Customs, Excise and Gold Tribunal - Delhi
Collector Of Customs vs Reliance Industries Ltd. on 16 October, 1995
Equivalent citations: 1995(80)ELT831(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. The above appeal by the Revenue arises out of the order dated 20-11-1992 of the Collector of Customs (Appeals), Bombay in the following circumstances:
2. The respondents herein, who are manufacturers of textile fabrics, were granted an Industrial Licence No. L/23(5)161 /MMF & S/73, dated 31-10-1973 for substantial expansion and the capacity of the unit was determined as 450 Power Looms and 4 Warp Knitting machines (existing 125 power looms and 4 Warp Knitting machines) for the manufacture of Art silks/synthetic yarn woven fabrics and for the manufacture of knitted fabrics. The respondents were further permitted to expand the capacity of the said Industrial unit by installation of two circular knitting machines for manufacture of art silk knitted fabrics. By Licence dated 29-5-1975 the Government granted further substantial expansion of the installed capacity by 8 Warp Knitting machines and 8 Circular Knitting machines - corresponding to total consumption of 320 tons of caprolactum. The respondents were also further granted an Industrial Licence dated 8-6-1979 for installation of 12,500 spindles to manufacture man-made fibre yarn on worsted system. In November 84, the respondents applied for 29 preparatory and processing machines and Warp machines (12) and Circular knitting machines (21), which are production machines, indicating that the purpose of import was for modernisation/balancing and that there would be no increase in the licensed capacity. The first Licence covered various items of machinery such as Warp knitting machines, two-for-one twister, fancy yarn twister, patterning machines, etc., while the second one included only one unit of Karl Mayer stretching and Warping machine. The modernisation programme involved the replacement of 12 existing Warp knitting machines by 12 modern Raschel Knitting machine model No. RD 6 DPLM of (West) German origin having a maximum working width of 130". The replacement was done with the prior permission of the Textile Commissioner which was granted to them by letter dated September 11, 1985. These were the 12 production machines and all the other machines including the stretching and warp installation were all preparatory and finishing machines for the fabric. The respondents applied for and obtained the import licence for the import of the preparatory and finishing machines to match the substantial addition in the production that would ensue by replacement of the existing 12 obsolete slow production machines by 12 modern sophisticated fast Raschel knitting machines.
3. By a letter dated February 4, 1986 addressed to the Director in the office of the Textile Commissioner, Bombay, the respondents applied for a recommendation for the benefit of assessment under Heading 84.66 of the erstwhile First Schedule to the Customs Tariff Act, 1975 explaining that in the first phase, they replaced 154 old looms with 136 sophisticated Sulzer looms and 18 Nos. water jet looms during the period 1980/82, and in the second phase the company had undertaken modernisation of the weaving section further by replacing the balance 296 looms by installing 280 water jet looms and 16 Sulzer looms during the year 1984-85, while in the third phase the company was planning to modernise its knitting section by replacing old warp knitting machines and circular knitting machines by importing high speed Raschel knitting and inter-lock machines. It was further explained that these modernisation programme required a modernisation of preparatory section as well as the finishing section. The Textile Commissioner recommended the benefit of assessment under Heading 84.66 as a project import for the import of the machinery covered by the aforesaid two licences in his letter No. Project/119/85-86/AS/Vol. II/2050, dated 11-4-1986.
4. The goods were imported in 1986-87 and before the first consignment arrived, the respondents applied for registration of the contract to the Assistant Collector of Customs, Contracts Cell, New Customs House, Bombay, on March 21,1986. The respondents by a letter dated 24-2-1986 informed the said Assistant Collector that they had applied to the Textile Commissioner, Bombay, to issue necessary recommendatory letter as per para 288(1) of the Hand Book of Import-Export Procedure, 1985-88 which had been acknowledged by the said office in their letter dated 21-3-1986. Under cover of the same letter they enclosed the following documents :
1. Contract No. K-50473, dated 20-9-1985 of Tsudakoma Corporation, Japan.
2. Letter of Credit No. 214/2016/86, dated 21-1-1986 of Canara Bank
3. Catalogue
4. Blue Prints of the layout of the machine
5. Continuity bond No. 30186 dated 24-2-1986 for Rs. 26.40 lakhs being 5% of the FOB value duly backed by a bank guarantee.
This was the application with reference to Licence No. 2099456.
