Bombay High Court
Kirloskar Cummins Limited vs N.K. Kapoor And Others on 1 January, 1800
Equivalent citations: 1980CENCUS11D, 1980(6)ELT557(BOM)
ORDER
1. The short question which falls for consideration in this petition filed under article 226 of the Constitution of India is whether the imported component parts utilised for vehicular type of diesel engine are eligible for exemption under notification No. 82/60 dated 6th August 1960, issued under section 23 of the Sea Customs Act. The facts which are not in dispute are briefly stated.
2. The petitioners are a Company having their registered office at Kothrud, Poona-29, and the petitioners carry on the business of manufacture of internal combustion engines. By anotification No. 82/60 dated 6th August, 1960, issued under section 23 of the Sea Customs Act, 1878, the components pat of any machinery when imported into India and proved to the satisfaction of the Collector of customs to be required for the purpose of initial setting up that machinery or for its assembly or manufacture were exempt from payment of so much of Customs Duty leviable thereon as was in excess of the rate applicable to the said machinery when imported complete. One of the conditions requisite for the applicability of the said notification was that the Development Wing of the Ministry of Commerce and Industry should certify in each case that the component part in question were or would be required for the purpose specified therein and should recommend grant of exemption. The importer was also required to execute a bond in the form prescribed binding himself to pay on demand in respect of such component parts as were not proved to the satisfaction of the Collector of Customs to have been used for the purpose for which the exemption was granted. The purpose for which the exemptions was granted was to encourage indigenous manufacture of machinery by importing only a few components not available within the country.
3. During the period 1964 to 1968 the petitioners imported component parts of internal combustion engines of the total value of Rs. 39,13,400.98 p. for manufacture of diesel engines after the Directorate General of Technical Development issued to the petitioners development wing certificate and the petitioner executed the requisite bonds. In the relevant bills of entry the petitioner has declared from time to time the classification of the goods for their assessment and the goods sought to be declared were described for their assessment and the goods sought to be declared were described as "component parts of diesel engines for assembly of stationary type under Notification No. 82/60" After the goods were imported the petitioner applied for cancellation of bonds. However, the Assistant Collector of Customs by a letter dated May 17, 1969, called upon the petitioner to furnish certain information as to how the components parts imported were used for what purpose the diesel engines assembled with the aid of imported parts were actually used. The petitioners informed the Assistant Collector of Customs that between 1964 to 1968, the components parts were imported and were used for the purpose of assembling diesel engines. Out of the diesel engines assembled 208 vehicular type of diesel engines were fitted on dumpers.
4. On receipt of this information the Assistant Collector of Customs informed the petitioners that the petitioners assembled 2087 vehicular type of diesel engines by importing components and such vehicular type diesel engines were correctly classified under item No. 75 (10) of the Indian Tariff Code. The Assistant Collector further informed that the imported component utilised for the manufacture of diesel engines are not eligible for assessment under notification No. 8260 dated 6th August 1960 and as such the customs duty announcing to Rs. 9,44,859.22 P. appeared to have been short levied. Subsequently on 25th November 1969, the Assistant Collector of Customs, Bombay, informed the petitioner that on scrutiny of the supplementary statements filed by the petitioner it was found that the total amount of duty due from the petitioner was Rs. 10,84,418.79 p. By further letter dated December 20, 1969, the Assistant Collector of Customs, Bombay informed the petitioner the short levy of duty was due to mis-declaration of the relevant Bills of Entry to the effect that the imported components were to be utilisied for the manufacture of stationary type of diesel engines. The Assistant Collector informed the petitioner that the demand made by letter dated 25th November 1968, should be treated as formal demand under the provisions of section 28(i) of the Customs Act.
