Transfer from SEZ/FTWZ to DTA cannot be termed as ‘re-import’: CAAR

In re Baker Hughes Oilfield Services India Pvt. Ltd. (CAAR Delhi)

Rule 48 of the SEZ Rules, 2006,  inter-alia states that where goods procured from DTA by a Unit are supplied back to the DTA, as it is or without substantial processing, such goods shall be treated as re-imported goods and shall be subject to such procedure and conditions as applicable in the case of normal re-import of goods from outside India.

In light of the above, it can be convincingly stated that under the SEZ Act, 2005 read with SEZ Rules, 2006, words ‘import’ and ‘procure’ have been assigned different meanings. It is also important to note that activity of bringing goods from a Unit or Developer in SEZ to DTA is not covered under the definition of the term, ‘import ‘ under the SEZ Act, 2005, therefore such transfer from SEZ to DTA cannot be termed as ‘re-import’. Moreover, as per dictionary meaning of the word, ‘procure ‘ is ‘to obtain something’ but when the goods are being warehoused in FTWZ, these are not procured by a Unit or Developer, therefore when transfer of goods from DTA to FTWZ or FTWZ to DTA is neither covered under the term ‘procure’ nor ‘import’, therefore such transfer/supply of goods cannot be treated as ‘reimport’ for application of procedures and conditions as applicable in the case of normal re-import of goods from outside India.

FULL TEXT OF THE ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, DELHI

Ruling

M/s Baker Hughes Oilfield Services India Pvt. Ltd., Khasra No. 1138/683 & 1050/683, MPT Road, Meghwalon Ka Bas, Barmer, Rajasthan-344035, having IEC No. 0312059132 and PAN-AAECP3118P (applicant, in short) has filed an application dated 23.12.2022, received in this office on 25.01.2023, seeking advance ruling under section 28-H of the Customs Act, 1962, before the Customs Authority for Advance Rulings, New Delhi (CAAR, New Delhi in short). The application was accordingly registered under Serial No. 02/2023 dated 25.01.2023.

2. Re-import of goods/equipment from a Special Economic Zone (SEZ)/Free Trade Warehousing Zone (FTWZ) to Domestic Tariff Area (DTA) is the proposed activity as stated in the application and the applicant, vide the aforesaid application has sought ruling on the question of applicability of serial number 5 of the Notification No. 45/2017-Cus. dated 30.06.2017 for such re-import of goods/equipment from a SEZ/FTWZ to DTA.

3. In the application for advance ruling, the applicant has inter-alia stated that, they will be providing mining services or support services to mining to oil & gas exploration and production companies across India such as Oil & Natural Gas Corporation and Cairn India; in pursuance to providing the mining services or support services to mining, they will be importing equipment(s) required for providing such services; the equipment being used for oil and gas exploration projects will be imported from outside India at a concessional rate of customs duty under SI. No. 404 of the Notification No. 50/ 2017 – Customs dated 30.06.2017 on the basis of the essentiality certificate from the respective customer; the said certificate is issued by the customer with a stipulated condition in the contract to export the imported equipment post completion of contract; accordingly, the applicant upon completion of the said contract, would have to export the said equipment; however, where they foresee that the same equipment will be required for other contracts in India, the applicant will export the equipment to a Logistics Service Provider (LSP) located in a SEZ/ FTWZ; it is pertinent to note that the applicant will not avail any kind of duty incentives or benefits when this equipment is being sent from DTA to SEZ/FTWZ; subsequently, whenever the equipment would be required for a new contract, the applicant would re-import the equipment into DTA under SI No. 404 of the Notification 50/2017 upon payment of concessional customs duty on the basis of essentiality certificate issued by the new customer; the Ministry of Finance, vide serial no. 5 of the Notification No. 45/2017-Cus. dated 30.06.2017 has exempted basic customs duty, IGST and cess upon re-import of goods from outside into India, subject to the conditions that the same equipment has been reimported which was earlier exported, the importer is not a 100% EOU or unit of FTWZ, the equipment is not imported from any licensed warehouse under Customs and the equipment does not fall in the fourth schedule of the Central Excise Act 1944; on the basis of exemption under the Notification No. 45/2017-Cus. dated 30.06.2017, the applicant wishes to claim exemption from Basic Customs Duty, IGST and compensation cess; in view of the above, ruling on the following question has been sought:

“Whether the applicant is eligible to claim exemption from payment of customs duty, IGST and compensation cess on reimport of equipment from SEZ/FTWZ into DTA as per serial no. 5 of the Notification No. 45/2017-Cus. dated 30.06.2017, considering the fact the equipment is the same that were brought from the DTA earlier and admitted into the SEZ/FTWZ?

