Customs, Excise and Gold Tribunal - Calcutta
Rupa & Co. Ltd. vs Commissioner Of Customs, Kolkata on 31 January, 2002
Equivalent citations: 2002(81)ECC520, 2002ECR100(TRI.KOLKATA), 2002(143)ELT562(TRI-KOLKATA)
ORDER Archana Wadhwa, Member (J)
1. Vide the impugned Orders, the authorities below have confirmed a demand of duty of Rs. 39,41,353.00 (Rupees thirty-nine lakh forty-one thousand three hundred fifty-three) by denying the benefit of exemption Notification No. 29/97-Cus., dated 1-4-97 in respect of import of seven machines imported by the appellants against the EPCG Licence.
2. Shri J.P. Khaitan, learned Advocate for the appellants submits that the appellants established a new composite unit for the manufacture of textile garments, for which purposes they were issued an industrial licence from Government of India. As per the licence, the appellants were to export 50% of their annual production. He submits that before setting up the textile garment unit, according to the international standards, the appellants obtained an opinion from M/s. International Federation of Knitting Technologists for the purpose of modern garment unit for the manufacture of knitted and woven garments for export markets like Europe, U.S.A. etc. As per the advice given by the said Federation, various machines essential for making a quality garment of international standards were recommended and the vital role played by each and every machine was explained by them. Thereafter, an application was made to the Directorate General of Foreign Trade (DGFT) for issuance of a licence for import of the requisite machines required for purposes of manufacture of textile garments at '0' per cent of Customs Duty under the Export Promotion Capital Goods Scheme (EPCG). He also submits that the disputed machines imported by the appellants were allowed to be imported by DGFT under the various EPCG licences at '0' per cent of Customs Duty. During the year, 1999-2000, the appellants imported various machines in four consignments and claimed exemption in terms of Notification No. 29/97-Cus., dated 1-4-97 in the bills of entry. The said bills of entry were duly assessed by the Customs Authorities and the machines were allowed to be cleared without payment of duty.
3. After clearance of the machines, the Customs Authorities entertained a view that the machines imported by the appellants were not to be directly used in the manufacture of textile garments, but the same were used for processing of textile fabrics. As such, the benefit of the exemption Notification No. 29/97-Cus. cannot be extended to them. The Deputy Commissioner of Customs, Kolkata, accordingly, vide his Order dated 6-7-2000, held a view that the machines imported by the appellants were not directly used in the manufacture of the textile garments inasmuch as the same were for the purposes of pre-manufacturing activities and accordingly, directed the appellants to pay an amount of duty of Rs. 39,41,353.00 (Rupees thirty-nine lakh forty-one thousand three hundred fifty-three) on account of Additional Duty of Excise. The appeal against the above Order did not succeed before the Commissioner (Appeals). Hence the present appeal.
4. The contention of Shri Khaitan, learned Advocate appearing for the appellants is that the appellants' unit is a composite unit engaged in the manufacture of textile garments from the stage of grey fabric. They are buying the grey fabric from the market. The same is inspected on Inspection Machine to avoid any manufacturing defects and after inspection, the same is reversed on the Reversing Machine. After inspection and reversing, the fabric is dyed on the shop floor in the dyeing machine. Then wet dyed fabrics are sent for finishing section for squeezing, drying and compacting of wet fabrics. Finished dyed fabrics are then sent for calendering for giving extra dimensional stability to fabric for super fine quality of garment. Thereafter, the finished fabrics are sent to cutting section for cutting as per size. The cut fabrics are then sent to making section for manufacturing of garments. Shri Khaitan submits that the machines imported by the appellants undertaking the activities as detailed above, prior to cutting section, have been denied the benefit of Notification No. 29/97-Cus., on the ground that they are not used in the manufacture of textile garments, but are used for processing of textile fabrics. He also submits that the appellants are licensed for the manufacture of textile garments and all the machines imported by them were essential for the manufacture of textile garments. They played a vital role and were an integral part of process for the manufacture of textile garments from the stage of grey fabrics. He submits that the Revenue has denied them the benefit by observing that the machines in question are not used for manufacture of garments and the process of manufacture starts only with the cutting of the fabrics. He also submits that the above reasoning is clearly against the law laid down by various authorities and the introduction of the word - directly - in the Notification, is against the well-settled principles of natural justice which are to the effect that no new word can be introduced in the Notification. Drawing our attention to the Notification, he submits that the same allows import of capital goods from the entire additional duty of excise if the said goods are required for the manufacture of textile garments. He submits that there is no iota of doubt that the goods