3  AV-Du  Garigiliano,  France, 2  nos.

192324.00

12.b) Spares for  above.  - do - 1 Lot

 19232.40

13.a)  Bulk Solid  Recycle Flow  Measurement M/s  Ramsey, Sydney  Office,  Sydney Box  RA, Teren  Point, NSW- Australia  2229 1 no.  16507.00

13.b) Spares for  above.  - do - 1 Lot   1650.00

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 15  

14.a) Equipment for  6 MW Power  Plant  consisting One  (1) Wartsila  Vasa  18V32LN,  Diesel  Generating set  with auxiliary  equipment. M/s  Wartsila  Diesel,  Wartsila  Diesel Oy.,  P.O. Box  252, Fin- 65100,  Vaasa,  Finland 1 Lot

11382000.00 14.b) Spares for  above.

- do - 1 Lot

1382000.00              Total without the spares

494873.00 4294677.00 11382000.00              Total Spares

49486.60 465365.80  1382000.00              Total with Spares

544359.60 4760042.80 12764000.00

       This is to certify that the above goods are  most essential for the substantial expansion of  the NPK plant of Zuari Agro Chemicals Ltd., at  Zuarinagar, Goa and are hence eligible for nil rate  of Customs Duty under Customs Notification No.  11/97 dated 01.03.1997.

For ZUARI AGRO CHEMICALS LTD.               For ZUARI AGRO CHEMICALS LTD.                  Sd/-                                                           Sd/- (Resident Director)                                              (S.K. Chatterjee)                                                         Vice President-Technical"                 There is no dispute regarding other items mentioned in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 15  

the list. Regarding those items, the Department has accepted  that they have been attested by the Sponsoring Ministry.  According to the Department, the only dispute is with regard  to the Captive Power Plant. According to the Department,  Captive Power Plant needs to be segregated from the fertilizer  project on the ground that the fertilizer project can work even  without the Captive Power Plant and that the output from the  fertilizer project can be produced even without the Captive  Power Plant. According to the Department, the power plant is  a separate project by itself. According to the Department, the  power plant is not a component or an integral part of the  fertilizer project. According to the Department, 6 MW Power  Plant consisted of a generating set which operated on diesel.  According to the Department, even if on the technical side a  Captive Power Plant constituted an aid to the working of the  fertilizer project still for the purposes of chargeability one has  to go by the strict interpretation of the exemption notification  no. 11/97 under which the rate of duty is nil for the fertilizer  project whereas it is 20% for the power generation project.  According to the Department, since fertilizer project and power  generation project are two different and independent projects,  the assessee was not entitled to claim nil rate of duty in  respect of 6 MW Captive Power Plant.

       On the other hand, on behalf of the assessee, the case  put up before all the authorities was that, once an Essentiality  Certificate was issued by the Sponsoring Ministry, it was not  open to the Revenue to go behind that certificate. According to  the assessee, an essentiality certificate constituted a proof of  fulfilment of the eligibility conditions by the importer for  obtaining the benefit of exemption notification. According to  the assessee, project imports fell under a specific Heading  98.01. According to the assessee, the import of capital goods  indicated in the list annexed to the essentiality certificate  showed that the sponsoring Ministry cleared the project on the  footing that, in this particular case, looking to the ground  reality in the area in which the plant was located, in which  there was paucity of electricity, 6MW Captive Power Plant was  an essential requirement for expansion of the fertilizer project.  According to the assessee, the essentiality certificate along  with the attested list constituted a proof of the need to expand  the fertilizer project and for that Captive Power Plant was an  essential part. According to the assessee, it was not open to  the Revenue to say that the Captive Power Plant was not an  essential requirement for the expansion of the fertilizer project,  once an essentiality certificate stands issued by the  sponsoring Ministry. In this connection, reliance is placed by  the assessee on the judgment of this court in the case of  Commissioner of Customs (Imports), Mumbai  v.  Tullow  India Operations Ltd. reported in (2005) 13 SCC 789.  Reliance is also placed by the assessee on the judgment of the  Calcutta High Court in the case of Asiatic Oxygen Ltd.   v.   Assistant Collector of Customs reported in 1992 (57) ELT  563.

       We find merit in this civil appeal filed by the assessee for  the following reasons.