4. The applicant has further stated that, the intent of the Notification No. 45/2017-Cus. dated 30.06.2017is that goods sent from India earlier and subsequently re-imported as such should not suffer any Customs duty; in case the exporter had availed any incentive at the time of sending this equipment out of India, the same may need to be surrendered on reimport of the said equipment; however, the purpose is not to impose any import duty on this equipment; therefore, in light of the above discussions, it can be inferred that exemption from duties, taxes and cess should be equally applicable to re-import of equipment from SEZ/ FTWZ to a DTA as envisaged under serial no. 5 of Notification No. 45/2017-Cus. dated 30.06.2017The applicant has also stated that under various legal provisions, concept of duty exemption on re-import i.e. clearance from SEZ to DTA has been contemplated under the SEZ law, as well viz. rule 48 of Special Economic Zones Rules, 2006 dealing with procedure for sale in domestic tariff area, rule 49 of Special Economic Zones Rules, 2006 dealing with domestic tariff area removals, and stated that it is their understanding that once equipment have been brought in FTWZ without availing any drawback or exports incentives, are subsequently re-imported in the same form into the DTA, even under the SEZ laws the said transaction has to be treated as re-imports and accordingly they are not liable for discharging any customs duties or IGST in view of serial no. 5 of the Notification No. 45/2017-Cus. dated 30.06.2017.; the understanding of the applicant also finds support from Circular No. 21/2019 dated 24 July 2019 issued by the Central Board of Indirect Taxes & Customs which clarifies that even a movement of goods from India to outside India without pursuant to a transaction of supply and without availing any export incentives, shall be entitled for exemption under residuary entry at Serial No. 5 of the Notification No. 45/2017-Cus. dated 30.06.2017on subsequent re-import of such goods into India in view of the fact that the activity of sending / taking specified goods out of India is neither a supply nor a zero rated supply; in the present case when the equipment will be sent from DTA to FTWZ with the LSP which is not a transaction of supply and no drawback or any other exports incentive is being availed against the same, hence, a further clearance of these equipment in the same form into the DTA should be considered as re-import of equipment from FTWZ to DTA and must be entitled for the exemption from customs duties, IGST and compensation cess as provided in the Notification No. 45/2017-Cus. dated 30.06.2017

5. Comments in the matter have been received from the concerned Commissioner of Customs, Nhava Sheva-General, JNCH, wherein, it is inter-alia stated that on perusal of the condition of Notification No. 45/2017-Cus. dated 30.06.2017., it is apparent that the Notification had clearly denied the duty exemption to the goods exported from 100% EOU or a unit in FTWZ; therefore the answer for the question asked by the applicant in present application for advance ruling, is in negative; the applicant has sought support for their claim relying on the clarification in Circular No. 21/2019 dated 24.07.2019 to explain the intent of the government to allow the goods to be cleared under Notification No. 45/2017-Cus. dated 30.06.2017.; the circular has been issued in a different context and the applicant has tried to read it out of context; it is apparent that the clarification vide the said circular has been issued w.r.t. goods which were exported earlier for exhibition purpose or on consignment basis however the applicant does not intend to export the goods either for exhibition or on consignment basis instead they intend to export imported goods to LSP in FTWZ for warehousing purpose until start of the next contract; the cited circular has to be read along with the definition of’Supply’ as per the provisions of GST laws; the applicant has not brought the facts relating to the nature of transactions with the contractors/units in FTWZ; thus any reliance on the Circular cannot be considered; moreover, holding of goods by FTWZ units, temporarily cannot be equated with the compliance of condition of export for the purpose of re-export in terms of Customs notification and then re-import to DTA.

