Exempted Supplies made to ICB-based Petroleum Project: CESTAT quashes ₹87 Lakh Excise Demand [Read Order]

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed an excise duty demand of ₹87,71,656 against appellant, ruling that subcontractors supplying goods to contractors executing projects awarded through International Competitive Bidding (ICB) are also entitled to exemption.

The demand had been confirmed by the Commissioner of Central Excise & Customs, Visakhapatnam-II, under the proviso to Section 11A of the Central Excise Act, 1944 along with interest and equal penalty, through Order-in-Original dated June 5, 2012.

The appellant, Venkay Engineering Works, engaged in fabrication of iron and steel structures such as cargo baskets, chemical racks, and cutting tanks, had supplied goods to companies like Reliance Industries Ltd (RIL) operating in the Krishna-Godavari (KG) basin. They claimed exemption under Notification No. 6/2006-CE read with Notification No. 21/2002-Cus, submitting Project Authority Certificates issued by RIL stating the goods were used in petroleum operations under licenses obtained through ICB.

However, the department rejected the exemption claim, arguing that the supplies were not “against ICB,” and that RIL was carrying out petroleum operations on its own account post-allotment, and not under a contract directly awarded through ICB for specific goods.

The appellant relied heavily on the precedent set in CST Ltd. v. CCE, Hyderabad and a subsequent Board Circular dated July 10, 2014 which clarified that sub-contractors are also eligible for exemption if the main contractor had secured the project via ICB.

The Tribunal, comprising of Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member), observed that the purchase orders and Project Authority Certificates demonstrated that the supplies were indeed related to ICB-awarded petroleum projects. They also noted a letter from the Director General of Hydrocarbons, under RTI, confirming that blocks in the KG basin were allotted via ICB under the NELP policy.

It was found that the documents adduced by the appellant were sufficient enough to indicate that these materials were intended for use only in connection with the activity for which the work was awarded through ICB route. “In the facts of the case, we find there is no dispute that the appellant, as a sub-contractor, is eligible to supply materials towards a project allotted under ICB,” the Bench stated.

Allowing the appeal, the Tribunal held that the appellant was entitled to the benefit of exemption under Notification No. 6/2006-CE, and therefore, the duty demand and penalty were unsustainable.

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