Heading 9801, the Project Imports Regulations 1986, the Registration Trap, Construction Equipment and the EPCG Interface

This article is Part 3 of a four-part series on EPC contracts in India.

• • Part 1: Entity Structure and Mobilisation

• Part 2: Tax Architecture

• Part 3: Customs and the Project Imports Scheme (this article)

• Part 4: Commercial Risk

In brief

The Project Imports Scheme assesses all goods imported for a qualifying project at a single concessional rate under Heading 9801 of the Customs Tariff Act 1975, governed by the Project Imports Regulations 1986. The concession is lost for any goods cleared before the contract is registered with the Customs House, which is the single most consequential and most commonly missed requirement in the scheme. Construction equipment qualifies as auxiliary equipment and is routinely under-claimed. Solar projects have been excluded since 2022. The scheme carries no export obligation and cannot be stacked with EPCG.

This is Part 3 of a four-part analysis of EPC contracts in India. Part 1 covered entity structure and mobilisation and Part 2 the tax architecture. This Part covers customs and the Project Imports Scheme. Part 4 covers commercial risk: liquidated damages, performance security and change in law.

Topics You Can Jump To:

Section III — Customs and the Project Imports Scheme

What is the Project Imports Scheme, and why does it matter for EPC? 

What is the registration trap in the Project Imports Scheme? 

Does construction equipment qualify under Heading 9801? 

How does Project Imports interact with EPCG and Advance Authorisation? 

Section IV — Commercial Risk: Liquidated Damages, Security and Change in Law

Is GST payable on liquidated damages under an EPC contract? 

Can liquidated damages be recovered without proof of loss? 

Can a wrongful call on a performance bank guarantee be restrained in India? 

Force majeure and change in law on Indian EPC projects

Checklist — Customs and Commercial Risk

Customs and Project Imports

Liquidated damages

Performance security

Change in law and force majeure

Frequently Asked Questions

About the Author

Services We Provide

 

Section III: Customs and the Project Imports Scheme

What is the Project Imports Scheme, and why does it matter for EPC?

The Project Imports Scheme assesses all goods imported for a qualifying project under a single concessional tariff heading, Heading 9801 of the Customs Tariff Act 1975, instead of item-by-item merit assessment. It is governed by the Project Imports Regulations 1986 and applies to industrial plants, power, mining, irrigation and oil exploration projects.

The scheme is unique to Indian customs and it has no analogue in most contractors’ home jurisdictions, which is why it is so often missed. Rather than classifying and assessing each imported item on its merits, hundreds of tariff lines, valuation disputes and classification arguments across a multi-year EPC supply programme, every eligible good imported for the project is classified under Heading 9801 of the First Schedule to the Customs Tariff Act 1975 and assessed at a single concessional rate. The legal architecture is the Chapter Note to Heading 98.01, the Project Imports Regulations 1986 (notified under Section 157 of the Customs Act 1962), and CBIC circulars issued from time to time.

Heading 9801 covers all items of machinery including prime movers, instruments, apparatus and appliances, control gear and transmission equipment, auxiliary equipment (including equipment required for research and development, testing and quality control), as well as components and raw materials for the manufacture of the aforesaid items and their spare parts, imported for the initial setting up of a unit, or for the substantial expansion of an existing unit. ‘Substantial expansion’ means an increase in installed capacity of not less than 25%.

Which projects qualify?

The project must fall within a category listed against Heading 9801 and must be sponsored by the notified sponsoring authority for that category. The listed categories include industrial plants, irrigation projects, power projects, mining projects, projects for the exploration of oil or other minerals, and certain other plants and projects. The sponsoring authority differs by category, the relevant Ministry or Department, and its attestation of the itemised list of goods to be imported is a condition of the concession, not a formality.

Solar has been carved out

By notification effective 20 October 2022, CBIC amended the Project Imports Regulations to exclude solar power plants and solar power projects from the ‘All Power Plants and Transmission Projects’ entry. A further amendment dated 1 February 2023 excluded solar power projects from the residual ‘any other plant and project’ entry as well. The combined effect is that solar projects have no access to Heading 9801 at all.

