CESTAT Mumbai Allows Customs Duty Exemption on Dowtherm Heat Transfer Fluid Under SHIS Scheme

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 26.09.2026

CESTAT Mumbai Allows Customs Duty Exemption on Dowtherm Heat Transfer Fluid Under SHIS Scheme

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai has held that Dowtherm RP Heat Transfer Fluid/Dowtherm A Heat Transfer Fluid, used for the initial charging and continuous operation of a Continuous Polycondensation (CP) Plant for manufacturing polyester products, falls within the definition of “capital goods” and is consequently eligible for Customs duty exemption under Notification No. 104/2009-Customs dated 14 September 2009.

Setting aside the Commissioner’s order, the Tribunal held that the thermic fluids fulfilled the statutory requirements of the Status Holders Incentive Scrip (SHIS) Scheme under the Foreign Trade Policy and that Customs was not justified in denying the exemption merely because the goods were chemicals falling under Chapter 29 or were described as inputs under SION.

Background of the Dispute

• Wellknown Polyesters Limited was engaged in manufacturing Polyester Filament Yarn (PFY), Polyester Oriented Yarn (POY), Fully Drawn Yarn (FDY), Draw Textured Yarn (DTY) and polyester chips at its Daman manufacturing facility.
• For its manufacturing operations, the company had imported a Continuous Polycondensation Plant from Oerlikon Barmag under an EPCG authorisation during April–July 2012. The plant was imported without thermic fluid.
• Subsequently, the company imported 3,01,296 kg of Dowtherm RP Heat Transfer Fluid/Dowtherm A Heat Transfer Fluid, valued at approximately ₹9.86 crore, through Bills of Entry filed in October 2012. Customs duty involved was approximately ₹2.55 crore.
• Instead of paying the duty in cash, Wellknown Polyesters utilised eight SHIS scrips issued by the DGFT under the Status Holders Incentive Scrip Scheme and claimed exemption under Notification No. 104/2009-Customs. The goods were initially cleared by Customs extending the exemption.

DRI Objects to SHIS Benefit

• The Directorate of Revenue Intelligence (DRI), Ahmedabad Zonal Unit subsequently initiated an investigation on the ground that Notification No. 104/2009-Customs permitted duty-free import of capital goods, whereas Dowtherm heat-transfer fluid was, according to the Department, not capital goods.
• DRI also relied upon the Standard Input Output Norms (SION), under which Dowtherm/Therminol and heat-transfer oil were identified as permitted inputs for manufacture of Polyester Partially Oriented Yarn and Polyester Filament Yarn. The Department therefore treated the material as an input rather than capital goods.
• A Show Cause Notice dated 14 May 2013 consequently demanded approximately ₹2.55 crore Customs duty with interest under Section 28(1) of the Customs Act, 1962, besides proposing confiscation under Section 111(o) and penalty under Section 112(a).
• The Commissioner confirmed the duty demand and interest but refrained from confiscating the goods because they were no longer physically available and did not impose the proposed penalty. Wellknown Polyesters challenged that order before CESTAT.

Appellant: Thermic Fluid Was Integral to Continuous Polycondensation Plant

• The appellant argued that although the CP Plant and thermic fluid had been imported separately, both were required to operate together.
• The thermic fluid was charged into the heaters, piping and vessels and thereafter continuously circulated in a closed loop between the heaters and reactors. The polyester polycondensation process required temperatures of approximately 270°C–300°C under high vacuum, making the thermic fluid critical for providing precise high-temperature heat while maintaining low system pressure.
• The appellant relied upon the definition of “capital goods” under the Foreign Trade Policy and Notification No. 104/2009-Customs, arguing that it was broad enough to cover goods required directly or indirectly for manufacture, including items necessary for the initial setting up and functioning of plant and machinery.
• It also relied upon CBEC’s earlier clarification concerning transformer oil, under which oil required for filling/topping up a transformer was considered part of the equipment because the transformer could not function without it.

Revenue: Chemical Falling Under Chapter 29 Cannot Be Capital Goods

• The Department maintained that the imported thermic fluid was a chemical classifiable under Chapter 29 and therefore could not be regarded as plant, machinery, equipment or an accessory.
• The Commissioner’s reasoning was that even though the chemical was indirectly used in manufacturing, its nature did not change into that of plant, machinery, equipment or accessories. The Department also relied upon the fact that SION treated Dowtherm as an input/raw material for polyester production.
• CESTAT was therefore required to decide whether denial of the exemption under Notification No. 104/2009-Customs for the October 2012 imports was legally sustainable.

CESTAT Examines SHIS Scheme and Definition of ‘Capital Goods’

• The Tribunal examined the Foreign Trade Policy 2009–2014 and observed that the objective of the SHIS Scheme was to promote investment in technology upgradation.
• Paragraph 3.17.5 of the FTP permitted Duty Credit Scrips to be used for import of inputs or goods, including capital goods, subject to the stipulated conditions. More importantly, the FTP defined “capital goods” broadly as plant, machinery, equipment or accessories required directly or indirectly for manufacture or production, including specified items such as refractories for initial lining and catalysts for initial charge.
• Notification No. 104/2009-Customs, issued under Section 25(1) of the Customs Act, 1962, similarly exempted capital goods and specified components/spares/parts imported against SHIS Duty Credit Scrips from Customs duties, subject to its conditions.
• CESTAT found the definition of “capital goods” under the Customs notification and the FTP to be substantially identical.

