Customs, Excise and Gold Tribunal - Tamil Nadu
Bharat Heavy Electricals Ltd. vs Cc on 1 January, 1800
Equivalent citations: 1999(83)ECR114(TRI.-CHENNAI)
ORDER A.C.C. Unni, Member (J)
1. Collector of Customs, Madras by order-in-original No. 291/93 dated 24.3.1993 confirmed a duty demand of Rs. 3,62,28,903/- against the appellants subject to adjustment of Rs. 1,08,38,864/-already paid at the stage of clearance after provisional assessment of six numbers of Wind Operated Turbine Generators (WOEG) imported by them. Appellants are seeking the setting aside of the said order and a direction for re-assessment of the parts of the generator under Notification No. 89/91-Cus. dated 25.7.1991 and refund of the amount already paid.
2. We have heard detailed submissions made on behalf of the appellants by Shri V. Sridharan, Ld. advocate and by Shri S. Ramanathan, ld. JDR representing the Respondent Commissioner.
3. Briefly, the facts relevant for consideration of the issues raised are: The Maharashtra Energy Development Authority (MEDA) placed an order with the appellants for the supply, erection and commissioning of six Wind Operated Electric Generators (WOEG) of 250 MW each under a project funded/sanctioned by the Department of Non-conventional Energy Sources of the Government of India. Pursuant thereto, according to appellants, they imported a consignment of parts of WOEG of 250 KW capacity. For this purpose, they obtained the necessary certificate from the Ministry of Non-Conventional Energy Sources under Notification 89/91 and sought exemption from Customs Duty under the said Notification which was not agreed to by the Customs authorities. After conducting detailed investigations including recording of statements of officers of the appellants, a Show Cause Notice was issued dated 28.9.1992 alleging that the appellants had in fact imported six full WOEG misdeclaring them as wind generator 'components' and 'maintenance spares'. It was alleged that the goods imported were in assembled condition and not in the form of components as claimed in the Bill of Entry and Invoice and therefore, the consignments were not eligible for the concessions under Customs Notification 89/91. Pending adjudication appellants were allowed clearance after provisionally assessing the parts and the generator at the rate of 40 per cent under Notification 90/91 dated 25.7.1991.
4. During the personal hearing before the Commissioner, appellants submitted that the imported items were in fact components of Wind Mill Generator and they were not in the form of assembled wind mill generator as alleged in the SCN. They also referred to the letter written by the Secretary, Ministry of Non-conventional Energy dated 21.1.1998 to the Secretary, Ministry of Finance supporting the appellants' case. Collector of Customs, however, did not accept their contentions and held that the appellants had imported complete wind electric generators. He, however, dropped proceedings for confiscation under Section 111(o) and 111(m) of the Customs Act.
5. Explaining the technical details of Wind Operated Electric Generator (WOEG), ld. Counsel referred to the technical literature forwarded by the foreign supplier, M/s. Nordex, Denmark (Pp. 198 to 211 - Annexures I and II to the Memo of Appeal) and submitted that a WOEG consisted of (a) Nacelle (b) Rotor consisting of blades and hubs (c) Controller of communication, (d) Tower and (e) Foundation. He drew attention to the fact that the appellants had not imported Towers (which they were fabricating separately at their factory at Ranipet) and that import of 'blades' was not part of the consignments covered by the Bills of Entry presently under consideration. Further, 'foundation' was also being separately laid by the appellants. He submitted that a WOEG was not complete without a Tower and a Foundation, and the designing and erection of Tower were in themselves highly specialised and technical jobs. The Department had alleged that six items forming part of 'Nacelle' viz. (a) gear-box assembly, (b) braking system, (c) generator, (d) Yawing, (e) Cabin and (f) Control and measurement equipment had been imported in assembled form. Ld. Counsel in this connection drew attention to Notification No. 89/91 as amended which exempted ten items listed in the Table to the Notification namely, (1) Blades (2) Gear Box (3) Brake Calipers (4) Yaw Components (5) Sensors (6) Special bearings (7) Hubs (8) Flexible couplings (9) Brake Hydraulics and (10) Wind Turbine Controller and Parts thereof. It was the submission of the Ld. Counsel that the use of the expression "Nacelle" for the group of six items mentioned thereunder did not make these items a fully assembled machine attracting Rule 2(a) of General Rules of Interpretation of the Ist Schedule to the Customs Tariff Act, 1975 which provides that any reference to an article shall be taken to include a reference to that article in incomplete or unfinished form if the incomplete