in question are required for the manufacture of textile garments, for which the appellants have been duly licensed. The findings of the authorities below, that the machines in question were used for processing of fabrics and not for manufacture of garments, were mis-conceived, inasmuch as according to the opinion given by the International Federation of Knitting Technologists, such machines are essential for making quality garments of international standard. Drawing our attention to the letter of I.F.K.T., dated 15-1-99, he submits that the same was obtained even prior to importation of the machines in question. The Federation has emphasized on the vital role played by such machines in the manufacture of garments. He also submits that the machines in question were duly listed in the Annexure-III to the said Notification and in Entry : III also, circulated by the D.G.F.T. Even the D.G.F.T. issued them the licence to import the machines in question by entertaining a view that the same were required for manufacture of textile garments. He also submits that it was not open to the Customs Authorities to take a different view. Shri Khaitan also submits that if the view of the Revenue that only cutting and stitching machines would qualify for exemption under the said Notification, is accepted, then the said Notification would become nugatory and meaningless inasmuch as the cutting and stitching machines are not even specified in the annexure to the Notification. As such, he submits that by denying the benefit to the various machines in question, the authorities have virtually rendered the Notification as defunct. Shri Khaitan also referred to various decisions of the Hon'ble Supreme Court and Kolkata High Court and Larger Bench of the Tribunal in support of his various submissions.
5. We have also heard Shri A.K. Mondal, learned DR for the Revenue. He reiterates the reasoning of the authorities below and submits that the intention and purpose for importation of the machines in question as detailed in the impugned Order-in-Appeal, have not been disputed by the appellants. The same clearly shows that the machines were used for processing of textile fabric and not for manufacture of garments. As such, the benefit has been rightly denied.
6. After giving our careful consideration to the submissions made from both sides, we find that the issue revolves around the applicability of the Notification No. 29/97-Cus., dated 1-4-97. The said Notification exempts the goods specified in the table annexed to the Notification, from whole of duty of Customs and from so much of the additional duty leviable under Section 3 of the Customs Tariff Act, as is in excess of the amount calculated at the rate of 10% of the value of goods. The proviso to the said Notification is to the effect that where the said goods are required for the manufacture of textile garments, the same are exempted from whole of additional duty. As such, the core question to be decided is as to whether the machines under dispute are required for the manufacture of textile garments or not. There is no doubt about the factual position. The machines in question are - (i) Automatic Fabric Reversing Machine, (ii) Tubular Fabric Inspection Machine, (iii) Knitted Fabric Machine, (iv) Short Liquor Fabric Dyeing Machine, (v) Finishing of Tubular Knitting Fabric & Accessories, (vi) Folding Device Type PP and Accessories and (vil) Speed Display Machine. As per the appellants, their manufacturing process starts from the point of purchasing of grey fabric from the market and the testing of the fabric for lab-dyeing, inspection of fabric, reversal of fabric, dyeing of fabric, dyeing of the same, calendering of the same - are the processes which are essential for the manufacture of textile garments. Without these processes, it is not possible for the appellants to manufacture their final product - 'Textile Garments'. It is seen from the letter dated 15-1-99 of International Federation of Knitting Technologists, while explaining their opinion for the manufacture of Knitted and Woven Garments mainly for export market like Europe, USA etc. giving details about the stages required to be taken for production of a quality garment. It starts from selection of a good quality of fabric. Thereafter, it details that the fabric is required to be reversed to prevent the right side of the fabric from abrasion and tear and wear. While reversing the fabric, the fabric is also inspected for holes and other mistakes like needle marks, needle breakage etc. If there are too many holes then it is no point in processing the fabric. Thereafter, the importance of dyeing has been illustrated. It says that one has to have a very well equipped laboratory to test the dyes. After dyeing, the complete shrinkage tests, peeling fastness tests and other tests have to be made so that when the garment is made, there is no complaint. The process of drying of the wet fabric, thereafter, plays an important role in controlling shrinkage and maintaining dimensional stability. The process of drying of wet fabric is, therefore, switched over to relaxed dryers where the temperature can be controlled so as to avoid any unhygenic method of drying by keeping the wet fabric left open in the sun. The said letter, further, goes on to highlight the use of wet expanders and padding manglers for special finishes like softness, velvet finish etc. and for controlling the ultimate shrinkage. Thereafter, the process of cutting and stitching has been described.
