Customs, Excise and Gold Tribunal - Delhi
Collector Of Customs vs Bharat Heavy Electricals Ltd. on 10 April, 1982
Equivalent citations: 1984(17)ELT525(TRI-DEL)
ORDER A.J.F. D'Souza, Member (T)
1. The Government of India issued a notice for review of order-in-appeal No. S/49-1369/79R, dated 20-3-80 passed by the Appellate Collector of Customs, Bombay in exercise of its power of review under Section 131(3) of the Customs Act, 1962 to which the respondents replied in their letter dated 5th February, 1981. These proceedings have been transferred by the Government of India to the Tribunal for disposal in terms of Section 131B(2) of the Act.
2. The facts of the case are that the respondents made an application for registration of the contracts relating to import of goods like width gauge equipment, load cells, thyristors, transmitters etc., required for the modernization of the existing Rourkela Steel Plant, Orrisa for concessional rate of duty under Heading 84.66 of C.T.A., 1975. These goods were covered by three import licences all dated 29-8-78 and endorsed "Project Import". The importers had clarified that the goods were being imported not for initial setting up of any new plant but for modernization and revamping of the existing plant. They also stated that the main plant was commissioned in 1961 and the modernization aims at-
(i) Rolling of hot-roll strips of closer tolerance.
(ii) Rolling of thinner gauges.
(iii) Better metallurgical control on the cooling & finishing temperature,
(iv) Better coiling facilities.
(v) An increase in productivity with minimum alteration.
They had also produced a study report prepared by Rourkela Steel Plant Metallurgical & Engineering Consultant India Ltd. on the modernization of the ''Hot Strip Mill" from which it was noticed that the modernization may result in an overall marginal increase in the output of the product. They further stated that the capacity of each re-heat furnace which is reduced to 80t/hr. against the rated output of 100 t/hr is expected to increase by 115 t/hr. and the rated output of 1,106,000 t/year of capital HR Coils can be achieved in 5000 hrs. as against earlier 6000 hrs. However, no amendment of the Industrial Licence showing permission for "substantial expansion" was produced and the Assistant Collector rejected the application for registration by his order dated 23-7-79. He observed that they were neither required for initial setting up of a unit for substantial expansion of an existing unit and do not fall within the heading 84.66. The Appellate Collector went into the matter at some length and observed at the outset that it is not at all clear to him what different documents the Assistant Collector sought or what different information he spught from the appellants. From the documents and pleadings before him, the Appellate Collector understood as follows-
(i) Apart from increasing the production facilities there would now be substantially improved control systems most of them of the modern electronic type.
(ii) The programme of modernisation and revamping is essentially limited to the semi-continuous hot strip mill, vis-a-vis the rated or installed capacity, the actual capacity which was 70% would be raised to 110%. In other words, modernisation would increase installed capacity by 10% and actual capacity by 56%. The reheating furnaces and roughing mills which are related to the Hot Strip Mill, which also served the Plate Mill, is expected to go up by 37%.
(iii) The modernisation and revamping programme will enable production of finished strip of 1.6 mm thickness as against only 2 mms being produced and this would be done without the need to increase the production time. This change implies that while prcduction may or may not increase in terms of volume or tons it would still be of much higher value in terms of rupees at constant prices since strips of 2 mm thickness are cheaper than those of 1.6 mm thickness. He felt that the Assistant Collector has not tried to appreciate these factors but has limited his attention to the terminology "modernisation" and "revamping" which seems to have no resemblance to the terminology used in the tariff, namely, initial setting up or substantial expansion of an industrial unit. On the analogy of the spinning wheel, the Amber Charka, the handloom, powerloom and automatic loom and keeping in mind the concept of modern technology, it would be wrong to think that substantial expansion should only mean multiplying production units as such. It must be interpreted so as to be consistent with all the different aspects of modern technology. If a better or higher output in terms of quantity or of value or a combination of both, are achieved, it ought to be considered as permitted within the omnibus expression "substantial expansion". He categorically asserted that substantial expansion should be with reference to the actual working capacity or attained capacity and not to the licensed capacity, which is largely notional. In the present case, it is not the 10% increase but the 56% increase in production which is relevant. He further observed that it is not necessary to refuse project import assessment on any vague doubts and nothing prevents refusing assessment or invoking the terms of the bond at the time of finalisation, in case there is any misuse of the concession initially allowed. By refusing to register the contract in the first instance, the tax payer is called upon to block huge amounts of its working capital and this effects not only the importer but every citizen including the Customs Officer. He, therefore, directed registration of the contract with provisional extension of the benefit of the project import regulations by the Assistant Collector. He should refund to the appellants provisionally an amount collected minus the amount that would be due under heading 84.66 and the finalisation will be done later. The blocked amounts re-resenting the excess over the correct levy under heading 84.66 should be released straightway by way of a refund order.
