CASE NO.: Appeal (civil) 3532-3560 of 1997 PETITIONER: COLLECTOR OF CUSTOMS, BANGALORE RESPONDENT: MAESTRO MOTORS LTD. AND ANR. DATE OF JUDGMENT: 07/12/2004 BENCH: S.N. VARFAVA & DR. AR. LAKSHMANAN JUDGMENT:
JUDGMENT
2004 Supp(6) SCR 745
The Judgment of the Court was delivered by
S.N. VARIAVA, J. : These Appeals are against the Judgment of the Customs
Excise and Gold (Control) Appellate Tribunal (for short CEGAT) dated 10th
Septemner, 1996. This Judgment is in respect of two companies, namely, M/s.
Maruti Udyog Ltd. and M/s. Maestro Motors Ltd. (earlier known as M/s.
Sipani Automobiles Limited). Both these Companies are manufacturers of
motor cars. Apart from this common fact, the other facts are not identical.
Even though CEGAT has disposed of the Appeals by a common Order, the cases
of these two parties would have to be dealt with separately by this Court.
First, the case of M/s, Maruti Udyog Ltd. is being considered.
On 23rd April, 1982 M/s. Maruti Udyog Ltd. applied for grant of and
Industrial Licence for manufacturing passenger cars and light duty utility
vehicles. They also entered into joint venture agreement and collaboration
with M/s. Suzuki Motors Company Ltd. M/s. Maruti Udyog Ltd. imported from
M/s. Suzuki Motors Company Ltd. two shipments i.e. 24 CKD packs (completely
knocked down condition) and 48 CKD packs respectively of passenger car
components. They filed two Bills of Entry bearing Nos. 118/ 345 and
1412/261 for clearing the goods which were claimed to be components of
motor vehicles under Tariff Heading 8704 of the Customs Tariff. They also
claimed benefit of Notification Nos. 29/83 and 29A/83. By two Orders dated
9th September, 1983 and 30th September, 1983, the Adjudicating Authority
held that the imported components being complete cars in CKD packs had the
essential character of the finished product and as such the consignments
were to be treated as motor cars and not components. It was held that M/’s.
Maruti Udyog Ltd. was not entitled to the benefit of Notifications as the
Notifications were only for components. It was further held that in any
case M/s. Maruti Ugyog Ltd. had not complied with the conditions of the
Notifications.
In the Appeal filed by M/s. Maruti Udyog Ltd., the Commissioner (Appeals)
by an order dated 30th April, 1985 held that the goods were component parts
and not motor cars. It was also held that the Company was entitled to the
benefit of Notification No. 29/83.
CEGAT has, by a 2 to 1 Judgment, held that both the Companies are entitled
to benefit of the Notifications.
The questions for consideration by this Court was whether the CKD packs
imported into country could be considered to be motor cars and not
components and secondly, whether M/s. Maruti Udyog Ltd. are entitled to the
benefit of Notification No. 29/83.
The relevant Tariff Items are 87.02 and 87.04, which read as follows :
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Heading Sub-heading No. and Standard Central
No. description Rate of duty Excise
Tariff Item.
(1) (2) (3) (4)
87.02 Motor vehicles for the transport 34
of persons goods or materials
(including sports motors vehicles
other than those of Heading
No. 87.09/12) :
(1) Not elsewhere specified 60%
750
87.04/06 Chassis fitted with engines, 34, 34A
bodies (including cabs) and
parts and accessories of the
motor vehicles failing within
Heading No. 87.01, 87.02
or 87.03 :
(1) Not elsewhere specified 100%
(2) Parts designed for the articles 40%
covered by sub-heading No. (1)
of Heading No. 87.01 and
sub-heading No. (3) of Heading
No. 87.02.
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In considering which Tariff Item is to apply one has to take note of the
general rules of Interpretation of the Harmonized System, Rule 2(a) of
which reads as follows :
“Rule 2(a): Any reference in a heading to an article shall be taken to
include a reference to that article incomplete or unfinished, provided
that, as presented, the incomplete or unfinished article has the essential
character of the complete or finished article. It shall also be taken to
include a reference to that article complete or finished (or falling to be
classified as complete or finished by virtue of this rule), presented
unassembled or disassembled.”
