DGH Cannot Impose Re-Export Condition Beyond Exemption Notification: CESTAT [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that the Director General of Hydro Carbons (DGH) cannot impose a condition of re-export which is not prescribed under the exemption notification.

Dolphin Drilling Ltd., the appellant, is engaged in the business of drilling oil as a contractor for ONGC. The appellant imported goods required for petroleum operations and claimed the benefit of Exemption Notification No. 21/2002-Cus.

The department issued a show cause notice alleging that the appellant violated the conditions of the exemption notification on the ground that the goods were not re-exported within the time stipulated in the certificate issued by the DGH. The Commissioner confirmed the demand of duty along with interest and penalty. Aggrieved by the order, the appellant filed an appeal before the CESTAT.

The appellant’s counsel argued that the exemption notification did not contain any condition requiring re-export of the goods. They further argued that the appellant had cleared the goods to a Special Economic Zone (SEZ) unit, which would qualify as export under the law. Reliance was placed on decisions of the Tribunal including B.J. Services Company Middle East Ltd. and Transocean Offshore International Ventures.

The revenue counsel argued that the appellant had violated the condition mentioned in the DGH certificate which required re-export within a specified period. They also argued that clearance to an SEZ unit would not amount to export for the purpose of fulfilling the condition.

The two-member bench comprising Justice Dilip Gupta (President) and P. Anjani Kumar (Technical Member) agreed with the appellant’s submissions. The tribunal observed that Condition No. 29 of the exemption notification only required production of specified documents and did not mandate re-export of the goods.

The tribunal further observed that the role of the DGH was limited to certifying that the goods were required for petroleum operations and imported under a valid licence or lease. The tribunal explained that the DGH could not impose additional conditions beyond what was prescribed in the exemption notification.

The tribunal also observed that earlier decisions had held that supply of goods to an SEZ unit amounts to export under the SEZ Act, 2005. The tribunal pointed out that the Foreign Trade Policy also permitted import of such goods without any condition of re-export.

The tribunal explained that reliance placed by the department on the decision in Shri Shakti LPG Ltd. was misplaced as that case dealt with warehoused goods under Section 69 of the Customs Act which was not applicable in the present case. In view of these findings, the tribunal set aside the impugned order and allowed the appeal.

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