Exemption from customs duty not available on re-import of goods from FTWZ to DTA – Delhi High Court upholds order of Delhi bench of the CAAR

In brief

Concessional customs duty exemption is available on import of specified goods for oil exploration under the erstwhile Notification No. 50/2017-Cus dated 30 June 2017 (Exemption Notification) to a licensee, sub-licensee, contractor and sub-contractor subject to conditions. subject to conditions. A sub-contractors engaged in supporting the contractor in the oil exploration activity import equipment against an Essentiality Certificate (EC). While the said exemption notification nowhere entailed reexport of equipment, the requirement was mandated as part of the contract.

Given that the equipment imported under the concessional customs duty benefit might be needed for another project under a different EC, the requirement to re-export was a cumbersome compliance and procedural burden. Hence, in 2023, certain sub-contractors engaged in oil and gas exploration and availing the benefit of the Exemption Notification sought a ruling from the Delhi bench of the Customs Authority for Advance Ruling (CAAR) on the possibility of ‘re-exporting’ the equipment to a service provider in a Free Trade and Warehousing Zone (FTWZ) without availing any tax or duty benefit on such movement and re-importing the same, availing exemption from the customs duty benefit under Notification No. 45/2017-Cus dated 30 June 2017 (Re-import Notification).

The CAAR, on examination of the applications on merits in terms of the applicable legal provisions and facts submitted, concluded that exemption is not available under the re-import Notification on such clearances of goods sent earlier to FTWZ from the Domestic Tariff Area (DTA)¹.

Aggrieved by the ruling, the appellants challenged the same in the Delhi High Court, which on examination of the facts, submissions made, law and relevant rulings and judgments, upheld the CAAR ruling on the ground that the same is not a re-import but a fresh import pursuant to a subsequent EC, as the original transaction qua the original EC stands concluded on completion of the project. The Delhi High Court also further held that two separate inconsistent legal characters cannot be attributed to the same movement to secure a separate fiscal benefit. It further held that FTWZ cannot be used to create such a benefit when the Exemption Notification itself provides a mechanism for subsequent eligible deployment² .