Madras High Court
Karnataka Power Corporation Limited vs Commissioner Of Customs on 14 September, 2022
Author: Anita Sumanth
Bench: Anita Sumanth
W.P.No.20499 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated: 14.09.2022
CORAM
THE HONOURABLE DR. JUSTICE ANITA SUMANTH
W.P.No.20499 of 2019
Karnataka Power Corporation Limited,
Shakthi Bhawan,
Race Course Road,
Bangalore 560 001,
Represented by Chief Engineer (Electrical Designs),
V.Chandrasekhar ... Petitioner
Vs
1.Commissioner of Customs,
Department of Revenue,
Customs House,
No.33, Rajaji Salai,
Chennai – 600 001.
2.Assistant Commissioner of Customs (Refunds),
Office of Commissioner of Customs, Chennai II,
Customs House,
60 Rajaji Salai,
Chennai 600 001. ... Respondents
PRAYER: Writ Petition filed under Article 226 of the Constitution of India
praying to issue a Writ of Certiorarified Mandamus, to call for the records of
the 2nd Respondent which culminated in the Impugned Order No.66945/19
dated 04.01.2019, quash the portion of the Impugned Order whereby the
https://www.mhc.tn.gov.in/judis
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W.P.No.20499 of 2019
Petitioner’s claim for refund to the extent of Rs.56,72,983 was rejected and
direct the 2nd Respondent to grant refund of the said amount (the full refund
amount being Rs.2,57,11,308) to the Petitioner, together with interest on the
full refund amount of Rs.2,57,11,308/- with effect from 26 August 1995 until
the date of payment, at the interest rates notified from time to time.
For Petitioner : Mr.M.V.Swaroop
For Respondents : Mrs.Hema Muralikrishnan
Senior Standing Counsel
ORDER
The petitioner is the Karnataka Power Corporation and seeks a quash of order dated 04.01.2019 passed by the Assistant Commissioner of Customs (Refunds)/R2 to the extent to which it aggrieves the petitioner.
2. Heard the detailed submissions of Mr.M.V.Swaroop, learned counsel for the petitioner and Mrs.Hema Muralikrishnan, learned Senior Standing Counsel for the respondents.
3. The facts relevant to decide the issue are as follows:
(i) The petitioner is a Government of Karnataka undertaking engaged in the business of power generation. It has a Hydro Electric Generation power plant at Sharavathi and had imported epoxy coils along with accessories for the same.
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(ii) The bills of entries dated 25.08.1994 and 27.08.1994, had, admittedly, classified the coils under Entry 8544.11 and the spares and accessories under Entry 6815.99 under the Schedule to the Customs Tariff Act, 1975 (in short ‘Act’).
(iii) Subsequently, the petitioner came to understand that the classification had been incorrect and that the imported goods should have been classified under Entry 8503 of the Tariff.
(iv) Customs duty had been remitted on self-assessment basis at the time of import, albeit on the basis of the erroneous tariff headings, and hence an application for refund had been filed by the petitioner on 27.08.1994.
(v) Since the issue that arises in this Writ Petition is as regards the specific items for which refund was sought, it would be worth setting out the exact language in which the refund had been sought by the petitioner. The refund application is thus extracted in toto, in the interest of clarity and in support of the conclusion ultimately reached. The application reads thus:
27.08.1994 The Asst. Collector of Customs, Refund Section, Customs House, Madras – 600 001.
Dear Sirs, https://www.mhc.tn.gov.in/judis 3 W.P.No.20499 of 2019 Sub: Application for refund of excess custom duty paid – Reg.
Ref: 1) B.E.No.HB 565 dt. 5.7.90.
2) Our claim application No.KPC/CL/MDs/ Vishva Pallav dt. 17.9.90.
3) Your assigned No.31002031 dt. 19.9.90.
4) Our ltr.No.KPC/CL/MDS/Vishvapallav dt.17.12.90, 12.6.91, 22.8.91, 29.11.91, 20.3.97, 6.5.97, 5.3.93, 8.6.93, 8.6.93, 31.1.94, 22.3.94, 11.5.94.
......
We invite reference to our various letters cited above and wish to state as follows:
1) We had placed an order with M/s.Marubeni Corporation, Japan for the supply of epoxy coils and accessories, vide this office order No.KFI/SRHW/601/ICB/BB/Hitachi dt. 23.10.89.
2) The firm had supplied the epoxy coils and accessories and the same have arrived vide “M.V.Vishwapallav” vessel which has been cleared from customs at Madras vide B/E HB 555 dt. 5.7.90 for Rs.4,92,83,323.00.
