Customs, Excise and Gold Tribunal - Delhi
National Newsprint And Paper Mills Ltd. vs Collector Of Customs on 11 September, 1987
Equivalent citations: 1987(14)ECC125, 1987(32)ELT153(TRI-DEL)
ORDER Harish Chander, Member (J)
In view of the majority decision, the appeal filed by the appellants is dismissed.
K. Prakash Anand, Member (T)
1. In the present matter, appellants applied for Registration of Contract under Project Import (Registration of Contract) Regulation, 1965 for the import of Newsprint Twin Flow Refiner for the expansion of their production capacity. They forwarded a licence duly endorsed by the licensing authorities for assessment under Heading 84.66-CTA as Project Imports. The Assistant Collector of Customs rejected the claim for registration of contract on the ground that the refiner was being imported as a modification of the existing plant to achieve the installed capacity and that it was not imported either for initial setting up of the plant or for substantial expansion of an existing unit. When the party went up in appeal, the Appellate Collector of Customs upheld the orders of the Assistant Collector holding that repairs or improvement of defects no doubt directly result in increasing the production but that this is not what was contemplated by substantial expansion within the meaning of Tariff Heading 84.66. The Appellate Collector observed that the context clearly meant either all round additional capacity or streamlining of existing equipment as a part of new technological renovation should be contemplated.
2. We have heard Shri D.N. Kohli, consultant for the appellants and Shri 3. Gopinath, SDR for the department.
3. It is observed that the Mill was granted an Industrial Licence to increase their production from 30,000 tonnes to 75,000 tonnes per annum and for this purpose, they obtained from their indigenous suppliers, a Cold Soda Pulping Plant, which was producting cold soda pulp to the extent of 30 to 35 tonnes per day against the expectation of 90 tonnes per day. On the basis of advice of their consultants, it was decided by the appellants to import one 3V Twin Flow Refiner. They were also granted a licence on the advice of the Directorate General of Technical Development, which was duly endorsed for Project Imports. In the order-in-original, the view has been taken that refiner is being imported merely as a modification of the existing plant to achieve the installed capacity and that the import is not for either initial setting up of the plant or substantial expansion of an existing unit. This view has been upheld by the Appellate .Collector, who has added that the imports were essentially intended for repairs or improvement of defects. We do not agree with these views. Admittedly, it cannot be said that the import was in connection with the initial setting up of the plant, but quite clearly, it was for substantial expansion of an existing unit. It is not disputed that the cold soda pulping plant was giving a production of 30 to 35 tonnes per day of cold soda pulp and that on expert advice, with a view to increase its capacity, it was decided to import the twin flow refiner.
It is hardly necessary in the face of these facts to undertake an investigation into the circumstances in which it was decided to go in for the expansion and to import the impugned goods. The fact that the existing equipment provided by their indigenous suppliers did not give them the production contemplated, is not relevant. In the order-in-appeal, it is stated that the import should be related to all round additional capacity, or streamlining of existing equipment as a part of new technological renovation. There is nothing at all in the tariff heading to justify such an interpretation. All that is required is that the imports should be for substantial expansion of an existing unit. The appellant company has clearly shown that it is.
4. We have seen the decision of this Tribunal in the case of Collector of Customs, Bombay v. M/s. Bharat Heavy Electricals Ltd. New Delhi [1984 (17) ELT 525] which has been cited by the appellants in their favour, where it has been held that it is not necessary that the import should be meant for expansion of rated capacity and that modernisation and revamping may also come within the broad criterion of substantial expansion of an existing unit.
5. We respectfully concur with this view.
Appeal allowed.
