Thermic Fluid Used For Initial Filling Of Manufacturing Plant Qualifies As 'Capital Goods': CESTAT Mumbai

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai has held that thermic fluid used to initially charge and operate a Continuous Polycondensation (CP) plant qualifies as “capital goods” for customs duty exemption.

“In view of the above discussion and analysis of the statutory provisions under FTP and the notification dated 14.09.2009 regarding the scope and coverage of 'capital goods', and the nature of thermic fluids viz., 'Dowtherm RP Heat Transfer Fluid' / 'Dowtherm A Heat Transfer Fluid', we are of the considered view that the impugned goods are covered under the definition of 'capital goods' and thus are eligible for availing exemption under the notification No. 104/2009-Customs dated 14.09.2009,” a Bench comprising Judicial Member S.K. Mohanty and Technical Member M.M. Parthiban ruled.

The dispute concerned Dowtherm RP and Dowtherm A heat transfer fluids imported by Wellknown Polyesters Limited for its CP plant. The company used Status Holders Incentive Scrips (SHIS) to claim customs duty exemption on the imports.

The customs department denied the benefit, treating the imported fluid as a chemical rather than “capital goods”. It consequently confirmed a customs duty demand of about ₹2.55 crore with interest.

The issue was whether the thermic fluid fell within the definition of “capital goods” under the Foreign Trade Policy and Notification No. 104/2009-Customs. The definition covers plant, machinery, equipment or accessories required directly or indirectly for manufacturing or production.

It also specifically includes items such as catalysts for initial charge and refractories for initial lining.

Wellknown Polyesters argued that the thermic fluid was essential to the functioning of the CP plant. It was charged into the plant's heaters, piping, and vessels and then continuously circulated in a closed loop to provide the high-temperature heat required for the polycondensation process.

The tribunal noted that 2,92,920 kg, or 97.2% of the 3,01,296 kg imported, was used for one-time or initial charging of the CP plant. The fluid enabled the plant to maintain high temperatures at very low pressure during the manufacturing process.

The tribunal also drew an analogy with transformer oil. Referring to a 1997 CBEC circular, it observed that a transformer cannot function without transformer oil.

Applying the same reasoning, the tribunal held that if the CP plant could not function without thermic fluid, the fluid had to be treated as part of the plant.

It consequently held that the thermic fluid fell within the definition of capital goods and was eligible for the customs exemption. The tribunal set aside the Commissioner's order confirming the duty demand and allowed Wellknown Polyesters' appeal.

For Wellknown Polyesters Limited: Advocate Vipin Kumar Jain ;

For Revenue/Customs Department. Deepak Sharma, Authorised Representative