M/S. Oblum
Electrical Industries Pvt. Ltd., Hyderabad Vs. Collector of Customs Bombay [1997] INSC 696 (2 September 1997)
S. C.
AGRAWAL, G. T. NANAVATI
ACT:
HEADNOTE:
Present:
Hon'ble
Mr. Justice S.C. Agrawal Hon'ble Mr. Justice G.T. Nanavati S. Ganesh and K.J.
John, Advs. for the appellant A. Subba Rao, Kishore Kumar Patel and V.K. Verma,
Advs. for the Respondent
The
following Judgment of the Court was delivered:
S.C.
AGRAWAL, J.
The
appellant is a manufacturer and exporter of 'Lightening Arrestors' which are
supplied to electricity boards, railways and other public sector undertakings.
The appellant was awarded a Deemed Export Order (Contract) by the Railway Board
for supply 937 numbers of Metal Oxide Gapless Type Lightening Arrestors
(hereinafter referred as 'lightening Arrestors'). The said contract was entered
into under an International Development Scheme. For the manufacture of
Lightening Arrestors, Porcelain housing (H.T. Insulators) are required and
those insulators are produced in a ceramic kilns. Crystar (main and Gross)
Beams made of Silicon Carbide are used for 'firing' dry and hollow H.T. Porcelain
bushings in the kilns and are fitted inside the kins. The beams are susceptible
to breakage and damage and have to be continuously replaced in the course of
manufacture.
The
applicant submitted an application before the Chief Controller of Imports and
Exports on March 29,
1990 for issuance of a
Special Import Licence to import various items required for the manufacture of
Lightening Arrestors. The said items included Crystar Beams as Kiln Furniture.
The Deputy Chief Controller of Import and Export issued the Special Import Licence
on April 24 1990 for import of various items
including crystar beams. Alongwith the said import license, the Duty Exemption
Entitlement Certificate (hereinafter referred as 'DEEC') was also issued in the
following terms:
"Material
imported against advance Licence No. P/L/3236631/CS.XX/16/H/90 dated 24.4.90
issued by Deputy Chief Controller of Imports & Exports, Hyderabad to the
above importer and covered by the list of Materials specified under Part 'C' of
this Certificate would be eligible fr exemption from Import duty subject to the
conditions specified in the Notification of the Government of India, Ministry
of Finance, Department of Revenue and 116/88- Cus. On 30.3.88." On import
of goods into India, the appellant claimed duty free
clearance on the basis of exemption granted by Notification No.210/82-Cus dated
September 10, 1982.
By
Notification No.210/82-Cus dated September 10, 1982 issued under Section 25 of
the Customs Act, 1962, the Central Government has exempted from whole of the
customs duty and additional duty leviable under the Customs Tariff Act, 1975,
"raw materials and components required for the manufacture of goods to be
supplied to International Development Association or international Bank for
Reconstruction and Development or bilateral and Multilateral aided projects or
Asian Development Bank or United Nations Organisation or under the Aid Programme
of the United Nations or for the replenishment of raw materials and components
of used in the manufacture of such goods already supplied". The said
exemption was, however, subject to the conditions laid down in clauses (1) to
(5) of paragraph 1 of the said Notification. The case of the appellant is that
the conditions laid down in the said Notification were fulfilled in he present
case and, therefore, the appellant was entitled to exemption from duly on the Cryster
Beams imported by it and reliance was placed on the DEEC granted by the Import
Control Authorities while granting the import licence for importing the said
articles. The Additional Collector of Customs has, however, held that the entry
of Kiln Furniture (Crystar Beams) in the special import licence and DEEC book
does not preclude the customs authorities from deciding the issue regarding
eligibility of the articles for duty exemption in terms of exemption
Notification No.210/82- Cus. The Additional Collector further held that the
said exemption is only in respect of raw material and components of the
resultant product to be supplied to the project authorities specified in the
said exemption Notification No. 210/82-Cus. Itself and that the item in
question are admittedly utilised as supporting structures for manufacturing
Bushings and on account of bearing heavy loads and extremely high temperatures
undergo high rate of wear and tear and that they are capital goods and cannot
be termed as raw materials or components of the said resultant product. The
said view of the Additional Collector has been upheld by the Customs Excise
& Gold [Control] Appellate 'Tribunal [hereinafter referred to as the
Tribunal'] by the impugned judgment dated November 5 1992. The Tribunal has held that the
question regarding exemption from duty and the interpretation of the
notification issued under Section 25 of the Customs Act has to be decided by
the customs authorities alone and the fact that the import of the goods was
covered by the specific mention in Part C of the DEEC has no bearing on the
jurisdiction of the customs authorities because exemption from duty is on
aspect while validity of import under the import license is another aspect. The
Tribunal has also agreed with the view of the Additional Collector that the
expression "raw materials and components required for the manufacture of
the goods to be supplied" in Notification No.210/82-Cus read with
Notification No. 116/88 dated March 30, 1988 cannot be extended to include
within it scope raw materials and components required for a Kiln or a furnace
in which the goods to be supplied are manufactured. Hence this appeal.
