Commnr. of Customs (Prev.),
Gujarat Vs. M/S.
Reliance Petroleum Ltd. [2008] INSC 953 (16 May 2008)
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.1831 OF 2006 Commissioner of
Customs, (Prev.) Gujarat ... Appellant Versus M/s Reliance Petroleum Ltd. ...
Respondents
S.B. Sinha, J.
1. The validity of an exemption
notification bearing No.11/97-Cus dated 1.3.1997 as amended by notification
No.55/97-Cus dated 13.6.1997 granting exemption to various imported goods
including EOT mobile crane required for setting up crude petroleum refinery
subject to fulfilment of certain conditions, is in question in this appeal
which arises out of judgment and order dated 8.7.2005 passed by the Customs,
Excise and Service Tax Appellate Tribunal, West Zonal Bench, Court No.2.
2
2. The fact that the crane in
question was imported for using the same in setting up a refinery is not in
dispute.
What is in dispute is that whether
a crane when placed on a vehicle which the appellant wrongly stated to be a `motor
vehicle' would fulfill the description of a mobile crane or a `material
handling equipment'.
Valuation of the said crane was
also questioned.
The fact that different parts of
the said crane were imported by the respondent herein as second hand equipment
is also not in dispute. It is, however, accepted that the original
manufacturers of the two part of the said equipment were different. We may, at
the outset, notice that the Notification dated 11.4.1997 was issued by the
Central Government, in exercise of its power conferred upon it under Section
(1) of Section 25 of the Customs Act, 1962,
being satisfied that it was necessary in the public interest so to do, made
further amendment in notification No.11/97, CUS.
dated 1.3.1997, the relevant entry
whereof is as under :
"(1) (2) (3) (4) (5) (6) 144A
84 or any Goods specified Nil Nil -"
other in List 8A Chapter required
for setting up crude petroleum refinery 3
3. By reason of the amendment, it
was, inter alia, provided that in the annexure, for List 8A the goods specified
therein shall be substituted, relevant portion of which reads as under :
"16. All types of Materials
Transporting Equipments, including loading and unloading arms and racks;
gantries, dispatch tanks, loading/ transfer pumps, hydraulic systems,
weighbridges, Diesel shunters, feed or injenction or spray nozzles, skimmers,
soot blowers; with instrumentation and control systems, including load cells
and metering stations.
XXX XXX XXX
18. All types of Material Handling
Equipments, including belt or pneumatic conveyors, ducts, hoists, bucket or jib
cranes, (with or without access gangways), pipes and hoses, funnels, hoppers,
disenganging lock hoppers; catalyst addition pots, valves and sampler devices;
bagging, weighing and bag stitching systems; weigh bridges; buoy systems for
crude oil receipt; pipeline end manifolds with valves, tenders, mooring aids,
laser docking systems, product tanker loading facilities; with associated
equipments, instrumentation and control systems and auxiliaries.
XXX XXX XXX
44. Special Maintenance Systems,
including hydrojetting tools, pneumatic torque wrenches;
EOT/mobile cranes; hoists,
grinders, high pressure cleaning systems, induction bending machines; auto
welding machines, various welding equipments like girth-welding, vertical 4
flux cord, bottom saw, four side edge preparation, angle rolls; rolling and
leveling machines, sky climbers, hot tapping machines, bolt tensioners, high
pressure test pumps, tube bundle pullers, tube nippers, ultrasonic leak
detectors, machine condition monitoring systems and associated sub-assemblies;
vibration analysers and
computerized alignments systems."
4. Respondent No.2, for the
purpose of setting up a crude petroleum refinery was required to make erections
at 28 different locations. For the said purpose, it entered into a contract
with M/s. Europa BV of Holland on or about 23.10.1997 with effect from
20.11.1997 for supply of the crane and the trailer. Pursuant to and in
furtherance of the said contract, a heavy duty platform ringer mobile crane and
other equipments were imported on or about 31.1.1998 wherefor the bill of entry
contained the following declaration in respect of the said goods as:
"(a) Heavy Duty Platform
Ringer Mobile Crane and Grove MZ90 sky Worker Mobile Crane.
