If only tax disputes had the pace of turnkey projects
September, 09th 2006
Hindustan Petroleum Corporation, Oil and Natural Gas Corporation, Godavari Fertilisers and Petrochemicals, Petronet LNG and Essar Oil. These are listed first as `Current Major Assignments' of Toyo Engineering India Ltd (TEIL) on www.teil.com, in a page titled `projects.' Indian Farmers Fertilisers Cooperative Ltd does not figure on the page, but finds mention in a recent apex court verdict in the case Commissioner of Customs, Mumbai vs Toyo Engineering India Limited.
More than two decades ago, IFFCO entered into a contract with TEIL's parent company, Toyo Engineering Corporation, Japan, `for designing, engineering, fabricating and commissioning an ammonia storage package unit and a co-generation plant.' The parent, in turn, entered into an agreement with Toyo in India `to carry out all the works, services, erection and commissioning of the project on turnkey basis.'
Thereafter, in March 1986, TEIL filed an application `with the Contract Registration Cell for grant of the benefit under the Project Import Scheme read with Notification No. 72/85-Cus., dated March 17, 1985 in respect of goods sought to be imported.' Toyo, then imported `various special construction equipment, available at their overseas project at Kuwait, and filed eleven Bills of entry in March, 1986 for the clearance of goods.'
The imported goods included `truck cranes, excavator, shovel loader, truck, forklift truck, power generators, diesel welder, welding rectifier, containers tools and tackles.' These were cleared, but `on payment of duty under protest.' Why so? Because the Assistant Collector had rejected Toyo's request for registration under the Project Import Regulation.
His reasoning was that `even after execution and completion of the work, these goods would remain the property of the respondent and the ownership of the imported goods would not pass on to the Project Authority.' Accordingly, he held that as the goods could be used for other work elsewhere after the completion of the present project, the imported goods would not qualify for classification under Heading 98.01 of the Customs Tariff Act.
Chapter 98 of the Act is on `Project imports; laboratory chemicals; passengers' baggage, personal importations by air or post; ship stores.' And 98.01 is about `all items of machinery including prime movers, instruments, apparatus and appliances, control gear and transmission equipment, auxiliary equipment (including those required for research and development purposes, testing and quality control), as well as all components (whether finished or not) or raw materials for the manufacture of the aforesaid items and their components, required for the initial setting up of a unit, or the substantial expansion of an existing unit.'
In this long snatch, the phrase `auxiliary equipment' was to be the focus of the apex court. The units covered by 98.01 may be of `a specified industrial plant, irrigation project, power project, mining project, project for the exploration for oil or other minerals, and such other projects as the Central Government may, having regard to the economic development of the country notify in the Official Gazette in this behalf.'
Well, how did the story of Toyo's plight before the Department progress after the denial in the hands of the Assistant Collector? The company filed an appeal before the Appellate Authority, and met again with dismissal thus: "That as per Heading 98.01 of the Tariff Act the items of machinery or component parts should go into the initial setting up of the unit, and should not merely be used as an aid for the setting up of the unit or its substantial expansion." As Toyo could utilise the machinery elsewhere in the setting up of other plants, the impugned goods could not be classified under Heading 98.01 of the Tariff Act, said the Authority.
Toyo then approached the Tribunal for remedy. There, the decision went in its favour. "The Tribunal held that the grounds on which both the lower authorities have denied the facility of project import to the respondent were not sustainable in law." The Tribunal said that Toyo was eligible for the benefit asked for. It was the turn of the Department to be aggrieved; it moved the apex court.
What is `auxiliary'?
Justices Ashok Bhan and Markandey Katju of the Supreme Court heard the arguments and observed that for the purpose of Heading 98.01 industrial plant could include fertiliser plant. All `auxiliary equipment' required for the initial setting up of the unit could be imported under the Project Import Scheme, they said.
The word `auxiliary' then came under their focus. They cited `Words and Phrases of Excise and Customs' by S.B. Sarkar to explain that auxiliary meant `giving additional help; supplemental or subsidiary; an item not directly a part of a specific component or system but required for its functional operation.' Other definitions of `auxiliary' that find mention in the text of the judgment dated August 31 are: `aiding; attendant on' (Black's Law Dictionary); `a person or thing that helps; aid; synonym: accessory' (World Book Dictionary); and `giving support; serving as an aid; helpful' (Webster's Encyclopaedic Unabridged Dictionary of the English Language).
"What is required under heading 98.01 Tariff Act is that the machinery imported should be required `for the initial setting up of a unit, or the substantial expansion of an existing unit.' This heading specifically mentions and includes `auxiliary equipment'," stated the court. In the absence of any definition of `auxiliary equipment' in the Tariff Act, what can be of help are dictionary meanings, pointed out the judges.
"Any equipment which aids or helps in the setting up of an industrial plant would fall and be covered under heading 98.01 of the Tariff Act. The mere possibility of its being used subsequently for other project would not debar the respondent from availing the facility of project import," they said, ruling in favour of the company.
"If the contention of the Revenue is accepted, then resultant effect, as put by the Tribunal would be: `No equipment can be imported for projects like Konkan Railway Project, road development projects of the National Highway Authority of India, etc. specified under Heading 98.01 of CTA'."
That's how the court captured the likely scenario of going by the Department's logic.
Toyo should be happy that it has won justice after a long wait. How one wished that tax disputes could be resolved as fast as executing turnkey projects. A rhetorical wish?
"I heard that the growth rate of service tax collection from chartered accountants was negative!"
"Means, they have been providing disservice?"