7. The above letter clearly reflects upon the processes required to be undertaken by a unit for the purposes of stitching of the textile garments. The machines imported by the appellants are mentioned there and the penultimate paragraph of the said letter is to the effect - "The above machines are essential for making a quality garment of international standard and each one of them has a vital role to play in the manufacturing of the garment. A quality garment cannot be made without the above machine. We, therefore, recommend that if you do set up a garment unit, you must have these machines."
8. Admittedly, the appellants have been licensed only for the purpose of manufacture of garments and the machines imported by them are required for the manufacture of the garments. The appellants have satisfied all other conditions of the Notification and there is no dispute about the same. Inasmuch as the expression used in the Notification is - ".....
Where the said goods are required for the manufacture of textile garments.....", we are of the view that giving a narrow interpretation to the Notification by holding that only cutting and stitching machines would be covered by the said expression, is not warranted. The process of manufacture of textile garments, as given in detail by the Federation, starts with the inspection and reversal of the fabric and thereafter, various processes are required to be undergone for the actual manufacture of the garments. All these machines are required and essential for the manufacture of the ultimate product. To restrict the benefit of the Notification only those machines which are directly used in the manufacture of the textile garments, would not, in our views, be in accordance with the principles of interpretation of notification. We find favour with the appellants' contention that if that be so, the Notification in question would become infructuous inasmuch as cutting and sewing machines are not specified machines in the Notification.
7. The appellants have referred to the Hon'ble Supreme Court's decision in the case of Oblum Electrical Industries Pvt. Ltd. v. Collr. of Cus., Bombay reported in 1997 (94) E.L.T. 449 (S.C.) wherein the provisions of the Notification No. 210/82-Cus., dated 10-9-1982 and Notification No. 116/88-Cus., dated 30-3-88 came to be interpreted. The said Notifications exempted from the whole of Customs Duty and Additional Duty the raw materials and components required for the manufacture of the goods to be supplied to International Development Association or International Bank for Reconstruction and Development or bilateral and multilateral aided projects or Asian Development Bank or United Nations Organisation or under the Aid Programme of the United Nations or for the replenishment of raw materials and components if used in the manufacture of such goods already supplied. The Revenue was denying the benefit of the Notification to the Cryster Beans used for firing dry and hollow H.T. Porcelain bushings in the kilns on the ground that the same are not required for the manufacture of Lightening Ar-restors which the appellants were supplying to Electricity Boards, Railways and other Public Sector Undertakings. The Hon'ble Supreme Court held in the above case that the words - 'required for the manufacture' - in the said Notification would include material which though not directly used in the manufacture of the product, is necessary for the purposes of manufacturing the product. As such, by observing that the object and purpose of the Notification was to encourage exports by granting exemption from customs duty on materials that are required to be imported for the purpose of manufacture of the resultant products, the Court observed that the expression, 'materials required to be imported for the purpose of manufacture of the products' -cannot be construed as referring to materials which are used in the manufacture of products. The said exemption must be given its natural meaning to materials that are required in order to manufacture the resultant products. On that view, the exemption cannot be confined to materials which are actually used in the manufacture of the resultant product but would also include materials which though not used in the manufacture of the resultant product are required in order to manufacture the resultant product. (emphasis supplied). The above observations made by the Apex Court are fully applicable to the facts of the instant case. The machines in question though may not be strictly used for cutting and stitching of the fibre, but are required for the manufacture of the appellants' final product i.e. textile garment. As such, by following the ratio of the said decision, we hold that the appellants are entitled to the benefit of the notification in question.