6. The applicant has also given additional submissions vide their letter dated 18.03.2023 stating inter-alia that the concerned Commissioner has given comments on the application for advance ruling however the applicant intend to highlight that the subject activity is not an ongoing activity but a proposed activity i.e., at present the applicant has not sent goods back from FTWZ to DTA; on a reading of rule 48(3), it is evidently clear that goods which are supplied from DTA and are admitted to SEZ if are subsequently supplied back to DTA without substantial processing or as such, such transaction of supply back of goods to DTA is considered as a re-import; it is pertinent that neither the Notification No. 45/2017-Cus. dated 30.06.2017 nor does the rule 48(3) contemplates the nature of transaction under which the goods should be procured in SEZ except the stipulation that there should not be any export entitlement availed when these goods were admitted into the SEZ; the objections issued by the Department have completely misconstrued the facts of the application vis-a-vis the second proviso to Notification No. 45/2017-Cus. dated 30.06.2017 The second proviso to Notification No. 45/2017-Cus. dated 30.06.2017 reads as follows:

“Provided further that nothing contained in this notification shall apply to re-imported goods –

(a) which had been exported by a hundred percent, export-oriented undertaking or a unit in a Free Trade Zone as defined under section 3 of the Central Excise Act, 1944 (1 of 1944) second proviso excludes a situation wherein the goods were ‘exported by’ a hundred percent export-oriented undertaking or a unit in a Free Trade Zone. The rationale behind the second proviso is that the goods that have enjoyed the benefits of lower or no duty implications by virtue of being exported from the SEZ must not avail yet another benefit under Notification No. 45/2017-Cus. dated 30.06.2017 when they are re-imported. The applicant submits that the restriction contained under the second proviso does not apply to a situation where the applicant never exported goods from an export-oriented undertaking or a Free Trade Zone. In fact, the applicant merely exported goods to the FTWZ and it never exported goods from an FTWZ. Therefore, the Department has erred in misconstruing the facts of the Application vis-a-vis the second proviso to Notification No. 45/2017-Cus. dated 30.06.2017 The applicant has also made following point-wise submissions:

(i) In the present case, the applicant is not a 100% EOU or a FTWZ unit and the goods are not exported by a 100% EOU or a unit in the Free Trade Zone hence the proviso will not be applicable in the instant case.

(ii) The said Circular was issued in the context of goods sent for exhibition or on consignment basis. However, the purpose of the applicant in highlighting the Circular is that the Circular clarifies that a movement of goods from India to outside India, not being pursuant to a transaction of supply, shall be entitled for exemption under residual entry at SI. No. 5 of Notification 45/2017-Cus. on subsequent re-import.

(iii) It is reiterated that in terms of Section 30 of the SEZ Act, the goods removed from SEZ to DTA shall be chargeable to customs duty as leviable on such goods when imported. As already highlighted, by virtue of Section 30 read with Section 51 of the SEZ Act (which gives precedence to the SEZ Act over other legislations in case of inconsistencies in the law), such goods should be subject to customs duty as per specific provisions inserted only for payment of customs duty; LSP’s are practically operating in FTWZ’s; in common parlance, the LSPs are the Warehousing units in FTWZ who hold goods on behalf of the foreign or the Indian clients as indicated by the Specified Officer in the reply; the statement of the Specified Officer in the reply that holding goods by FTWZ units temporarily cannot be equated with the compliance of condition of export of SEZ for purpose of Re-export in terms of customs Notification and then to re-export to DTA is completely baseless; as highlighted earlier, there is no restriction placed by  Notification No. 45/2017-Cus. dated 30.06.2017as to the purpose for which goods are exported or re-imported; further, the specified officer has not been able to deny the fact that what is proposed to be re-imported from FTWZ to DTA under Notification No. 45/2017-Cus. dated 30.06.2017are the same goods that were admitted into the FTWZ earlier without any export benefits claimed by the applicant when these goods were sent from DTA to FTWZ; the Specified officer has acceded to the fact that the applicant is entitled to remove the goods from FTWZ to DTA without payment of duty in accordance with Rule 48 and 49 of the SEZ rules. In view of the aforesaid submissions, the applicant reiterates that they are rightly eligible to claim exemption vide Serial No. 5 of Notification No. 45/2017-Cus. dated 30.06.2017