By letter dated 15-10-1986 the respondents drew the attention of the said Assistant Collector to the fact that the consignment under B/E Nos. 459/13, 385/22 and 385/39 were cleared provisionally on execution of the requisite guarantee pending the receipt of the recommendatory letter from the Textile Commissioner's Office. They further informed him that the said recommendatory letter had been received by the customs authority on 10-4-1986 recommending the assessment of the goods as project import under Heading 84.66. It was also brought to the notice of the Assistant Collector that on 5-8-1986 they had approached the department for registration of the contract along with the Bill of Entry for the import of 7 Nos. Fancy yarn twisters vide B/E No. 1361 /51 but were denied the facility since certain clarifications were required by the Customs authority, which were received by the Department on 25-9-1986.
5. The contracts were registered and the goods were cleared on provisional assessment of the same in terms of Heading 84.66 as it existed in the First Schedule to the CTA 75 at the relevant time and later shipments under Heading 98.01. By notice dated 6-12-1990, the respondents were called upon to show cause as to why the provisional registration of the contract for assessment either under 84.66 or 98.01 should not be de-registered and the goods be reassessed under Headings 84.45 and 84.48 and differential duty amounting to Rs. 3,71,26,962/- be not recovered from them. The respondents replied to the notice denying all the allegations and contesting the liability to pay any differential duty. By order dated 31-12-1991, the Assistant Collector of Customs denied the benefit of assessment as Project Imports on the ground that the imports made were neither for the initial setting up nor for substantial expansion of the Unit and ordered that the machinery be assessed on merits and confirmed the differential duty demand.
6. The lower appellate authority held that since the production capacity and actual production of the respondents had increased by 135.63% the imports were for substantial expansion of the unit, and further held that since the Textile Commissioner who is the competent authority in such cases, had certified the substantial expansion and recommended grant of duty exemption which recommendation was binding upon the Customs authorities, the respondents were entitled to the benefit of concessional rate of duty for Project Imports. Hence this appeal by the Revenue.
7. Shri M. Chandrasekharan, learned Additional Solicitor General, appearing on behalf of the Revenue, draws our attention to the industrial licences for initial setting up or substantial expansion dated 27-12-1967, 18-12-1970, 31-10-1973,17-1-1974,29-5-1975 and 8-6-1979 in which the installed capacity is indicated on the basis of the number of knitting machines, powerlooms or spindles, as the case may be, and submits that, admittedly, the respondents did not possess an industrial licence for substantial expansion in respect of the existing industrial unit at Naroda in Ahmedabad. They had only obtained permission for replacement of existing warp knitting machines by 12 imported Raschal Knitting Machines (permission letter dated 11-9-1985 at P. 229 of Vol. II of the paper book). The Textile Commissioner's recommendation dated 11-4-1986 and clarification dated 25-9-1986, recommending benefit of assessment as Project Imports which has been heavily relied on by the lower appellate authority is not binding on the Customs authorities and cannot supersede the function of the Customs authorities who are to arrive at an independent objective satisfaction, before extending the benefit, contends the learned Counsel. What is relevant for the purpose is "installed capacity" and not production capacity. In support of this proposition, he relies upon the order of the Tribunal on actual production in the case of National News Print and Paper Mills Ltd. v. Collector of Customs, Bombay reported in 1987 (32) E.L.T. 153 (T). The Project Import Regulations require to be interpreted and since these are self-contained, the necessity to consider the definition of the expression "substantial expansion" in the Industrial Development and Regulation Act, 1951 does not arise, according to the learned Counsel. The respondents also admits in their reply dated 16-9-1991 to the show cause notice (P116 of Vol. I of the paper book) that the installed capacity is relatable to spinning or knitting machines. Even in the Writ Petition filed by them before the Hon'ble Bombay High Court, they admitted that the purpose of import was for modernisation and that there would be no increase in licensed capacity. The learned Counsel submits that these contemporary records can be looked into as contemporanea expositio, as held by the Hon'ble Supreme Court in the case of Indian Metals & Ferro Alloys reported in 1991 (51) E.L.T. 165 (SC). He further submits that the definition of "substantial expansion" in the explanation to Section 13(2) of the IDR Act cannot be looked into to determine the meaning of that expression in the context of Project Import Regulations for the reasons that the explanation relates only to that Section, as is evident from the phrase "for the purpose of this section" occurring at the commencement of that Explanation, and also for the reason that the IDR Act relates to regulation of production and is not in pari materia with the Customs Act which is a legislation enacted for collection of Revenue. He places reliance on the judgments of the Hon'ble Supreme Court in the case of State of Punjab v. OGB Syndicate (AIR 1964 SC 669), Mohan Lal v. Kondiah 1979 (2) SCC 616 MS Co. (P) Ltd. v. Union of India 1985 (19) E.L.T. 15 (SC) and P.C. Cheriyan v. Mst. Barfi Devi 1979 (4) E.L.T. (J 593) in support of the proposition that words in a statute must be interpreted in the context of the statute in which they appear. Lastly, he submits that even assuming without admitting that there is any ambiguity in the meaning of the expression "substantial expansion, such ambiguity should be resolved in favour of the Revenue as held by the Hon'ble Supreme Court in Mangalore Chemicals and Fertilizers 1991 (55) E.L.T. 437 and Liberty Oil Mills 1995 (75) E.L.T. 13]. Therefore, he prays that the impugned order may be set aside and the appeal allowed.