Thermic Fluid Critical to Functioning of CP Plant

• The Tribunal accepted the technical evidence concerning the role played by Dowtherm in the Continuous Polycondensation Plant.
• It observed that the thermic fluid enabled the plant to provide precise high-temperature heat while maintaining low pressure, thereby permitting efficient continuous polycondensation and energy-efficient manufacture of high molecular weight polyester.
• On that basis, CESTAT concluded that the imported goods fulfilled the statutory requirements of the SHIS Scheme.
• A particularly important factual finding arose from the Chartered Engineer’s Certificate. Out of the total 3,01,296 kg of imported thermic fluid, 2,92,920 kg—approximately 97.2%—was used as a one-time/initial charge in the CP Plant’s Electric Thermal Oil Heater Boiler.
• The fluid thereafter enabled continuous high-temperature operation at very low pressure for the polycondensation process.
• The technical diagrams reproduced on pages 13–15 of the order further illustrate the closed-loop recirculation of Dowtherm between the thermic-fluid heater and CP Plant, the stages of polyester manufacture where heat transfer is required, and the Electric Thermal Oil Heater Boiler arrangement.

Capitalisation in Books Also Supported Appellant

• CESTAT additionally noted that the imported thermic fluid had been capitalised in Wellknown Polyesters’ books of account, as certified by its Chartered Accountants on 29 May 2026.
• The Tribunal regarded this financial treatment as further evidence supporting the appellant’s case that the imported goods were treated as capital goods.

Accordingly, the Bench held:

• “the impugned goods are covered under the definition of ‘capital goods’”
• and were therefore eligible for exemption under Notification No. 104/2009-Customs.

CESTAT Relies on Reliance Communications Infrastructure

• The Tribunal found support in Reliance Communications Infrastructure v. Commissioner of Customs, 2009 (240) E.L.T. 461 (Tri.-Bang.).
• In that case, a Gas Suppression System included HFC 227 EA gas. The Tribunal had held that Customs could not dissect an integrated system and treat the gas required for its functioning as a mere consumable when the EPCG licence covered the complete system.
• CESTAT applied the same reasoning to the thermic fluid, observing that where a material is essential to the functioning of the plant, its character cannot be determined merely by isolating it from the system in which it operates.

Transformer Oil Analogy Applied to Dowtherm

• CESTAT also referred to CBEC Circular No. 344/60/97-CX dated 22 October 1997, concerning transformer oil.
• The circular recognised that a transformer cannot function without transformer oil and that the equipment cannot be regarded as complete without the oil filled into it.
• Applying the same analogy, CESTAT held that if the Continuous Polycondensation Plant cannot function without thermic fluid, the fluid has to be treated as part of the plant, notwithstanding the absence of a specific Customs clarification concerning thermic fluid.

Cases Cited by Wellknown Polyesters

The appellant relied upon several judicial authorities in support of its interpretation of capital goods:

S. No.	Case	Citation
1	Reliance Communications Infrastructure v. Commissioner of Customs	2009 (240) E.L.T. 461 (Tri.-Bang.)
2	Commissioner of Central Excise, Coimbatore v. Jawahar Mills	2001 (132) E.L.T. 3 (S.C.)
3	Bharti Airtel Limited v. Commissioner of Central Excise, Pune	2025 (391) E.L.T. 3 (S.C.)
4	Chief Commissioner of Central Goods and Service Tax & Ors. v. Safari Retreats Private Limited & Ors.	2024 SCC OnLine SC 2691
5	Scientific Engineering House (P) Ltd. v. Commissioner of Income Tax, Andhra Pradesh	(1986) 1 SCC 11

• These authorities are expressly recorded in the appellant’s submissions.
• Of these, the final reasoning expressly discusses and applies Reliance Communications Infrastructure.

Final Decision: Wellknown Polyesters Wins Appeal

CESTAT concluded that the Commissioner’s order denying the benefit of Notification No. 104/2009-Customs dated 14 September 2009 by refusing to treat Dowtherm RP/Dowtherm A Heat Transfer Fluid as capital goods “does not stand the scrutiny of law.”

The Tribunal consequently set aside the Order-in-Original dated 7 October 2016 and allowed Wellknown Polyesters’ appeal in its favour.

The ruling is significant for the interpretation of capital goods under export-promotion schemes, particularly where a material may chemically resemble an input or consumable but is technically required as an initial charge and thereafter continuously circulates as an integral part of plant operation.

It also demonstrates that classification of an item as a chemical under Chapter 29, or its description as an “input” under SION for a different regulatory purpose, is not by itself determinative of whether it can qualify as capital goods under the specific language and objective of an exemption notification.

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Source: CESTAT Mumbai

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Ravi Shekhar Jha – Advocate, Bar Council of Delhi