7. Personal hearing, in the matter was held on 20.03.2023. The Authorized representatives (AR) appearing on behalf of the applicant gave additional submissions and reiterated the submissions already made in the application for advance rulings. They referred to the provisions under the SEZ Act and mentioned that the activity of taking goods from SEZ to DTA will be treated as export. The AR also discussed the comments of the concerned Commissionerate and gave their submissions on the said comments of the concerned Commissionerate. They categorically stated that activity of movement from FTWZ to DTA has not happened in the past and as such the subject activity is not an ongoing activity but a proposed activity. Referring to Notification 50/2017-Cus., it was stated that the notification does not stipulate any condition for reexport of goods; the goods are only re-exported to meet with a condition of contract with the customer; the proviso of Notification No. 45/2017-Cus. dated 30.06.2017 is not applicable in the instant application for advance ruling. The other submissions made during the personal hearing are reiteration of their submissions made vide letter dated 18.03.2023 of the applicant.

8. Further submissions vide letter dated 10.04.2023 have also been given by the applicants, clarifying points arising out of discussion during the personal hearing. Point-wise explanation given by the applicant is as below:

(i) Indian Government awards contract for exploration and production of oil and gas to these oil companies, these oil companies are being referred as ‘Contractor(s)’. To execute the aforesaid contracts i.e., to explore and produce oil and gas, oil companies’ or ‘Contractors’ further hires various companies like the applicant and awards them the contracts based upon their skill set, technical capabilities, and experience, these companies are also known as ‘sub-contractors’. Government has spearheaded number of policy reforms and initiatives for increasing production and exploitation of domestic petroleum resources. Accordingly, Notification No. 50/2017-Customs, dated 30th June 2017 wherein Government provided concessional duty benefit for import of goods in relation to HELP, NELP, petroleum exploration licenses, etc. in line with pre-GST regime whereby such benefit was also provided to the importers. Given the above, reference is drawn to Notification No. 50/ 2017 – Customs dated 30.06.2017 wherein benefit of concessional duty upon import of goods/equipment under S.No. 404 is given only to ‘specified person’. The phrase ‘specified person’ has been defined in explanation to the S. No. 404 and it includes licensee, lessee, Contractor, or Sub-contractor. All these terms are also further defined in the Notification No. 50/ 2017 – Customs dated 30.06.2017On the basis of foregoing, the term, ‘Sub-contractor’ is used and is denoted for the companies (such as applicant) engaged by such Contractors/ Licensee/ Lessee in relation to assistance for conducting petroleum operations. Since the applicant enters a contract with the ‘Contractor’ for petroleum operations, the applicant becomes a specified person i.e., sub-contractor for the purposes of Notification No. 50/ 2017 – Customs dated 30.06.2017 Further, Notification No. 50/ 2017 – Customs dated 30.06.2017 imposes conditions, accordingly, where the Sub-contractor imports goods under Notification No. 50/ 2017 – Customs dated 30.06.2017 benefit of concessional rate is available based on certificate from the Contractor certifying the usage of goods. Thus, the applicant being a sub-contractor obtains a certificate from the respective Contractor which is referred to as ‘Essentiality Certificate’ or ‘EC’. The applicant has submitted that none of the condition to Notification No. 50/ 2017 – Customs dated 30.06.2017 or EC mandates the applicant to re-export the goods. The goods are only re-exported to meet with a condition of contract with the Contractor.