3) Vide our claim letter dt. 17.9.90 we had requested to re-
classify the epoxy coils and accessories under heading 8501.64/9801. The case has not come for hearing till to date. Further we wish to state that after detailed review of the custom tariff and classification, it is found that the epoxy coils are parts which are used solely/principally with the generator/machine. Therefore we request you to classify epoxy coils and accessories under heading 8503 of custom tariff for the payment of custom duty at the rate of 35% (basic duty) + 45% (aux. Duty) + 20% CVD & 5% SED on CVD instead of classification under heading 8501.64/9801 as already claimed.
4) Therefore under the above circumstances, we request you to reassess the epoxy coils and accessories together under heading https://www.mhc.tn.gov.in/judis 4 W.P.No.20499 of 2019 8503 for payment of lower rate of custom duty and refund the extra custom duty amount of Rs.1,57,45,868 paid by us in view of that epoxy coils and accessories are used solely/principally with the generator/machine.
(vi) The application is supported by the computation of the duty paid and the assessable value, that relates to both the coils as well as the accessories thereof, as follows:
A)Duty paid - 4,92,03,323.00
B)Assessable value - 2,84,01,916.00
- 2,84,01,916.00
...........
` duty to be refunded – 1,57,45,868.
(vii) The refund application was rejected by R2, aggrieved with which, the petitioner had filed a first appeal before the Commissioner (Appeals), which also came to be rejected.
(viii) Some difficulty has been encountered in the present matter on account of the non-availability of the orders-in-original and appeal as well as the statement of facts and grounds filed before the Commissioner (Appeals). I say that for this reason that in the impugned order accepting the request for https://www.mhc.tn.gov.in/judis 5 W.P.No.20499 of 2019 refund only partially, R2 proceeds on the basis that the petitioner is entitled only to refund, on account of the duty paid for coils and not accessories.
(ix) The impugned order is itself based upon the order of the Customs, Excise and Service Tax Appellate Tribunal (in short ‘Cestat/Tribunal’) dated 02.03.2016, which is in favour of the petitioner and reversed the order of the Commissioner (Appeals).
(x) While it is the case of the petitioner that the order of the Cestat proceeds to accept its refund application in full, it is the case of the revenue that the Cestat has directed refund of only that part of the duty as relates to coils rejecting the refund application in respect of accessories.
(xi) This then, in effect, is the dispute to be decided.
4. It would thus be useful to extract the relevant portions of the order of the Cestat, as follows:
2.The brief facts of the case are that the appellants are a State PSU, imported parts of Hydro Electric Generator ie., ‘Epoxy insulated single turn half coils with accessories and Epoxy insulated single turn half coils wave stator windings etc.’ Vide Bills of Entry No.HD0601030 dated 25.08.94 and HD555 dated 27.08.94. The goods were assessed under 8544.11 and the appellant paid duty without protest. Subsequently, they filed the refund claim and claimed the classification under 8503. The Commissioner (Appeals) rejected the appeal. The same was upheld by CESTAT under Final Order No.541-544/2000 dated 25.04.2000.
The Hon’ble Supreme Court in their order dated 09.04.2002 in Civil Appeal No.6582, 6583 and 6586/2000 set aside the orders and https://www.mhc.tn.gov.in/judis 6 W.P.No.20499 of 2019 remanded the matter to the Assistant Commissioner to decide the original application dated 27.08.94. The adjudicating authority in his denovo order held that the goods are rightly classifiable under 8544 and rejected the claim. The Commissioner (Appeals) in her order dated 30.04.2004 upheld the OIO and rejected the appeal. Hence, the present appeal.
3.The Ld. Advocate appearing on behalf of the appellant submits that the imported items are parts of ‘hydro electric generators’ and they have imported ‘epoxy stator coil’ in the year 1990 for functioning of the Hydro Electric Project of Sharavathi Power Generation Station. The impugned goods are parts of the generator and it is solely/principally designed for the generator and it is classifiable under 8503 as part of generator. He drew attention to the catalogue, sketch diagrams and Section Note of Section (xvi) and submits that as per Section Note 2(b), covers parts suitable for use solely or principally with a particular kind of a machine or with a number of machines of the same heading. He also drew our attention to the letter dated 08.09.1995 issued by the supplier M/s.General Electric Canada INC, wherein the supplier has clearly certified that the supply of epoxy coils and accessories are specially made for hydro electric generating units at Sharvathy Power Generating station and certified that these coils are to be used only on the above generator sets and not elsewhere. He submits that the classification 8544 is only for insulating materials either wire/cables and other insulated electric conductors etc. He submits that classification 8503 specifically covers parts suitable for use solely or principally with the machines of heading No.85.01 or 85.02.