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(K. Prakash Anand) Member Dated : 6.2.1987 Harish Chander, Member (J)
6. I have perused the judgment proposed to be delivered by my learned Brother. After giving my anxious and careful consideration, I find with regret that I cannot persuade myself to agree with the view expressed by the learned Brother on the question of granting the benefit of Project Imports under Heading 84.66 of CTA 75. The appellant approached the Revenue Authorities for registration of contract under Project Import (Registration of Contract) Regulation, 1965 for the import of newsprint Twin Flow Refiner for the expansion of their production capacity. The appellant also forwarded the Import Licence No. l/CG/2034013 dated 14.11.1979 duly endorsed by the licensing authority for the assessment under Heading 84.66 as Project Imports. It was contended that the mill took up expansion of newsprint manufacturing for increasing its capacity from 30,000 tonnes per annum to 75,000 tonnes per annum in stages. Accordingly, new paper machine was imported in 1966 and new soda Recovery Boiler and B.L. Evaporators in 1967 and these were cleared under contract registered. The remaining plant including cold soda pulping were procured indigenously, Cold Soda Pulp Plant was set up for producing 90 TPD or 27,000 TPA salai cold soda pulp of desired quality. But the plant installed and commissioned in 1975 under this expansion programme for producing cold soda pulp never worked to its full capacity. The appellant consulted M/s. Jaakko Poyry Oy of Finland. The appellant was advised addition of refiner for achieving the desired production of cold soda plant. The Ld. Assistant Collector had taken the view that the refiner was imported for the modification of existing plant to achieve the installed capacity and the same was not imported for initially setting up of the plant or for substantial expansion of the existing unit and as such the goods imported were not covered by the Heading 84.66 of CTA 1975 and had rejected the appellant's claim for the registration of contract under Project Imports (Registration of Contract) Regulation, 1965. Being aggrieved from the said order the appellant had filed an appeal to the Ld. Appellate Collector. The Ld. Appellate Collector had confirmed the findings of the Assistant Collector and had rejected the claim. Being aggrieved from the aforesaid order the appellant had come in appeal before the Tribunal.
7. Shri D.N. Kohli, the Ld. Consultant, has appeared on behalf of the appellant. He has pleaded that the appellant is a Government of India Undertaking. He has stated that the factory was set up in 1952 with 30,000 tonnes capacity and in 1963 a licence for expansion was granted and the importation started in 1966 and the plant was commissioned in 1975. He has stated that the plant could not achieve its installed capacity due to defective refiner. The appellant had applied for ITC licence and the licence was granted on 14.11.1979. The appellant had made a claim for Project Import under heading 84.66 and the present importation was made in the year 1980 vide Bill of Entry dated 20.9.1980 and the appellant had duly applied for registration of contract. In support of his arguments he has referred to a judgment of the Tribunal in the case of Collector of Customs, Bombay v. B.H.E.L. reported in 1984 ECR 1345 where the Tribunal had held that "While we cannot agree with the Appellate Collector that expansion of rated capacity is not relevant for the purposes of the concession, we also hold that modernization and revamping do not in themselves preclude substantial expansion of an existing unit". He has also referred to another judgment of the Tribunal in the case of Punjab State "Electricity Board v. Collector of Customs reported in 1987 (27) ELT 432 where the Tribunal had held that auxiliary equipment required for initial setting up of a unit or the substantial expansion of an existing unit of a specified power project it should be relatable to a particular and specified power project. Shri Kohli states that in the present matter the imported machine was relatable to the project and as such the appellant was entitled to the benefit of project import. He has pleaded for the acceptance of the appeal.
8. Shri J. Gopinath, the Ld. SDR, who has appeared on behalf of the respondent, states that the appellant is not entitled to the benefit of project import and has referred to heading 84.66. He has also referred to Notification No. 183 dated 28.4.1965 as amended. He states that there should be increase in the installed capacity and not in the working capacity. He has referred to the Revision Application and states that even in the Revision Application the appellants themselves have admitted that the refiner was imported for arriving at the installed capacity. He has also referred to the Identification Study Mill Report prepared by M/s. Jaakko Poyry Oy of Finland. He states that from the report it is clear that the importation was done for achieving the desired production of the installed capacity and not for the purposes of expansion. In support of his arguments he has referred to a judgment of the Tribunal in the case of M/s. Saurashtra Cement & Chemical Industries Ltd. v. Collector of Customs reported in 1983 ELT 829 (CEGAT) where the Tribunal had held that heading 84.66 or the Customs Act, 1975 applies only to initial setting up of a unit, or for substantial expansion of an existing unit of a specified or approved industry or project and not to any and every contract for importation of machinery and instruments. In the instant case, the imported machinery etc. were only for modernisation and replacement of the existing cement plant and not for expansion of capacity, therefore, the appellants were not entitled to the benefit of Heading 84.66 ibid for their imports. The Tribunal had further observed that Heading 84.66 has an overriding application to cases where imports of machinery, instruments, components and raw materials are required for initial setting up of a unit or for substantial expansion of an existing unit of the specified or approved industry subject to the condition of the contract for import being duly registered with the Customs before clearance of the goods for home consumption. If any of these conditions are not satisfied, the goods will be assessed under their respective specific heading occurring elsewhere in the Customs Tariff. Shri Gopinath states that being not satisfied with the order passed by the Tribunal, Saurashtra Cement had filed an appeal before the Supreme Court and the appeal was dismissed by the Hon'ble Supreme Court as not admitted. Shri Gopinath states that in view of the judgment cited by him and confirmed by the Hon'ble Supreme Court the appellants are not entitled to the benefit of Project Import. He has pleaded for the dismissal of the appeal.
