PETITIONER: M/S. OBLUM ELECTRICAL INDUSTRIES PVT. LTD., HYDERABAD Vs. RESPONDENT: COLLECTOR OF CUSTOMS BOMBAY DATE OF JUDGMENT: 02/09/1997 BENCH: S. C. AGRAWAL, G. T. NANAVATI ACT: HEADNOTE: JUDGMENT:
Present:
Hon’ble Mr. Justice S.C. Agrawal
Hon’ble Mr. Justice G.T. Nanavati
S. Ganesh and K.J. John, Advs. for the appellant
A. Subba Rao, Kishore Kumar Patel and V.K. Verma, Advs. for
the Respondent
J U D G M E N T
The following Judgment of the Court was delivered:
S.C. AGRAWAL, J.
The appellant is a manufacturer and exporter of
‘Lightening Arrestors’ which are supplied to electricity
boards, railways and other public sector undertakings. The
appellant was awarded a Deemed Export Order (Contract) by
the Railway Board for supply 937 numbers of Metal Oxide
Gapless Type Lightening Arrestors (hereinafter referred as
‘lightening Arrestors’). The said contract was entered into
under an International Development Scheme. For the
manufacture of Lightening Arrestors, Porcelain housing (H.T.
Insulators) are required and those insulators are produced
in a ceramic kilns. Crystar (main and Gross) Beams made of
Silicon Carbide are used for ‘firing’ dry and hollow H.T.
Porcelain bushings in the kilns and are fitted inside the
kins. The beams are susceptible to breakage and damage and
have to be continuously replaced in the course of
manufacture.
The applicant submitted an application before the Chief
Controller of Imports and Exports on March 29, 1990 for
issuance of a Special Import Licence to import various items
required for the manufacture of Lightening Arrestors. The
said items included Crystar Beams as Kiln Furniture. The
Deputy Chief Controller of Import and Export issued the
Special Import Licence on April 24 1990 for import of
various items including crystar beams. Alongwith the said
import license, the Duty Exemption Entitlement Certificate
(hereinafter referred as ‘DEEC’) was also issued in the
following terms:
“Material imported against advance
Licence No.
P/L/3236631/CS.XX/16/H/90 dated
24.4.90 issued by Deputy Chief
Controller of Imports & Exports,
Hyderabad to the above importer and
covered by the list of Materials
specified under Part ‘C’ of this
Certificate would be eligible fr
exemption from Import duty subject
to the conditions specified in the
Notification of the Government of
India, Ministry of Finance,
Department of Revenue and 116/88-
Cus. On 30.3.88.”
On import of goods into India, the appellant claimed
duty free clearance on the basis of exemption granted by
Notification No.210/82-Cus dated September 10, 1982.
By Notification No.210/82-Cus dated September 10, 1982
issued under Section 25 of the Customs Act, 1962, the
Central Government has exempted from whole of the customs
duty and additional duty leviable under the Customs Tariff
Act, 1975, “raw materials and components required for the
manufacture of goods to be supplied to International
Development Association or international Bank for
Reconstruction and Development or bilateral and Multilateral
aided projects or Asian Development Bank or United Nations
Organisation or under the Aid Programme of the United
Nations or for the replenishment of raw materials and
components of used in the manufacture of such goods already
supplied”. The said exemption was, however, subject to the
conditions laid down in clauses (1) to (5) of paragraph 1 of
the said Notification. The case of the appellant is that
the conditions laid down in the said Notification were
fulfilled in he present case and, therefore, the appellant
was entitled to exemption from duly on the Cryster Beams
imported by it and reliance was placed on the DEEC granted
by the Import Control Authorities while granting the import
licence for importing the said articles. The Additional
Collector of Customs has, however, held that the entry of
Kiln Furniture (Crystar Beams) in the special import licence
and DEEC book does not preclude the customs authorities from
deciding the issue regarding eligibility of the articles for
duty exemption in terms of exemption Notification No.210/82-
Cus. The Additional Collector further held that the said
exemption is only in respect of raw material and components
of the resultant product to be supplied to the project
authorities specified in the said exemption Notification No.
210/82-Cus. Itself and that the item in question are
admittedly utilised as supporting structures for
manufacturing Bushings and on account of bearing heavy loads
and extremely high temperatures undergo high rate of wear
and tear and that they are capital goods and cannot be
termed as raw materials or components of the said resultant
product. The said view of the Additional Collector has been
upheld by the Customs Excise & Gold [Control] Appellate
‘Tribunal [hereinafter referred to as the Tribunal’] by the
impugned judgment dated November 5 1992. The Tribunal has
held that the question regarding exemption from duty and the
interpretation of the notification issued under Section 25
of the Customs Act has to be decided by the customs
authorities alone and the fact that the import of the goods
was covered by the specific mention in Part C of the DEEC
has no bearing on the jurisdiction of the customs
authorities because exemption from duty is on aspect while
validity of import under the import license is another
aspect. The Tribunal has also agreed with the view of the
Additional Collector that the expression “raw materials and
components required for the manufacture of the goods to be
supplied” in Notification No.210/82-Cus read with
Notification No. 116/88 dated March 30, 1988 cannot be
extended to include within it scope raw materials and
components required for a Kiln or a furnace in which the
goods to be supplied are manufactured. Hence this appeal.
Shri S. Ganesh, the learned counsel for the appellant,
has urged that the appellants are entitled to exemption from
payment of customs duty on Crystar Beams imported by them
both on the basis of Notification No.210/82-Cus as well as
Notification No. 116/88 dated March 30, 1988. As noticed
earlier, Notification No. 210/82-Cus dated September 10,
1992 contained the expression “raw material and components
required for the manufacture of goods” and “or for the
replenishment of raw materials and components used in the
manufacture of such goods”.
