Custom, Excise & Service Tax Tribunal
Kolkata(Port) vs Cosmic Ferro Alloys Ltd on 29 July, 2024
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
EASTERN ZONAL BENCH : KOLKATA
REGIONAL BENCH - COURT NO. 1
Customs Appeal No. 75437 of 2018
(Arising out of Order-in-Original No. KOL/CUS/COMMISSIONER/PORT/51/2017 dated
08.11.2017 passed by the Commissioner of Customs (Port), Custom House, 15/1,
Strand Road, Kolkata - 700 001)
Commissioner of Customs (Port) : Appellant
15/1, Strand Road, Custom House,
Kolkata - 700 001
VERSUS
M/s. Cosmic Ferro Alloys Limited : Respondent
Sikkim Commerce, 4th Floor, 4/1, Middleton Street,
Kolkata - 700 071
APPEARANCE:
Shri Subrata Debnath, Authorized Representative for the Appellant-Revenue
None for the Respondent
CORAM:
HON'BLE SHRI ASHOK JINDAL, MEMBER (JUDICIAL)
HON'BLE SHRI K. ANPAZHAKAN, MEMBER (TECHNICAL)
FINAL ORDER NO. 76501 / 2024
DATE OF HEARING / DECISION: 29.07.2024
ORDER:[PER SHRI K. ANPAZHAKAN] M/s. Cosmic Ferro Alloys Ltd. (the 'Respondent') has imported goods namely "Roller Sets", "Blades for Slitting Machines", "Spacers" & "Spares for Cold Rolling Mills etc falling under Customs Tariff Item Nos. 84559000 & 82089090, being parts/spares and components of capital goods namely "Stainless Steel Slitting Machines" & "Cold Roll Forming Mills". The import duty was debited from 3 (Three) Status Holder Incentive Scrips (SHIS) by availing benefit of the Notification No. 104/2009-Cus dated 14-09-2009, as amended.
Page 2 of 16Appeal No.: C/75437/2018-DB
2. Scrutiny of the records of import made by the Respondent revealed that they had used 3 (three) Nos. of SHIS licenses, for import of Capital Goods namely "Stainless Steel Slitting Machines" & "Cold Roll Forming Mills" falling under Customs Tariff Item No. 84552000 and also Spares/ Parts and Components against a total number of 10 (Ten) Bills of Entry. All 3(three) SHIS licenses were either fully or partly used for import of Spares/Parts/Components of capital goods as mentioned above.
3. It was observed that while debiting duty from the aforesaid three licenses, about 100% and 15% respectively of the license values were used for such imports of Spares/Parts/Components, in violation of Para 3.16.3 of the Foreign Trade Policy (2009-14) and condition nos. 4(i) & 4(iii) of the Notification No. 104/2009 dated 14-09-2009, which resulted in non- payment of customs duty of Rs. 2,16,77,057/-. The importer also did not submit an undertaking at the time of the clearance as required under condition 5A of the notification.
4. Relevant portions of Rules and Notifications in this regard are mentioned below:-
(a) Para 3.16.3 of the Foreign Trade Policy (2009-14) specifically restricts import of spares/parts/components of the Capital Goods maximum to the extent of 10% of the scrip value when imported under SHIS and such spares have to be in relation to capital goods imported earlier.
(b) Condition 4 of the Notification No. 104/2009 dated 14-09-2009 stipulates that such scrips Page 3 of 16 Appeal No.: C/75437/2018-DB can only be used for import of Capital Goods. It further stipulates that the import of components and spares and parts against the said scrip shall be allowed only i. in respect of capital goods imported earlier, ii. in respect of capital goods imported relating to the sectors specified in condition (i), and iii. up to ten per cent (10%) of the duty credit amount in the said scrip originally issued.