5. The petitioner carried an appeal before the Collector of Customs, Bombay, after the payment of duty was required by Assistant Collector of Customs. The stand taken by the petitioner before the Assistant Collector and before the Appellate Authority was that the engines components imported by the petitioners for asseblage of Internal Combustion Engines are eligible for grant of duty exemption under the notification 82/60 and the duty exemption has been correctly granted by classifying completely assembled diesel engines under Item 72(a) of the Indian Tariff Code. the petitioners contended that the distinction between stationary type and vehicular type of diesel engines for the purpose of grant of exemption under the notification was outside the scope of notification and the classification made was incorrect and bad in law. The appellate authority by its order dated 22nd November, 1972, dismissed the appeal holding that even if there is a case in law for the petitioners as contended by them still there is long standing practice of assessment of vehicular type of diesel engine under item 75(10) (1) of the Indian Tariff Code. The Appellate Authority also relied upon the statement made by the petitioners in the bills of entire. The petitioners thereafter carried a revisional application before the Central Government under section 131 of the Customs Act but the revision application also ended in dismissal. The Government took the view by its order dated August 23, 1976 that a fire engine used on vehicle is surely a part of the vehicle and attracts items 75 (10) to 75 (2) of the Indian Tariff Code. the Government felt that the dumpers was being used as a conveyance and the engine fitted on such dumpers do not fall within the category of machinery but is liable to be assessed under item 75(12). The orders passed by the Authorities below are under challenge in this petition.
6. The grievance of the petitioner is that the component parts of internal combustion engine were legally assessable to duty under Tariff Entry 72 (a) and that the arbitrary distinction sought to be introduced by the Customs Authorities between stationary and vehicular engines for grant of the exemption under notification No. 82/60 is illegal and contrary to rules. The petitioner submit that the component parts were imported under the Duty Exemption Certificate granted from time to time for assembling diesel engines and it is not in dispute that the said components were in fact used for assembling diesel engines. According to the petitioners,the statements in the Bill of entries were made at the instance of the Customs Authorities and there is no distinction of sationary type and vehicular type of diesel engines. The petitioners submit that they are entitled to the exemption under the notification as the diesel engines fall within the tariff entry 72 (a) of the Indian Tariff Code. In answer to the petition on behalf of the respondents the Assistant Collector of Customs has filed his return dated 27th September 1978. The respondents content that the consignments were imported between 1964 to 1968 by the petitioners by declaring the Bill of entries that the components part will be used for assemblage of diesel engine stationary type. The respondents denied that the statements made in the Bill of entries were made at the insistence of the Customs Authorities. According to the respondents, the purpose of import of component parts was for setting in diesel engine and once this diesel engines are fitted on the dumpers they ceased to be a machinery as contemplated by tariff entry No. 72 (a) but it falls under tariff entry No. 75. The return did not specifically state as to which sub- item of item 75 would attract to the facts of the present case. At the time of arguments the learned counsel for the respondents submitted that all the three sub-items namely sub-items 75 (10) (11) and (12) would, be applicable to the facts of the present case.
7. In view of these rival contentions it is necessary to determine whether the petitioners are entitled to exemption under notification 82/60 as the diesel engine even though fitted on dumpers fall within the tariff entry No. 72 (a) or whether it falls under tariff entries No. 75 (I) to 75 (12).
8. The principles as to the jurisdiction of this Court while exercising power under Article 226 of the Constitution of India to decide the dispute of this nature is now well settled. It is the primary function of the Officer who are entrusted with the duty to determine the classification of entries in the taxing stature. Interference by Court is called for when findings are patently erroneous or conclusions unreasonable or where the decision is given on the basis of erroneous construction of entry or on the basis of irrelevant facts and consideration. The dictum laid down by the Supreme Court in the case reported in Dunlop India Ltd. v. Union of India and Others AIR 1977 S.C. 597 clearly states that if the very basis of the reasons for determination of duty is irregular, it is for the Court to interfere with the findings recorded by the Authorities below. Bearing the principles laid down by the Supreme Court, it is necessary to find out whether the petitioner are entitled to the advantage of the notification No. 82/60.