3. The show cause notice alleges that the importers have not produced any amendment of the industrial licence showing permission for substantial expansion by the competent authority as per Section 13 of the Industries (Development and Regulation) Act, 1951 and that the subject importation was for the purpose of modernisation and revamping whereas substantial expansion would mean increase in the rated capacity of the plant which category the imports in question do not fall. Consequently, Government was of the tentative view that the appellate order was not correct in law and is proposed to be reviewed. The importers were accordingly asked to submit their written explanation with all supporting documents and state whether they would like to be heard in person before a decision is taken. In the meanwhile, the appellate order was stayed till finalisation of these review proceedings under Section 131(3).
4. In the reply dated 5-2-81 under consideration before us, it is stated that as against the cryptic and non-speaking order of the Assistant Collector, the order-in-appeal is a judicious, speaking and well reasoned order and there was no reason of review. It appears that the need for review arose because certain details furnished to the Appellate Collector were not probably taken on record. The only ground in the show cause notice is regarding amendment of the industrial licence and it appears that modernisation and revamping have been interpreted in a very narrow sense. It is pointed out that the Steel Authority of India (Rourkela) obtained approval from the Project Investment Board early in 1979 for a major revamping and modernisation of the existing Hot Strip Mills. Unfortunately, instead of using the term 'substantial expansion' they used the term 'Major Revamp and Modernisation'. This high level Inter-ministerial Board scrutinises proposals and approves the estimates. In the estimated cost of Rs. 27.24 crores based on ruling prices in 1956, the Steel Authority of India had taken the Customs duty element at 40% being the applicable rate for Project Imports (vide annexure 'A'). Based on this sanction, three import licences were obtained and got endorsed as Project Imports, on the letter dated 20-9-78 from SAIL and recommendation dated 18-10-78 from the Ministry of Industry; and orders were accordingly placed. Prior to the import, the Assistant Collector was approached for registration of the contract under the Project Imports (Registration of Contract) Regulations, 1965, which he rejected without assigning any reasons and issued the order dated 20-3-3979 on being requested. The Appellate Collector was convinced that there would be substantial increase in production and improved control systems. The Government of India proposed to instal a separate cold rolling mill complex at Rourkela for producing hitherto imported silicon steel coils and sheets which necessitated substantial expansion to produce the necessary hot rolled coils for meeting its needs and also to improve the quality of strips. Substantial expansion has not been denned in the Customs Act or the Regulations and it has to be interpreted as commonly understood. Any modification in the existing system, which results in substantial increase in production, would mean substantial expansion. Carbon steel capacity has been increased by 17% without taking into account increase in terms of HR Strip length/area due to thinner gauge rolling. The increase in terms of lengths/area of HOR Coil Strips is 38% according to calculations enclosed. Considering the increase in terms of carbon steel rolling and the length/area of HR Coil S'rips, the increase in production capacity is 61%. In order to upgrade the existing Hot Strip Mill for increased rolling rate per hour (226 t/hr. instead of 193 t/hr.) and for meeting the requirements of thinner gauges and better quality, the additional facilities had to be installed which also led to closer width tolerance and gauge tolerance and better control on finishing and coilteg temperature leading to desired metallurgical properties. While one of the 4 reheating furnaces is being completed for handling silicon steel slabs, the other three have been rebuilt to enable heating of slabs at a higher rolling rate of 100 tonnes per hour and to produce better soaked slabs. Both SAIL and BHEL are Government of India Undertakings and from the stage of obtaining approval till date, the various Ministries have been consulted and the endorsement as Project Imports on the licences was done by the CCI&E on the recommendation of the Department of Heavy Industry. Section 13 provides that so substantial expansion of industrial undertaking, which has been registered, will be effected, except under a licence and such a licence has been obtained and the substantial expansion took place on this basis. The statement showing the performance in different sections to establish substantial expansion, for which the term "modernisation and revamping" were unfortunately used is furnished. The Assistant Collector has gone by an arrow interpretation whereas the Appellate Collector has applied his mind and come to a balanced conclusion. Since these two decisions create a doubt, the interpretation should be the one favourable to the subject as held by the Supreme Court (AIR 1971 Supreme Court 378 page 22). In view of these submissions, a personal hearing may be granted in order to establish and satisfy the Government that by Modernisation and Revamping what the respondents actually meant was substantial expansion.
