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Ongc Ltd. v. Commissioner Of Customs, Mumbai .
Factual and Procedural Background
The appellant, a wholly Central-Government owned undertaking engaged in oil and gas exploration, hired M/s Sedco Forex International Drilling Inc. to conduct seismic surveys. 3-D seismic data tapes were imported into India for that purpose. Claiming exemption from customs duty under Serial Nos. 182, 184 and 231 of Notification No. 20/99-Cus. dated 28-2-1999, the appellant needed an “essentiality certificate” (EC) from the Directorate General of Hydrocarbons (DGH) and a valid petroleum exploration licence.
The exploration licence, originally expiring on 14-11-1997, was renewed retrospectively on 18-8-2000. An EC application filed on 5-4-1999 had been returned for want of the renewed licence. Immediately after renewal, the appellant resubmitted its EC request (20-8-2000) and sent repeated reminders. The EC was finally issued on 26-3-2004.
Meanwhile, customs authorities provisionally cleared the tapes but issued a show-cause notice proposing classification under Heading 8524.99 and recovery of duty. The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) decided against the appellant, principally because the EC was not on record. On appeal, the Supreme Court remitted the matter to the Commissioner, directing de-novo consideration in light of the subsequently issued EC, following a similar order in Tullow India Operations Ltd.
By order dated 28-2-2006 the Commissioner rejected the EC, confirmed duty of Rs 49.68 crores, interest and penalties. The present Supreme Court judgment reviews and overturns that order.
Legal Issues Presented
- Whether an essentiality certificate issued after importation—but before final assessment—satisfies the conditions of Notification No. 20/99-Cus. for claiming customs-duty exemption.
- Whether the retrospective renewal of the appellant’s petroleum exploration licence validates the subsequently issued EC.
- Whether an EC issued after the underlying notification had been rescinded lacks legal efficacy.
Arguments of the Parties
Appellant's Arguments
- The EC issued on 26-3-2004 demonstrates fulfilment of all conditions under the exemption notification.
- Because the exploration licence was renewed retrospectively, the appellant was in continuous legal possession of a valid licence; any delay was procedural, not substantive.
- Under the Supreme Court’s earlier judgment (28-10-2005) in Tullow, production of a delayed EC is permissible so long as final assessment is pending.
Revenue/Commissioner's Arguments
- The EC could not be accepted because, on the date of import, no valid application was pending with DGH and the appellant lacked a valid licence.
- The notification granting exemption was rescinded on 1-3-2000; therefore an EC issued in 2004 is void.
- The appellant allegedly concealed material facts and procured a “solicited” EC solely to influence litigation.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commr. of Customs (Imports) v. Tullow India Operations Ltd. (2005) 13 SCC 789 | Liberal interpretation of exemption notifications; delayed EC permissible where final assessment is pending. | Relied upon to hold that the appellant’s delayed EC could be considered and that benefits of the notification should not be denied. |
| D. Nataraja Mudaliar v. State Transport Authority, Madras (1978) 4 SCC 290 | The right to renewal of a licence is a valuable right. | Used to affirm that retrospective renewal preserved the appellant’s licensing status throughout the relevant period. |
| Tata Iron & Steel Co. Ltd. v. State of Jharkhand (2005) 4 SCC 272 | Liberal construction of fiscal exemption notifications. | Cited as part of a consistent judicial approach favouring liberal interpretation in exemption matters. |
| Govt. of India v. Indian Tobacco Assn. (2005) 7 SCC 396 | Liberal interpretation of exemption clauses. | Reinforced the court’s rationale for extending benefit of doubt to the appellant. |
| CCE v. Hira Cement (2006) 2 SCC 439 | Continuation of the liberal-interpretation doctrine. | Referenced to underscore consistency in exemption jurisprudence. |
| P.R. Prabhakar v. CIT, Coimbatore (2006) 6 SCC 86 | Same doctrinal line of liberal construction in tax matters. | Cited as additional authority for the court’s approach. |
Court's Reasoning and Analysis
The Supreme Court held that the Commissioner misdirected himself by concentrating on procedural lapses instead of the substance of compliance mandated by the exemption notification. Key points include:
- The EC, though issued in 2004, was the culmination of an application originally filed in 1999 and repeatedly pursued. The delay was attributable to administrative processes, not to any omission or bad faith by the appellant.
- Retrospective renewal of the exploration licence meant the appellant held a valid licence continuously; hence the prerequisite for an EC was always met in law.
- The Commissioner’s view that an EC issued after rescission of the notification is void ignores the fact that eligibility crystallised on the import date, when the notification was in force. The EC merely evidences that pre-existing eligibility.
- Allegations of concealment and malice were rejected; the record showed the appellant consistently disclosed the status of its applications and acted diligently.