Thus, as per this Interpretative Rule, even though an article is incomplete
or unfinished when it is presented for clearance, if that article was the
essential character of the complete article and/or even though the complete
or finished article is presented in an unassembled or dissembled form the
classification must be as a complete article. In this case, it is fairly
not being denied that the components were imported in a CKD packs. Thus
what was imported was completely knocked down cars. The components imported
had the essential character of a complete car even though presented in
unassembled form. As per interpretative Rule 2(a) even though presented
unassembled they have to be classified as a complete article. Thus, for
purposes of clearance the components had to be classified as a car under
Tariff Item 87.02. The finding of the Commissioner (Appeals) to the
contrary is clearly erroneous and requires to be and is hereby set aside.
The question then arises as to whether M/s. Maruti Udyog Ltd. is entitled
to benefit of Notification No. 29/93. The said Notification read as follows
:
“In exercise of the powers conferred by sub-Section (1) of Section 25 of
the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied
that it is necessary in the public interest to hereby exempt components
(including components of fuel-efficient motor cars in semi-knocked down
packs and completely knocked down packs) required for the manufacture of
fuel-efficient motor car of engine capacity not exceeding 1000 cubic
centimeters from :
(a) So much of the duty of customs which is leviable thereon under the
First Schedule to the Customs Tariff Act, 1975 (51 of 1975), as is in
excess of the amount calculate at the rate of 25% ad-veloram; and
(b) the whole of the additional duty leviable thereon under Section 3 of
the said Customs, Tariff Act.
Subject to the following conditions, namely :
(i) the exemption contained herein shall be applicable only to those
components (including components of fuel-efficient cars in semi-knocked
down packs and completely knocked down packs) which are covered by lists
certified by an officer not below the rank of an industrial Advisor or
Additional Industrial Adviser in the Directorate General of Technical
Development and an Officer not below the rank of a Joint Secretary in the
Ministry of Industry (Development of Heavy Industry) to be required for the
manufacture of fuel efficient motor cars to engine capacity not exceeding
1000 cubic centimeters;
(ii) the importer products evidence to the Assistant Collector or Customs
to the effect that the said components (including components or fuel-
efficient motor cars in semi-knocked down packs and completely knocked down
packs) have been imported by such importer under a programme duty approved
by the Ministry of Industry (Development of Heavy Industry) and the
Industrial Adviser or the Additional Industrial Adviser of the Directorate
General of Technical Development in the Ministry of Industry for the
manufacture of fuel efficient motor cars of engine capacity not exceeding
1000 cubic centimeters; and
(iii) the imported shall, within such period as the Asstt Collector of
Customs may specify in this behalf, produce a certificate from the Asstt.
Collector of Central Excise in whose jurisdiction the factory manufacturing
such fuel-efficient motor cars is situated to the effect that such imported
components (including components of fuel-efficient motor cars in semi-
knocked down packs and completely knocked down packs) have been used in the
manufacture of fuel-efficient motor cars of engine capacity not exceeding
1000 cubic centimeters.
Explanation : For the purpose of this notification, “fuel efficient motor
car” in respect of a motor car of engine capacity not exceeding 1000 cubic
centimeters means a motor car which is certified to run not less than 20
kilometers per liter of petrol by an officer not below the rank of a Joint
Secretary in the Ministry of Industry (Development of Heavy Industry) on
the basis of the tests (hereinafter referred to the fuel-efficiently test)
carried out by the vehicle Research Development Establishment of the
Ministry of Defence, Ahmednagar (Maharashtra) or the Automotive Research
Association of India, Pune (Maharashtra), having regard to the following,
namely :
(a) the fuel-efficiency test shall be conducted with a pay load of 300
kilograms;
(b) the fuel-efficiency test shall be conducted using petrol having an
octone level not exceeding 87; and
(c) the fuel-efficiency test shall be carried out on a selected level test
track at a steady speed of 50 kilometers per hour for a minimum stretch of
one kilometer and the average of 20 runs, comprising of 10 runs in each
direction shall be taken for carrying out the test and the test figures
shall be corrected to sea level and to + 25% C ambient temperature.
2. This Notification shall be in force upto an inclusive of the 24th day of
February 1988.”