5. Condition 5(A) of the Notification No. 104/2009- Cus dated 14-09-2009, as amended reads as follows:-
"that the components and spares and parts, for capital goods imported earlier, imported against the said scrip shall be meant for use in the capital goods already imported and subject to actual user condition and the importer at the time of clearance of the said components and spares and parts, shall furnish an undertaking to this effect to the Deputy Commissioner of Customs of Customs or the Assistant Commissioner of Customs, as the case may be, that in case of non compliance of the said condition, he shall pay on demand an amount equal to the duty leviable, but for the exemption contained herein together with interest at the rate of fifteen percent per annum from the date of clearance of the said materials".Page 4 of 16
Appeal No.: C/75437/2018-DB
6. Since the conditions of the said notification were not complied with, a SCN dated 13.10.2015 was issued to the Respondent demanding Customs duty of Rs. 2,16,77,057/-, along with interest. Confiscation of imported goods under Section 111(0) of the Customs Act, 1962 and imposition of penalty under Section 114A of the Customs Act, 1962 were also proposed.
7. The said Notice was adjudicated by the Ld. Commissioner of Customs (Port) vide the impugned order, wherein the Ld. Commissioner has dropped the demand of Customs duty and other proposals made in the Notice. Aggrieved against the dropping of the demands, Revenue has filed this appeal.
8. In their Grounds of Appeal, the Revenue has raised the following grounds:
I. The definition of the "Capital Goods' as per Para 3.16.3 of the Foreign Trade Policy (2009-14) restricts the ambit of such "Capital Goods', within Plants, machinery, equipment or accessories only. Despite being an inclusive definition, it does not incorporate "Parts, Spares & Components" within the extended definition of the Capital goods. The legislative intent becomes further clear from the fact that the same Policy had framed separate definitions of 'Spares', 'Parts' & 'Components' in Para 9.57,
9.44 & 9.14 of the Foreign Trade Policy respectively. The definitions are as follows:-
(i) "Part" means an element of a sub-assembly or assembly not normally useful by itself, and not amenable to further disassembly for Page 5 of 16 Appeal No.: C/75437/2018-DB maintenance purposes. A part may be a component, spare or an accessory.
(ii) "Component" means one of the parts of a sub-assembly or assembly of which a manufactured product is made up and into which it may be resolved. A component includes an accessory or attachment to another component.
(iii) "Spares" means a part or a sub-assembly or assembly for substitution, that is ready to replace an identical or similar part or sub-
assembly or assembly. Spares include a component or an accessory.
II. Had such 'Spares', 'Parts' & 'Components' been squarely eligible to fit within the definition of "Capital Goods", there would not have been any necessity to frame different set of definitions, both in the Policy as well as in the Customs notification.
III. It would be further clear from the fact that in CENVAT Credit Rules, 2004, for the purpose of taking credit of duty paid on Capital Goods, which are not only indigenously procured, but also imported to a large extent, the Capital Goods has been defined under Rule 2(a) as -
"(a) "Capital Goods" means:-
(A) the following goods, namely:-
(i) All goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.05 grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act;
(ii) Pollution Control Equipment;
(iii) Components, Spares and Accessories of the Goods specified at (i) and (ii);"Page 6 of 16
Appeal No.: C/75437/2018-DB IV. The subject definition is also inclusive, but is contrary to the definition of the Capital Goods in the Policy, in as much as it has in clear terms included such Components, Spares and Accessories within its scope. Therefore, in the absence of such specific inclusion of the components, spares and parts, within the definition of the Capital Goods in the Policy and the Customs notification, it cannot be presumed, that such components, spares and parts are squarely covered by the said definition of Capital Goods. The contention of the ld. adjudicating authority, therefore, appears to be erroneous.
V. Para 3.16.3 of the Foreign Trade Policy (2009-
14) stipulates that Status Holder Incentive Scrip shall be used for import of capital goods (as defined in FTP) relating to sectors specified in Para 3.16.4 and Para 3.10.8 of Hand Book of Procedures, Volume-I. At the same time, Notification No. 104/2009-Cus dated 14-09- 2009, extended exemption specifically when Capital Goods as defined in Para 9.12 of the FTP, are imported. Both the Policy as well as the notification which governs such import has referred specifically to the Capital Goods as defined in Foreign Trade Policy, and it never mentions that such Capital Goods can be imported in CKD and SKD condition. On the contrary, when Chapter 5 of the Policy, that deals with import of Capital Goods under EPCG scheme and the relevant Customs Notifications 102/2009 & 103/2009 both dated 11-09-2009 are compared, there is a specific mention that such Capital Goods can be imported in CKD/SKD Page 7 of 16 Appeal No.: C/75437/2018-DB conditions too. Therefore, different wordings and different treatment in respect of two different Export Promotional Schemes under the same Policy, clearly indicate the legislative intent of not allowing import of Capital Goods in either CKD or SKD condition using SHIS licenses. In the absence of explicit provision, it cannot be presumed that import of Capital Goods in CKD/SKD conditions is admissible by debiting Customs duty from multiple licenses either.
