2001 JTR(SC) 504
2001 AIR(SC) 1283 ; 2001 AIR(SCW) 1210 ; 2001 5 BomCR(SC) 37 ; 2001 129 ELT 278 ; 2001 1 JCC 267 ; 2001 4 JT 89 ; 2001 2 Scale 511 ; 2001 4 SCC 286 ; 2001 KHC 1793 ; 2001 2 Supreme 402
2001(2) Supreme 402
SUPREME COURT OF INDIA
(From Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi)
S.P. Bharucha, N. Santosh Hegde and Y.K. Sabharwal, JJ.
M/s. Shriram Vinyl and Chemical Industries -Appellant
versus
Commissioner of Customs, Mumbai -Respondent
Civil Appeal No. 3940 of 1998
Decided on 20-3-2001
Counsel for the Parties :
For the Appellant : V. Lakshmikumaran, C.L. Narasimhan, V. Balachandran, Advocates.
For the Respondent : Soli J. Sorabjee, Attorney General, Dhruv Mehta and B. Krishna Prasad, Advocates.
IMPORTANT POINT
Customs notification is to be construed reasonably and rationally and not in a manner which deprives the benefit thereof. The expression assembly in the context and setting in which it has been used cannot be construed to mean bringing into of a new article. The expression cannot be equated with the expressions manufacture .
Act Referred :CUSTOMS ACT : S.25
(A) In the exercise of the powers conferred by sub-section (1) of Section 25 of the Customs Act, 1962, the Central Government issued Notification No.155/86-Cus dated 1st March, 1986, to exempt parts required for the initial setting up, assembly, or manufacture of specified articles when imported, subject to proof of necessity. The appellants, while modernizing existing furnaces, used a mix of imported parts, indigenously procured parts, and serviceable components recovered from dismantled furnaces, and claimed the lower duty under this notification. The Tribunal and the appellate authority denied the benefit, holding that since the new furnace was not entirely new, the exemption did not apply, distinguishing between assembly of a new article and modernization. The appellants challenged this interpretation, arguing that the notification does not require the emergence of a new article and that the terms 'initial setting up', 'assembly', and 'manufacture' must be read distinctly.
(B) The core legal principles are that the terms 'initial setting up', 'assembly', and 'manufacture' in the notification must be interpreted distinctly and not read into each other; 'assembly' implies bringing together parts to create a complete article and is not synonymous with modernization. The benefit of the notification is available if the imported parts are proved to be required for assembly, irrespective of the use of indigenous or reclaimed parts. The construction must be reasonable and not defeat the purpose of the exemption.
Facts of the case:
The appellants dismantled existing furnaces in their factory and assembled modernized furnaces using imported parts, locally purchased indigenous parts, and serviceable components recovered from the dismantled furnaces. They claimed the lower duty under Notification No.155/86-Cus for the imported parts. The competent authority recommended the grant of the lower duty, but the benefit was denied on the ground that no new furnace emerged as a result of the assembly. The Tribunal affirmed the denial, distinguishing assembly from modernization.
Findings of Court:
The court found that the notification does not require that a new article must come into existence. It held that 'assembly' is distinct from 'initial setting up' and 'manufacture', and cannot be equated with modernization. The reuse of serviceable parts alongside imported and indigenous parts does not disqualify the appellants from the benefit. The tribunal's interpretation rendering the term 'assembly' redundant was not sustainable.
Issues:
Whether the expression 'assembly' in the notification requires the creation of an entirely new article or whether it covers the assembly of parts even when combined with indigenous and reclaimed parts in modernization. Whether the benefit of the notification is denied merely because the result is not a new furnace.
Ratio Decidendi:
The expressions 'initial setting up', 'assembly', and 'manufacture' in the notification are distinct. 'Assembly' refers to the bringing together of parts to form a complete article and is not equivalent to modernization. The notification is to be construed reasonably to grant the benefit if the imported parts are proved to be required for assembly, irrespective of the use of other parts.
Result:
The impugned order is set aside and the appeal is allowed, with the parties bearing their own costs.
(A) In the exercise of the powers conferred by sub-section (1) of Section 25 of the Customs Act, 1962, the Central Government issued Notification No.155/86-Cus dated 1st March, 1986, to exempt parts required for the initial setting up, assembly, or manufacture of specified articles when imported, subject to proof of necessity. The appellants, while modernizing existing furnaces, used a mix of imported parts, indigenously procured parts, and serviceable components recovered from dismantled furnaces, and claimed the lower duty under this notification. The Tribunal and the appellate authority denied the benefit, holding that since the new furnace was not entirely new, the exemption did not apply, distinguishing between assembly of a new article and modernization. The appellants challenged this interpretation, arguing that the notification does not require the emergence of a new article and that the terms 'initial setting up', 'assembly', and 'manufacture' must be read distinctly.
(B) The core legal principles are that the terms 'initial setting up', 'assembly', and 'manufacture' in the notification must be interpreted distinctly and not read into each other; 'assembly' implies bringing together parts to create a complete article and is not synonymous with modernization. The benefit of the notification is available if the imported parts are proved to be required for assembly, irrespective of the use of indigenous or reclaimed parts. The construction must be reasonable and not defeat the purpose of the exemption.