It is settled law that to avail he benefit of a notification a party must
comply with all the conditions of the Notification. Further, a Notification
has to be interpreted in terms of its language. If in the Notification
exemption is granted with reference to tariff items in the First Schedule
to the Customs Tariff Act, 1975, then the same rules of interpretation must
apply. In that case the goods will be classified, even for the purposes of
the Notification, as they are classified for purposes of payment of customs
duty. But where the language is plain and clear effect must be given to it.
In this Notification what is exempted is components, including components
of fuel efficient motor cars in semi-knocked down packs and completely
knocked down packs. Undoubtedly, for purposes of levy of custom duty, by
virtue of Interpretative Rule 2(a), the components in a completely knocked
down pack would be considered to be cars. But in view of the clear language
of the Notification the components including components in completely
knocked down packs are exempted. Effect must be given to the wording of the
Notification. Thus components in completely knocked down packs would get
the exemption under this Notification, even though for purposes of
classification they may be considered to be cars.
It was however urged that even though these components were covered by the
Notification M/s. Maruti Udyog Ltd. would not be complied with the
conditions of the Notification, it was submitted that they had not
submitted the certificates required under sub-clauses b(i) and b(ii) of the
said Notification. This was disputed by counsel on behalf of M/s. Maruti
Motors Ltd. We find that the Adjudicating Authority has categorically held
that these certificates were not produced. On the other hand, the
Commissioner (Appeals) and CEGAT have held that the certificates produced
were sufficient. Unfortunately, neither side has shown to us what were the
certificates which were to be produced before the Adjudicating Authority.
In the absence of those certificates we cannot decide whether or not the
conditions imposed by Sub-clauses b(i) and b(iii) have been fulfilled. It
will therefore be necessary to remit the matter back to CEGAT for
reconsideration of this aspect after clarifying what is required.
It is clear that under Sub-clauses b(i) of the said Notification the
components imported must be those which are covered by lists certified by
an Officer not below the rank of an industrial Advisor or Additional
Industrial Adviser in the Directorate General to Technical Development and
an Officer not below the rank of an Joint Secretary in the Ministry of
Industry (Development of Heavy Industry). Such a list must show that the
components are required for manufacturing of fuel efficient motor cars of
engines capacity not exceeding 1000 cubic centimeters. A mere certificate
that the components are required for manufacture of motor vehicle or that
M/s. Maruti Udyog Ltd. has been licenced to manufacture such motor vehicles
would not be sufficient. What would have to be ascertained by CEGAT is
whether any lists, as per Sub-clause b(i) had been produced before the
Adjudicating Authority and whether the components are as per that list.
Under Sub-clause b(iii) of the Notification, a certificate of fuel
efficiency of same type of car or a prototype would not be sufficient. What
would be required is a certificate from the Assistant Collector of Central
Excise, in whose jurisdiction the factory is situated, to the effect that
the components imported (in completely knocked down packs) had been
actually used in the manufacture of fuel efficient motor cars of an engine
capacity not exceeding 1000 cubic centimeters. The fuel-efficiency
Certificate has to be issued in respect of a car after carrying out the
test set out in the Explanation to Sub-clause b(iii). Of course such a test
need not be of each and every car manufactured from the components. A test
of a prototype or a single car would be sufficient. But the certificate
must show that the components were actually used in manufacture of fuel
efficient motor cars of engine capacity not exceeding 1000 cubic
centimeters.
With these clarifications we remit the matter of M/s. Maruti Udyog Ltd.
back to CEGAT for deciding whether the required certificates were produced.
It is clarified that these certificates should have been produced before
the Adjudicating Authority. It would not be open for the CEGAT to allow
M/s. Maruti Udyog Ltd. to produce any new or other certificate which had
not already been produced before the Adjudicating Authority. If the
certificates as required are available, then M/s. Maruti Udyog Ltd. will be
entitled to the benefit of the Notification No. 29/83. If the certificates
as required are not available then M/s. Maruti Udyog Ltd. will undoubtedly
not be entitled to the benefit of Notification No. 29/93. In that event for
purposes of payment of custom duty the components will have to be
classified as a car and duty will have to be paid under Tariff Item 82.02.