VI. There is no denial of the fact, that the "Roller Sets, Spares, Blades and Parts of Rolling Mill falling under CTH 8455 9000 and 82089090 respectively, are nothing but Parts of Capital Goods. Such Work Rolls don't have any independent function. They become functional only when they are attached to the Capital Goods of which they are integral parts. Customs Tariff Heading No. 8455 9000 covers "Other Parts" of Metal Rolling Mills. This implies that the Roller Sets and other Spare parts are basically nothing but Spares/Parts of capital goods. The Managing Director of the company had admitted this fact in his statement recorded under section 108 of the Customs Act, 1962. These work rolls after prolonged use become unusable because of wear and tear. At this stage, such rolls have to be replaced and spare rolls are installed instead. For this purpose a steady supply of such work rolls is required. Neither the noticee nor the Adjudicating Authority has disputed the fact that the impugned goods were nothing but Parts of Capital Goods.
Page 8 of 16Appeal No.: C/75437/2018-DB VII. Moreover, to qualify as Capital Goods, the particular goods are required to have independent function. Work Rolls, do not have any such independent function and are of no use until they are attached in the specified Rolling Mills. Unless they are assembled with all other parts and components in a Mill Line, such Rolls are no more worth than a lump of Steel. The Adjudicating Authority erred in considering such piece of Component having no independent function as Capital Goods, for the simple reason that they were imported at the same time, with the principal Capital Goods, although under cover of different SHIS Scrips.
VIII. It was also made clear in Notification No. 104/2009-Cus dated 14-06- 2009 that the exemption was extended for the specified goods only. Such specified goods includes, Capital goods; and Components and spares and parts, for capital goods imported earlier. No other goods were allowed to be imported under this notification. Therefore, in order to become entitled to the benefit of the notification, the goods have to belong either of the aforesaid two categories. In the present case, the imported goods are nothing but Parts/ Spares /Components as indicated by the classification and description of the goods. Therefore, such goods do not appear to satisfy the definition of capital goods. At the same time such goods are not Parts/Spares Components in respect of the capital goods imported earlier. Therefore, the imported goods under consideration, do not qualify for the benefit of Page 9 of 16 Appeal No.: C/75437/2018-DB the notification for the simple reason that they are not specified goods. This basic fact appears to have escaped the attention of the adjudicating authority while passing the subject order. Therefore, the subject goods do not qualify for the benefits availed by the importer. IX. The impugned goods failed to qualify as Capital Goods as such, and are not therefore covered by clause 1(b) of the notification. Despite being Components and Parts, they had no nexus with the Capital Goods imported earlier and for that reason, such goods do not get covered within the ambit of clause 1(b) of the subject notification;
X. The ld. adjudicating authority grossly erred in interpreting the Policy as well as the conditions laid down in the Customs notification in proper perspective. The condition (4) (iii) of the notification specifically mentioned that imports of Spares, Parts & Components are allowed "upto ten percent of the duty credit amount in the said scrip originally issued". Para 3.16.3 of the Foreign Trade Policy (2009-14), as amended similarly stipulates that ".....Only in respect of Capital Goods imported earlier, upto 10% value of the Duty Credit Scrip can be used for import of components, spares/parts of such Capital Goods". A combined reading of the notification and the Policy makes it clear that in both the cases, the emphasis has been given on the phrase "the duty credit scrip". The notification, in condition (4) (iii) has given further prominence to the phrase "scrip originally issued", which indicates that for the purpose of the Notification, each and every Page 10 of 16 Appeal No.: C/75437/2018-DB individual scrip would be taken into consideration separately, and conditions laid down there have to be complied with and/or observed for each of them. There is no scope for considering the total entitlement of SHIS of a particular importer to be taken into account for determination of 10% of the scrip value, nor is there any possibility of considering the collective value of all such SHIS licenses used by an importer for the purpose of the notification.
