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Oilfield Companies Cannot Claim , Rules on FTWZ Goods
In a significant ruling on customs law, the dismissed four appeals filed by oilfield service providers — including and — holding that the return of equipment from a Free Trade Warehousing Zone (FTWZ) to the Domestic Tariff Area (DTA) under a fresh contract constitutes a , not a . The division bench of Justice Anil Kshetarpal and Justice Shail Jain thus denied the benefit of customs under .
A Tax-Saving Strategy That Didn't Work
The appeals arose from advance rulings by the , which had rejected the applicants' claim for on of equipment. The companies had proposed a commercial arrangement where specialized equipment, imported at for specific petroleum operations, would be moved to an FTWZ upon completion of a contract for safekeeping. Once a new contract was secured and a fresh issued, the same equipment would be brought back into DTA. The applicants contended that this return leg qualified as a "" eligible for tax under the (S. No. 5) of .
Legal Arguments: or Fresh Taxation?
The appellants, represented by senior advocates and , argued that the FTWZ movement constituted an export under the , and thus the subsequent clearance was a . They relied on and , which treat SEZ/FTWZ as territory outside the customs area. They also invoked Circular 21/2019 to support their claim.
The Revenue, through SSC , countered that the original import under was a closed transaction tied to a specific contract and EC. Transferring goods to FTWZ did not create the required for a . Moreover, the second proviso to Notification 45 excludes goods exported by a unit in FTWZ, making the inapplicable.
Court's Analysis: Why FTWZ Movement Doesn't Create a
The court conducted a detailed analysis of the interplay between Notifications 45/2017 and 50/2017, focusing on of the latter, which already provides a mechanism for transferring equipment between eligible operations without resorting to FTWZ circuits. The bench noted that the concessional import was conditional and intrinsically linked to the original contractual deployment.
Crucially, the court observed that the arrangement proposed by the appellants lacked the essential required for a . The first transaction ended with the completion of the original contract and movement to FTWZ; the second transaction began only when a new domestic requirement arose. The two were connected merely by the identity of the equipment — not by any .
The bench further highlighted the incompatibility of claiming both notifications simultaneously:
"The character of the transaction must precede and govern the fiscal consequence; it cannot be moulded separately to suit each
claimed."
Key Observations from the Bench
The judgment contains pivotal observations on the legal character of :
"A presupposes a sufficient between the export and the return. The present arrangement contains no such . The first transaction is brought to an end by completion of the original contractual deployment and the export to FTWZ; while the second transaction begins only when a new domestic requirement arises."
"The two transactions are connected only by the identity of the equipment; they are not, in law, so connected as to make the subsequent movement a return leg of the earlier transaction."
The court also rejected the reliance on Rule 48(3) of the SEZ Rules, noting that the FTWZ unit merely holds the equipment in custody for the owner — it does not "procure" it in a substantive sense.
Final Verdict: , Not
Dismissing all four appeals, the held that the proposed movement of equipment from FTWZ into DTA under a subsequent Essentiality Certificate constitutes a , not a . Accordingly, the benefit of under was unavailable. The ruling reinforces that the SEZ/FTWZ cannot be used to manufacture an that the customs notifications do not expressly provide. The court also disposed of pending applications.