9. Before I advert to the submissions made by the learned counsel appearing on behalf of the petitioners it is necessary to state certain facts which are not in dispute. It is not in dispute that the component parts which were imported under a Duty Exemption Certificate were used for the assembling of diesel engine. It is also not in dispute that whether the diesel engines are used for a stationary type or vehicular type, there is no difference or distinction while assembling. The diesel engines can be used for various purposes such as excavator, shoval, crange, oil drilling rigs, generator sets, compressors etc. It is the case of the petitioners that principal use of diesel engine is in respect of over a dozen industrial application while in some cases the diesel engines are fitted on dumpers to be used as prime-mover. The petitioners claim that the components imported by them are used for assemblage of diesel engines and such diesel engines fall within the tariff entry No. 72 (a). This tariff entry comes under section XVI of the First Schedule-Import Tariff- under the heading ``Machinery and Apparatus; Electrical Material'' The tariff entry 72(a) reads as follows :- Machinery name by such of the following articles as are not otherwise specified.
``Prime-mover boulders, locomotive engines and tenders from the same engines (including power driven road rollers, fire engine and tractor) and other machines in which the prime-mover is not separable from the operative parts.
This tariff entry makes i. clear that the machinery namely such of the following articles as are not otherwise specified attracts the provisions of this entry. Under tariff entry 72 (a) fire engines are included and it is not in dispute that fire engines are internal combustion engines for diesel engines. The petitioners claim that the diesel engine being a machinery falling under tariff No. 72 (a) the petitioners are entitled to the advantage of notification No. 82/60
10. In answer to this claim, it is the contention of the department that diesel engines fitted on a dumper are of vehicular type and would not attract tariff entry 72(a) but it would attract tariff entries No. 75(10) to 75(12). The department contents that the entry 72 falls within section XVI the heading of which is ``Machinery and Apparatus; Electrical Material'' while of entry 74 onwards falls under section XVII of the First Schedule, the heading which is ``Transport Material''. It must be said in fairness to Mr. Dhanuka the learned counsel appearing for the respondents that he did not insist that entry 72 (a) is not applicable merely by reference to the heading of Section XVI of the First Schedule of the Indian Tariff Code. According used as prime movers of the dumpers and would attract entries under section XVII which refers Transport Material. According to the learned counsel appearing for the the department, the entries under section XVII refers to all transport materials and which covers all kinds of vehicles and the components used for such vehicles. In view of the submissions of the learned counsel it is necessary to find out whether the tariff entry 75(10) to 75(12) are applicable to the facts of the present case. It must be pointed that tariff entries No. 75(10) and 75(11) refers to the articles and parts thereof adapted for use as parts and accessories of motor vehicles other than motor cycles and motor scooters and it nowhere refers to the diesel engine as a whole. Tariff entries 75(10) and (11) refer to various engine components, crank shafts, cam shafts, connecting rods, cylinder blocks etc. and do not refer anywhere to the engines as a whole. As an engine as a whole is not referred to specifically in either tariff No. 75(10) or 75(11) it is difficult to hold that fire that engines which are specifically referred in tariff entry No. 72(a) are taken out of the said entry 72(a). As mentioned earlier tariff entry No. 72(a) specifically mentions that machinery namely such of the following articles as are not otherwise specified and the articles set out includes fire engines. It is therefore necessary to the department to establish that fire engines are specified in some other tariff entry to take out the item out of the provisions of entry 72(a).
11. The order passed by the Government in revision application places strong reliance upon tariff No. 75(12) and the learned counsel for the respondent in these proceedings also supported the order of the Revisional Authorities on that count. It is necessary to set out the entry 75(12) to appreciate the submissions of the learned counsel. The entry reads as follows :
```Articles other than rubber tyres, tubes, batteries and such other components as are specified in items Nos. 72(35), 75(9), 75(10), 75(11), 75(14), 75(15), 75(16) and 75(18)(b)(ii) adapted for use as parts and accessories or motor vehicles other than motor cycles and motor scooters.''
