The Hindu Business Line : Every complex control system has data processing

Have you always considered that the taxman isn't computer-savvy? If yes, perish that thought. Because here is a recent Tribunal case to prove how his byte predilection can go very far: ABB Industries vs Commissioner of Central Excise.

The story begins with a purchase order that Hindustan Petroleum Corporation Ltd (HPCL), Gummalladoddi, placed with ABB, New Delhi. The order was "for design, supply, erection and commissioning of the complete Terminal Automation System (TAS) for Vijayawada and Rajahmundry Terminals".

From the text of the Tribunal's order, one learns that ABB, a Norwegian company, was awarded a `turnkey contract' for erection and installation, design and commissioning of TAS for HPCL's Visakha-Vijayawada Pipeline Project.

What does TAS do? Its general functions include "receipt of petroleum products through pipeline, storage in tank farm, loading to distribution carriers, sealing of carriers, gases control/ stock/ truck loading area and management of reporting of the data, and so on." TAS ensures that the product loading takes place "in a secure, orderly, timely and well-documented manner."

For the TAS-avid, www.ucos.com has case studies, such as of Pemex which automated eight terminals to better manage terminal operations, including metering, reporting, inventory, spill avoidance, fire safety, and so forth. "Eight truck loading bays, two LPG loading bays, two sea-going marine jetties, five barge jetties, and 77 storage tanks serving 50 carriers and 1,000 drivers," reads the `scale' of BP Amsterdam's TAS project that CSI supplied. The www.sawantsin.com site speaks of TAS projects such as `complete application development including integration with SAP' for Reliance Refinery, and `total project ownership from concept to commissioning' for Bharat Petroleum Corporation Ltd.

On www.abb.com, you can read about TAS for Royal Vopak, embedding the terminal-management automation and control (T-MAC) solution. "T-MAC handles product receipt, storage and dispatch and integrates with business systems. It is specifically designed for managing bulk plants or oil, gas and chemical product distribution terminals in the most efficient way, keeping terminal operating costs to a minimum," explained the company in a January 2005 press release.

How did HPCL go about the TAS project? It imported items manufactured by ABB in Norway, the US, Israel and the Netherlands; HPCL also procured certain items in India. "Considerable engineering skill is required for assembly of the system. The whole system is computerised," noted the Tribunal.

Looks like the taxman was foxed by the computers. Because the tussle in the case on hand was whether the entire work was a turnkey project or data processing machine. "The Commissioner of Central Excise held that the Terminal Automation System' is excisable and classifiable under Heading 84.71 of the Central Excise Tariff. Hence he demanded duty of Rs 1,12,75,052 under proviso to Section 11A(1) of the Central Excise Act, 1944. Equal penalty was imposed under Section 11AC. Interest was demanded under Section 11AB. Further he ordered confiscation of the TAS under Rule 173Q of Central Excise Rules, 1944. But he gave an opportunity to HPCL to redeem the same on payment of a fine of Rs 10 lakh. A penalty of Rs 5 lakh was imposed on HPCL under Rule 209A of the Central Excise Rules, 1944," informs the Tribunal's order.

The IT edge

Oil industry uses IT (information technology) in its processes. For instance, those familiar with oil industry know how pumping stations are controlled through Programmable Logic Controllers (PLCs), and how pipeline operations can be monitored by a Supervisory Control and Data Acquisition (SCADA) system.

SCADA can help ensure that all sectionalising valves and station limit valves at any location along the pipeline can be closed or opened during emergency. "A single command from the control room can make all the pumps and valves shut down in logical sequence," is a quote of M. V. R. Krishnaswamy, Chief Manager of the Vizag-Vijayawada pipeline, cited in a media report sometime ago.

For ABB, it was K. S. Ravishankar, who argued the case, before S. L. Peeran and T. K. Jayaraman, Tribunal Members. Ganesh Havanur appeared on behalf of the Revenue. He filed `some expert opinion from one Dr E. V. Prasad, Professor of Department of Computer Science and Engineering,' to support the Department's stand.

ABB explained "the storage and delivery of petroleum products by the system, entry and exit of transporting trucks for loading and access to the terminals, loading operations and security control." With photographs of the project, ABB pointed out the extent of civil work involved in the erection of TAS. It was custom-built, embedded to earth, and could not sold in the market as such, said ABB. A computer system would not have pipelines and would not be erected or fabricated, explained the company.

To assist ABB's stand, there was a circular from CBEC (Central Board of Excise and Customs). It stated that turnkey projects such as steel plants, cement plants, power plants, and so on involving supply of large number of components, machinery, equipment, pipes and tubes, and so forth for their assembly/ installation/ erection/ integration/ interconnectivity on foundation/civil structure at site, would not be considered as excisable goods for imposition of Central Excise duty, though the components, would be dutiable in the normal course.

What did the Tribunal say? "It is very evident that without causing much damage, the entire system cannot be shifted to any other place," it observed. "In fact, it is very clear that the system is tailor made and cannot be used elsewhere as such. It is also seen that the various individual components are duty paid."

Just because computers were used in TAS, one can't come to the conclusion that it is a data processing machine, ruled the Tribunal. "In every complex control system data processing will be there. But it does not mean that a control system simply processes and does nothing else." The verdict, therefore, was that the entire TAS is a `turnkey project' and immovable property.

Tailpiece

"Can there be a sinless disinvestment?"

"Yes, divestment!"

http://Detaxification.blogspot.com

D. Murali

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