or unfinished articles have the essential character of the complete or finished article. In this connection, Ld. counsel referred to para (vii) of the Explanatory Note to Interpretative Rule in HSN which clarified that for purposes of Rule 2(a) 'articles presented unassembled or disassembled' meant articles the components of which were to be assembled either by means of simple fixing devices (screws, nuts, bolts etc.) or by rivetting or welding, for example, by simple assembly operations. He submitted that the assembly operation undertaken for the purpose of setting up WOEG was not a simple operation of the type contemplated under Rule 2(a) para (vii). BHEL had set up a factory specially for the assembly operations. He relied on the Tribunal decision in Space Engg. Projects Pvt. Ltd. v. CCE 1995 (78) ELT 544 : 1995 (59) ECR 473 (T) wherein the Tribunal did not accept the applicability of Rule 2(a) for precisely the said reason. He also under lined the fact that the expression 'Nacelle' was used only to refer compendiously to the group of items grouped together for the sake of convenience of packing and it was incorrect to give the said group of articles, a separate identity as has been done by the Collector, since 'Nacelle' was not an identifiable article under the Tariff or under the Notification. The question of applying the test of assembled/disassembled goods therefore, did not arise in the case of said items just because the description given by the foreign supplier or the Bill of Entry/Invoice used such an expression. In fact, it was Section 19 of the Customs Act which was relevant in the circumstances of the case. Section 19(b) read with Clause (b) of the proviso thereto of the Customs Act provides for assessment of a set of articles' based on their individual values. In this instant case though the compendious reference 'Nacelle' covered a collection of individual items, they were still identifiable individually. None of the individual items had lost its individual identity as a tariff item or as an item mentioned in Notification 89/91 just because they have been put together and packed together for convenience and referred to compendiously by a single expression. He relied in this connection on the Bombay High Court decision in Godrej Soaps v. A.K. Bandhopadhya .
6. Ld. Counsel cited the example of cars with air conditioners, stereo etc. which items were always assessed separately by recourse to Section 19. Reliance was placed on the Tribunal decision in Inderjit Singh Bawa v. Collector of Customs in support. The other condition under Notification 89/91, viz., obtaining of a certificate from the authority mentioned therein, had also been fully met. Without prejudice to the submissions relating to Notification No. 89/91, Ld. Counsel also submitted that the benefit of concession under Notification No. 90/91-Cus. had also been wrongly denied to the appellants on the ground that the requisite certificate under that Notification had not been obtained. He submitted that while Notification 89/91 granted exemption for certain goods required for the purpose of manufacture of WOEG, Notification No. 90/91 granted exemption to WOEG itself. Further, while on the one hand, the benefit of Notification 89/91 had been denied to the appellants on the ground that the goods imported were not parts but were disassembled WOEG, (which qualified the import for the benefit of Notification 90/91) the duty concession under Notification 90/91 had been, on the other hand, denied on the technical ground that a separate certificate under Notification 90/91 had not been obtained from the competent officer in the Department of Non-Conventional Energy Sources of the Government of India. It was submitted that the certificate and the recommendation relating to Notification No. 89/91 was equally applicable for purposes of Notification 90/91 since they were being issued by the same authority and for the same purpose, namely setting up of WOEG by the appellants. Reliance was placed in the case of Auto Tractors Ltd. v. CC . Without prejudice to the claims for exemption under Notification 89/91 and 90/91 appellants also contend that they were in any case eligible for duty exemption under Notification 205/88-CE which exempted from Additional Duty of Customs items covered by the Table to that Notification viz. "Wind mills and specifically designed devices which run on wind mills" (S. No. 12) and "Any special devices including electric generators and pumps running on wind energy" (S. No. 13) WOEG, being a generator which is run by the wind mill to produce electricity, would squarely come within the description of the devices mentioned against S. No. 12. Alternatively, WOEG being an electric generator operated by wind energy would come within the description of the special devices mentioned against S. No. 13. Tribunal decision in Electron Engg. Ltd. v. CC 1998 (27) RLT 913 : 1998 (79) ECR 207 (T) was relied on in support.
