ORDER
T.K. Jayaraman, Member (T)
1. The appellants are a 100% EOU availing the benefits of Notification No. 53/97 Cus dated 3.6.97. They carried out the activity of inter disciplinary research and development as well as related software exports. They imported Armaduct Sheet and Insulation tape (adhesive materials) valued at Rs. 26,50,397/- without payment of duty. The import was affected after approvals from the Development Commissioner and subsequent approval of the Board of Approvals. Revenue proceeded against the appellants on the grounds that the imported goods are parts of building materials and are not eligible for duty free clearance in terms of the Notification. The Deputy Commissioner of Customs in his Order-in-Original dated 24.12.2001 held that the goods must be classified as building materials and cannot be classified as Capital Goods. The post-facto approval from the Board of Approvals for import of the said goods was not accepted by the Adjudicating Authority. Hence, he passed an order demanding duty of Rs. 14,94,417/- along with interest. The appellants approached the Commissioner (Appeals). The Commissioner (Appeals) passed the impugned Order No. 324/2003 Cus 28.7.2003 upholding the Order-in- Original. While passing the order, the Commissioner (A) accepted the contention of the appellants that the imported goods are not building materials and they are spares and consumables of air conditioner. However, he held that these goods were not necessary for rendering the services of aircraft designing. The appellants strongly challenge the findings of the Commissioner (A).
2. Mr. Raghuraman, learned Advocate appeared for the appellant and Mr. K. S. Bhatt, learned SDR appeared for the Revenue.
3. The learned advocate urged that the Commissioner (A) has traversed beyond the scope of the original proceedings, as the allegation of usage of imported goods was not at all the point in dispute. There are also no findings with regard to the submissions on the post-facto approval given by the authorities and lack of jurisdiction of customs authorities in case of matters pertaining to EOUs. The Commissioner while accepting that the imported goods are necessary for the air conditioning equipment has erred by denying the benefit of the exemption Notification. The air conditioners are entitled for the benefit of the Notification. The imported goods are accessories to the air-conditioners, therefore, the imported items are clearly entitled for the exemption in terms of the Notification. The Commissioner has stated that it is not clear how the impugned goods could be necessary for export of such services unless extended link is contrived. The appellant is a prestigious center set up for developing world-wide research and development, therefore requires world class facilities for developing research results and exporting the same. The appellant has a completely computerized environment, which requires air-conditioning at the highest levels. The said materials, which are imported are required to ensure that air-conditioning is effective and is meant to be an energy conserving device. The write-up clearly shows that the said items are required for air-conditioning ductwork. Our attention was invited to the relevant paragraph in Notification 53/97, which reads as follows:
the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in the Table below (hereinafter referred to as the goods), when imported into India for the purpose of manufacture of articles for export out of India, or for being used in connection with the production of packaging or job work for export of goods or services out of India by hundred per cent Export Oriented Units…
A reading of the relevant portion reveals that the phrases used are for the purpose of manufacture of articles for export or for being used in connection with. These phrases enlarge the ambit of exemption available, as held in various judicial decisions. The learned advocate relied on the decision of the larger bench of Tribunal in the case of Kudremukh Iron Ore Limited v. CC, Bangalore/Belgaum . In the above decision the larger bench of 5 members have held that [even though certain goods do not participate in the manufacture of finished goods, if they are found to be necessary for technical necessity, they would be eligible to be imported by 100% EOUs. He also emphasised the point that once the permission is given by the Development Commissioner and Board of Approvals, the same cannot be questioned by the Customs Authorities. The above ratio was followed in the case of ABN Granites v. CC, Bangalore , where in it was held that in case of export oriented unit for the purpose of adjudication under Section 122 of Customs Act, 1962 any matter against such 100% EOU is to be adjudicated only after referring the same to the Development Commissioner. As regards the post-facto approval from the Board of Approvals, the learned advocate relied on Apex Court’s decision in Auto Tractors Ltd. v. CCE wherein the Supreme Court allowed a refund claim based on subsequent certification though there was a condition that it must be produced by the parties before clearance. The Commissioner’s finding that the impugned goods cannot be termed as capital goods used in connection with export of services is erroneous as per the EXIM Policy any plant, equipment or accessories either directly or indirectly required for rendering of services or included in the definition of capital goods. In the present case, it has been accepted by the Respondent that the imported goods are necessary for the air-conditioning system, which is essential for rendering designing services of the appellants. Therefore the imported goods are indirectly used in the course of rendering services. Further, the learned advocate relied on the following case laws also.
(i) Aztec Software Technologies Services Ltd. v. CC 2005 (127) ECR 234 (Tri.)
(ii) CCE v. Dwarikadhish Spinners Ltd. 2004 (61) RLT 423 (Tri.)
(iii) Oblum Electrical Industries (P) Ltd. v. CC .
(iv) Commissioner of Trade Tax, U.P v. Kajaria Ceramics Ltd. .
4. The learned SDR pointed out that the approval by the Board of Approvals was not there at the time of import of the impugned goods. It was obtained latter. Moreover, the value of the imported capital goods is restricted in value terms. He said that this should be taken into account in deciding the issue.
5. We have gone through the records of the case carefully. The appellants have been permitted to function as 100% EOU for export of certain services. In rendering the services certain goods may be directly used and certain other goods may have indirect use. In the present case, the appellants are mainly engaged in research and development and export of the results of their activities. It is the contention of the appellants that such research activities, as they undertake require a world-class environment. The impugned goods viz., Armaduct sheets and insulation tapes are meant for insulating the roof slap from inside the building for preventing heat radiation into the air-conditioning area. They have been accepted as accessories to the air-conditioners by the Commissioner (A). However, he has come to the conclusion that the impugned goods may not be necessary in connection with the services rendered by the appellants. At this point, we have to keep in mind the fact that the Development Commissioner and the Board of Approvals have given their approval for the import of these materials to the appellants. We hold the view that once the competent authority i.e. the Board of Approvals has allowed the appellants to import the goods for use in their unit, the Customs Authorities cannot question the same. The Board of Approvals is also a wing of the Government of India. If the Customs do not agree with the Board of Approvals decision, they should take it up separately at appropriate levels. Otherwise different Departments take different stand, the net result would be uncertainty and confusion in the mind of trade, which is in nobody’s interest. Further, we hold that an indirect use of the impugned materials is sufficient for the purpose of the Notification. As regards the value limit pointed out by the learned SDR, we feel that the same is not the subject matter of these proceedings. In these circumstances, we do not find any merit in the impugned Order-in-Appeal. We allow the appeal with consequential relief, if any.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)