Shri
S. Ganesh, the learned counsel for the appellant, has urged that the appellants
are entitled to exemption from payment of customs duty on Crystar Beams
imported by them both on the basis of Notification No.210/82-Cus as well as
Notification No. 116/88 dated March 30, 1988.
As noticed earlier, Notification No. 210/82-Cus dated September 10, 1992
contained the expression "raw material and components required for the
manufacture of goods" and "or for the replenishment of raw materials
and components used in the manufacture of such goods".
In
Notification No. 116/88 dated March 30, 1988
there is slight difference in language The material part of the said
Notification is as under:
"In
exercise of the powers conferred by sub-section (1) of section 25 of the
Customs Act, 1962 [52 of 1962] and in supersession of the Notification of the
Government of India in the Ministry of Finance, [Department of Revenue]
No.44/87-Customs [G.S.R, 101(E)], dated the 19th February, 1987, the Central
Government, being satisfied that it is necessary in the public interest so to
do, hereby exempts goods imported into India against an Advance Licence issued
under the Imports (Central) Order 1955, being materials required to be imported
for the purpose of manufacture of produce [hereinafter referred to as the
resultant products] or replenishment of materials used in the manufacture of
the resultant products, or both, or for export as manufacture of the resultant
products, or both, or for export as mandatory spares alongwith the resultant
products, for execution of one or more export orders, from the whole of the
duty of customs leviable thereon which is specified in the First Schedule to
the Customs Tariff Act, 1975 [51 of 1975] and from the whole of the additional
duty leviable thereon under section 3 of the said Customs Tariff Act",
Notification No.116/88-Cus uses the expression 'materials required to be
imported for the purpose of manufacture of products [hereinafter referred to as
the resultant products] or replenishment of materials used in the manufacture
of resultant products or both." Shri Ganesh submits that on a proper
construction of the language used in Notification No.210/82-Cus dated September 10, 1982 Crystar Beams should be treated as
components required for the manufacture of Lightening Arrestors and would fall
within the ambit of the exemption granted under the Notification No. 210/82-Cus
dated September 10,
1982. The learned
counsel has contended that the words "required for the manufacture"
In the said notification would include material which though not directly used
in the manufacture of product is necessary for the purpose of manufacturing the
product. Shri Ganesh has also urged that in any event Cryster Beams would fall
within the ambit of the expression "materials required to be imported for
the purpose of manufacture of products" contained in Notification
No.116/88-Cus dated March 30, 1988 because the words "for the purpose of manufacture"
in the said notification have the effect of enlarging the ambit of the
exemption that has been granted. In this context Shri Ganesh has pointed out
that in the DEEC reference has been made to Notification No.116/88-Cus, dated March 30, 1988.
Shri Subba
Rao, the learned counsel appearing for the Revenue, has placed reliance n the
definition of the expressions "exempt materials" and
"materials" contained in clauses (iii) and (viii) of the explanation
to Notification No.116/88 dated March 30, 1988. The said clauses provide as
follows:
"(iii)
Exempt materials' means the materials imported and specified in Part 'C"
of the said Certificate and eligible for exemption from duty under this
notification;
(viii)
materials means goods which are raw materials, components, intermediate
products or consumables used in the manufacture of resultant products and their
packings, or mandatory spares to be exported alongwith the resultant
products." Shri Subba Rao has laid emphasis on the words "used in the
manufacture of in clause (viii) and has urged that for availing the exemption
it is necessary that the material must be required for use in the manufacture
of resultant products. Shri Subba Rao has also invited our attention to the
decision of this Court in The Tata Oil Mills Co. Ltd vs. Collector of C. Ex. 1989 43 ELT. 183, wherein in the matter of
interpretation of a notification granting exemption from payment of duty this
court had said :
"But,
in trying to understand the language used by an exemption notification, one
should keep in mind two important aspect (a) the object and purposes of the
exemption and (b) the nature of the actual process involved in the manufacture
of the commodity in relation to which exemption is granted".