8. Replying to the contentions of the Department, Shri A.N. Haksar, learned Senior Counsel appearing along with Shri Rohan Shah and Shri Ashok Mehta, Advocates submits that the term "installed capacity" has not been defined in the Project Import Regulations even though the 1986 Regulations contain a definition of the term "substantial expansion". Assessment under Project Import is in the nature of exemption as it is a departure from the normal rule that goods are to be assessed on merits. The term "installed capacity" has been judicially interpreted by the Supreme Court in the case of Union of India v. Wood Papers reported in 1990 (47) E.L.T. 274 : 1990 (47) E.L.T. 500 (SC) to mean productive capacity. He refers to the dictionary meaning of "instal" as "to set up in use of service" and meaning of "capacity" as "maximum possible outputs" in the Lexicon Webster Enclyclopedia Dictionary and Random House Dictionary. The Dictionary defines "capacity" as maximum possible output or production of a system of machinery or apparatus placed in position for use.
9. He contends that only if the production of the existing industrial limit has increased by more than 25% will the benefit of Project Import be available for substantial expansion and since admittedly such increase has taken place as found by the lower appellate authority and not challenged in this appeal, the imports are entitled to assessment as Project Import. The learned Counsel refer to para 288 of the Hand Book of Import Export Procedure 1985-88 and submits that the word "may" occurring therein regarding allowing of concessional rate of Customs duty on the recommendation of the concerned sponsoring authority is to be construed as "shall" and once the Textile Commissioner has recommended benefit of Project Import, the Customs authorities are bound to extend such benefit, as rightly held by the Collector (Appeals). He draws our attention to Section 10(5) in which "productive" or "installed capacity" are used interchangeably, and to the Industrial licence dated 27-12-1967 which mentions both the No. of machines and production capacity which would bolster his contention that production capacity is the yardstick to decide the issue. Press Note No. 2 dated 11,1986 also recognises additional capacities as a result of replacement/modernisation/renovation of equipments. He also submits that Appendix 2 of the Industrial Licence Forms indicates two methods of increasing production capacity. The common parlance test is also satisfied, as production increase is understood as increase in installed capacity.
10. Shri Haksar seeks to distinguish the cases cited by the learned Addl. Solicitor General. He submits that in the case of Saurashtra Cements reported in 1983 (12) E.L.T. 829 which has been relied upon by the majority of the Bench in the National Newsprint case supra, production decreased and the admitted position was that the imports were only for modernisation and replacement of existing Cement Plant and no expansion of capacity was involved. This judgment endorses the view that neither Project Import endorsement on Import Licence nor recommendatory letter from sponsoring authority is required for claiming Project Import benefit. He submits that the order in Travancore Titanium (Order No. C/99/94-B2, dated 20-1-1994 is a non-speaking order and hence does not advance the case of the Department. In the cases of Auto Tractors reported in 1989 (39) E.L.T. 494 (SC), Wood Papers reported in 1990 (47) E.L.T. 274* and Excel Industries v. Union of India reported in 1989 (25) ECR 491 (Bom.) the common thread running through all of them is that there must be increase in production capacity. The order of the Tribunal in the case of BHEL reported in 1984 (17) E.L.T. 525 (Tri.) is squarely applicable to the facts of this case and hence Project Import benefit is available to the respondents. He cites the decision of the Hon'ble Supreme Court in the case of Bajaj Tempo reported in 1992 (3) SCC 78. Since Headings 84.66 and 98.01 of the CTA are aimed at encouraging production, an interpretation which advances this objective and not one which defeats it, should be adopted, and in this context, he draws support from the decisions reported in 1992 (55) E.L.T. 437, 1994 (73) E.L.T. 769 and 1994 (74) E.L.T. 775. He, therefore, prays that the order of the lower appellate authority may be upheld and the appeal dismissed.