XI. It is immaterial, whether or not, such Parts/ Spares/ Components are being imported with the original Capital Goods, with which they would be assembled, and under no circumstances, more than 10% of the individual scrip value can be used to debit duty of Customs for such Parts / Components in terms of the aforementioned condition of the notification. This particular aspect has not been taken into consideration by the adjudicating authority. XII. Reliance on the judgement in the case of Commissioner of Customs, Chennai vs. JSW steel Ltd. [2016(340) ELT 262 (Tri Chennai)], by the ld. adjudicating authority is misplaced, as the context of the cases are different. In case of JSW, majority of goods were cleared under EPCG, which is not the case here. Further, under EPCG, there is no restriction that only 10% of the Scrip value can be utilized to import Parts/ Spares/Components. By specific mention that 10% of the book value of the Plant & Machinery of the existing Plant can be imported under EPCG, the scope has been significantly widened, whereas, in case of SHIS, such scope is limited Page 11 of 16 Appeal No.: C/75437/2018-DB to 10% of the Scrip value only and also the goods to be imported are specified to be Parts/ Components of the Capital Goods imported earlier. Therefore, ambit of the notification under SHIS is restrictive and the same does not give liberty to use the same in any manner other than the specified one.
XIII. Accordingly, Revenue prayed for setting aside the impugned order dropping the demands and allow their appeal.
9. The Respondent made the following submissions:
(i) The imports made under the aforesaid 10 (ten) Bills of Entry were for setting up of "Stainless Steel Slitting Line and Cold Rolled Forming Mill Lines" for production of "Engineering goods"
and the goods imported were Capital Goods along with their parts & some spares imported under BE No.7911209 dated 06.01.2015. The Chartered Engineer's Certificate dated 18.04.2015 categorically certified that entire Capital Goods imported under SHIS Scheme had been installed and the department had also accepted the same as a fulfilment of the obligations contained in the licence.
(ii) They have furnished the undertakings as per Condition 5A of the said notification, as amended, which were subsequently cancelled on the basis of the certificate issued by the independent Chartered Engineer.
(iii) The decision in the case of Commissioner of Customs, Chennai vs. JSW steel Ltd.
[2016(340) ELT 262 (Tri Chennai)), cited by Page 12 of 16 Appeal No.: C/75437/2018-DB them is squarely applicable in the instant case as there was a Contract between supplier and Respondent under single quoted price for the import of entire equipment of plant and machinery for setting up of their "Stainless Steel Slitting Line and Cold Rolled Forming Mill Lines"
for production of "Railway Wagon and other related parts" in their factory.
(iv) In view of the above, the ld. adjudicating authority has rightly held that the allegations in the Show Cause Notice were not sustainable and hence dropped the charges. Accordingly, they prayed for rejecting the appeal filed by the revenue.
10. Heard the Ld. Authorized Representative for the Revenue and perused the appeal documents.
11. We observe that the issue to be decided in instant appeal is whether the goods imported by the Respondent vide 10 Bills of Entry are 'Spares/Parts' or 'Capital Goods' and whether the Respondent is eligible for the benefit of the Notification No. 104/2009- Customs dated 14-09-2009, as amended by Notification No. 42/2012-Customs dated 22-06-2012.
11.1. From the impugned order, we observe that the importer has debited the duty payable for the goods imported, from 3 (three) Status Holder Incentive Scrips (SHIS) and availed the benefit of the Notification No. 104/2009-Customs dated 14-09- 2009, as amended. However, Revenue alleged that the Respondent is not entitled for the benefit of the said Notification as they failed to comply with the conditions laid down in the said Notification. The Page 13 of 16 Appeal No.: C/75437/2018-DB allegation of the Revenue is that the imports are neither related to 'Capital goods imported earlier' nor are 'Capital goods' themselves and hence cannot be imported under SHIS license by claiming the benefit of exemption given by the said Notification ibid.