(b) Fork Lift Manitw -
HT-3500."
5. Indisputably, the said item was
imported in a dismantled condition in 146 packages showing the consignment to
be falling under Chapter Sub-Heading 8426.19 and 8427.90 respectively of the
Customs Tariff.
5
6. Respondent claimed the benefit
of concessional rate of duty in terms of the said notification showing the
value of the imported item to be US $ 34,84,500 (CIF). The said declaration of valuation
was made for custom purposes only.
7. On the premise that the value
declared therein was inadequate and/or ingenuine, the valuation thereof was
assessed by Jawahar/Mumbai Customs House through an expert. It was opined :
"That the 6 Line Trailers
(self propelled modular transport system) supplied along with Platform Ringer
Crane could not be treated as one unit i.e. Mobile Machine/Mobile Crane as the
Crane was neither mounted on the 6 Line Trailers nor the Crane and the Trailers
were specially designed for each other forming an integral mechanical unit and,
accordingly, suggested assessment of Cranes and Trailers separately."
8. The value of the said goods was
assessed at DFL 60,00,000/-. A provisional assessment was made in terms of
Section 18 of the Act and the goods were released on respondent's furnishing a
bond for a sum of Rs.5,84,32,813 along with a Bank Guarantee of Rs.58,43,281/-.
9. An Appraising Officer valued
the said equipment at Rs.11,86,20,000/- as in the year of manufacture. A final
assessment was 6 made upon enhancing the value and denying the benefit of
concessional exemption claimed under Notification No.55/97-Cus. A total customs
duty of Rs.20,04,58,132/- was assessed by the Superintendent of Customs.
10. A show cause notice was issued
as to why the differential customs duty of Rs.18,62,92,602/- should not be
directed to be paid by the respondent.
11. An appeal was preferred
thereagainst. The Commissioner (Appeal), in terms of his order dated 5.5.2000
noticed the clauses in the contract for import of machinery and opined that the
imported item was a self-propelled modular transport system, stating :
"It is seen from the above
discussion that the appellants had imported a mobile crane, technically known
as "Heavy Duty Platform Ringer Mobile Crane & Grover MZ 90 Skyworker
Mobile Crane". The description itself suggests that is a mobile crane. The
invoices describe them as mobile crane and also the Chartered Engineer who has
issued a certificate about the valuation and other technicalities of the
imported goods has mentioned the goods as mobile crane. The purpose of
importing these goods is that the appellants were in the process of setting up
a crude petroleum refinery and they required the work of erection to be done at
various points and to carry the load to different locations, a crane was
required, as the crane which would 7 carry such heavy load, could not remain
static, for the purpose of providing mobility to the crane, 8 SPMTS i.e. self
propelled modular transport system have been provided, this crane is mounted on
the 8 SPMTS. The intention of the appellants is very clear that they have
imported mobile crane. The said mobile crane was disassembled by the supplier
while dispatching the same for the sake of convenience in transport and the
same has been re-assembled at the site. It appears that this has been
misunderstood by the lower authority and it has been held that these are two
separate items. I find substantial force in the contentions raised by the
appellants in this regard that these are not two separate items but a single
mechanical unit."
As regards classification of the
said goods, it was held :
"In the present case, the
crane and 8 SPMTS have been imported as an integral unit, as independently they
cannot perform the work for which they have been imported and for this purpose
the crane has been mounted on the 8 SPMTS to provide mobility and therefore,
both the goods have to be considered as a one single unit. The heading 87.04 is
in respect of "Motor Vehicle for the transport of goods" and the
disputed goods 8 SPMTS are not motor vehicles, they have been specifically
designed to make the crane mobile. Therefore, in any view of matter, the
classification of 8 SPMTS under chapter heading 8704.90 is ruled out.