Before parting we must take note of one further aspect. It was submitted
that for the subsequent imports the Department has granted the benefit of
the Notification and allowed clearance of the components in CKD packs by
granting benefit of the Notification. It was submitted that this also
showed that M/s. Maruti Udyog Ltd. is entitled to be benefit of the
Notification. We cannot accept such a submission. Those clearances may be
because the conditions of the Notification were fulfilled in respect of
those imports. Thus, merely because in those cases clearances have been
allowed by itself cannot be a ground for allowing benefit of the
Notification in this case.
That now brings us to the case of M/s. Maestro Motors Ltd. On 17th
November, 1993 and 5th May, 1992, M/s. Sipani Automobiles Limited (as it
then was) entered into collaboration with M/s. Rover U.K. for manufacture
of Montego cars. They imported 217 sets of cars considering of body
assembly (complete with accessories), with gear, engine assembly etc. and
also components such as wind screen assembly, wheel rims, glass assembly,
radiator assembly, front and back suspension, fuel tank assembly etc. In
effect they were importing the entire car in completely knocked down
condition. M/s. Sipani imported all these items by filing 11 Bills of
Entries with the Bom bay Customs and the rest 14 Bills of Entries with the
Madras Custom. They claimed the goods to be components and also claimed
benefit of Notification No. 72/93.
The Adjudicating Authority held that between the imports in Bombay and
Madras entire cars had been imported, in completely knocked down condition.
The components were thus classified as cars. It was also held that the
Company was not entitled to the benefit of Notification No. 72/93 as that
Notification only gave benefit to parts and components. CEGAT has by the
impugned majority Judgment allowed the Appeal even of M/s. Maestro Motors
Ltd. It is held that M/s. Maestro Motors Ltd. are entitled to the benefit
of Notification No. 72/93.
We have, whilst dealing with the case of M/s. Maruti Udyog Ltd., set out
how for the purposes of payment of custom duty such goods are to be
classified. As stated above, such components are nothing but cars in
knocked down condition. Applying Interpretative Rule 2(a) such components
are to be classified a cars.
The question then arises as to whether M/s. Maestro Motors Ltd. is entitled
to the benefit to Notification No. 72/93. As has been stated hereinabove,
whilst dealing with the case of M/s. Maruti Udyog Ltd., a Notification has
to be interpreted in accordance with the language used in the Notification.
Where the language is clear and unambiguous an interpretation which does
not tally with the language cannot be given. Notification No. 72/93 reads
as follows :
“In exercise of the powers conferred by sub-section (1) of the Customs Act,
1962 (52 of 1962), the Central Government, being satisfied that it is
necessary in the public interest so to do, hereby exempts components and
parts of motor vehicles falling within Chapter 87 of the First Schedule to
the Customs Tariff Act, 1975 (51 of 1975) and goods specified in column (3)
of the Table hereto annexed and falling under the heading Nos. of the First
Schedule, specified in the corresponding entry in column (2) of the said
Table, when imported into India, for the manufacture of motor failing
within Chapter 87 of the said First Schedule, from :
(a) so much of the duty of Customs which is leviable thereon under the
First Schedule to the Customs Tariff Act, 1975 (51 of 1975) as is in excess
of the amount calculated at the rate of 50 per cent . Ad valorem; and
(b) the whole of the additional duty leviable thereon under section 3 of
the said Customs Tariff Act, subject to the following conditions, namely :
(i) the exemption contained herein shall be applicable only to those
goods which are required for the manufacture of motor vehicle:
(ii) that the importer shall, within such period as the Assistant Collector
of Customs may specify in this behalf, produce a certificate from the
Assistant Collector of Central Excise in whose jurisdiction the factory
manufacturing motor vehicles using the goods imported under this
notification is situated to the effect that the said imported goods have
been used in the manufacture of motor vehicles; and
(iii) the imported furnishes an undertaking to the effect that :
(a) the said goods shall be used for the purpose specified above;
(b) an account of the said goods received and consumed in the place of
manufacture for the aforesaid purpose shall be maintained in the manner
specified by the Assistant Collector of Customs;
(c) he shall produce the extract of such account duly certified by the
jurisdiction Assistant Collector of Central Excise evidencing receipt of
the said goods in the premises of the place of manufacture and the use
thereof for manufacture of motor vehicles within a period of three motor
vehicle within a period of three months or such extended period as the
Assistant Collector of Customs may allow; and
(d) he shall pay, on demand, in the event of his failure to comply with
(a), (b) or (c) above an amount equal to the difference between the duty
leviable on such quantity of the said imported goods but for the exemption
contained herein and that already paid at the time of the importation.