12. It was urged by Mr. Dhanuka, that this entry clearly indicates that articles adapted for use as parts and assessors of motor vehicles other than motor cycles and motor scooters fall under this entry and the rate of duty leviable is 60% ad valorem. The learned counsel submitted that the engine is an article which can be described as parts and accessories of motor vehicles and therefore squarely falls under the entry. In the present case therefore since diesel engine are specified under this entry, submits Mr. Dhanuka, the contentions of the petitioner than the diesel engines would fall within the tariff entry 72 (a) is erroneous. In answer to these submissions, Mr. Bhat the learned counsel appearing on behalf of the petitioner contended that the construction put by the Revisional Authorities on this entry is wholly incorrect, as proviso to entry No. 75(3) has been clearly overhooked. As strong reliance is placed by the learned counsel for the petitioner on this proviso, it is necessary to set out in detail entry 75(13) which reads as under :-
``Parts of mechanically propelled vehicles and accessories, not otherwise specified:"
Provided that where any articles referred to in items Nos. 75(12) and 75(13) are also ordinarily used otherwise than as parts and accessories of motor vehicles, they shall be duitable at the rates of duty specified for such articles."
The proviso states that where any articles referred to in items NOs. 75(12) and 75(13) are also ordinarily used otherwise than as parts and accessories of motor vehicles, they shall be dutiable at the rates of duty specified for such articles. Relying upon this proviso, it was urged on behalf of the petitioner that the submission of Mr. Dhanuka that vehicular type of diesel engines fitted on dumper would attract tariff entry 75(12) is erroneous. It was urged that the components parts imported by the petitioners were used for the purpose of assemblage of diesel engines and it is not is dispute that a large number of diesel engines were used as stationary type of diesel engines. It is proved that large number of diesel engines assembled with the imported items were used for stationary purpose i.e. for the industrial applications such as excavator, shovel, cranes, oil drilling rigs, generator sets, compressors etc. Mr. Bhat the learned counsel appearing for the petitioners submitted that it the diesel engines are ordinarily used otherwise than as parts and accessories of motor vehicles, then such diesel engines are not liable to be assessed under tariff entries No. 75(12) and 75(13) in view of this proviso. There is considerable force in the submission of the learned counsel. In view of the materials brought on record it must be held that the diesel engines assembled with the aid of imported components were principally used for industrial application and only few were used for vehicular type by fitting it on dumpers. If that is the position, in view of the proviso to tariff entry No. 75(13), it must be held that the tariff entry No. 75(12) is not attracted.
13. Apart from tariff entry No. 75(12) it was urged on behalf of the Department that tariff entries No. 75(10) and 75(11) would attract to the facts of the present case I am not impressed by the summations as I find that both the entries and applicable for the components which are parts of the engines and not engines as a whole. The submissions on behalf of the department that entry 72 deals with the machinery while entry 75 deals with the vehicles is also not correct as under no sub-items of entry 75. the engine as a whole is being specified. It is not possible to accept the submissions of the learned counsel for the department that the diesel engines fitted on entitled to exemption under notification No. 82/60. In view taken by the Authorities below is entirely erroneous be upheld. Mr. Dhanuka, the learned counsel appearing for the cents submitted that the view taken by the Statutory Authorities is not servers and it is one of the reasonable view and therefore, I should not exercise my discretionary jurisdiction under articles 226 and quash the orders passed by the Authorities below. In my judgment the view taken by the Authorities below is entirely enroneous. The principles laid down by the Supreme Court are clearly applicable and it is necessary to interfere while exercising jurisdiction under article 226 of the Constitution of India. In my judgment the decisions of the Authorities below is based on erroneous construction of the concerned entry and as such it is necessary to set the things right in this petition.
14. Though in this petition the contention was raised that the dumpers are not motor vehicles, the same has been given up by the learned consent of the petitioner in view of the decision of the Supreme Court, in Bolani Ores Ltd. & Ors. V. Stave of Orissa & Ors. , and also in view of the decision of Hon'bel Mr. Justice B. N. Deshmukh (as he then was) in Misc. Petition No. 630/69 (with Misc. Petition Nos. 631 to 635/69 and 668/69), decided on 15th March 1976.
15. In the result, the petition succeeds and the rule is made absolute in terms of prayer (b) of paragraph 21 of the petition. The orders passed by the Authorities below are quashed and the respondents are directed to refund the amount of Rs. 9,91,537.14 P. to the petitioner within a period for six months from today. In the circumstances of the case there will be no order as to costs.