For the reasons given above, the 8
SPMTS is an integral part of Platform Ringer Crane and would merit
classification under chapter heading 84.26."
8 On the aforementioned finding,
it was held that the said imported item attracts the benefit of the exemption,
stating :
"Since it is now clear that
the imported item is a mobile crane which has been imported for setting up of
crude petroleum refinery, which is an undisputed fact, the exemption from duty
is admissible to the present goods under the said notification. These goods in
the alternative, can also be considered as material handling equipment. The
definition of the term "material handling equipment" as given in
Encyclopedia Britannica which has also been discussed in the decision of the
Tribunal in the case of Ranadip Shipping (supra), defines material handling
equipment in different classes, in terms of product handled, it includes
machinery for bulk products in large continuous volumes, continuous processing
based on industrial parts movement, discontinuous processing of a wide variety
of goods and order filling of large varieties of goods. Secondly it classifies
in relation to its mobile characteristic and includes both stationery and
movable facilities. Thirdly, it identifies the types of equipments itself and
includes wheeled carts, power and lift trucks, trailer trains, racks and
pallets, bins and boxes, mono rails and conveyors, containers, unit loads and
cranes and hoists. There is no doubt that the mobile crane is a material
handling equipment as per this definition and is therefore, also covered under
Sr.No.18 of the notification which covers all types of material handling
equipments and is exempt from the duties specified thereunder."
9 On the question of valuation, it
was held :
"In this regard, I find that
the addition of 1% of the value of the imported goods towards the
transportation charges for bringing the goods from anchorage to jetty has no
sanctity of law.
The appellants have included 1%
landing charges in the assessable value of goods for import of goods, which is
evident from the bill of entry. Further adding 1% is in contravention of Rule
9(2)(b) of the Valuation Rules. In this regard, the appellants have placed
reliance on the judgment of the Hon'ble Supreme Court in the case of Coromandel
Fertilizers Ltd. (supra) wherein the Apex Court has held that landing charges
when assessed at a percentage, Customs cannot add any amount thereto on the
ground that expenses for unloading were not covered in the landing charges,
since they cover the totality of all that an importer expends for bringing
imported goods from ship to land.
Further, I find that for resorting
to Rule 5 of the Customs Valuation Rules, 1988, the value can be determined on
the basis of "similar" or "identical goods". These terms
are defined u/s.2(1)(c) and (e) of these aid Rules. As per the definition of
these terms, identical goods or similar goods mean the imported goods which are
same in all respects, including physical characteristics, quality and
reputation, produced in the same country and produced by the same person. It is
seen from the literature of both the items that these two cranes are not
similar. The Platform Ringer Crane moves in a ring and for the purpose of
mobility it has been mounted on 8 SPMTS, whereas, the comparable crane is a
Crawler Crane, as the name suggests it has crawler mechanism which
distinguishes it from the crane in question, the present crane has 8 SPMTS
which are not there in the crawler 10 crane, the crawler crane is new, the
crawler crane is certified to move on its crawlers with 75% of its maximum load
on the hook which is its unique feature, the year of manufacture of two cranes
are different, the crawler crane being branded crane can realize a much higher
commercial value whereas the crane in dispute is nearly an assembled tailor
made crane."
It was furthermore held :
"It is also pertinent to note
that the present crane is a second hand machinery, which has been imported for
a specific job to be carried out and it has not been purchased by the
appellants, it has been hired by them with a condition to re-export the same
after the job is accomplished. As regards the valuation of 8 SPMTS, I find that
the year of manufacture of 6 Line Trailer imported at Jawahar Custom House has
not been disclosed, moreover, it was a 6 Line trailer, whereas, the present one
is 8 SPMTS, therefore, there is difference in the capacity of the two and they
are not comparable goods. The lower authority has been found to have given
deductions on account of depreciation for arriving at the fair value for all
the disputed items, which he has considered as separate items, but there is no
reason forthcoming to show the basis adopted by him for giving such deductions
on the original value of comparable goods. Moreover, I find that since the
present goods are second hand goods, there is no contemporaneous import of
similar goods or identical goods brought on record by the lower authority,
declared value is the fair value U/s. 14 of the Customs Act, 1962.