11. In a brief rejoinder, Shri M. Chandrasekharan contends that installed capacity is not synonymous with productive capacity, the IDR Act uses both terms to mean two different things. He refutes the argument of learned Counsel that 'may' is to be read as 'shall' by pointing out that this is to be done only where a legal right exists in a person coupled with a legal duty cast upon an authority, while in the case of Project Imports, the sponsoring authority is only a recommending authority and so customs authorities are to independently apply their mind before assessment of imports. He urges that the dictionary meaning should not be looked into, and also contends that, since Headings 84.66 and 98.01 which are the subject matter for interpretation herein are not meant for encouraging production, the arguments on this score are not germane to the issue. He submits that the BHEL case is not applicable on the facts and in the circumstances of the present appeal and further, National News Print order, notes and distinguishes BHEL. In the case of 1984 (17) E.L.T. 525 (Tri.), the Notification provides for submission of certificate and, therefore, it is binding unlike this case.
12. We have carefully considered the arguments advanced on both sides and perused the records. Along with the application for registration of Contract in terms of Project Import Regulations 1965, the respondents filed the following industrial Licences :
(i) Industrial Lc. No. L/23(5)/161/MMF & S/73, dated 31-10-1973 for substantial expansion Name of the article Annual capacity
-------------------- -----------------
(a) Art Silk/Synthetic yarn 450 power looms (125 existing &
woven fabrics 325 for substantial expansion).
(b) Knitted fabrics 4 Warp Knitting machines
(existing)
(ii) C:IL /71(75), dated 29-5-1975 for substantial expansion
Name of Article Annual capacity
--------------- ----------------
Knitted fabrics of man-made (a) Warp Knitting Machines - 8
fabrics Nos.
(b) Circular knitting M/cs 8 Nos.
(c) Corresponding to a total con-
sumption of 329 tons of
Caprolactum
(iii) IL: S.No. 116 (79) dated 8-6-1979 for Initial set-up
Items/of Manufacturing Annual capacity
---------------------- ---------------
Man-made fibre yarn on 12,500 Spindles
worsted system
(iv) IL:S. No. 14 (74) dated 17-1-1994 for substantial expansion
Items of Manufacture Annual capacity
-------------------- ----------------
Art Silk/Woven knitted fabrics 2 Circular Knitting machines
In the licences, the installed capacity is indicated on the basis of Nos. knitting machines, or power looms or spindles. It is an admitted fact that the industrial Licence produced at the time of registration of project contract was not endorsed for substantial expansion. In terms of Note 2 to Chapter 98 of the CTA, 1975, Heading No. 98.01 is to be taken to apply to all goods which are imported in accordance with the Regulations made under Section 157 of the Customs Act, 1962 and the expressions used in this Heading shall have the meaning assigned to them in the said Regulations. Under Section 157, the Project Import Regulations 1986 were framed vide Notification No. 230/86, dated 3-4-1986 and Regulation 3(b) defines substantial expansion as "an expansion which will increase the existing installed capacity by not less than 25%". During the period when Project Imports fell under Heading 84.66, Project Imports (Registration of Contract) Regulations, 1965 were framed and even though under the 1965 Regulations, the term substantial expansion was not defined, Regulation 3(3)(c) provided for specifying the installed capacity of the proposed addition thereto, in the case of substantial expansion of an existing Plant or Project. From the above, it is clear that what is relevant for the purpose of determining the eligibility to the benefit of Project Imports is the installed capacity of the respondents. This is also the understanding of the respondents as reflected in their reply dated 16-9-1991 to the show cause notice in paragraph 5 in which the respondents have stated that "in a textile mill, the installed capacity is determined on the basis of a spinning or weaving capacity i.e. on the spinning machines or weaving machines". They have also stated that "where a fabric is produced by knitting machines, the installed capacity is reckoned on the basis of number of knitting machines and their capacity." This is evident from the details of the industrial licence furnished in the show cause notice itself, wherein the annual capacity as well as the substantial expansion are based on the number of power looms, warp knitting machines, circular knitting machines. It is not the case of the respondents that there has been any increase in the installed capacity, and in fact their case brought out in the reply to the show cause notice and in the Writ Petition No. 815/92 filed before the Hon'ble Bombay High Court is that the purpose of the import is for modernisation/balancing, not resulting in any increase in licenced capacity. The respondents placed strong reliance on the replacement permission granted by the Textile Commissioner vide letter dated 11-9-1985 which reads as under :
"In exercise of the POWERS conferred on me by sub-clause (8) of clause 4 of the Textiles (Production by knitting Embroidery Lace making and Printing Machines)/Control Order, 1963 read with Textile Commissioner's Notification No. 2(15) 61-Control dated 15-1-1964, I hereby permit M/s. Reliance Textile Industries Ltd., Bombay to acquire and install 12 imported Raschel knitting machines by way of replacement of the 12 warp knitting machines covered under Permit Nos. ASD/16/64/K/166/64/2064 dated the 12th July 1965 and No. ASB/16/64/K/166/522 dated 29th Aug. 1979 as detailed below :
--------------------------------------------------------------------------
Existing Machines To be replaced by
--------------------------------------------------------------------------
Warp 126" width, 4 guide bars "Liba" 12 (twelve) Nos. Raschel
Knitting Worst German Make 2 (two) Knitting machines, Model
machines 126" width, 3 guide bars "liba" No. RDS DPLM of West
West 1 (one) Germany having maximum
126" width, 3 guide bars, "Liba" width 130"
West German Make 1 (one)
Copentra IV 4 guide bars 150"
width 'Liba' West German Make
8(eight)
---------------------------------------------------------------------------
This permission is issued subject to the following conditions :