9. Shri D.N. Kohli has again pleaded for the grant of benefit of Project Import under Heading 84.66.
10. I have gone through Heading 84.66 and have also gone through the arguments of both the sides. The Tribunal had decided in the case of Kerala State Electricity Board v. Collector of Customs, Madras vide Order No. 133/86-B2 dated 22.12.1986 in Appeal No. CD(SB)(T) 1512/81-B2 that where the appellant's request for the benefit of grant of the Project Import was not accepted, the Tribunal had observed as under :-
"From a perusal of this, it is clear that the project was already working and was closed down only for annual maintenance inspection. It is further clear that the warranty on the machines expired in December, 1976 but CGE were willing to share the cost of the additional modifications subject to several conditions. Therefore, it cannot, be accepted that the imports made were either for the initial setting up or substantial expansion of the existing unit. This would mean that the goods were not eligible to the benefit of "Project Imports" and for asessment under Heading 84.66 CTA".
The facts of the present case are similar to the earlier judgment. The judgments cited by Shri Kohli do not help him. The decision of the Tribunal in the case of Saurashtra Cement & Chemical Industries Ltd. was upheld by the Hon'ble Supreme Court in view of the submissions of the Ld. SDR Shri 3. Gopinath. Accordingly, I uphold the findings of the lower authorities and hold that the goods imported are not eligible to the benefit of "Project Imports" and for assessment under Heading 84.66 CTA. In the result the appeal is rejected.
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(Harish Chander) Dated: 30.7.1987. Member (J) Order No. Misc./249/1987-B2 S. Venkatesan, President
1. The case was heard on the 3rd September, 1987, with reference to the point of difference formulated by the two learned Members who had originally heard it.
2. On behalf of the appellants, their learned consultant, Shri D.N. Kohli, made the following submissions :-
(a) This was clearly a case of substantial expansion. The letter dated 20.5.1980 addressed by the Assistant Development Officer in the DGTD to the Joint Chief Controller of Imports & Exports twice used the term "expansion";
(b) The licence issued by the JCCI&E was clearly endorsed "project import for assessment under heading No. 84.66...";
(c) The Government case was that the importation of the twin flo refiner was for repairs and modernisation and not for expansion. This was not correct. The appellants had a project for expansion of their production from 30,000 to 75,000 tonnes per annum, but that expansion did not materialise. On technical advice the twin flo refiner was imported so that the expansion could materialise;
(d) It had been argued that the project import concession had already been utilised when the main machinery required for expansion was imported around 1975. This was not correct, because the particular machinery for which the twin flo refiner was a replacement was not imported but locally purchased ;
(e) The appellants were a public sector undertaking and could not be suspected of any intention to evade duty.
3. Reliance had been placed by the Revenue on the case of Saurashtra Cement and Chemical Industries Limited (1983 E.L.T. 829). That case was, however, quite different. It had been recorded in the order [para 2(3) at page 831] that the appellants there had stated categorically before the Bench that the imports were not for initial setting up or substantial expansion of a unit but only for the purpose of modernisation and replacement. Here, there was a clear claim that the import was for expansion. In this connection the Appellate Collector had also gone wrong in his obnservation "removal of defects is not substantial expansion". In this case there was a substantial expansion of the capacity.
4. The appellants were relying on the Tribunal's decision in the case of Bharat Heavy Electricals Limited [1984 (17) ELT 525]. This decision was in their favour even if what was done in the present case was considered as modernisation.
5. The decision of the Tribunal in the case of Punjab State Electricity Board was also in favour of the appellants, because the twin flo refiner was clearly relatable to the particular project, namely the newsprint and paper mill.
6. The learned Judicial Member had referred to the decision of the Tribunal in the case of Kerala State Electricity Board. That decision too was in the appellants' favour. In that case it had been held as a question of fact that the imports were not made for initial setting up or substantial expansion of the existing unit. The present case, as already submitted by him, was clearly one of expansion.