(ii) The applicant on clearance of re-imported goods from FTWZ to DTA, wishes to claim IGST exemption under Notification 45/2017-Cus. for which application for advance ruling has been filed. Since, the goods/equipment are assets and would be required for execution of multiple contracts for petroleum operations, the applicant would re-import the goods under a fresh EC from respective Contractor/ customer. In this re-import, the applicant will claim benefit of BCD under S.No. 404 of Notification 50/2017-Cus. and Sl.no 5 of Notification No. 45/2017-Cus. dated 30.06.2017 for IGST. Since, the applicant has already paid IGST at the rate of 12% at the time of original import. Denial of benefit of Notification No. 45/2017-Cus. dated 30.06.2017 would lead to the payment of IGST again i.e. double taxation on the same goods/equipment. In case, the applicant re-imports the goods/equipment upon payment of IGST at 12% every time on every re-import, the entire purpose of providing concessional rate on imports for petroleum & gas operations would get defeated. This would be against the intent of the Government. In addition to above, the goods/equipment would always be under the control & responsibility of the applicant under an operating lease model and will be used for more than one contract. Hence, payment of duties again and again on the same goods/equipment at the time of reimport (i.e., FTWZ to DTA) will cause un-due hardships to the applicant. In view of the aforesaid submissions, the applicant reiterates that they are rightly eligible to claim exemption vide Serial No. 5 of Notification No. 45/2017-Cus. dated 30.06.2017 The applicant has requested to take the above submissions on record.

9. Finding that the application is valid in terms of the provisions of the Customs Act and the CAAR Regulations, 2021, having gone through submissions of the applicant and having heard the applicant, I proceed to examine the question on merits.

10.1 I take note of the comments of the concerned Commissioner on the application for advance ruling and additional submissions of the applicant. I find that in order to avail exemption under the Notification No. 45/2017-Cus. dated 30.06.2017 the importer will have to inter-alia establish, whether the goods are re-imported, whether the re-imported goods have been exported by a hundred percent export-oriented undertaking or a unit in a Free Trade Zone (Special Economic Zone).

10.2 I note from the submissions of the applicant that the condition of re-export of the equipment after their import availing exemption under Notification No. 50/ 2017 – Customs dated 30.06.2017. is a condition built in the contract of the importer with their Contractor and the applicants have themselves admitted that it is not a condition prescribed under Notification No. 50/ 2017 – Customs dated 30.06.2017However, the applicant has attempted to make a case starting with export of such equipment(s) on which exemption vide Notification No. 50/ 2017 – Customs dated 30.06.2017 has been availed. The Notification No. 50/ 2017 – Customs dated 30.06.2017 provides for compliance with conditions prescribed under the notification. Non-fulfilment of such condition(s) will make the importer liable to pay differential duty along with interest, fine, penalty etc., as the case may be. It appears that the applicant has introduced concept of ‘export’ in relation to such imported equipment(s) in order to link it with Notification No. 45/2017-Cus. dated 30.06.2017 which is not warranted but un-necessary as the same appears to have been done to confuse the issue for claiming undue exemption from payment of duties/taxes. Further, there is no doubt that for availment of exemption vide Notification No. 45/2017-Cus. dated 30.06.2017, goods have to be first exported and such exemption is not applicable to goods which have been warehoused, as in the current case.

10.3 As per section 7 of the Special Economic Zones Act, 2005, any goods or services exported out of, or imported into, or procured from the Domestic Tariff Area by,-(i) a Unit in a Special Economic Zone; or (ii) a Developer, shall, subject to such terms, conditions and limitations, as may be prescribed, be exempt from payment of taxes, duties or cess under all enactments specified in the First Schedule.

The use of words, ‘imported’, ‘exported’ and ‘procured’, in the above provisions will lead to inference that different meanings have been assigned to these words under the Special Economic Zones Act, 2005 and these words are not to be used inter-changeably. Further, as per the instant application, goods shall be first imported in a Domestic Tariff Area which after usage by a Sub-contractor gets transferred/warehoused to/in FTWZ by the importer of the goods i.e the applicant. As such this activity is covered under the term, ‘export’ as defined under the Special Economic Zones Act, 2005 as under Subsection (m) of section 2 of the Special Economic Zones Act, 2005, meaning of ‘export’ inter-alia includes supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer. However, when these goods are transferred from FTWZ to DTA or DTA to FTWZ, such transfer of goods is not ‘import’ in terms of the Subsection (o) of section 2 of the Special Economic Zones Act, 2005. Thus, this activity of transfer of goods from FTWZ to DTA cannot be termed as import/re-import in terms of the Special Economic Zones Act or Customs Act, 1962, thus not covered under section 7 of the SEZ Act, 2005 and hence no exemption from duties/taxes is admissible.