9. We would like to refer to the Hon'ble Calcutta High Court's judgment in the case of Naffar Chandra Jute Mills Ltd. v. Assistant Collector of Central Excise reported in 1993 (66) E.L.T. 574 (Cal.) relied upon by the appellants. The Hon'ble Court in the said decision held that the expression - 'bags of jute' - appearing in Notification No. 65/87-C.E., dated 1-3-87 does not mean that the bags should be made entirely or exclusively of jute and the poly-line jute bags would also earn the exemption. The Court held that inasmuch as the Notification did not use the expressions such as 'only' or 'exclusively' or 'entirely' for classifying the inputs, the remarks - 'made of do not mean 'made exclusively of. By applying the same ratio in the present case, the Notification nowhere uses the expression that the imported machines should be used directly in the manufacture of textile garments. To the similar effect, is another decision of the Hon'ble Supreme Court relied upon by the appellants in the case of Union of India and Others v. Tata Iron & Steel Co. Ltd., Jamshedpur reported in 1977 (1) E.L.T. (J 61). While interpreting the Notification No. 75/62-C.E., the Hon'ble Apex Court observed that "if the intention of the Notification were to exclude the exemption to duty-paid pig iron when mixed with other materials then the notification woul.d have used the expression 'only' or 'exclusively' or 'entirely' in regard to duty-paid pig iron....". Inasmuch as the Notification under consideration does not use the expression - 'directly', we agree with the learned Counsel that the machines in question which are used for preparation of the fabric for manufacture of the textile garments would be covered by the expression - 'required for the manufacture of the textile garments'. The appellants have also relied upon the Larger Bench decision of the Tribunal in the case of Kudremukh Iron Ore Ltd. v. Collector of Customs, Bangalore & Anr. reported in 2001 (121) E.L.T. 769 (Tribunal-LB) = 2000 (41) RLT 138 (CEGAT-LB). The question before the Larger Bench was the availability of Notification No. 13/81-Cus., dated 9-2-81 to the spares for various machines used in processing of mined ore. The said Notification granted exemption to the specified goods imported into India for the purpose of manufacture of articles for export out of India by 100% Export Oriented Undertakings, from the whole of Duty of Customs leviable thereon and the Additional Duty. The Revenue sought to deny the benefit to the various spares on the ground that they are not directly used in the manufacture of the final product exported namely, iron ore which is mined. On the other hand, the appellant's contention was that the equipments imported by the assessee, were highly essential for the purposes of manufacturing the product which is to be exported. The Tribunal in paragraphs 9 and 10 of the said decision accepted the appellants' contention. For better appreciation, we are reproducing the said two paragraphs as follows :-
"9. The various machineries for which spares have been imported were used in the manufacture of the finished product as far as the appellant is con-
cerned. Machinery, which played some role in the process of manufacture of finished goods without which manufacture of finished goods could not have become possible, should necessarily be treated as machinery used in the manufacture of such goods. Learned Departmental Representative was not justified in advancing an argument that machineries which are entitled to exemption under Customs Notification No. 13/81 must be those that are meant for the actual process of manufacturing the final product only.
10. Wabo Trucks, P & H Shovel, Motor Grader, CAT Front End Loader, Terex Front Loader, Komatsu Dozer, 35T Cap Haulpack Truck, Porcelain Excavator and Water Sprinkler used by the appellant in processing the mined ore are vital machineries which play an integral part in the process of manufacture of finished goods. Even though they are not directly involved in the manufacture of the finished goods, they are machineries used in the manufacture of such goods. Spares imported for such machineries are entitled to the benefit of Customs Notification No. 13/81. The contrary views taken by the authorities below are illegal. They are set aside. Authorities below are directed to pass final order on the refund applications as expeditiously as possible at any rate, within one month from the date of receipt of a copy of this order and to effect refund of the duty levied on such spares imported."
The ratio of the above decision is squarely applicable to the facts of the instant case. As we have already held that it is not possible to manufacture the final textile garments without undertaking the above detailed activities by the various machines imported by the appellants, we hold that the machines in question are required for the manufacture of the appellants' final product. As such, the benefit of the Notification cannot be denied to the appellants. The impugned orders are accordingly set aside and the appeal is allowed with consequential reliefs to the appellants.