There is no dispute nor any evidence that the appellants have remitted any
extra payments 11 clandestinely to the foreign suppliers over above the invoice
value. In absence of such allegation, there is no justification in resorting to
Rule 5 of the Valuation Rules, without adequate comparable goods. Accordingly,
there is no legal justification in enhancing the value of the imported goods.
Especially so in the present case, because the goods imported are second hand
goods and there is a provision under EXIM policy as could be seen from the
Handbook of Procedures 1997 - 2002, in para
5.4 it has been said that actual
user shall, inter alia, furnish a certificate from any of the Inspection and
Certification Agencies listed in Appendix 32A, where the CIF value of the
imported goods is Rs.one crore and above, certifying the residual life of the
capital goods and reasonability of the purchase price. In accordance with this
proviso, the appellants have obtained and produced a certificate from a
Chartered Enginer, whose name appears at Sr.No.6 of Appendix 32A, wherein he
has certified the fair market value of the goods, which is the same as has been
declared by the appellants. Therefore, I find that there is no legal justification
for enhancing the value of the imports made in the present case.
12. The Commissioner (Appeals)
furthermore found that the assessment having been made behind the back of the
respondent, the same was violative of the principles of natural justice.
13. The Tribunal agreed with the
said findings of the Commissioner noticing several Chapter Headings. It was
found that such mounted 12 cranes primarily used for hauling pressing or
changing the site of operation at this, shall would be classified under Heading
84.26 or under Heading 8431 even if presented with the tractor (whether or not
mounted thereon), such tractors, with its operating equipment are to be
classified separately under Heading 87.01.
14. Noticing the notes on machine
mounted on tractor type appears under Heading 84.26, it was held :
"The word `presented
separately' in the HSN chapter note has to be interpreted `Imported
independently of a lifting device of a Crane' and not when the import is along
with such lifting device of Crane and platform, it has to be placed under 84.25
to 84.30, when sought for assessment & presented to be cleared on same BE
as a set. Chapter note 3 to Section XVI would call for such a classification.
The notes are being misread by Revenue. We find no reason to classify the
propelling configuration platform of 8 SMPTs separately, in this case, than the
Ringer Crane.
Classification has to be under
heading 84.26 and not under 8701 on the reasons as stated in the background of
the case and or the grounds adopted. We find no reason to consider the SPMTs to
be an independent equipment imported and presented for classification
separately in the facts of this case, and on the grounds made out."
It was furthermore held :
13 "The uncontested role
played, is to render the operations of the crane useful at different locations
at the Refinery site, for which it has been imported; how it functions to lift
a particular load, i.e., while on the moving platform or on its jack, is not
relevant to rule out is common understanding to be as a `Mobile Crane'. A
`Mobile Crane' would be one which can perform its function at different
locations; a crane that can move with the load to different sites would be a
`Travelling Crane' like an EOT crane, while a crane on propelling platform haulage
tractors or guided on rails, capable of operations at different sites would be
a Mobile Crane."
It was observed :
"Surely all
elements/components as envisaged under note 3 to Section XVI cannot work
simultaneously all the time. A component machine will function only when the
ascribed function is called for. Propelling base SPMTs would be called for in
use to change the location in this case and change in location need not be with
the load lifted since it is not a traveling crane. The importer of SPMTs is
admittedly is to import mobility to the Crane to operate at different places. A
`mobile crane' as would be understood has to be a crane which can move and
relocate; as to how it functions at different sides i.e. mounted on its
propelling mechanism or otherwise or partly on the propelling mechanism or
otherwise or partly on the propelling mechanism and partly on jacks to gain
leverage for lifting will not disentitle it from being `mobile'.