This has generated regulatory litigation. Developers have treated the withdrawal as a Change in Law event under their power purchase agreements and claimed the differential between the basic customs duty actually paid and the concessional rate that would have applied, a claim that turns entirely on the drafting of the Change in Law clause, discussed in Part 4 of this series. Any foreign contractor on an Indian solar EPC project should assume no Project Import benefit is available, price the full duty, and check whether the power purchase agreement’s Change in Law mechanism transfers that cost to the offtaker. If it does not, the contractor bears it.

What is the registration trap in the Project Imports Scheme?

The contract must be registered with the Customs House before the goods are imported. Registration after the first import is not possible and the concession is lost for the goods already cleared. This is the single most consequential procedural requirement in the scheme and the most commonly missed.

Regulation 5 of the Project Imports Regulations 1986 requires every importer claiming assessment under Heading 9801 to apply in writing to the proper officer, on or before the importation of the goods, for registration of the contract at the port where the goods are to be imported or where duty is to be paid. Assessment under Heading 9801 is available only to goods imported against one or more specific contracts that have been so registered.

On registration, the Deputy Commissioner of Customs (Project Import Group) enters the contract in the register and assigns a Project Contract Registration Number, which must be referenced in all subsequent correspondence and on every bill of entry. A security, typically a bank guarantee, is furnished at registration, and imports are then provisionally assessed against a duty bond.

The consequence of getting this wrong is not a penalty. It is forfeiture of the benefit. A contractor that begins importing under normal merit assessment because the sponsoring authority’s attestation has not yet come through, intending to register the contract later, has lost the concession for the goods already imported and, in practice, will struggle to obtain it for the balance.

On a large EPC supply programme with a compressed mobilisation window, the temptation to clear the first consignment on merit rates ‘to keep the site moving’ is real, and it is expensive. The registration application must be on the critical path from the day of contract award, alongside the FEMA and PAN steps described in Part 1. It is not a customs-clearance formality to be handled by the freight forwarder when the ship is loading.

Finalisation and discharge of the bond

Imports under Heading 9801 are provisionally assessed. The contract is finalised on submission of: a reconciliation statement showing the description, quantity and value of goods actually imported; a certificate from a registered Chartered Engineer certifying the installation of each imported item of machinery; copies of the bills of entry and invoices; a Plant Site Verification Certificate; and, where the contract provides for final settlement after completion, the final payment certificate. Only on finalisation is the bond discharged and the bank guarantee released.

On a multi-year EPC project this documentation trail must be maintained contemporaneously. Reconstructing it after commissioning is difficult, the Chartered Engineer cannot certify installation of equipment that was installed three years earlier and has since been enclosed, and the bank guarantee stays outstanding, consuming the contractor’s banking limits, until the reconciliation is complete. This is a working capital cost that is almost never modelled at bid stage.

Does construction equipment qualify under Heading 9801?

Yes. The Supreme Court held in Commissioner of Customs, Mumbai v. Toyo Engineering India Ltd. that construction equipment qualifies as auxiliary equipment under the Project Imports Regulations where it is essentially required for the initial setting up of the registered project. It may be transferred to another registered project after use, on the sponsoring authority’s recommendation.

This is a routinely under-claimed entitlement. In Commissioner of Customs, Mumbai v. Toyo Engineering India Ltd., 2006 (201) ELT 513 (SC), the Supreme Court held that the scope of items eligible under the Project Imports Regulations 1986 covers construction equipment as auxiliary equipment, where it is essentially required for the initial setting up or substantial expansion of the registered project. The equipment may subsequently be transferred to another registered project under Heading 9801 after completion of its intended use, on the recommendation of the sponsoring authority. Per CBIC Circular No. 14/2006-Cus, the Plant Site Verification Certificate submitted at finalisation must incorporate details of construction equipment imported and used for the project, so that its utilisation can be verified.