- Consistent with prior precedent, exemption notifications are to be construed liberally; once statutory conditions are substantively fulfilled, procedural delays should not defeat the benefit.
Holding and Implications
The Supreme Court set aside the Commissioner’s order and allowed the appeals.
Immediate Effect: The demand of Rs 49.68 crores in duty and associated interest is nullified, and the appellant is entitled to exemption under Notification No. 20/99-Cus.
Broader Implications: While no new legal principle was formulated, the judgment reinforces the court’s liberal approach toward fiscal exemption notifications and underscores that substantive compliance can be established by documents obtained after importation but before final assessment.
S.B Sinha, J.— The appellant before us is an undertaking wholly owned and controlled by the Central Government. It obtained the services of M/s sedco Forex Int. Drilling Inc. for exploration of oil and gas onshore and offshore. A contract was awarded by it to a company known as M/s sedco Forex Int. Drilling Inc. specialising in finding out the possibility of oil or gas by carrying out seismic surveys. The information gathered by reason of such survey was recorded in 3-D seismic tapes.
2. A question arose as to whether the same would attract the exemptions from payment of customs duty in terms of the entries contained in Sl. Nos. 182, 184 and 231 of the notification dated 28-2-1999.
3. For the aforementioned purpose, indisputably, an essentiality certificate was required to be issued by the Directorate General of Hydrocarbons. Prerequisite for grant of such certificate was also a valid petroleum exploration licence.
4. The licence granted by the Central Government in favour of the appellant in that behalf was initially valid up to 14-11-1997. The appellant applied for renewal thereof on 7-10-1997. An application for grant of essentiality certificate was filed on 5-4-1999. The same was returned to the appellant on 12-4-1999. By an order dated 18-8-2000, the said licence was renewed with retrospective effect from 14-11-1997 by the Central Government. Immediately, thereafter i.e on 20-8-2000, the appellant filed an application for grant of essentiality certificate in continuation of its earlier application dated 5-4-1999. It also sent reminders therefor on 26-3-2001, 13-4-2001, 27-12-2001 and 8-7-2003. The appellant was asked to resubmit the application in a new format which requirement was also complied with by it on 25-3-2004. In the said application also, the appellant categorically stated that the same was in continuation of its earlier application dated 5-4-1999 whereafter the essentiality certificate was granted on 26-3-2004.
5. Admittedly, the said 3-D seismic tapes were treated to be the “goods” within the meaning of the provisions of the Customs Act, 1962. The said goods were cleared provisionally but in view of the fact that the appellant had failed to produce the essentiality certificate, a notice to show cause was issued as to why the said data tapes should not be classified under Customs Tariff Heading 8524.99 and charged to duty on the basis of the amount paid by the appellant to the said sedco.
6. The matter ultimately came up before the Customs, Excise and Service Tax Appellate Tribunal which was heard along with a similar case of Tullow India Operations Ltd. (Tullow). Whereas Tullow could produce the essentiality certificate before the Tribunal, the appellant could not.
7. The matter came up before this Court at the instance of the appellant. It filed an application for urging additional grounds inter alia relying on or on the basis of the said essentiality certificate granted in its favour on 26-3-2004. This Court, opining that grant of essentiality certificate should be treated to be a proof of the fact that the appellants had fulfilled the conditions enabling them to obtain the benefits under the aforementioned exemption notification, remitted the matter to the Commissioner for consideration thereof afresh having regard to the similar directions issued by the Tribunal in Tullow.
8. Pursuant to or in furtherance of the said directions, the Commissioner has passed an order dated 28-2-2006, holding:
“I hold that the EC dated 26-3-2004 cannot be accepted and accordingly exemption under Sl. No. 182 of Notification No. 20/99-Cus. dated 28-2-1999 (since rescinded), is not available on the data tapes imported by M/s ongc vide Bills of Entry No. 9888 dated 22-6-1999 and No. 12443 dated 28-5-1999.
I, therefore, confirm the duty demand of Rs 49,68,70,160 on M/s ongc. Since an amount of Rs 25,00,00,000 had already been paid by M/s ongc towards the principal amount on 14-9-2004, the balance amount of Rs 24,68,70,160 is now payable by them.
M/s ongc are also liable to pay interest under Section 28-AB of the Customs Act, 1962 which comes to Rs 25.06 crores as on 31-3-2006 after taking into account interest amounts already paid/adjusted as indicated in the annexure to this order.”
9. The learned Commissioner in forming the aforementioned opinion proceeded on the basis that the Directorate General of Hydrocarbons cannot be faulted for not disposing of the appellant's application for grant of the essentiality certificate within a reasonable time as the application therefor had been returned. It further proceeded on the basis that the appellant is guilty of concealment of certain facts viz. return of the said application in the absence of a valid petroleum exploration licence granted in its favour by the Central Government.