1. That the mills will arrange to dismantle the old warp knitting machines that have to be replaced.
2. That at no stage of implementation of the replacement permission the number of machines will exceed the permitted capacity.
3. That the replaced machines should not be sold without the priorpermission of this office under the above control order.
4. That the replaced machines will either be scrapped in the presence of an Officer of the Regional Office of the Textile Commissioner, Ahmedabad or will be permitted to be sold to a permit holder only and not to any dealers of machinery, within six months form the date of commercial production of new machines.
5. The proposed replacement should be completed within a period of 12 months from the date of issue of this permission.
6. The details of the progress made should be submitted in the appropriate form by the mills every six months to this office till the replacement is completed.
7. This permission is issued as per para 2 of letter No. CG/454 (84) 68A (85), dated 14-8-1985 of SIA, capital goods section, Dept. of Industrial Development, New Delhi."
They have relied upon letter dated 10/11-4-1986 issued by the office of the Textile Commissioner, Bombay recommending duty concession under Project Imports. The relevant extracts from the letter is reproduced below :
"M/s. Reliance Industries Ltd. Bombay have approached this office for availing concessional rate of duty as provided under para 288 (1) of the Hand Book of Import-Export procedure 1985-88 against import of various capital goods covered under 3 import licences issued to them. The party has replaced their 450 old powerlooms with imported looms which includes import of 280 Water Jet Looms and 16 Projectile Suzer Looms. The import licences obtained by them include 12 Raschel Knitting Machines (Warp knitting) and 2 Circular Knitting Machines for the replacement of the old warp knitting machine and circular knitting machines. The replacement of these machines with modern imported machines amount to substantial expansion in their production of man-made fibre fabrics. To achieve the full production capacity, the connected preparatory and other balancing equipments are also required to be installed and as such their various machines covered under the 3 import licences detailed below are part of the project of modernisation [which] will enhance the production capacity substantially and as such they are entitled for duty concession under Project Import."
The Department sought clarification from the office of the Textile Commissioner stating in their letter as under :
"with reference to the above letter, wherein you have recommended the import of machines for assessment under Project Imports, kindly see para 3(b) of Customs Notification 230/86 dated 3-4-1986 (copy enclosed). Under this Notification 230/86, substantial expansion means increase in the existing installed capacity by not less than 25%. The machines that have been recommended in your letter for concessional duty under Project Imports do not increase the installed capacity of industrial unit of M/s. Reliance Industries Ltd. .... You are requested to reconsider the benefit of assessment at a concessional rate of duty is admissible under Cus. Notification 230/86".
The Textile Commissioner replied to the same vide letter dated 25-9-1986 which is as follows :
"Kindly refer to your letter No. S/5-283/86, dated 1/15-7-1986, drawing attention to Customs Notification No. 230/86, dated 3-4-1986, for reconsideration as to whether the benefit of assessment at concessional rate of duty is admissible under the said notification. In this connection, your attention is drawn to para 1 of this office letter of recommendation of even number dated 10/11-4-1986, wherein it was explained as to why the mill company is entitled for duty concession against the import of the machines detailed in the said letter.
Prior to the issue of Customs Notification No. 230/86, dated 3-4-1986, it was decided in consultation with the Ministry of Textiles that an increase of 20% and above in the installed production capacity would be considered as substantial expansion to become eligible for concessional rate of customs duty. When the customs notification No. 230/86 dated 3-4-1986 was issued, it was again decided in consultation with the Ministry of Textiles that the Office of the Textile Commissioner should continue to extend the facility of issuing certificate for project import concessional duty wherever the installed productive capacity increases to the extent of 25% in spinning and weaving even when it is by way of replacement and modernisation.