       Firstly, on the facts we find that the assessee had given  to the sponsoring Ministry its entire Project Report. In that  report they had indicated that for the expansion of the  fertilizer project they needed an extra item of capital goods,  namely, 6MW Captive Power Plant. In their application, the  assessee had made it clear that the fertilizer project was  dependant on continuous flow of electricity, which could be

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 15  

provided by such Captive Power Plant. Therefore, it was not  open to the Revenue to reject the assessee’s case for nil rate of  duty on the said item, particularly when the certificate says  so. In the judgment of this Court in the case of Tullow India  Operations Ltd. (supra), this Court held that essentiality  certificate must be treated as a proof of fulfilment of the  eligibility conditions by the importer for obtaining the benefit  of the exemption notification. We may add that, the  essentiality certificate is also a proof that an item like Captive  Power Plant in a given case could be treated as a capital goods  for the fertilizer project. It would depend upon the facts of each  case. If a project is to be installed in an area where there is  shortage of electricity supply and if the project needs  continuous flow of electricity and if that project is approved by  the sponsoring Ministry saying that such supply is needed  then the Revenue cannot go behind such certificate and deny  the benefit of exemption from payment of duty or deny nil rate  of duty. To the said effect is the judgment of the Calcutta High  Court in the case of Asiatic Oxygen Ltd. (supra) in which it  was held that the object behind the specific Heading 98.01 in  Customs Tariff Act, 1975 was to promote industrialization  and, therefore, the heading was required to be interpreted  liberally. It was further held that, once an essentiality  certificate was issued by the sponsoring authority, it was  mandatory for the Revenue to register the contract.

       Secondly, before us, it has been vehemently urged that  although the essentiality certificate stood issued by the  sponsoring Ministry, there is non-application of mind by that  Ministry with regard to the list of items appended to the  certificate. According to the Department, the said list has not  been countersigned by the competent authority in the  sponsoring Ministry. We do not find any merit in the said  contention. The list consists of 14 items. The Department has  accepted 13 out of 14 items as capital goods required for the  fertilizer project, therefore, it cannot be said that the  sponsoring Ministry had not applied its mind to the list  appended to the essentiality certificate. This point needs  further clarification. The power plant in the conceptual sense  or in the technical sense is certainly different from the fertilizer  plant. However, when we come to Heading 98.01 of the  Customs Tariff Act, 1975, the assessment is for the Project. As  stated above, Heading 98.01 is the specific entry applicable in  the case of the Project Imports. An item like a power plant  could be in a given case an independent Plant. Generally, it is  a stand-alone equipment. However, when it becomes a part of  the entire Project/System, the same power plant can also  become one of the items of capital goods. The essentiality  certificate given by the sponsoring Ministry has treated  Captive Power Plant, in this case, as "capital goods" along with  13 other items. The assessee has also treated the Captive  Power Plant as one of the capital goods required for the  expansion of the fertilizer project. In the above circumstances,  all the items in the list annexed to the certificate have been  certified and recommended by the sponsoring Ministry as the  entire capital goods required for the substantial expansion of  the fertilizer project. Therefore, in our view, the assessee is  right in its contention that, in this case, 6 MW Captive Power  Plant is one of the items out of 14 items constituting capital  goods required for the substantial expansion of the fertilizer  project, and, therefore, it fell under serial no. 226(i) as goods  required for the fertilizer project entitled to the benefit of nil  rate of duty.

       Before concluding, we may point out that, on behalf of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 15  

the Department, a large number of authorities were cited on  interpretation of entries in the Customs Tariff Act, 1975. It is  not necessary to examine those authorities on interpretation.  Suffice it to state that, Heading 98.01 is a specific entry. It is  not a general entry. It is not a residuary entry. It needs to be  liberally interpreted as it deals with industrialization. It has to  be read in the context of the above Notification No. 11/97.

       In the case of Appraiser, Madras Customs  v.  Tamil  Nadu Newsprint Papers Ltd. reported in 1988 (36) ELT 272 it  has been held that Heading 84.66 (now 98.01) is not a  residuary heading or a general heading relating to any class of  goods. It is the specific entry introduced with a purpose and it  relates to goods imported for initial setting up of a unit or a  substantial expansion of an existing unit. It was held that  when an importer registers a contract under the specific entry  no. 84.66 (now 98.01), all the goods imported by him under  that contract will be subjected to duty only as per that entry  and it will not be open for the Revenue to pick out some of the  goods imported under that contract and impose a different  rate of duty on the footing that they are covered by a different  heading. If the conditions prescribed under Heading 84.66 are  satisfied, the duty shall be imposed on the goods under the  said Heading 84.66 as if the said goods formed the composite  unit. In that case there was another Heading 84.31 which  referred also to ’paper making machinery’. The Department  contended that duty was payable on the said item under  Heading 84.31. It was held by Madras High Court that even if  the rate of duty under Heading 84.31 was different from the  rate of duty under Heading 84.66, still the rate applicable to  the paper making machinery imported for producing papers  under the PIR has to fall under specific Heading 84.66 (now  98.01) and not under Heading 84.31, even if paper making  machinery came under both the headings. This is because  once an item is imported under Project Imports then that  items will fall under the specific entry because that item is  imported as a part of composite unit (see para 10). In our view,  the said judgment of the Madras High Court on interpretation  of Heading 98.01 is squarely applicable to the present case,  particularly on the interpretation of the entries in the Customs  Tariff Act, 1975.

       For the above reasons, we set aside the impugned  judgment of the CEGAT dated 15.11.2001 in appeal no.         C/277/01-Bom and accordingly the assessee’s appeal stands  allowed with no order as to costs.