14 It was concluded :
(i) Comparison from the Technical
literature and then comparing the present import with the values of a Crawler
Crane CC- 12600 an accepted Mobile Crane imported at Jawahar Custom House to be
identical and similar to goods herein only on the grounds of Lifting Capacity
of the Crawler Crane CC-12600 and the present imported Crane to be same and
thereafter taking the purchase price of Crawler Crane CC-12600 as available in
the literature to be DM 25 Million in 1997 and then applying the valuation to
the crane in the present case cannot be upheld. One cannot appreciate
comparison valuation, as arrived at, merely on capacity basis when goods are of
different models old machinery with different usage and have `Opportunity
Costs' inbuilt for such specific old used machinery. The application of Best
Judgment Rules also has to be in conformity with the Valuation Rules.
One cannot compare unlike or
dissimilar goods, to arrive at valuations based on by comparable goods rules,
even under best judgment rules. The proposal as made in the appeal cannot be
therefore upheld.
(ii) CC (Appeal) in the impugned
order has dealt with the aspect of valuation in extension in para 11 and we
find no valid grounds to repeal those findings."
15
15. Learned Solicitor General, in
support of this appeal, would submit that a distinction must be made between a
mobile crane and a crane mounted on a moving platform fitted with wheels. It
was urged that the finding of the Tribunal is not clear as to whether the
equipment is a mobile crane or a material handling equipment. It was urged that
in any event only the crane would be a material handling equipment and not a
platform fitted with wheels as they had been manufactured by two different
manufacturers. As regards valuation, it was contended that keeping in view the
report of the expert, the Commissioner (Appeals) as also the Tribunal committed
a serious error in accepting the invoice value.
16. Mr. Harish N. Salve, learned
senior counsel appearing on behalf of the respondent, on the other hand, would
urge that the notifications contained overlapping entries. An equipment may
fall within the meaning of the term `electric overhead traction' or `mobile'.
Our attention was drawn to the fact that the said equipment was imported for a
temporary period and it has already been re-exported.
17. We have noticed hereinbefore
that the First Appellate Authority has delved deep into the matter to arrive at
a finding of fact that the purpose for which the crane had to be used is an
ordinary mobile crane.
16 It was opined that having
regard to the nature of the work for setting up of a crude petroleum refinery
would not have been possible and only for that purpose, such a material
handling equipment, as per the definition contained in the said notification
No.11/97 as amended by notification No.55/97 had to be imported.
18. The notification must be
interpreted in a broad manner.
Exemption had been granted to a
large number of goods specified in List 8A required for setting up crude
petroleum refinery. The project evidently was a huge one.
In List 8A, as many as 45 items
were listed. Some of the headings are overlapping. Item Nos.16 and 18 wherewith
we are concerned use the word `all types of materials' and `all types of
material handling equipments'. The fact that there are two parts in the crane in
question is not in dispute. The fact that two parts thereof were manufactured
by two different manufacturers is also not in dispute. It is also not in
dispute that the respondent had imported the same as a second hand item from
the same party. It was to be used as a crane and/or a material handling
equipment. The findings of fact, as noticed hereinbefore, were arrived at by
the Commissioner (Appeals) as also by the Tribunal. The 17 Commissioner
(Appeals), while accepting the respondent's case, had considered the report of
the expert thoroughly.
19. Submission of learned
Solicitor General, that the observation of the tribunal to the effect
"(T)he note 3 to Section XVI that when a combination of machines, the
Ringer and propellers imported in this case are intended to contribute together
for a clearly defined function, governed by one of the headings in Chapter 84,
lifting special machinery on this case at different sides, then the whole folk
to be classified in the heading appropriate to that function. Therefore,
propelling base in this case, which is presented as imported along with ringer
crane cleared on the same BE, consisting of 8 haulage SPMTs in this case, are
not elements presented separately for assessment in this case. They have been
imported as a specific configuration set along with the Ringer Crane, platform
etc.; are not clear, may not be correct. The Appellate Authority having
considered the matter from several angles, it was not necessary for the
Tribunal to deal with all aspects of the matter."; is not apposite.