Having
regard to the fact that in DEEC specific reference has been made to
Notification No.116/88-Cus, dated March 30, 1988, we will consider the claim of the
appellant for exemption for duty on the basis of the said notification.
A
perusal of Notification No. 116/88-Cus. shows that the object and purpose of
the said notification is to encourage exports by granting exemption from
customs duty on materials that are required to be imported for the purpose of
manufacture of the resultant products or for replenishment of the material used
in the manufacture of the resultant products, or both or for export as
mandatory spares alongwith the resultant products. The manufacture of the
resultant products has to be for execution of one or more export orders. In
order to ensure that the exemption is availed only by deserving people,
conditions have been laid down in clauses (a) to (g), which must be fulfilled
for availing the exemption. One such condition, as laid down in clause (a) that
is that the material imported must be covered by a Duty Exemption Entitlement
Certificate issued by the licensing authority. Under Clause (c) it is required
that the goods corresponding to the resultant products and the mandatory spares
would be exported with the time specified in the DEEC or such extended period
as may be granted by the licensing authority. The wordings in the notification
have to be construed keeping in view that said object and purpose of the
exemption. In the notification two different expressions have been used namely,
materials required to be imported for the purpose of manufacture of products'
and 'replenishment of materials used in the manufacture of resultant products'
which indicates that the two expression have not been used in the same sense.
The expression 'materials required to be imported for the purpose of
manufacture of products' cannot be construed as referring only to materials
which are used in the manufacture of the products. The said exemption must be
given its natural meaning to include materials that are required in order to
manufacture the resultant products. On that view, the exemption cannot be
confined to materials which are actually used in the manufacture of the
resultant product but would also include materials which though not used in the
manufacture of the resultant product are required in order to manufacture the
resultant product.
Crystar
Beams imported by the appellant are materials, which though not used in the
manufacture of H.T. Porcelain Insulators required for Lightening Arrestors, are
materials which are required for producing the insulators in the kilns.
It is
true that in clause (viii) of the Explanation to the Notification expression
'materials' has been defined to mean goods which are raw materials, components,
intermediate products or consumables used in the manufacture of resulting
products and their packings or mandatory spares to be exported in the resultant
products. But the said definition in the Explanation has to be read in
consonance with the main part of the notification. It is a well settled
principle of statutory construction that the Explanation must be read so as to harmonise
with and clear up any ambiguity in the main provision. [See: Bihta Cooperative
Development Cane Marketing Union Ltd. & Anr. vs. The Bank of Bihar &
Ors. 1967(1) SCR 848 at p.854]. The definition of "materials" in
clause (viii) of the Explanation must, therefore, be so construed as not to climinate
the distinction between the words 'materials required for the purpose of
manufacture of products' and the words 'materials used in the manufacture of
the resultant products' in the main part of the definition.
On a
proper construction the definition of "materials" in Clause (viii) of
the Explanation must be confined in its application to the word
"materials" in the expression 'replenishment of materials used in the
manufacture of the resultant products' in Notification No.116/88-Cus. dated March 30, 1988.
It is
not disputed that appellant had fulfilled the conditions laid down for grant of
exemption contained in clause (a) to (g) of the Notification No. 116/88 dated
March 30, 1988. In the circumstances, it must be held that the appellant was
entitled to exemption from customs duty and additional duty under Notification
No. 116/88 dated March
30, 1988 on the import
of Crystar Beams. The appeal is, therefore, allowed, the judgment of the
Tribunal dated November 5, 1992 as well as the order of Additional Collector
(Customs) dated march 8, 1981 are set aside and it is held that the appellant
is entitled to exemption from payment of customs duty and additional duty on
the import of Crystar beams required for the purpose of manufacture of
Lightening Arrestors. No order as to costs.
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