The Central Board of Excise and Custom (CBEC), Ministry of Finance, having received references from different Customs houses and investors to clarify whether or not a purchase order can be considered as a contract in terms of provisions contained in the Project Import Regulations, 1986, for the purpose of enabling transparency and clarity in the system, explicated vide its circular No. 31/2013-Custom dated August 6, 2013 that a purchase order can be accepted as a "deed of contract" for the purpose of Regulation 5 of Project Import Regulations, 1986.

Regulation 5 of Project Import Regulations, 1986 mandates that amongst other requirements, every importer claiming assessment of the goods under the heading No. 98.01 shall apply to the proper officer at the port where the goods are to be imported or where the duty is to be paid, for registration of the contract or contracts, as the case may be. Such application shall be accompanied by the original "deed of contract" together with a true copy thereof. In regard to the scope of the terms "deed of contract" it is seen that as per Section 10 of the Indian Contract Act, 1872 a valid contract is one that contains the following ingredients:-

  • It is entered into by free consent of parties competent to contract;
  • There should be lawful consideration;
  • There should be a lawful object; and
  • It is not expressly declared to be void (i.e. void under the statute).

From the above, it is evident that a purchase order that contains all the essential ingredients of a valid contract must be treated as one under the Indian Contract Act, 1872.

This clarification of the CBEC has further desired the retrospective applicability of the aforementioned legal position and that the pending cases have to be finalized accordingly.