20. In our opinion, the entire
order has to be read as a whole.
Exemption was granted to
equipments made to be used for a particular purpose. A contextual meaning to
the entries, keeping in view the 18 nature of exemption sought to be granted by
reason of the said notification, must be assigned. The crane was to be shifted
from place to place covering a huge area. Its services were required at a large
number of places. It has been found that the description of the crane,
technically given as Heavy Duty Crane was, in fact, a mobile crane.
Only with a view to provide
mobility thereto, a self-propelled modular transport system had been provided.
It had to be consigned in
different parts for convenience of transport so as to enable the importer to
reassemble the same. It was on that basis, the equipment was found classifiable
under Heading 84.26 and not 8724.90. In the alternative, the goods were found
to be falling under serial No.18 of the notification. This finding of fact is
not in question.
What is in question is that only
the crane part of the equipment would come within the purview of the exemption
notification and not the entire equipment.
We do not agree with the said
contention. The purpose for which the exemption was granted must be considered
in its entirety. The purpose of grant for exemption cannot be lost sight of.
The Central Government must be held to be aware, if not of the equipment
itself, 19 but about the nature thereof which would be required for setting up
a crude oil refinery.
We are not oblivious of the
proposition of law that an exemption notification should be construed directly
but it is also well settled that interpretation of an exemption notification
would depend upon the nature and extent thereof. The terminologies used in the
notification would have an important role to play. Where the exemption
notification ex facie applies, there is no reason as to why the purport thereof
would be limited by giving a strict construction thereto.
21. The comparison made by the
learned Solicitor General that mobility of a person would depend upon his
personal fitness and not when he is placed on a wheelchair, in our opinion, is
not apposite. The purpose of grant of exemption is different. The object for
grant of notification shall be considered in a broad based manner. The wordings
used therein have to be given its natural meaning. The purpose must be allowed
to be achieved. The words `all types of materials' should be construed widely.
22. We, therefore, are of the
opinion that in view of the entries an furthermore the purport and object the
notification sought to achieve, the Commissioner (Appeals) and the Tribunal
cannot be said to be 20 wrong in their findings that the equipment in question
would be entitled to the benefit of exemption.
23. So far as the valuation aspect
is concerned, why a different view has been taken from the one disclosed in the
invoices has not already been spelt out by the assessing authority. The
valuation was found to be a plausible one. It was a second hand machinery.
Valuation of the equipment which was in the mind of the expert of the equipment
in question was found as of fact to be of different nature. Those who deal with
valuation of a second-hand machinery and valuation of a newly manufactured
equipment may be different persons. No fraud on the part of the assessee has
been alleged. No illegality or any suppression has also been alleged.
24. The Appellate Authority has
gone into the said question at some details. Its finding to the effect that
addition of 1% of the value of the imported goods towards the transportation
charges is contrary to Rule 9 (2)(b) of the Valuation Rules has not been
disputed. The Appellate Authority, furthermore, apart from arriving at a
finding of fact that the crane which was in the mind of the expert was
different from the one which was imported by the respondent herein, also opined
that the crane was a second hand machinery which had been imported for a 21
specific object to be carried out and has not been purchased by the appellant,
was also a relevant factor which, however, in our opinion, rightly been taken
into consideration..
25. For the aforementioned
reasons, we find no merit in this appeal.
It is dismissed accordingly with
costs. Counsel's fee assessed at Rs.50,000/- (Rupees fifty thousand only).
.............................J.
[S.B. Sinha]
.............................J.
[Lokeshwar Singh Panta] New Delhi;
May 16, 2008.
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