Project Imports under Customs Law– How Burden of Proof Shapes Classification Outcomes

The Supreme Court in Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co., laid down that in cases of exemption or concession, the burden to establish eligibility rests squarely on the assessee/importer. This principle has been applied in Delhi High Court decisions involving concessional schemes under Heading 98.01, such as M/s Sharma International v. Union of India, W.P.(C) 13166/2023, decided on 22 November 2024 (Delhi High Court). In Sharma International, the Court, while dealing with a dispute over concessional assessment, relied on the Supreme Court’s ruling in Zuari Industries Ltd. v. CCE & Customs, to emphasise the role of proper registration and essentiality certification in availing the benefits of the Project Import scheme.

Project Imports under Customs Law- How the Burden of Proof Shapes Classification Outcomes

The Project Import Regulations, 1986 (“PIR”) under Heading 98.01 of the First Schedule to the Customs Tariff Act, 1975, offer a concessional rate of duty for the import of machinery, equipment, and related goods required for the initial setting up or substantial expansion of a unit. While the scheme is beneficial, it also comes with stringent conditions regarding registration, essentiality certification, and classification. When disputes arise, particularly over eligibility for the concessional rate, a recurring question is- who bears the burden of proof?

The Supreme Court in Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co., laid down that in cases of exemption or concession, the burden to establish eligibility rests squarely on the assessee/importer. This principle has been applied in Delhi High Court decisions involving concessional schemes under Heading 98.01, such as M/s Sharma International v. Union of India, W.P.(C) 13166/2023, decided on 22 November 2024 (Delhi High Court). In Sharma International, the Court, while dealing with a dispute over concessional assessment, relied on the Supreme Court’s ruling in Zuari Industries Ltd. v. CCE & Customs, to emphasise the role of proper registration and essentiality certification in availing the benefits of the Project Import scheme.

I. How Customs Law and the Project Import Regulations Operate Together?

The concessional duty scheme for Project Imports is a hybrid construct- it derives its substantive scope from Heading 98.01 of the First Schedule to the Customs Tariff Act, 1975 and its operational mechanics from the PIR. Heading 98.01 reads as-

“98.01 – 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, of a specified-

(i) industrial plant,

(ii) irrigation project,

(iii) power project,

(iv) mining project,

(v) project for the exploration for oil or other minerals, and so on.”

However, this wide gateway is immediately narrowed by the PIR, which impose pre-import conditions–

1.Registration of the Contract with the relevant Customs House; and

2. Essentiality Certification from the designated sponsoring authority confirming the necessity of the goods for the project.

The Supreme Court in Zuari Industries Ltd. v. CCE & Customs, (2007) 8 SCC 641 held that these requirements are not optional formalities; they are integral to the classification itself. The concessional rate is available only when the importer proves compliance with these prerequisites before clearance.

In M/s Sharma International v. Union of India, W.P.(C) 13166/2023 (Delhi HC), the Court applied this principle to reject a concessional claim where the link between the imported goods and the registered project was not substantiated by contemporaneous records. Mere reliance on the general language of Heading 98.01 was insufficient.

Thus, the Tariff heading defines the eligible universe, the PIR dictate the admission process, and both operate in tandem to make procedural compliance a substantive element of the classification. An importer who ignores this interplay risks losing the very benefit the scheme was designed to confer.

II. Importer’s Burden of Proof – Judicial Principles

When claiming a concessional rate of duty under the Project Import scheme, the importer carries the primary evidentiary burden. This flows from the well-settled principle laid down by the Supreme Court in Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co., where a Constitution Bench held that exemptions and concessions must be interpreted strictly, and any ambiguity must be resolved in favour of the Revenue. The claimant must prove, with clarity, that every statutory condition is satisfied.

Applied to Heading 98.01, this means that the importer must demonstrate-

• That the goods fall squarely within the description in the Tariff heading;
• That the goods are directly and indispensably linked to the registered project; and
• That the PIR conditions, registration and essentiality certification, were met before import clearance.