As stated in the original letter of recommendation, the replacement of power-looms and knitting machines with modern imported machines amount to substantial expansion in their production of man-made fibre fabrics and to achieve the full production capacity, the connected preparatory and other balancing equipments are also required to be installed and as such their various machines detailed in the said letter 'are part of the project of modernisation which will increase the installed productive capacity substantially and as such they are entitled for duty concession under project import. When the import of 296 looms was considered for duty concession increase in productive capacity over the earlier installed productive capacity was observed to be 135.63%. This was arrived at as follows :
(a) Existing weft insertion rate 1,50,268.48 Mtrs/.min.
per minute of 450 looms and 22 18,763.14 Mtrs/min.
knitting machines --------------------
1,60,031.62 Mtrs/min.
(b) Weft insertion rate of the existing
296 looms proposed to be replaced
(c) Weft insertion rate of the new 280 2,70,294.11 Mtrs/min.
waterjet looms and 16 sulzer ruti
projectile looms [proposed to be
acquired in replacement of (b) above]
totalling 296 looms
(d) Estimated increase in the (c-b) x 100
production capacity after the ------------
replacement of 296 looms a
2,29,257.80x100
---------------
1,69,031.62
=135.63%
In the light of the position explained in the above paras, it is clarified that the benefit of assessment at concessional rate of duty is admissible to the mill company under the Customs Notification No. 230/86, dated 3-4-1986. This has the approval of Textile Commissioner."
From the Textile Commissioner's letter dated 10/11-4-1986 what is brought out is that the various machines covered under the relevant import licences are part of the Project of modernisation (emphasis supplied) and the Textile commissioner has stated that replacement of old machines with modern imported machines will bring about substantial expansion in production of man-made fibre products. However, for the purpose of the Project Import Regulations, increase in existing installed capacity is the relevant factor and not increase in production capacity. Since we are concerned with the interpretation of the term 'substantial expansion' in the Project Import Regulations, we agree with the learned Additional Solicitor General that we are not required to consider the definition of the same expression occurring in the Industries Development & Regulation Act, 1951. The definition of the expression, "substantial expansion" in the explanation to Section 13(2) of the IDR Act cannot be considered for determining the meaning of that expression in the context of Project Imports Regulations as that explanation relates only to that Section, as is evident from the phrase "for the purpose of this Section" occurring at the commencement of that explanation. For the same reasoning, the reference to declaration of ex-factory value of annual production contained in Form IL for application for Licence for effecting substantial expansion under Section 13(1)(d) of the IDR Act, 1951 and Press Note No. 2, dated 1-1-1986 wherein the procedure for amendment in industrial Licence in cases where increased output is the direct consequence of old equipment has been laid down, is not directly relevant for the purpose of this case, which involves interpretation of the Project Import Regulations.
13. We do not agree with the learned Counsel for the respondents that once the Textile Commissioner has recommended the benefit of Project Imports, the Customs authorities are bound by such recommendation. In the case of Project Imports, the sponsoring authority is only a recommending authority and Customs authorities are entitled to independently apply their mind before assessment of imports.
14. We are fortified in our view that it is the installed capacity and not production capacity that is relevant for the purpose of determining eligibility to the benefit of assessment as Project Imports, by the order of the Tribunal in the case of National Newsprint and Paper Mills Ltd. v. Collector of Customs, Bombay reported in 1987 (32) E.L.T. 153 (Tribunal). This order discusses the scope of the expression "substantial expansion of an existing unit" as follows :
"para 14. The case turns on the meaning to be given to the expression "substantial expansion". The argument on behalf of the appellants is basically that the imported twin flo refiner was intended, when installed, to effect a substantial expansion in the output of the plant. It has been argued that the fact of this twin flo refiner being imported because the indigenous equipment originally used did not give the preplanned output should not stand in the way of concessional rate of duty being extended to the imported equipment.
15. Looking at the wording of the Tariff Heading No. 84.66 as it stood at the material time, it will be seen that it relates to machinery, etc., "required for the initial setting up of a unit, or the substantial expansion of an existing unit". What is contemplated is the substantial expansion of a unit, and not the substantial expansion of production of a unit. The intention behind this wording can be gauged from the reference to "initial setting up of a unit". What is contemplated was that a new unit should be set up. The concept of "substantial expansion of an existing unit" was complementary to the first part. Construed harmoniously, it would mean that it would apply to a case where there was already a unit, but an addition was made on such a scale and of such a nature as would be comparable to the setting up of a new unit. Thus, if there were already two assembly lines, the setting up of a third assembly line would be in the nature of "a substantial expansion of an existing unit".