10.4 I also note that as per Sub-section (n) of Section 2 of the Special Economic Zones Act, 2005, “Free Trade and Warehousing Zone ” means a Special Economic Zone wherein mainly trading and warehousing and other activities related thereto are carried on.

In order to bring more clarity on the issues involved, reference is drawn to Sub-rule (5) or Rule 18 of the Special Economic Zone Rules, 2006 which inter-alia provides that the Units in Free Trade Free Trade and Warehousing Zones or units in Free Trade and Warehousing one set up in other SEZ, shall be allowed to hold the goods on account of the foreign supplier for dispatches as per the owner’s instructions and shall be allowed for trading with or without labelling, packing or repacking without any processing.

In light of Sub-rule (5) of rule 18 of Special Economic Zones Rules, 2006, it is noticed that Units in FTWZ, hold the goods for dispatches (or Export) as per owner’s instruction. Therefore, taking into consideration the facts/submissions vide the said application for advance rulings, it is observed that Units in FTWZ would be exporting to DTA, the goods, on which the applicant intend to avail exemption under Notification No. 45/2017-Cus. dated 30.06.2017 However, re-imported goods, which have been exported by Units in FTWZ to DTA, makes the Notification No. 45/2017-Cus. dated 30.06.2017, inapplicable.

10.5 The applicant while quoting CBIC Circular No. 21/2019-Customs has attempted to add another point in their support for claim of exemption vide Notification No. 45/2017-Cus. dated 30.06.2017However, I note that the concerned Commissioner has rightly mentioned that the Circular has been issued in a different context and the applicant has tried to read it out of context; it is apparent that the clarification vide the said circular has been issued w.r.t. goods which were exported earlier for exhibition purpose or on consignment basis however the applicant does not intend to export the goods either for exhibition or on consignment basis. Moreover, I note that para 5 of the Circular states that the clarification shall apply to all pending matters involving similarly placed exporters and importers, as the case may be. ‘Exporter and Importers’, referred in the instant application cannot be said to be similarly placed as the ‘exporters and importers’ referred to in the Circular.

10.6 I also note that applicant has drawn attention to rule 48 of the SEZ Rules, 2006, however this rule inter-alia states that where goods procured from DTA by a Unit are supplied back to the DTA, as it is or without substantial processing, such goods shall be treated as re-imported goods and shall be subject to such procedure and conditions as applicable in the case of normal re-import of goods from outside India.

In light of the above, it can be convincingly stated that under the SEZ Act, 2005 read with SEZ Rules, 2006, words ‘import’ and ‘procure’ have been assigned different meanings. It is also important to note that activity of bringing goods from a Unit or Developer in SEZ to DTA is not covered under the definition of the term, ‘import ‘ under the SEZ Act, 2005, therefore such transfer from SEZ to DTA cannot be termed as ‘re-import’. Moreover, as per dictionary meaning of the word, ‘procure ‘ is ‘to obtain something’ but when the goods are being warehoused in FTWZ, these are not procured by a Unit or Developer, therefore when transfer of goods from DTA to FTWZ or FTWZ to DTA is neither covered under the term ‘procure’ nor ‘import’, therefore such transfer/supply of goods cannot be treated as ‘reimport’ for application of procedures and conditions as applicable in the case of normal re-import of goods from outside India.

11. In light of the foregoing, I am of the view that Notification No. 45/2017-Cus. dated 30.06.2017 is not applicable in the instant case. The facts of the application amply indicate that goods have been exported by units in FTWZ, which again makes the said Notification, inapplicable in view of the second proviso of the Notification. Moreover, there is no condition for ‘re-export’ of goods under the Notification 50/2017-Cus., however a deeming fiction has been created by bringing in ‘re-export’ which appears to have been done to deviate from the issue and the word ‘export/re-export’ is being un-necessarily equated with warehousing of goods.

12. I rule accordingly.