Goods Cleared From FTWZ Under A Fresh Contract Constitute “Fresh Import”: Delhi High Court Denies NN-45 Exemption To Oilfield Service Companies
The Bench noted that SEZ statutory fictions cannot be used to chain dual tax concessions, and held that new project contracts break transactional continuity for re-import exemptions.
Justice Anil Kshetarpal, Justice Shail Jain, Delhi High Court
The Delhi High Court has held that oilfield service companies cannot route specialized equipment through Free Trade Warehousing Zones (FTWZs) to claim tax-free "re-import" benefits under Notification No. 45/2017-Customs when deploying the machinery for new domestic petroleum contracts. The Court noted that equipment cleared from an FTWZ into the Domestic Tariff Area (DTA) under a fresh Essentiality Certificate (EC) constitutes a fresh import, exigible to applicable Basic Customs Duty and Integrated Goods and Services Tax, rather than a re-import eligible for exemption.
The Bench held that the statutory fictions deeming Special Economic Zones to be outside India's customs territory serve only the specific purposes for which they were enacted, and cannot be extended to allow the same physical movement to simultaneously be treated as an "import" for concessional clearance under one notification and a "re-import" for exemption under another. It further held that the commencement of a new project and the issuance of a fresh EC severs the transactional continuity between the original export to the FTWZ and its subsequent return, precluding the return leg from being characterised as a re-import.
A division bench of Justice Anil Kshetarpal and Justice Shail Jain observed, “…this Court has reached the conclusion that the proposed movement of equipment from FTWZ into DTA pursuant to the subsequent EC constitutes a fresh import and not a re-import under S. No.5 of Notification No.45 Cus. Further, the original transaction, founded upon original EC and the corresponding contractual deployment, stood concluded upon completion thereof, and any subsequent EC, as and when issued, will give rise to a distinct transaction, notwithstanding the identity of the equipment”.
Senior Advocate Tarun Gulati appeared for the appellants and Harpreet Singh, Senior Standing Counsel appeared for the respondent.
The judgment came in a batch of four appeals filed by prominent oilfield service providers, including Baker Hughes Oilfield Services India Pvt. Ltd., Baker Hughes Singapore Pte, BJ Services Company Middle East Ltd., and Halliburton Offshore Services Inc. The appellants challenged orders passed by the Customs Authority for Advance Rulings (CAAR), New Delhi.
The companies routinely import specialized equipment into India at concessional duty rates (NIL Basic Customs Duty and 12% IGST) under Notification No. 50/2017-Cus against Essentiality Certificates issued by primary operators like ONGC or Cairn India. Upon the completion of a project, the contract conditions mandate exporting the equipment out of India.
To minimize logistical costs while waiting for fresh domestic contracts, the companies proposed a modus operandi: instead of shipping equipment overseas, they sent it to an FTWZ/SEZ for temporary storage without claiming export drawbacks. Once a new project was secured and a fresh EC was issued, they sought to clear the same equipment back into the DTA while simultaneously claiming:
-Concessional rates under Notification 50/2017-Cus for petroleum operations.
-Complete re-import tax exemption under Serial No. 5 of Notification 45/2017-Cus.
Dismissing the appeals, the High Court rejected the argument that the SEZ Act's legal fiction, treating SEZs/FTWZs as foreign territory, automatically converts every return movement into a statutory "re-import".
The bench highlighted several critical legal ratios:
-Lack of Transactional Continuity: The Court noted that while the physical equipment remained identical, the legal continuum was broken. The initial import transaction concluded upon completion of the original contract and movement to the FTWZ. The subsequent entry into the DTA was an independent transaction triggered by a completely new contract and EC.
“A re-import exemption presupposes a sufficient continuity between the export and the return. The present arrangement contains no such continuity. 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 bench observed.
-No Inconsistent Dual-Claims: The Court held that an importer cannot assign two contradictory legal identities to a single physical movement. A taxpayer cannot treat an entry into the DTA as a "fresh import" to claim concessions under Notification 50/2017 and simultaneously call it a "re-import" to claim exemptions under Notification 45/2017.
“…The character of the transaction must precede and govern the fiscal consequence; it cannot be moulded separately to suit each exemption claimed”, the Court said.
Express Mechanism Exists Under Condition 48(c): The Court noted that Notification 50/2017 already contains specific provisions (Condition 48) governing the transfer of imported equipment from one eligible contractor/subcontractor to another. Importers cannot bypass this statutory mechanism by creating a circuitous warehousing route through FTWZs to extract an unlegislated tax benefit.
Cause Title: Baker Hughes Oilfield Services India Pvt. Ltd. & Ors. v. Customs Authority for Advance Rulings & Anr. (Neutral Citation: 2026:DHC:6828-DB)
Appearances:
Appellants: Senior Advocate Tarun Gulati, Tushar Joshi, Daliya Singh, Advocates.
Respondents: Harpreet Singh, Senior Standing Counsel