14.1 This decision has also considered the earlier decision of the Tribunal in the case of BHEL reported in 1984 (17) E.L.T. 525 (Tri.) which is relied upon by the respondents herein and distinguished in paragraphs 20 and 21 of the National Newsprint and Paper Mills Ltd. Relevant paragraphs are set out below :
"Para 20. There remains the case of BHEL, on which reliance has been placed by Shri Kohli. No doubt in that case it was held that the benefit of the concessional rate for project imports under Heading No. 84.66 should be given. However, the Tribunal's decision in this case was not based on any single factor, but on an overall view, having regard to a combination of factors. This will be seen from the operative final paragraph of that order, which is reproduced below :
"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 concession, we also hold that modernisation 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 regulations do not require any reference to Section 13 of the Industrial 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."
As pointed out by the learned Departmental Representative, the Tribunal took the view that on the facts and circumstances of that case, the conditions for registration were substantially fulfilled.
21. Reliance has been placed on the observations of the Bench that "modernization and revamping do not in themselves preclude substantial expansion of an existing unit". The appellants appear to take this observation as meaning that modernization and revamping could be considered as equivalent to substantial expansion. But the words used by the Bench do not lend themselves to such a construction. One may say "a bureaucrat is not precluded from being a philosopher". This is far from saying that every bureaucrat is necessarily equivalent to a philosopher. I am, therefore, of the view that the Tribunal's order in the case of BHEL does not contain a decision that modernization and revamping are equivalent to substantial expansion, and therefore, does not support the case of the appellants."
14.2 The National Newsprint judgment (supra) also notes the earlier order of the Tribunal in the case of Saurashtra Cements and Chemical Industries Ltd. v. Collector of Customs, Ahmedabad reported in 1983 (12) E.L.T. 829 wherein the declared goods of the appellants was that their imports were only for modernisation and replacement of their existing cement plant, as in the present case, where the respondents' case is of modernisation of their textile unit. The Tribunal's judgment has been confirmed by the Supreme Court as noted in 1987 (32) E.L.T. 153.
14.3 In the case of Travancore Titanium Products, the appellants' claim for registration of the contract under Project Imports was rejected by the Tribunal as there was no increase in installed capacity even though the production capacity increased by a small percentage over the existing capacity and hence, the ratio of these judgments applied on all fours to the present appeal. Therefore, the submission of the learned Counsel for the respondents that these judgments are distinguishable is not tenable.
15. The argument of the learned Additional Solicitor General that the provisions of the IDR Act are not in pari materia with those of the Customs Act is well founded - The IDR Act relates to regulation of production while the Customs Act provides for .collection of revenue. It is settled that the words in a Statute must be interpreted in the context of the Statute in which they appear. In the case of State of Punjab v. OGB Syndicate reported in AIR 1964 SC 669, the Hon'ble Supreme Court has held that "the scope of the two enactments viz. the Displaced Persons (Institution of Suits) Act, 1948 and the Displaced Persons (Debts Adjustment) Act, 1951 are widely different and, therefore, even if the end use in the two Statutes were identical ... it was not even the case there ... The same conclusion would necessarily follow, having regard to the differing scopes of the two pieces of legislation". In the case of S. Mohal Lal v. R. Kondiah reported in (1979) 2 SCC 616, the issue before the Hon'ble Supreme Court was whether the practice of legal profession is "business" within the meaning of Section 10(3)(a)(iii) of the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act, 1960. The Court held that the meaning of a word must be gleaned from the context in which it is used and reference to the provisions of the Constitution or other statutes where the expression is used cannot be of any assistance in determining its meaning in the above mentioned Section of the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act. The Court held that "neither the meaning, nor the definition of the term in one statute affords a guide to the construction of the same term in another statute and the sense in which the term has been understood in the several statutes does not necessarily throw light on the manner in which the term should be understood generally. On the other hand, it is a sound, and indeed a well-known principle of construction that meaning of words and expressions used in Act must take their colour from the context in which they appear". The Court rejected the appeal of the tenant whose eviction had been ordered on the evidence of bona fide requirement by the landlord carrying on his profession as an advocate and negatived appellant's contention that practice of a legal profession was not "business" within the meaning of the above quoted Section of AP Buildings (Lease, Rent and Eviction) Control Act, and that, therefore, the landlord was not entitled to evict. In the case of MSCO (P) Ltd. v. Union of India and Ors. reported in 1985 (19) E.L.T. 15 (SC), it has been held that "while construing a word in a statute or statutory instrument in the absence of any definition in that very document it must be given the same meaning which it receives in ordinary parlance or understood in the sense in which people conversant with the subject matter of the statute or statutory instrument understand it. It is hazardous to interpret a word in accordance with its definition in another statute or statutory instrument, and more so, when such statute or statutory instrument is not dealing with any cognate subject". (In the case before us, it has not been satisfactorily established that the increase in production capacity is understood in trade and commercial parlance as increase in installed capacity.) As there is no increased installed capacity, there is no substantial expansion of the existing industrial undertaking as required under the Project Import (Registration of Contract) Regulations, 1965.