10. The learned Commissioner further attributed malice on the part of the Directorate General of Hydrocarbons stating that such essentiality certificate was granted in order to facilitate the appellant's case before this Court, observing:
“In the above background, the EC dated 26-3-2004 cannot be accepted because,
(i) ongc were not eligible for the EC on the date of import of the data tapes.
(ii) No application for the EC was pending with DGHC on the date of import of the data tapes (in fact, the application had been rejected).
(iii) The EC dated 26-3-2004 was a solicited document, solicited for the sole purpose of winning the case before the Supreme Court.
(iv) They had not raised this issue before cestat which is the final authority for going into facts of the case.
(v) ongc have not approached the Hon'ble Apex Court with clean hands by not disclosing the full facts.
Another important point to note is that when the imports took place in the year 1999 the duty exemption could have been availed by M/s ongc on the strength of an EC as per the conditions of Notification No. 20/99-Cus. dated 28-2-1999 (Sl. No. 182). However, on the date the present EC was issued i.e 26-3-2004, the notification was no longer in existence and had already been rescinded on 1-3-2000 by Notification No. 22/2000-Cus. dated 1-3-2000. A certificate issued under a rescinded notification can have no legal sanctity. When the relevant notification itself does not exist how can a certificate issued under the authority of the said notification have any legal validity? Action taken under a rescinded notification can be saved under a saving clause of appropriate legislation; but fresh action cannot be initiated or revived under a rescinded notification. (In Tullow India, which was also a subject-matter before the Apex Court in CA No. 5900 of 2004 (2005) 13 SCC 789 the certificate was produced by them within the validity period of the customs notification, though whether the certificate produced by Tullow India was proper/genuine/valid/applicable or not is a subject-matter of separate proceedings.)”
11. It further opined that another reason why the appellant disentitled itself from grant of the benefit of the said exemption notification was that production of the essentiality certificate was necessary at the time of importation and not thereafter.
12. The appellant is a public sector undertaking. The exemption notification inter alia was issued in its favour by the Central Government. It may be true that on the date when the goods were provisionally cleared the appellant did not have the essentiality certificate with it, but this Court in its judgment dated 28-10-2005 (2005) 13 SCC 789 categorically held that in a case of this nature, unless a final order of assessment is passed, production of a delayed essentiality certificate may not come in the way of the importers obtaining the benefit of the exemption notifications.
13. The Commissioner in passing the impugned order failed to notice the findings of this Court. It posed unto itself wrong questions. It did not address itself the issues required to be gone into.
14. It may be true that grant of the essentiality certificate was itself dependent upon the question as to whether the appellant was possessed of a valid oil exploration licence or not. It is, however, equally true that the right to renewal of a licence is a valuable right. (See D. Nataraja Mudaliar v. State Transport Authority (1978) 4 SCC 290, AIR 1979 SC 114.) The appellant applied for grant of renewal of the said licence before its expiry. The said renewal has been granted with retrospective effect. In law, thus, the appellant had been holding a valid licence continuously. The factual events as noticed hereinbefore clearly show that the appellant's application for grant of essentiality certificate by the Directorate General of Hydrocarbons was not entertained in the absence of renewal of the licence. The application was returned only for that purpose. The appellant filed its application for grant of essentiality certificate within two days from the date of grant of the licence with retrospective effect and then thereafter sent several reminders. The conduct of the appellant must, therefore, be judged from the factual matrix obtaining therein. We, therefore, are unable to agree with the opinion of the learned Commissioner that the appellant made any misrepresentation before this Court or that the Directorate General of Hydrocarbons had shown any favour to it. Once it is held that the Ministry of Petroleum had renewed the licence and the Directorate General of Hydrocarbons had issued the essentiality certificate, the conditions precedent for obtaining exemption in terms of the exemption notification stood fully satisfied.
15. This Court, times without number, has construed such exemption notifications in a liberal manner. [See Commr. of Customs (Imports) v. Tullow India Operations Ltd. (2005) 13 SCC 789, Tata Iron & Steel Co. Ltd. v. State of Jharkhand (2005) 4 SCC 272, Govt. of India v. Indian Tobacco Assn. (2005) 7 SCC 396, CCE v. Hira Cement (2006) 2 SCC 439, JT (2006) 2 SC 369 and P.R Prabhakar v. CIT (2006) 6 SCC 86, (2006) 7 Scale 191.] If, thus, the appellant was entitled to the same, it should not be denied the benefits thereof. It is directed accordingly.
16. We, therefore, do not agree with the findings of the learned Commissioner.
17. In view of our findings aforementioned, we do not think it necessary to advert to the other contentions raised by the appellant.
18. For the reasons aforementioned, the impugned order cannot be sustained which is set aside accordingly. The appeals are allowed. No costs.
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