For a foreign EPC contractor mobilising cranes, piling rigs, batching plant and heavy lifting equipment into India for a multi-year project, this is real money. The alternative routes, temporary importation with re-export, or importation on payment of full duty with a drawback claim on re-export, are administratively heavier and cash-flow negative.

The condition is unforgiving: the equipment must appear on the itemised list attested by the sponsoring authority at registration. It cannot be added afterwards. A contractor that lists only permanent plant on its attested schedule, and then imports its construction fleet separately at merit rates because nobody thought to include it, has left the concession on the table irrecoverably.

How does Project Imports interact with EPCG and Advance Authorisation?

The Project Imports Scheme carries no export obligation, unlike EPCG or Advance Authorisation. It is a customs concession for setting up or expanding a domestic project, not an export promotion scheme. The three cannot generally be layered on the same goods, and the choice must be made before registration.

The schemes are frequently confused because they all reduce duty on imported capital goods. They are different in kind. EPCG (Export Promotion Capital Goods) permits import of capital goods at nil or concessional duty against an export obligation, typically a multiple of the duty saved, to be discharged over a specified period. Advance Authorisation permits duty-free import of inputs physically incorporated into an export product. Both are DGFT schemes under the Foreign Trade Policy, and both create a continuing export obligation with a bond, a bank guarantee and a redemption process that runs for years after the goods have landed.

The Project Imports Scheme is a customs concession under Chapter 98, administered by CBIC rather than DGFT, and it carries no export obligation at all. For an EPC contractor building a plant that will supply the Indian domestic market, which describes most power, refinery and process plant EPC in India, Project Imports is the correct route and EPCG is simply inapplicable, because there is no export against which to obligate. Where the project owner will export from the completed facility, the analysis changes and EPCG may be preferable for some capital goods. The two cannot be stacked on the same goods, and the election is effectively made at the point of registration.

Contract splitting and the customs consequence

Part 2 explains why the EPC contract is split for income tax purposes: to keep offshore supply outside the Indian tax net by ensuring title passes offshore, payment is received offshore, and the permanent establishment plays no role. Customs pulls in the opposite direction. Project Import registration requires a specific contract, or contracts, registered with the Customs House, with an itemised list of goods attested by the sponsoring authority. Where the supply scope is fragmented across multiple offshore entities and multiple purchase orders, each contract must be separately registered, each with its own attested list, and the reconciliation at finalisation becomes correspondingly harder. Contract splitting is a recognised complication in the scheme.

This is a genuine tension and it should be resolved deliberately rather than discovered at the port. The offshore/onshore split is driven by income tax; the Project Import registration is driven by customs; and the two teams within a contractor’s organisation frequently do not speak to each other until the first consignment is on the water.

The workable structure is a single offshore supply contract, registered under Heading 9801, with the itemised list covering the full supply programme. That preserves both the income tax split, title passing outside India, payment offshore, permanent establishment uninvolved, and the customs concession, with one contract, one registration number and one reconciliation. Fragmenting the offshore supply across several entities for tax or commercial reasons multiplies the customs registration burden without improving the tax position. The tax objective is achieved by the terms of the offshore contract, not by the number of offshore contracts.

Checklist: Customs and the Project Imports Scheme

A project-use reference for the material in Part 3. It is not a substitute for project-specific legal and tax advice.

Customs and Project Imports

Pre-award and registration

• Confirm the project falls within a category listed against Heading 9801, industrial plant, power, mining, irrigation, oil exploration
• SOLAR: confirm no Project Import benefit is available (excluded 20 October 2022 and 1 February 2023). Price full basic customs duty
• SOLAR: check whether the power purchase agreement Change in Law clause transfers the duty cost to the offtaker
• For a brownfield project, confirm the expansion increases installed capacity by at least 25% (‘substantial expansion’)
• Identify the notified sponsoring authority for the project category and open the attestation process on the day of contract award
• Prepare the itemised list of goods for attestation. INCLUDE construction equipment as auxiliary equipment (Toyo Engineering). It cannot be added later
• REGISTER THE CONTRACT WITH THE CUSTOMS HOUSE BEFORE THE FIRST IMPORT (Regulation 5). Registration after clearance forfeits the concession for goods already imported
• Obtain the Project Contract Registration Number and cite it on every bill of entry and all correspondence
• Arrange the security / bank guarantee required at registration and budget the banking limit it consumes
• Decide Project Imports vs EPCG at bid stage. Project Imports carries no export obligation; the two cannot be stacked on the same goods
• Structure the offshore supply as a SINGLE registrable contract, serving both the income tax split and the customs registration

