M/S. LANCO KONDAPALLI POWER LTD. Vs. COMMISSIONER OF CENTRAL EXCISE, SERVICE TAX AND CUSTOMS-VISAKHAPATNAM

JUDGEMENT

(1.) APPELLANT is engaged in the business of generation, transmission and distribution of electricity within the State of Andhra Pradesh. On 24.7.1996, Andhra Pradesh State Electricity Board awarded a project to the appellant for setting up a 355 MW Combined Cycle Power Plant at Kondapalli, Krishna Dist., Andhra Pradesh. The appellant invited international bids to award a turn key engineering procurement and construction contract for setting up the Power Project. The contract was awarded to Korea Heavy Industries Ltd. (KHIL). On 3.11.1997, a Co -ordination Agreement was entered between KHIL, SAEAN Engineering Co. Ltd. (SAE), Hanjung DCM Co. Ltd. (HDCM), INKOR Engineering Pvt. Ltd. (INKOR) and the appellant. The Co -ordination Agreement provided that the appellant would enter into negotiations with HDCM for supply of equipment under Offshore Equipment Supply Contract (OESC) and with SAE for Offshore Engineering Technical Assistance Contract (OETAC). Further, the appellant also entered into negotiations with INKOR for Onshore Equipment Supply and with KHIL for Onshore Civil Contract (OCC). Negotiations culminated into OESC, OETAC, OESC and OCC with companies as proposed in the Co -ordination Agreement on 01.2.1998. We are concerned with only two agreements namely OESC and OETAC which are the subject matter of dispute between the department and the appellant. Subsequently, both HDCM and SAE were taken over by M/s. Doosan by virtue of Novation Agreement in November 1998. As a result, both OESC and OETAC were executed by M/s. Doosan. In terms of OESC dated 1.2.1998, 12 equipments were to be sourced and supplied by M/s. Doosan to the appellant for its Power Project for consideration of US $103 Millions. Since the equipment to be imported were for Power Project classifiable under Chapter Heading 98.01, the appellant applied on 11.2.1999 for Registration for imports under the Project Import Regulations, 1986. While making application, the appellant had declared that there is no foreign collaboration and Rule 9 of the Customs Valuation Rules, 1988 was inapplicable in respect of the equipments being imported. The application was accepted and imports were allowed under the Project Import Regulation Act, 1986.

(2.) PROCEEDINGS were initiated by Revenue by issuance of show -cause notice on 19.6.2003 requiring the appellant to show -cause as to why an amount of Rs. 48, 11, 68,010/ - under Section 28 of the Customs Act, 1962 along with interest thereon should not be recovered from them; imported equipment/goods should not be confiscated and penalty under Section 114A of the Customs Act, 1962 should not be imposed. The matter travelled up to the Tribunal on two occasions and this is the 3rd round of litigation. In the impugned order which is the 3rd order passed by the Commissioner of Customs, a differential duty of Rs. 25,46,07,043/ - has been demanded and penalty equal to this amount has been imposed under Section 114A of the Customs Act, 1962. Further, goods have been confiscated but allowed to be redeemed on payment of fine of Rs. 10 crores. The Commissioner has also ordered appropriation of 4 Bank Guarantees for an amount aggregating to Rs. 7.42 crores and cash security of Rs. 1,01,64,432/ - against the dues payable by the appellant.

(3.) IT is the case of the Revenue that appellant indulged in miss -declaration of value of plant and machinery imported under Project Import Regulations Act, 1986 and value of certain costs or services under Rule 9(1)(b)(iv) of the Customs Valuation Rules, 1988. According to the Revenue, while registering the imports under Project Import Regulation Act, the appellant did not disclose the fact that there was OETAC with SAE that was subsequently taken over by M/s. Doosan (KHIL). It was submitted that the work covered under both contracts was executed by KHIL. The value of OESC was US $ 103 millions and OETAC was US $ 49 millions. It was in May 1999, the department called for information about cost and service actually paid by them in relation to the import. There was no response to the query. Thereafter, according to learned Special Counsel, the department conducted a detailed investigation in February 2002 and the appellant in their letter dated 29.3.2002 disclosed the existence of OETAC but submitted that OETAC was not related to OESC and application and performance of both contracts were mutually exclusive.