11.2. We observe that the goods imported are squarely fitting within the definition of 'Capital Goods' as defined in the FTP (2009-14) and Notification104/2009-Customs dated 14-09-2009, as amended. We observe that the definition of 'Capital Goods' is wide enough to cover the imported 'spares/parts of capital goods'. For the sake of ready reference, the definition of "Capital goods" as defined in FTP (2009-14) is reproduced below:
"Capital Goods" means any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernization, technological up gradation or expansion. It also includes packaging machinery and equipment, refractories for initial lining, refrigeration equipment, power generating sets, machine tools, catalysts for initial charge, equipment and instruments for testing, research and development, quality and pollution control. Capital goods may be for use in manufacturing, mining, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture and viticulture as well as for use in services."Page 14 of 16
Appeal No.: C/75437/2018-DB 11.3. We observe that the goods imported by the Respondent are not merely spares/parts as alleged in the Notice. They are 'Capital Goods' as defined in the policy which is reproduced above. Further, we observe that the restriction of 10% is only with respect to import of components, spares/parts of capital goods imported earlier. Thus, import of capital goods (including accessories thereof) which have not been imported earlier, can be imported by utilizing SHIS without any restriction. The import of Parts/Spares/Components in the form of" Roller Sets", "Spacers", "Spares for Cold rolling Mills" & "Blades for slitting Machines" falling under Customs Tariff Item Nos. 84559000 & 82089090 respectively come under the ambit of definition of "Capital Goods", which are to be used in the setting up "Cold Roll Forming Mill Lines" for manufacture of 'Engineering goods'. In this regard, we observe that the Respondent has submitted Chartered Engineer's Certificate explaining the use of the imported spares/parts in the plant.
11.4. We observe that in respect of all the 10 BEs, the respondent has imported capital goods or their accessories along with their spares/parts and therefore the benefit of the exemption is clearly available to the goods imported. The Chartered Engineer's certificate submitted by the Respondent clearly establish that the goods imported are integral parts/components of the capital goods which are essential to make the plant operational.
11.5. We observe that the Respondent has placed their reliance on the decision in the case of Commissioner of Customs, Chennai vs. JSW steel Ltd. [2016 (340) E.L.T. 262 (Tri-Chennai)], wherein it was held that Capital goods definition given under the Page 15 of 16 Appeal No.: C/75437/2018-DB notification is identical to the definition given in the FTP and covers 'plant, machinery, equipment or accessories required for manufacture, production either directly or indirectly which includes components/spares required for replacement, modernization, technological upgradation and expansion etc. We observe that the case law cited supra has direct application in the instant case. Similar to the facts of the decision referred above, in this case also there was a single Contract between the supplier and the Respondent for the import of the entire equipment of plant and machinery for their "Stainless Steel Slitting Line and Cold Rolled Forming Mill Lines for production of "Railway Wagon and other related parts" in their factory under a single quoted price. When the Respondent was to import as per the contract, the whole plant and machinery for Stainless Steel Slitting Line & Cold Rolled Forming Mill Lines, the entire goods cannot be imported in one lot under a single Bill of Entry. Further, we observe that the Chartered Engineer's Certificate dated 18.04.2015, categorically certified that entire Capital Goods imported under SHIS Scheme have been installed and the department has also accepted the same as a fulfilment towards licence obligation. Thus, we hold that the imports made under the aforesaid 10 (ten) Bills of Entry were for setting up of "Stainless Steel Slitting Line and Cold Rolled Forming Mill Lines" for production of "Engineering goods" and the goods imported were Capital Goods along with their parts. Accordingly, we hold that the Respondents have imported 'Capital Goods' which are eligible for the benefit of the Notification No. 104/2009-Customs dated 14-09-2009, as amended and the benefit of the Page 16 of 16 Appeal No.: C/75437/2018-DB notification has been rightly allowed by the ld. adjudicating authority.
11.6. Thus, we do not find any infirmity in the impugned order passed by the ld. adjudicating authority dropping the demands raised in the Notice and hence, we uphold the same.
12. In view of the above discussions, we uphold the impugned order and reject the appeal filed by the Revenue.
(Operative part of the order was pronounced in open court) Sd/-
(ASHOK JINDAL) MEMBER (JUDICIAL) Sd/-
(K. ANPAZHAKAN) MEMBER (TECHNICAL) Sdd