5. The submission of the revenue have been extracted at paragraph 4, as follows:
4.On the other hand, the Ld. AR reiterated the findings of the adjudicating authority and appellate authority and vehemently opposes the appellant’s submissions. He drew attention to the Bills https://www.mhc.tn.gov.in/judis 7 W.P.No.20499 of 2019 of Entry where the appellants have declared that the items were epoxy insulated single turn half coils with accessories, which are rightly classified under 8544. He submits that the classification is determined by the provisions under chapter note and section note and under specific entry. He also submits that judgment of Hon’ble High Court of Gujarat relied on by the appellant is clearly distinguishable as what is imported in that case was stators.
6. The findings and conclusions of the Cestat constitute the remainder of the order from paragraph 5 onwards and in the interests of clarity, though compromising brevity, I extract the rest of the order below:
5.After hearing both the sides we find that the short issue involved in this appeal is whether the impugned goods imported and cleared under the said Bills of Entry are classifiable under 8503 as parts of generators or under 8544 as insulated wire/cables as claimed by the Revenue. We find that the appellant is a State PSU imported these parts for use at Sharavathy Hydro electric Power Generating Station project, which is not in dispute. On perusal of the Bills of Entry, literature, catalogue and schematic/sketch diagrams enclosed with the appeal paper book, we find that as per the invoice dated 30.05.90 we find that the description at Sl.No.1 was described as epoxy insulated single turn half coils wave stator winding and Sl.No.2 were spares and accessories. On perusal of the copy of the original catalogue of both Hitachi, Japan and General Electric Canada INC., the goods have been described as under:-
“The Hitachi HI-Mold Coil is a high quality insulation system employed in producing Class F high-voltage stator coils for rotating machines” As per GE Canada, the goods have been described as “CGE advanced insulation system”. From the above descriptions and literatures which is supported by the letter dated 08.09.95 issued https://www.mhc.tn.gov.in/judis 8 W.P.No.20499 of 2019 by GE, Canada INC, wherein the principal supplier has clearly certified that these spare epoxy coils and accessories are specially made for the generators at Sharavathy Power Generating station and can be used only for the above generating units and not elsewhere. This confirms that the goods imported are epoxy stator coils solely/principally used for the generators classifiable under 8501. The lower authority in his order relied Section Note 2 of Section XVI which is reproduced as under:
“(a)parts which are goods included in any of the headings of Chapter 85 are in all cases to be classified in their respective headings;
(b)Other parts, if suitable for use solely or principally with a particular kind of machine are to be classified with the machines of that kind.
(c)All other parts are to be classified in heading 8503 or failing that, in 85.48.” The Commissioner (Appeals) relied Note 2(a) of Section Note and concluded that the parts which are goods included in any of the headings of chapter 85 to be classifiable under respective headings. Whereas, the Note 2(b) stipulates the parts suitable for use solely or principally with a particular kind of machine are to be classified with the machines of that kind.
6.In our considered view that Note 2(b) is the relevant note suitable for the present case as the goods are not general parts or insulating materials as per the invoices and the catalogues it is established that these stators are particularly meant for generators only. The Hon’ble High Court of Gujarat in the case of Windel Submersible Pvt. Ltd. Vs. UOI (supra) clearly settled the issue that rotors and stators used in monoblock pump which are suitable for electric motors are classifiable under 8503, which has been followed by the Tribunal in the case of Sharp Industries Vs. CCE (supra).
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7.Accordingly, we hold that the goods imported under the Bills of Entries are epoxy stator coils solely designed for power generators for Hydro Power Project and rightly classifiable under 8503 and not under 8544. Accordingly, the impugned order is set aside and appeal is allowed with consequential relief.
8.Before parting we observe that this case pertains to 1990 and for 15 years it is moved to various appellate levels and this is the third round of litigation and wherein at the first round the dispute reached up to the Hon’ble Supreme Court and the Apex Court allowed their appeal and remanded to the Asst. Commissioner to decide the refund application. Considering the period of 15 years’ time to reach the final stage and also considering the appellant is a State PSU, Karnataka Power Corporation Ltd., we expect the authorities below to settle their legitimate refund claim on receipt of this order.
7. The revenue would vehemently rely on paragraph 2 of the order of the Cestat pointing out that the reference of the Tribunal is only to the assessment under tariff heading 8544.11. Thus, according to them, the refund application was restricted only to the bills of entries relating to coils, since the Tribunal has mentioned only tariff heading 8544.11. It is based solely upon the above interpretation of the order of the Cestat R2 proceeds to restrict the refund to the duty remitted on coils alone.
