Sub-Contractor Cannot Be Denied Customs Exemption For Non-Mention In Main Agreement: CESTAT Bangalore

The Bangalore Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) on 24 March held that exemption under Notification No. 12/2012-Cus cannot be denied to a sub-contractor merely because their name does not appear in the main concession agreement, where its role is otherwise established on record.

A Bench comprising Judicial Member Dr. D.M. Misra and Technical Member Mr. Pullela Nageswara Rao observed that the condition of being a “named sub-contractor” stands satisfied if the appointment is evident from agreements, communications, and certification by the National Highways Authority of India (NHAI). The Tribunal noted:

“In the result, it can be safely inferred that the appellant-1 are eligible to the benefit of Sl.No.368 of the exemption Notification No.12/2012-Cus. dated 17.03.2012…”

The case arose from imports of toll collection and traffic control equipment made during 2012–13 by Indra Sistemas India Pvt. Ltd., which claimed exemption under Sl. No. 368 of Notification No. 12/2012-Cus. The Revenue contended that the exemption was wrongly availed, alleging the appellant was not named as a sub-contractor in the concession agreement and had violated the five-year non-disposal condition.

The adjudicating authority confirmed duty demand, ordered confiscation under Section 111(o) of the Customs Act, and imposed penalties.

Before the Tribunal, the appellants submitted that they were duly appointed as sub-contractors for Toll Management System (TMS) works, that NHAI was aware of the appointment and had issued certificates, and that the imported goods were used exclusively for highway projects.

The Tribunal noted that the concession agreements permitted appointment of sub-contractors and that such appointments were communicated to NHAI. Certification by NHAI acknowledged the appellant's role and facilitated import of goods.

Rejecting the Revenue's objection, the Tribunal held that non-mention of the sub-contractor's name in the main agreement cannot justify denial of exemption when the factual record establishes the sub-contractual relationship.

On the alleged violation of the five-year condition, the Tribunal held that transfer of goods to the concessionaire after project completion cannot be treated as “disposal” in contravention of the notification, noting that such an interpretation would be impractical and contrary to the nature of infrastructure contracts.

The Tribunal also observed that the goods were used for the intended purpose and that the bonds executed at import had been discharged by the Department, indicating compliance with the notification.

Accordingly, the Tribunal set aside the duty demand, confiscation, and penalties, and allowed the appeals.

Appearance for the Appellant: Mr. Ravi Raghavan with Ms. Purvi Asati and Ms. Ashwini Nag, Mr. Rajat with Ms. Shohini, Advocates

Appearance for the Respondent: Mr. M. Sreekanth, Assistant Commissioner (AR)