7. Ld. DR opposing the submissions of the Counsel for appellants referred to the findings of in the impugned order. He submitted that the appellants had not disputed the fact that they had imported as many as 33 items which they had failed to declare in the Bill of Entry. Appellants had contended that the foreign supplier had despatched the said goods without prior intimation to the appellants on the mistaken belief that the said goods were incidental items. Appellants had not seriously contested the import of the said 33 items and the duty demand thereon. As regards the other items described as "part of 250 KW Wind Generator Components and maintenance parts" despatched in completely knocked down condition, and various other components and mentioned in the fax messages exchanged between appellants and the foreign supplier referred to in the impugned order of the Collector, DR submitted that this indicated that there was a contract between the appellants and the foreign supplier for the supply of WOEG in knocked down condition in the form of components and assemblies of the components. Invoice No. 455 of M/s. Nordex Energy dated 26.6.1992 on BHEL clearly spoke of "supply of 250 KW Wind Turbine Components/Sub-assemblies in Knock-down condition as detailed". Even though the appellants had contended that there was only a draft contract, the correspondence exchanged clearly showed that there was clear agreement between the parties about supply of the entire Wind Generator in Knocked Down Condition. It was also not in dispute that the appellants had imported 'Nacelle' in assembled form, blades (though cleared separately through Bombay port), hubs, controller and connecting cables. Technical drawing No. 200-01-00 supplied by the foreign supplier showing the exploded view of turbines showed that the imported items were in fully assembled form incorporating gear box assembly, braking system, generator, yawing cabin and control and measurement equipment. It was to be noted that though six nos. of cables used for connecting generator and controller had actually been imported along with cabin and control and measurement equipment, none of them had been declared. This would go to show that the appellants had in fact imported the entire Wind Turbine Generator in SKD condition, except for the tower. Further, Invoice dated 26.6.1992 also mentions the items as Wind Turbine components and sub-assemblies in knocked down condition. The appellants had, in reply to the Show Cause Notice, produced a certificate with no date stating that the goods were despatched in the form in which it was imported for convenience of transport and technical reasons. Further, the claim made in the supplier's undated certificate that gear box and generators were fitted together for ease of transport and for saving berthing (sic) space went contrary to their invoice dated 26.6.1992. There was also a clear inconsistency between the invoice stating that wind turbine components and sub-assemblies were to be in knocked down condition and the undated certificate mentioning that gear box, flexible couplings etc. are fitted together. As regards the assembled parts covered by "Nacelle", even if it took considerable time to disassemble them, they were still in the assembled state at the time of presentation for assessment and not in the shape of components mentioned in the Table to Notification 89/91. Appellants could not, therefore, claim the benefit of exemption for components under Notification No. 89/91. Ld. JDR drew attention to the fact that Notification 90/91 extended concession to WOEG as such i.e. when they were imported as a full generator and not otherwise. This was meant to cover import of WOEG in CKD or SKD condition as it was not conceivable that a complete WOEG will be transported in the same form. However, for claiming the benefit of the said Notification also, the condition of a specific certificate saying that the import was of a WOEG as such was required to be produced from the authority mentioned in the Notification. A general recommendation of the nature relied on by the appellants would not suffice for purposes of Notification No. 90/91. Ld. JDR therefore, contended that the impugned order does not call for any interference and pleaded for the dismissal of the Appeal.
8. The contention of both sides have been given due consideration. On the question of duty demand on 33 non-declared items on which payment of Rs. 10,68,921/- was already made by the appellants on the basis of provisional assessment dated 31.3.1993, we find that the matter has not been pressed. We, therefore, confirm the same.
9. The main dispute is about the demand confirmed under the impugned order in relation to six numbers of WOEG amounting to Rs. 3,62,28,903 of which Rs. 1,08,38,864/- had already been paid at the time of clearance after provisional assessment on 31.3.1993. Collector has given the finding that the correspondence between the foreign supplier and the appellants clearly showed that the order placed by the appellants was for six numbers of WOEGs in Knocked Down condition. Though the appellants contend that the contract referring to supply of the WOEGs in Knocked down condition was only a draft (having not been signed), we find from the correspondence extracted and relied upon in the impugned order that the appellants had placed order for the goods in Knocked down condition. We find that the fax message dated 6.1.1992 sent by BHEL to Nordex clearly mentioned that "the Wind electric generators will be imported in Knocked Down condition (including Nacelle parts) for assembly in India at site". This has not been disputed by the appellants. We find that the reply to the SCN dated 19.10.1992 also confirmed the position that the appellants had proposed to procure the wind turbine in Knocked down condition. The conclusion drawn by the Commissioner on the basis of the correspondence between the appellants and the foreign supplier that a contract existed between them for import of wind turbine in Knocked down condition, is therefore, in our view, well founded.
10. Ld. Counsel for appellants had however, submitted that a WOEG is complete only when it is mounted on a tower and the tower itself requires to be erected on a foundation. Since admittedly no tower had been imported, it would be incorrect according to him, to contend that a complete WOEG in knocked down condition had been imported applying Interpretative Rule 2(a). He had contended that the designing, fabrication and erection of towers for WOEG were themselves highly specialised technical jobs and since the imported items did not even after putting them together constitute a WOEG, description of the imported goods as components/sub-assemblies in knocked down condition in the B/E or invoice cannot amount to a misdeclaration.
11. We observe from a copy of the technical literature supplied by Nordex, the foreign supplier (Annexure I, page 198 of the Memo of Appeal), relating to "Nordex A/X - Specifications for Nordex 250 KW and 150 KW" that under the heading 'Technical description (P.199). The following items have been included.