8. I am however of the considered view that the refund application and order of the Cestat have to be seen conjointly and holistically, and instance of the revenue upon certain observations of the Cestat alone, would distort the https://www.mhc.tn.gov.in/judis 10 W.P.No.20499 of 2019 issue, seen in isolation. A perusal of the refund application makes it clear to me that the refund sought for was in respect of both the coils and accessories. In fact, the petitioner has stated so, in as many words, at paragraphs 2 and 3 of the refund application extracted at paragraph No.3(v) supra.
9. The computation of duty also indicates the duty paid in respect of 4 Bills of Entries, 2 for coils and 2 for accessories. Thus, there is no doubt in my mind that claim for refund was made in respect of duty paid for both coils and accessories. It thus follows that the orders-in-original and first appeal, and the order of the Cestat relate to the refund application as a whole and in respect of all 4 bills of entries.
10. Even on a practical and pragmatic appreciation of the matter, it does not stand to reason that the coils would be classifiable under Entry 8503 and accessories for the coils be classified under a different heading altogether. Clearly, there is an error in the references to tariff heading in the bills of entries and the revenue must not be seen to take advantage of this error in classification. Once the Cestat has categorically held that coils would fall under tariff heading 8503, it follows on all counts that accessories to the coil should also be treated under the same head, also eligible for duty refund. https://www.mhc.tn.gov.in/judis 11 W.P.No.20499 of 2019
11. For the reasons as above, I disagree with the conclusion of R2 and the submissions of the revenue to the effect that the refund must be restricted only to the duty paid on account of coils. The impugned order to the extent to which it rejects the refund in respect of accessories is quashed. The refund shall be paid forthwith along with applicable interest within a period of six (6) weeks from date of receipt of a copy of this order.
12. R2, in the impugned order, has restricted the payment of interest from date of order of Cestat, which appears contrary to the provisions of Section 27A of the Customs Act, 1962 that deals with claims for refund of duty. Section 27A of the Customs Act reads as follows:
Section 27A. Interest on delayed refunds. -If any duty ordered to be refunded under sub-section (2) of section 27 to an applicant is not refunded within three months from the date of receipt of appli- cation under sub-section (1) of that section, there shall be paid to that applicant interest at such rate,[ not below five percent.] and not exceeding thirty percent per annum as is for the time being fixed60[by the Central Government by Notification in the Official Gazette], on such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of refund of such duty:
Provided that where any duty, ordered to be refunded under sub-section (2) of section 27 in respect of an application under sub- section (1) of that section made before the date on which the Fi- nance Bill, 1995 receives the assent of the President, is not refund- ed within three months from such date, there shall be paid to the applicant interest under this section from the date immediately after three months from such date, till the date of refund of such duty.
https://www.mhc.tn.gov.in/judis 12 W.P.No.20499 of 2019 Explanation.- Where any order of refund is made by the Commis- sioner (Appeals), Appellate Tribunal,57[National Tax Tribunal] or any court against an order of the [Assistant Commissioner of Cus- toms or Deputy Commissioner of Customs] under sub-section (2) of section 27, the order passed by the Commissioner (Appeals), Appel- late Tribunal, 57[National Tax Tribunal] Tribunal or as the case may be, by the court shall be deemed to be an order passed under that sub-section for the purposes of this section.
13. As per the aforesaid provision, interest is payable from 3 months from date of receipt of the refund application till date of payment. In this case, the date of refund application is 27.08.1994 and in light of the order passed above holding the refund payable, interest would be applicable on the amount to be refunded on accessories in terms of Section 27A, from 3 months from date of refund application till date of payment. The same reasoning would hold good in respect of coils as well.
14. This Writ Petition is allowed in the above terms. No costs. Connected Miscellaneous Petition is closed.
14.09.2022 Sl Index : Yes / No Speaking Order / Non Speaking Order Note: Registry is directed to return the records to the concerned section.
https://www.mhc.tn.gov.in/judis 13 W.P.No.20499 of 2019 DR.ANITA SUMANTH, J.
Sl To
1.Commissioner of Customs, Department of Revenue, Customs House, No.33, Rajaji Salai, Chennai – 600 001.
2.Assistant Commissioner of Customs (Refunds), Office of Commissioner of Customs, Chennai II, Customs House, 60 Rajaji Salai, Chennai 600 001.
W.P.No.20499 of 2019
14.09.2022 https://www.mhc.tn.gov.in/judis 14