16. The case law relied on by the learned Counsel for the respondents in support of the proposition that increase in production capacity is the relevant criterion, is distinguishable. In the case of Auto Tractors reported in 1989 (39) E.L.T. 494 (SC), one of the conditions specified in Notification No. 200/79 granting concessional rate of duty to components required in the manufacture of heavy commercial motor vehicles ... or of tractors was production of certificates from DGTD of approved industrial programme for manufacture of tractors. The appellants cleared the goods on payment of duty and, thereafter, filed refund applications and applied to the DGTD subsequently for amendment of the original certificates referring only to Notification 179/80 to clarify that the goods imported by them were eligible for the concession under Notification 200/70 and such certificate was issued. The refund claims were rejected by the Assistant Collector and Collector (Appeals) on the ground of failure to produce end-use certificates. The Tribunal upheld the refund claim rejection, holding that the appellants had not produced the certificate at the time of clearance of the goods. It is in this context, that the Hon'ble Supreme Court held that the importer had only to satisfy the Customs authorities that it had an approved industrial programme for the manufacture of tractors by production 6f a certificate from the DGTD. The Court held that second set of certificates issued by DGTD constitute sufficient evidence of eligibility of the appellant to the concession and also held that the production of the original set of certificates at the time of clearance of the goods was sufficient compliance with the terms of the Notification.
16.1 Similarly in the case of Excel Industries Ltd. reported in 1989 (25) ECR 491 (Bom.), the production of a certificate from the DGTD to the effect that the chemicals imported are required for manufacture of insecticides, and fungicides was a condition in-built in Notification dated 1-3-1968. In the present case, however, the recommendation of the Textile Commissioner though of great pursuasive value is not binding upon the Customs authorities, who alone have jurisdiction to determine the eligibility for the benefit of Registration of Contract as Project Import. In this context, we may refer to para 288 of the Handbook on Import Export Procedures 1985-88 which sets out that benefit of concessional rate of customs duty under Heading 84.66 of CTA, 1975 on capital goods, connected raw materials and components imported are required for initial setting up or for substantial expansion of a Project may be allowed (emphasis supplied) by the Customs Officer on the recommendation of the sponsoring authority. We do not agree with the learned Counsel for the respondents that the word "may" occurring in the above paragraph is to be construed as "shall" since the assessment under Project Imports is in the nature of examination, entitlement to which has to be established by the importers and there is no legal right vested in the importers to get such a benefit coupled with a legal duty upon the Customs authorities to extend such benefit. There is also no basis for the submission that the objective of Headings 84.66 and 98.01 of CTA, 1975 is to encourage production and hence the decision of the Hon'ble Supreme Court in the case of Bajaj Tempo (supra) is not applicable to the facts of this case.
16.2 In the case of Union of India v. Wood Papers Ltd. reported in 1990 (47) E.L.T. 500 (SC) the Supreme Court was seized of the issue of interpretation of Notification 163/65-C.E., exempting papers of all sorts from excise duty at varying concessional rates to factories, depending upon the date of commencement of production, and in the case of any factory commencing production for the first time on or after 1-3-1964, or any factory existing immediately before 1-3-1964 the enlargement of the production capacity was the relevant criterion. In this context, the Hon'ble Supreme Court held in paragraph 3 of its judgment that the word capacity must necessarily relate to capacity of factory and not to goods, and that the production cannot be held to be due to enlarged capacity unless the capacity to produce the goods increased due to installation of additional machinery.
17. In the light of the above discussion, we hold that the disputed knitting machines imported by the respondents are not eligible to the benefit of assessment as Project Imports. We accordingly set aside the impugned order and allow the appeal filed by the Revenue.