In Zuari Industries Ltd., the Supreme Court emphasised that the importer cannot claim the benefit retroactively by producing documents after the goods have been cleared. The scheme is transactional, not retrospective, compliance must exist at the point of assessment.

The Delhi High Court’s decision in M/s Sharma International illustrates how this burden operates in practice. The importer had registered the project but failed to produce persuasive evidence linking the imported goods to the approved scope. The Court found that broad assertions were inadequate; specific proof was required to establish the nexus between each consignment and the registered project.

This judicial stance sends a clear message- the concessional rate under Heading 98.01 is not a presumption, it is a privilege that must be earned by active and contemporaneous compliance. Importers who approach classification disputes as mere interpretative battles, without building a solid factual record, will find that the benefit slips away not because of legal theory, but because of unproven facts.

III. Practical Takeaways for Importers

The rulings in Dilip Kumar, Zuari Industries, and M/s Sharma International distil into a set of clear operational lessons for any importer seeking to claim concessional assessment under the Project Import scheme.

First, treat documentation as strategy, not compliance afterthought. The Customs Tariff description in Heading 98.01 may appear broad, but in practice, eligibility turns on whether you can prove that each imported item is indispensable to the registered project. Maintain a meticulous record linking every consignment to the approved project scope, supported by invoices, technical specifications, and correspondence with the sponsoring authority.

Second, secure registration and essentiality certification well in advance. Courts have shown zero tolerance for post-import procedural regularisation. The Supreme Court in Zuari Industries was explicit- if the PIR conditions are not fulfilled before clearance, the concessional rate is lost.

Third, anticipate classification scrutiny at the assessment stage. Customs officers are entitled, and, in fact, duty-bound, to verify whether the goods genuinely fit within the ambit of Heading 98.01. A proactive approach means engaging early with the assessing officer, providing a complete dossier of supporting material rather than waiting for a show-cause notice.

Fourth, understand that the burden of proof never shifts. Once you claim the concession, the onus is on you until the very end. If there is any doubt, the courts will resolve it in favour of the Revenue, as per Dilip Kumar.

Finally, treat adverse rulings as preventable, not inevitable. Most Project Import disputes turn not on novel points of law but on factual gaps, missing certificates, vague nexus evidence, or late filings. By addressing these proactively, importers can avoid years of litigation and the financial impact of paying standard customs duty retroactively.

IV. Conclusion

The Project Import scheme under Heading 98.01 offers a valuable fiscal incentive, but it operates within a tightly defined legal and procedural architecture. The Delhi High Court’s decision in M/s Sharma International, read alongside the Supreme Court’s rulings in Dilip Kumar and Zuari Industries, makes it clear that concessional assessment is never a matter of assumption, it must be earned through strict and timely compliance.

The law’s structure is deliberate- the Tariff heading defines the eligible scope, the Project Import Regulations impose gateway conditions, and judicial precedent enforces the principle that the importer alone must prove entitlement. Together, they create a regime where classification disputes are decided as much on the strength of evidence as on the interpretation of legal provisions.

For importers, the lesson is twofold. On one hand, the scheme can significantly reduce project costs and improve cash flow when approached with meticulous planning and contemporaneous record-keeping. On the other, any lapse, however minor, in meeting the PIR conditions or substantiating the link between goods and project can erase the benefit entirely, leaving the importer liable for full customs duty and possible penalties.

The judicial approach also underscores a broader message- concessional schemes are privileges anchored in public policy, not open-ended entitlements. As courts continue to favour strict construction and place the evidentiary onus on claimants, success in classification disputes will increasingly belong to those who integrate compliance into project planning from the outset.

In short, the Project Import scheme remains a powerful tool, but only in the hands of importers who understand that in this arena, the burden of proof is not a hurdle to clear at the end, it is the foundation on which the claim must be built from day one.