7. The Bench enquired from Shri Kohli whether any evidence was on record to show that there had actually been a substantial expansion of capacity after the twin flo refiner had been installed. Shri Arzare, Deputy General Manager (Projects and Development) of the appellants, who was present in the court, stated that the capacity had increased after the refinder was installed. Shri Kohli could not point to anything on the record which clearly showed that there had been such an increase in capacity. He, however, referred to the Assistant Collector's order in which it had been noted that the Mill had taken up expansion of newsprint manufacture for increasing its capacity from 30,000 to 75,000 tonnes per annum. Shri Kohli further submitted that the appellants' claim in this regard had not been challenged and therefore should be taken as admitted.
8. On behalf of the Department, Shri Saha referred to the Project Imports (Registration of Contract) Regulations, 1965. These Regulations laid down the procedure to be followed. Para 3(3) laid down that the application for registration should inter alia specify the installed capacity of the plant and the proposed addition thereto. The original installation had been made in 1963. The expansion had also been carried out around 1975. However, the expected higher capacity did not materialise. They had, therefore, engaged a consultant, who had advised some modification (vide para 2.5 of the report of the consultants). Therefore, what was advised by the consultant and done by the appellants was modification of the plant and replacement of the existing machinery. It was not a case of increase in the installed capacity. Therefore, it would not qualify for the concession applicable to project imports.
9. Shri Sana referred to the decision of the Tribunal in the case of Saurashtra Cement & Chemical Industrie's Limited (para 3 supra). The Tribunal's order in that case had been upheld by the Hon'ble Supreme Court. The case of Kerala State Electricity Board (para 5 supra) was exactly similar to the present case, and the Tribunal had held in that case that the concession was not admissible. The BHEL case had no doubt been decided in favour of the assessees. However, it would be seen from para 7 of the order in that case that the Tribunal had taken the view that the conditions for registration were "substantially" fulfilled. In other words, although there was only substantial compliance, the Tribunal had taken a liberal view because it was a multi-crore project. Further, in that case it could be seen from para 2(ii) of the order that there was definitely an increase both in the "installed capacity" and in the "actual capacity".
10. Shri Saha also referred to the Project Imports Regulations, 1986, issued with reference to the revised Customs Tariff based on the Harmonized System. In these Regulations, the expression "substantial expansion" had been defined as an expansion which would increase the existing installed capacity by not less than 25%. This would clearly show that even under the earlier Regulations a substantial expansion of installed capacity was necessary in order to confer eligibility to the concession.
11. In reply, Shri Kohli submitted that the present case would be covered even by the definition in the revised Project Imports Regulations. The original installed capacity should be taken as 30,000 tonnes, which would be increased to 75,000 tonnes by adding the twin flo refiner.
12. As regards the use of the term "modification" by the foreign consultants, Shri Kohli submitted that they were not familiar with the nuances of the English language and no reliance should be placed on the use of this term by them, against the backgrund of the facts on record.
13. I have carefully considered the views expressed by the two learned Members of the original Bench, and the arguments advanced at the hearing before me.
14. The case turns on the meaning to be given to the expression "substantial expansion". The argument on behalf of the appellants is basically that the imported twin flo refiner was intended, when installed, to effect a substantial expansion in the output of the plant. It has been argued that the fact of this twin flo refiner being imported because the indigenous equipment originally used did not give the preplanned output should not stand in the way of the concessional rate of duty being extended to the imported equipment.
15. Looking at the wording of the Tariff Heading No. 84.66 as it stood at the material time, it will be seen that it relates to machinery, etc., "required for the initial setting up of a unit, or the substantial expansion of an existing unit". What is contemplated is the substantial expansion of a unit, and not the substantial expansion of production of a unit. The intention behind this wording can be gauged from the reference to "initial setting up of a unit". What this contemplated was that a new unit should be set up. The concept of "substantial expansion of ,an existing unit" was complementary to the first part. Construed harmoniously, it would mean that it would apply to a case where there was already a unit, but an addition was made on such a scale and of such a nature as would be comparable to the setting up of a new unit. Thus, if there were already two assembly lines, the setting up of a third assembly line would be in the nature of "a substantial expansion of an existing unit".
16. In this view, the operation of the appellants was clearly not one which would fall within the above description. It was only a modification with a view to achieving the output which the existing unit had been planned to give, but was not giving, because of deficiencies of the existing equipment.
17. This would be my conclusion from first principles. It may now be seen how far the various decisions of the Tribunal are in accordance with this conclusion.