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S. No. Heading Description of Goods
(I) (2) (3)
1. 40.09 Brake hoses/radiator hoses with or without fittings.
2. 40.10 V-Belts
3. 40.11 Tyres
4. 40.13 Tubes
5. 40.16 Weather strips, oil seals
6. 70.07 Safety glass
7. 70.09 Rear-view mirrors
8. 73.18 Screws, bolts, nuts and washers
9. 73.20 Leaf springs and helical springs
10. 8301 Locks
11. 84.07 Spark ignition reciprocating internal combustion piston
engines (Petrol Engines).
12. 84.08 Compressor Ignition internal combustion piston engines
(Diesel Engines)
13. 84.09 Parts of engines covered under heading No. 84.07 and 84.08
14. 84.13 Fuel, lubricating or cooling medium pumps for internal
combustion piston engines
15. 84.14 Turbocharger
16. 84.82 Ball or roller bearings.
17. 84.83 Crankshaft, plain shaft bearings, gears, fly wheels,
clutches, universal joints.
18. 84.84 Gaskets
19.
85.11
Spark plugs, fly-wheel magneto, distributor, ignition coil, starter motor
generator (altermator) and cut outs.
20.
85.12
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Wind screen wipres, head lights and indicator lights
Thus, under this Notification what is exempted are components and parts
falling within Chapter 87 of the First Schedule to the Customs Tariff Act,
1975 and goods specified in Column 3 of the Table. Thus in this
Notification, unlike as in Notification No. 29/93, components in CKD packs
the not exempted. Under this Notification it is only components and parts
which fall within Chapter 87 are exempted. The wording is very clear. For a
component and part to be exempted it must be a component or part within
Chapter 87 of the First Schedule to the Customs Tariff Act, 1975. If, by
virtue of interpretative Rules, for purposes of the First Schedule to the
Customs Tariff Act, 1975 the imported goods are not considered to be
components and parts, then for purposes of this Notification also they
cannot be said to be components and parts. In our view, CEGAT has erred in
holding that the interpretative Rule 2(a) does not apply to a Notification.
When a Notification exempts goods falling within the First Schedule to the
Customs Tariff Act, 1975, then the goods must be classified in the same
manner both for purposes of payment of customs duty as well as for purposes
of exemption/ benefit under that Notification. However if the wording of
the Notification show that an item is specifically exempted then the
exemption will apply to that item even though for purposes of
classification it may be considered to be something else. To take this very
case as in illustration, where like in Notification No. 29/83 components
including components in CKD packs, were given benefit of exemption those
components would get exemption even though for purposes of payment of duty
they are classified as cars. But where, as in this case, components and
parts failing within Chapter 87 are exempted, then the components and parts
must be considered to be components and parts for purposes, not just for
exemption but also payment of custom duty. If for purposes of payment of
custom duty they are not deemed to be components and parts, then they are
also not components and parts for purposes of the Notification. In other
words when, in a Notification, the exemption is with reference to an item
in the First Schedule to the Customs Tariff Act, 1975, then the
interpretative Rules would equally apply to such Notification. In such
cases, if they are not components and parts for the purposes of payment of
custom duty they would not be components and parts even for the purposes of
the Notification. Thus, M/s. Maestro Motors Ltd. are not entitled to the
benefit of Notification No. 72/93.
It was however urged that this Notification exempts 20 components and
parts. It was submitted that M/s. Maestro Motors Ltd. must be given benefit
of those 20 components and parts. We are unable to accept this submission.
These 20 components and parts would get exemption only provided they were
imported as components and parts. If they are imported as components and
parts in CKD pack, then the pack as a whole is a car by virtue of the
interpretative rule. In such a case even these components would not be
entitled to exemption.
Under these circumstances, the Order of CEGAT in respect of M/s Maestro
Motors Ltd. cannot be sustained and is hereby set aside. The Order of the
Adjudicating Authority is restored.
These Appeals stand disposed of accordingly. There will be no order as to
costs.