Facts of the case:
The appellants dismantled existing furnaces in their factory and assembled modernized furnaces using imported parts, locally purchased indigenous parts, and serviceable components recovered from the dismantled furnaces. They claimed the lower duty under Notification No.155/86-Cus for the imported parts. The competent authority recommended the grant of the lower duty, but the benefit was denied on the ground that no new furnace emerged as a result of the assembly. The Tribunal affirmed the denial, distinguishing assembly from modernization.
Findings of Court:
The court found that the notification does not require that a new article must come into existence. It held that 'assembly' is distinct from 'initial setting up' and 'manufacture', and cannot be equated with modernization. The reuse of serviceable parts alongside imported and indigenous parts does not disqualify the appellants from the benefit. The tribunal's interpretation rendering the term 'assembly' redundant was not sustainable.
Issues:
Whether the expression 'assembly' in the notification requires the creation of an entirely new article or whether it covers the assembly of parts even when combined with indigenous and reclaimed parts in modernization. Whether the benefit of the notification is denied merely because the result is not a new furnace.
Ratio Decidendi:
The expressions 'initial setting up', 'assembly', and 'manufacture' in the notification are distinct. 'Assembly' refers to the bringing together of parts to form a complete article and is not equivalent to modernization. The notification is to be construed reasonably to grant the benefit if the imported parts are proved to be required for assembly, irrespective of the use of other parts.
Result:
The impugned order is set aside and the appeal is allowed, with the parties bearing their own costs.
JUDGMENT
Y.K. Sabharwal, J.-After dismantling in their factory the existing furnaces, the appellants assembled modernized furnaces partly using imported parts, partly indigenously procured parts and partly serviceable components/parts recovered from the dismantled furnaces. In respect of imported parts used in the assembly of the furnaces, the appellants claimed benefit of Notification No.155/86-Cus dated 1st March, 1986 which provides for lower rate of duty. The Director General of Technical Development, as the competent authority under the notification, recommended the grant of lower rate of duty prescribed in the notification in respect of the imported parts. The benefit of the notification has, however, been denied to the appellants on the ground that no new furnace emerges in the assembly operation undertaken by them. The Tribunal in the order under challenge affirming the order of Collector of Customs of Appeals states:
"The furnace from which the unserviceable parts were discarded, serviceable parts were re-used along with some of the imported parts and some of the indigenous parts purchased locally, were not entirely different from the old furnace and the incorporation of the improvements into them did not make them substantially new. The expression used in the exemption notifications are initial setting up , assembly and manufacture of the specified articles. A harmonous reading of these expressions will clearly establish with what is required is the setting up, assembly or manufacture of a new article which if imported could have been liable to customs duty and that even if the parts are imported and not the complete article the same rate of customs duty, as applicable to complete article will be applicable to such parts. The parts in this case were not for the initial setting up, assembly or manufacture of a furnace: the modernisation of the already existing furnace will not amount to the assembly of a furnace for the purposes of the treatment of such parts as at par with the complete furnace, had the complete furnace been imported (in place of the parts). The Collector of Customs (Appeals) had observed that modernisation and assembly for the purposes of Notification No.155/86-CUS were two different things and that in case of assembly an entire new product emerges whereas in case of modernisation certain alterations and modifications are made increasing production efficiency and reducing costs."
2. The material part of notification reads as under:
"In exercise of the powers conferred by sub-section (1) of Section 25 of the Customs Act, 1962 (52 of 1962), and in supersession of the notifications of the Government of India in the Ministry of Finance (Department of Revenue) Nos.94/86-Customs and 95/86-Customs both dated 17th February, 1986, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts parts required for the purpose of initial setting up, or for the assembly or manufacture, of any article specified in column (2) of the Table hereto annexed, when imported into India and proved to the satisfaction of the Assistant Collector of Customs to be so required for such setting up, assembly or manufacture, from so much of that portion of the duty of customs leviable thereon which is specified in the corresponding entry in column (3) of the said Table..."
3. The main ground on which the benefit of the aforesaid notification has been denied to the appellants is that serviceable parts out of the dismantled furnace were used besides some indigenous parts along with the imported parts and, therefore, new furnace has not come into existence. The contention of learned counsel for the appellant is that the notification does not require that a new article must come into existence. We agree. The three expressions initial setting up , assembly and manufacture cannot be construed to mean same thing. It is evident from the notification that the expression assembly has been separated from the expression initial setting up . These expressions are intended to cover different situations. We are unable to accept the contention of learned Attorney General that the expression assembly is to take colour from the expression initial setting up and, therefore, without new article coming into existence, the question of claiming benefit under the notification would not arise. The language of the notification is clear and plain. The notification is to be construed reasonably and rationally and not in a manner which deprives the benefit thereof. The expression assembly in the context and setting in which it has been used cannot be construed to mean bringing into of a new article. This expression cannot be equated with the expression manufacture . If the construction as placed by the Tribunal is accepted, it would render the expression assembly in the notification redundant. The expression assembly has been used as opposed to dismantle. The notification does not contemplate denial of its benefit on the ground of reuse of certain parts and/or use of some indigenous parts with the imported parts. Thus, the appellants are clearly entitled to the benefit of the notification.
4. As a result of aforesaid discussion, the impugned order is set aside and the appeal is allowed. The parties are, however, left to bear their own costs.
(N.K.R.) Appeal allowed.
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