5. Shri Chandra Mouli supporting the show cause notice referred to heading 84.66(d) which provides a concessional rate of duty to auxiliary equipment, components etc. required for the initial setting up of a unit or the substantial expansion of an existing unit of five specified industries and such other projects as the Central Government may notify having regard to the economic development of the country. It provides for registration of contracts in the manner prescribed by regulations under Saction 157. These are known as the Project Import (Registration of Contract) Regulations, 1965 and these require that the DGTD should certify that the goods are imported for substantial expansion of an existing unit. This condition has not been fulfilled in the present case. The opinion of the Appellate Collector that the licensed capacity was not relevant, is of no consequence. Taxing statutes are to be strictly interpreted (1980 E.L.T. 736 Delhi High Court and AIR 1974 S.C. 1362 Supreme Court). He also relied on 1983 E L.T. 259. If there were two constructions which an entry could reasonably bear and one of them which was in favour of Revenue was adopted, the Court has no jurisdiction to interfere merely because the other interpretation favourable to the subject appeals to the Court as the better one. The Tribunal should not, therefore, interfere in this case. Shri Kampani on the other hand relied mainly on the order of the Appellate Collector and the technical note submitted by the appellants. Since Cold Rolled Sheets with specific properties were required for the manufacture of transformers, motors and dynamos, the Rourkela Steel Plant mooted a proposal for diversification. Only two Companies in the world had the required technology and one of them M/s. ARMCO entered into an agreement in November 1975 and prepared a Master Plan for setting up a cold rolled silicon electrical steel plant. In this connection MECON was asked to examine and report what other changes would be required in the existing equipment of the steel plant in this connection and they gave a report for modernisation of the semi-continuous hot strip mill to make it suitable for rolling of silicon steel sheets. Their recommendation was agreed to by ARMCO. Part of the available rolling capacity in the Hot Strip Mill was earmarked for rolling of silicon steel hot rolled coils and substantial modification was required in the mechanical and electrical equipment and re-heating furnaces to increase the rolling capacity for carbon steel grades from 193 tonnes per hour to 225 tonnes per hour. Whereas only 2.5% of thin gauge strips was being produced it was sought to be increased to 20% of the total production apart from rolling 1.8 mm thick strips not possible earlier. The strip area would be increased by 38% and the total expansion is of the order of 60% resulting from higher percentage of thinner gauge material. It is claimed that the modernisation of the Hot Strip Mill is really a part of the initial setting up of the silicon steel rolling facilities. In order to ensure that, by this diversification into high value products, the existing out put of carbon steel sheets does not come down, the existing Hot Strip Mill had to be substantially expanded. While approving this modernisation, the Government of India permitted the benefit of "Project Imports" for both investment proposals and the industrial licence to set up facilities for 37,500 tonnes of cold rolled grain oriented sheets was issued on 18-4-80. Similarly, the Chief Controller of the Imports and Exports had suitably endorsed the components and equipments for the hot strip mill modernisation and a new cold rolling complex as "Project Import". Though the Department gave the facility to the cold rolling complex, they denied it for the Hot Strip Mill modification. Shri Kampani referred to Section 13(d) of the Industries (Development and Regulation) Act which provides that no substantial expansion of an industrial undertaking which has been registered can be effected except under a licence. He stated that substantial expansion means substantial increase in productive capacity or creation of virtually a new unit. The Project Investment Board approved the Project and the DGTD have certified that the benefit of the concessional rate as Project Import should be accorded. The industrial licences are also properly endorsed. The complete requirements of the law are, therefore, made and the department has no case to review the order of the Appellate Collector. In rebuttal, the learned SDR stated that the question of increase in quality is not relevant in considering whether there has been substantial expansion for purposes of the concessional rate. In any case on the basis of the rated capacity, the 10% increase after modernisation does not amount to substantial expansion.
6. Heading 84 66(d) covers inter alia auxiliary equipment required for the initial setting up of a unit or the substantial expansion of an existing unit of a specified industrial plant and requires registration under the regulations. Clause (1) of Rule 3 requires an application. Clause (2) requires it to be made as soon as DGTD clearance has been obtained. The application should specify the location of the plant or project, the description of the articles to be manufactured, the installed or designed capacity of the plant or project and in the case of substantial expansion the installed capacity and the proposed addition thereto and such other particulars as may be considered necessary. The application is to be accompanied by the original deed of contract, the ITC licence with a statement of the article licensed to be imported duly attested or, in the case of Government Agency, the clearance of the DGTD and a certificate from the Head of the Project Authority that the import is covered by the rules. Such other documents and particulars as may be required by the proper officer are also to be furnished and on being satisfied that the application is in order, he shall register the contract and assign a number.
7. In the case before us, no material has been placed before us as to the nature of the enquiry under the Regulations made by the Assistant Collector. He has merely held that this is not a case of initial setting up or substantial expansion. The review notice also does not specify why Government has come to the conclusion that the order-in-appeal is not proper, beyond the bald assertion that no amendment to the industrial licence showing substantial expansion is produced and substantial expansion would mean increase in rated capacity. There is no doubt in this case that the additions were in the nature of a multi-crore Project and there is no doubt that the DGTD recommended the imports and the licences were suitably endorsed. While we cannot agree with the Appellate Collector that expansion of rated capacity is not relevant for the purposes of the concession, we also hold that modernization and revamping do not in themselves preclude substantial expansion of an existing unit. On the facts and circumstances of this case, we are of the view that the conditions for registration are substantially fulfilled. The regulation do not require any reference to Section 13 of the Industries (Development and Regulation) Act, 1951 but only the ITC licence. These licences having been endorsed as Project Import, there was no reason for the Assistant Collector to deny the registration of the contract. Further, there is no evidence that he called upon the appellants to produce their industrial licence, on which the review notice proposes to place reliance. We find force in the respondents' contention that the licence under Section 13 had in fact been obtained for the Project as it was mandatory. For these reasons, we would uphold the impugned order and discharge this notice. The appeal is dismissed.