International Competitive Bidding - Sub-contractors too eligible for exemption - Another Problem persists

By Vijay Kumar

CBEC had in a recent budget document clarified that exemption is also available to sub-contractors for manufacture and supply of goods for or on behalf of the main contractor (who has won the bid for the project through ICB) for execution of the said project, subject to compliance of conditions specified, if any. (Please see DDT 2396)

But there is a related problem:

The department is denying the exemption on two grounds - 1) The sub-contractor did not participate in ICB and 2) the sub-contractor or Indian main contractor has not fulfilled some of the conditions prescribed at Sl.No. 41, 43 (in case petroleum exploration contracts) and 93 (in case of supplies to Mega Power projects) of the Customs notification. The clarification given only settles the issue relating to the eligibility of sub-contractors in availing the exemption for supplies to mega power projects/petroleum exploration projects. The other issue in the litigation is still open.

The Notification No. 12/12-CE (Currently in force) at Sl.No. 336 exempts goods falling under any chapter if supplied against International Competitive Bidding subject to fulfilment of conditions prescribed at 41.

The condition 41 reads as under

Customs Notification No. 12/2012 dated 17.03.2012 at Sl.No. 356 to 359 provide exemption to goods imported in connection with petrol exploration/petroleum operations and at Sl.No 507 exempts goods supplied to Mega power projects as project imports, subject to fulfilment of conditions prescribed at 41,43 and 93 of the Customs Notifications.

Some of the conditions relate to declaration/certification to be submitted with AC/DC before clearance of goods imported as project imports for supplies to petroleum operations/mega power projects. The contention of the department is that since the exemption under Customs is not absolute, but subject to fulfilment of certain conditions specified, even the domestic suppliers availing exemption under Sl.No 336 of Notification No. 12/12-CE are required to fulfil those conditions, as the exemption is linked to exemption provided under Customs Notification.

The assesses availing the said exemption on the other hand argue that since the condition prescribed under Customs Notification at 41, 43 and 93 are in connection with imported goods, they need not fulfill those conditions as no imports are involved.

Tribunal in 2014-TIOL-211-CESTAT-MUM accepted the contention of the appellants with regard to non-requirement of conditions attached to customs notification and allowed the appeals. And as usual the department has not accepted the Tribunal decisions and is pursuing the matter on appeal to higher forums and the litigation continues even though the exemption is in existence for more than a decade.

If the Government is really serious about ending the litigation, it has to go a little further and clarify that the conditions prescribed under Customs notification is not required to be fulfilled by domestic suppliers availing exemption at Sl.No. 336 of Notification No. 12/12-CE. The other alternative is de-link both the notifications by prescribing suitable conditions that may be required for domestic suppliers. Another alternative is that the Government can explore the possibility of putting all the details/permissions/certificates required in connection with the exemption in a website, so that the field formation can allow clearance of goods on verification of details available in the website,

It is hoped that the senior officers at the field, who have been undergoing training at world famous business schools under MACP at the expense of tax payers' money, would apply the knowledge (?) they obtained in training and take a bold decision in dropping further proceedings in all SCNs issued in this regard and not to take litigation any further. At least the Board should expand its clarification to include this issue.