18. The order of the Tribunal in the case of Saurashtra Cement & Chemical Industries Limited is an authority for holding that where imports are only for modernisation and replacement of an existing plant without expansion of capacity, the concession under heading No. 84.66 would not apply. It has also been pointed out that the Tribunal's order in this case has been upheld by the Hon'ble Supreme Court. The learned consultant for the appellants had argued that the Tribunal's decision in the case of Punjab State Electricity Board [1987 (27) ELT 432 ] was in their favour. It should be noted that in that case the article imported, namely a vehicle for transporting 100 MVA transformers, was held as not qualifying for assessment under Heading No. 84.66. It was held, firstly, that the vehicle was not "auxiliary equipment" within the meaning of the Heading; and secondly, that even if it was considered to be so, it was not relatable to any particular project and therefore, not eligible. Shri Kohli's argument is that in the present case the twin flo refiner was relatable to a particular project. This' has not been denied, but that does not mean that the decision in the case of Punjab State Electricity Board gives any support to his case. Certainly the Tribunal did not say in that case that anything which was relatable to a particular project would qualify for assessment under Heading No. 84.66.
19. The case of Kerala State Electricity Board, as seen from para 10 of the order of the learned Judicial Member, was quite similar to the present case, and would, therefore, go against the appellants.
20. There remains the case of BHEL, on which reliance has been placed by Shri Kohli. No doubt in that case it was held that the benefit of the concessional rate for project imports under Heading No. 84.66 should be given. However, the Tribunal's decision in this case was not based on any single factor, but on aim overall view, having regard to a combination of factors. This will be seen from the operative final paragraph of that order, which is reproduced below :-
"In the case before us, no material has been placed before us as to the nature of the enquiry under the Regulations made by the Assistant Collector. He has merely held that this is not a case of initial setting up or substantial expansion; The review notice also does not specify why Government has come to the conclusion that the order-in-appeal is not proper, beyond the bald assertion that no amendment to the industrial licence showing substantial expansion is produced and substantial expansion would mean increase in rated capacity. There is no doubt in this case that the additions were in the nature of a multi-crore Project and there is no doubt that the DGTD recommended the imports and the licences were suitably endorsed. While we cannot agree with the Appellate Collector that expansion of rated capacity is not relevant for the purposes of concession, we also hold that modernization and revamping do not in themselves preclude substantial expansion of an existing unit. On the facts and circumstances of this case, we are of the view that the conditions for registration are substantially fulfilled. The regulations do not require any reference to Section 13 of the Industrial Development and Regulation Act, 1951 but Only the ITC licence. These licences having been endorsed as Project Import, there was no reason for the Assistant Collector to deny the registration of the contract. Further, there is no evidence that he called upon the appellants to produce their industrial licence, on which the review notice proposes to place reliance. We find force in the respondents contention that the licence under Section 13 had in fact been obtained for the Project as it was mandatory. For these reasons, we would uphold the impugned order and discharge this notice. The appeal is dismissed."
As pointed out by the learned Departmental Representative, the Tribunal took the view that on the facts and circumstances of that case, the conditions for registration were substantially fulfilled.
21. Reliance has been placed on the observations of the Bench that "modernization and revamping do not in themselves preclude substantial expansion of an existing unit". The appellants appear to take this observation as meaning that modernization and revamping could be considered as equivalent to substantial expansion. But the words used by the Bench do not lend themselves to such a construction. One may say "a bureaucrat is not precluded from being a philosopher". This is far from saying that every bureaucrat is necessarily equivalent to a philosopher. I am, therefore, of the view that the Tribunal's order in the case of BHEL does not contain a decision that modernization and revamping are equivalent to substantial expansion, and therefore, does not support the case of the appellants.
22. Shri Saha had referred to the wording of the Project Imports Regulations, 1986. I do not think these are of much assistance in the present case. It is a moot question how far a definition contained in regulations can influence the interpretation of the Tariff Item as contained in the statutory schedule. Secondly, these Regulations cannot be considered as contemporanea expositio so far as the Customs Tariff Act, 1975 is concerned. The question can be decided without reference to these Regulations, as seen from the above discussion.
23. My decision on the point of difference is therefore that the appellants were not entitled to the benefit of the concessional rate of duty under Heading No. 84.66 on the goods imported by them.
24. The case should now go back to the learned Members of the original Bench for passing the final order in the light of the above decision.