Technical Description:
01) General structural description of Nordex - Wind turbine
02) Effect-Curves
03) Foundation
04) Tower
05) Nacelle .051) Gear .052) Generator .053) Cabin .054) Yawing .055) Braking .056) Control and measurement equipment
06) Rotor
07) Hub + blades
08) Controller and communication .081) General description of Controller and communication .082) Controller signals .083) Guidance for Type S 4 (Controller)
09) Erection ...
...
Further, the copy of the manufacturers illustrated catalogue at P. 211 (Annexure IX to Memo of Appeal) describes the full Nordex turbines as:
Integrated Construction The construction of the NORDEX turbines introduces a new era:
- The whole unit is placed directly on the tower.
- The generator, gear and the 2 main bearings are flanged together -By this, the troubles with lining-up the different parts are solved.
- Yawing of the NORDEX turbines is done by a new special developed yawing system, which has attracted a lot of attention among experts. An example is, that NORDEX turbines have brakes on their yawing system, which means that the millcap is completely still, and as a result the 2 yawing gears are not wearn....
The catalogue further states that "NORDEX turbines are delivered either with a galvanised lattice tower, or with a white painted tubular tower."
12. From the description of the "NORDEX - Windturbine" and "NORDEX 250 KW and 150 KW" in the technical literature referred to above, it is seen that what is described as "NORDEX-Wind-turbine" consists of (a) the turbine part consisting of 'Nacelle' (further sub-divided into gear, generator, cabin, yawing, braking and control and measurement equipment), rotor, hub and blades and controller and communication (b) the Tower and (c) the Foundation. In other words, to constitute the complete Wind turbine generator all the items referred to in (a), (b) and (c) above have to be put together. In terms of Notification 89/91-Cus. (the benefits of which is claimed by the appellants), duty exemption has been granted to goods specified in Column (2) of the Table to the Notification when it is imported for the manufacture of 'Wind operated electricity generators (WOEG). It is significant to note that among the ten specified items under Column (2) of the Table, there is no mention of 'Tower' or 'Foundation'. It is also significant to note that the exemption under Notification No. 89/91 is given to the goods specified in the Table when it is imported into India is for the manufacture of wind operated electricity generators". The specified imported goods are therefore, to be used for the 'manufacture' of WOEGs. A plain reading of the Notification therefore, would show that the imported goods will have to be put through a process of 'manufacture'. Since 'manufacture' of WOEG will not be complete without placing the wind turbine consisting of Nacelle, rotor, hub and blades and controller and communication (the imported goods) on a tower erected on a foundation the said goods cannot by themselves be deemed to have constituted - minus tower and foundation - a complete WOEG. We, therefore, hold that the import of Nacelle and other items answering the description of the goods mentioned at Sl. Nos. 1 to 10 of the Table to Notification No. 89/91, irrespective of whether they we're imported in knocked down condition or assembled condition - will not amount to import of a complete WOEG. In such circumstances, the import of the said goods even in assembled form cannot disentitle them from the benefit of duty concession under Notification No. 89/91-Cus. We also hold that in the facts of this case, no reliance can be placed on Interpretative Rule 2(a) of the CTA, 1975 on the ground that the said goods as presented had the essential character of the complete or finished article. We are also in agreement with the appellants' contention that the said Rule of Interpretation which is meant to be applied to interpretation of the Schedule to the Customs Tariff Act, 1975 cannot be applied to an exemption Notification.
13. It is not in dispute that the appellants had produced a certificate dated 27.7.1992 from the Principal Scientific Officer, Ministry of Non-Conventional Energy Sources certifying the components detailed in Invoice No. 455 dated 26.6.1992 as eligible components for manufacture of WOEG under Notification No. 89/91. This certificate has been rejected by the Department only on the ground that the consignment was imported in assembled condition and not in component form. In the light of the view we have taken above, we hold that the certificate obtained by the appellants have been wrongly rejected. Since the import of the goods under dispute by the appellants have fulfilled the condition of Notification No. 89/91-Cus., we hold that the duty concession under the said Notification cannot be denied to them. The duty demand of Rs. 3,62,28,903 confirmed by the Commissioner in the impugned order is as a result set aside with consequential benefits to the appellants.
14. We do not consider it necessary to go into the other contentions raised by appellants and the case law relied on by the appellants' counsel since we have come to the above conclusion independently on an analysis of the facts of the case and on the interpretation of the Notification No. 89/91-Cus.
15. The appeal is allowed in the above terms subject to our observations in paragraph 8 above in relation to the duty demand of Rs. 10,68,921/-.