During execution and finalisation

• Maintain the reconciliation statement contemporaneously, description, quantity and value of every item imported
• Obtain the Chartered Engineer’s installation certificate for each item of machinery AS IT IS INSTALLED, not at project end
• Preserve all bills of entry and invoices for the finalisation submission
• Obtain the Plant Site Verification Certificate, incorporating details of construction equipment used (CBIC Circular 14/2006-Cus)
• Finalise the contract and discharge the duty bond. Do not let the bank guarantee run outstanding after commissioning

Frequently Asked Questions

• When must a Project Import contract be registered with Indian Customs?

Before the goods are imported. Regulation 5 of the Project Imports Regulations 1986 requires the importer to apply for registration of the contract on or before importation. Assessment under the concessional Heading 9801 is available only to goods imported against a contract that has been so registered. Registering after the first consignment has cleared forfeits the concession for the goods already imported and, in practice, jeopardises it for the balance of the supply programme.

• Does the Project Imports Scheme apply to solar power projects in India?

No. By notification effective 20 October 2022, CBIC excluded solar power plants and solar power projects from the power projects entry in the Project Imports Regulations 1986, and a further amendment dated 1 February 2023 excluded them from the residual ‘any other plant and project’ entry. Solar projects have no access to Heading 9801. Whether the resulting duty cost falls on the contractor or the offtaker depends on the change in law clause in the power purchase agreement.

• Can construction equipment be imported under the Project Imports Scheme?

Yes. The Supreme Court held in Commissioner of Customs, Mumbai v. Toyo Engineering India Ltd., 2006 (201) ELT 513 (SC), that construction equipment qualifies as auxiliary equipment under the Project Imports Regulations 1986 where it is essentially required for the initial setting up of the registered project. It may be transferred to another registered project after use, on the sponsoring authority’s recommendation. The equipment must appear on the itemised list attested at registration; it cannot be added afterwards.

• What is the difference between Project Imports and the EPCG scheme?

The Project Imports Scheme is a customs concession under Chapter 98 administered by CBIC, and it carries no export obligation. EPCG is a DGFT scheme under the Foreign Trade Policy that permits duty-free or concessional import of capital goods against an export obligation, typically a multiple of the duty saved. For an EPC project supplying the Indian domestic market there is no export against which to obligate, so EPCG is inapplicable and Project Imports is the correct route. The two cannot be stacked on the same goods.

About the Author

Ravish is a dual-qualified lawyer and Solicitor admitted to practice in India and on the roll of the Solicitors Regulation Authority (England and Wales). He specialises in international arbitration and international taxation, and holds the Advanced Diploma in International Taxation (ADIT) from the Chartered Institute of Taxation (CIOT). His practice focuses on cross-border disputes, enforcement strategy, and complex tax-driven structuring.

 

Further details are available on his LinkedIn Profile: https://www.linkedin.com/in/adit-ravishbhatt/

 

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Disclaimer

This article provides general information only and is not legal, tax, or financial advice. India inbound structuring requires coordinated input from advisers in all relevant jurisdictions, and outcomes depend heavily on facts, residency, substance, and evolving laws. This Part 3 covers customs and the Project Imports Scheme; Parts 1 and 2 covered mobilisation and the tax architecture, and Part 4 covers commercial risk. Readers should seek professional advice before acting on any material herein. R & D Law Chambers LLP assumes no responsibility for any reliance placed on this summary.