An appellate tribunal on Thursday ruled that Dabhol Power Company does not have to pay most of the Rs 350 crore (Rs 3,500 million) duty levied on it by the Customs department.
The judgment comes as a shot in the arm for the financial institutions, which are trying to sell the Dabhol plant as the new buyer will no longer have to face the Rs 350 crore bill, which included Customs duties and fines.
The order was passed by Customs Excise & Service Tax Appellate Tribunal (Cestat) President K K Usha and technical member C N B Nair against the order of the Commissioner of Customs at Pune, and the Commissioner of Customs (Appeals) in Pune.
The order also strikes down another important part of the commissioner's order, that all the plant and equipment imported by DPC for its LNG plant could be confiscated under Section 11(m) of the Customs Act, 1962.
At the heart of the dispute is the liquefied natural gas plant that Dabhol imported for its power plant.
The company argued that the LNG plant was part of the power plant and that both its power purchase agreement as well as the FIPB approval made this clear.
The Customs Commissioner, however, dismissed this argument and said the LNG plant was therefore not entitled to the concessional import duty levied on project imports.
The commissioner also held that part of the $100 million offshore services contract signed by Dabhol should be added to the value of the equipment imported for the LNG facility, and an import duty be levied on this.
Both the Cestat judges and the lawyers for Dabhol and the tax authorities flew to the Dabhol site to inspect the terminal and see how the LNG terminal was linked to the power plant.
This is the first time that Cestat judges have visited a site for an inspection.
Dabhol was asked to pay import duty of Rs 245.6 crore (Rs 2,456 million) on goods cleared under 319 bills of entry, and Rs 29.8 crore (Rs 298 million) on another batch of imports. In addition, a Rs 1.3 crore (Rs 13 million) penalty was levied for misdeclaration and another Rs 45 crore (Rs 450 million) was levied as a penalty.
In another related order passed by the Commissioner (Appeals), another Rs 33.3 crore (Rs 333 million) import duty was levied on the company's import of machinery and equipment for a Single Point Mooring (SPM) for transporting fuel from ships to the project site. In this case too, it was argued that the equipment was not an integral part of the power plant.
The Cestat on Wednesday ruled that "we are inclined to take the view that the LNG facility is part of the integrated power project and therefore, various items of machinery and equipment imported for the LNG facility are entitled to a concessional rate of Customs duty under Tariff Item 9801.00 as project import."
As for the services, Cestat went through the different items, and felt that some services were not related to the production of the goods imported, and so could not be included in their assessable value.
As a result, while the Commissioner took $100 million as the value of the services which had to be added to the value of the plant and machinery imports, the Cestat cut this down to $36 million.
Since the Cestat has ruled that the LNG terminal was a project import, the duty to be paid on this $36 million of services will be on that applicable for project import. The Cestat ruled that the SPM was to be treated as a project import and also struck down the order that Dabhol had to pay any penalties.