In Notification No. 116/88 dated March 30, 1988 there
is slight difference in language The material part of the
said Notification is 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 Notification of the Government
of India in the Ministry of
Finance, [Department of Revenue]
No.44/87-Customs [G.S.R, 101(E)],
dated the 19th February, 1987, the
Central Government, being satisfied
that it is necessary in the public
interest so to do, hereby exempts
goods imported into India against
an Advance Licence issued under the
Imports (Central) Order 1955, being
materials required to be imported
for the purpose of manufacture of
produce [hereinafter referred to as
the resultant products] or
replenishment of materials used in
the manufacture of the resultant
products, or both, or for export as
manufacture of the resultant
products, or both, or for export as
mandatory spares alongwith the
resultant products, for execution
of one or more export orders, from
the whole of the duty of customs
leviable thereon which is specified
in the First Schedule to the
Customs Tariff Act, 1975 [51 of
1975] and from the whole of the
additional duty leviable thereon
under section 3 of the said Customs
Tariff Act“,
Notification No.116/88-Cus uses the expression
‘materials required to be imported for the purpose of
manufacture of products [hereinafter referred to as the
resultant products] or replenishment of materials used in
the manufacture of resultant products or both.”
Shri Ganesh submits that on a proper construction of
the language used in Notification No.210/82-Cus dated
September 10, 1982 Crystar Beams should be treated as
components required for the manufacture of Lightening
Arrestors and would fall within the ambit of the exemption
granted under the Notification No. 210/82-Cus dated
September 10, 1982. The learned counsel has contended that
the words “required for the manufacture” In the said
notification would include material which though not
directly used in the manufacture of product is necessary for
the purpose of manufacturing the product. Shri Ganesh has
also urged that in any event Cryster Beams would fall within
the ambit of the expression “materials required to be
imported for the purpose of manufacture of products”
contained in Notification No.116/88-Cus dated March 30,
1988 because the words “for the purpose of manufacture” in
the said notification have the effect of enlarging the ambit
of the exemption that has been granted. In this context
Shri Ganesh has pointed out that in the DEEC reference has
been made to Notification No.116/88-Cus, dated March 30,
1988.
Shri Subba Rao, the learned counsel appearing for the
Revenue, has placed reliance n the definition of the
expressions “exempt materials” and “materials” contained in
clauses (iii) and (viii) of the explanation to Notification
No.116/88 dated March 30, 1988. The said clauses provide as
follows:
“(iii) Exempt materials’ means the
materials imported and specified in
Part ‘C” of the said Certificate
and eligible for exemption from
duty under this notification;
(viii) materials means goods which
are raw materials, components,
intermediate products or
consumables used in the manufacture
of resultant products and their
packings, or mandatory spares to be
exported alongwith the resultant
products.”
Shri Subba Rao has laid emphasis on the words “used in
the manufacture of in clause (viii) and has urged that for
availing the exemption it is necessary that the material
must be required for use in the manufacture of resultant
products. Shri Subba Rao has also invited our attention to
the decision of this Court in The Tata Oil Mills Co. Ltd vs.
Collector of C. Ex. 1989 43 ELT. 183, wherein in the matter
of interpretation of a notification granting exemption from
payment of duty this court had said :
“But, in trying to understand the
language used by an exemption
notification, one should keep in
mind two important aspect (a) the
object and purposes of the
exemption and (b) the nature of the
actual process involved in the
manufacture of the commodity in
relation to which exemption is
granted”.
Having regard to the fact that in DEEC specific
reference has been made to Notification No.116/88-Cus, dated
March 30, 1988, we will consider the claim of the appellant
for exemption for duty on the basis of the said
notification.
A perusal of Notification No. 116/88-Cus. shows that
the object and purpose of the said notification is to
encourage exports by granting exemption from customs duty on
materials that are required to be imported for the purpose
of manufacture of the resultant products or for
replenishment of the material used in the manufacture of the
resultant products, or both or for export as mandatory
spares alongwith the resultant products. The manufacture of
the resultant products has to be for execution of one or
more export orders. In order to ensure that the exemption
is availed only by deserving people, conditions have been
laid down in clauses (a) to (g), which must be fulfilled for
availing the exemption. One such condition, as laid down in
clause (a) that is that the material imported must be
covered by a Duty Exemption Entitlement Certificate issued
by the licensing authority. Under Clause (c) it is required
that the goods corresponding to the resultant products and
the mandatory spares would be exported with the time
specified in the DEEC or such extended period as may be
granted by the licensing authority. The wordings in the
notification have to be construed keeping in view that said
object and purpose of the exemption. In the notification
two different expressions have been used namely, materials
required to be imported for the purpose of manufacture of
products’ and ‘replenishment of materials used in the
manufacture of resultant products’ which indicates that the
two expression have not been used in the same sense. The
expression ‘materials required to be imported for the
purpose of manufacture of products’ cannot be construed as
referring only to materials which are used in the
manufacture of the products. The said exemption must be
given its natural meaning to include materials that are
required in order to manufacture the resultant products. On
that view, the exemption cannot be confined to materials
which are actually used in the manufacture of the resultant
product but would also include materials which though not
used in the manufacture of the resultant product are
required in order to manufacture the resultant product.
Crystar Beams imported by the appellant are materials, which
though not used in the manufacture of H.T. Porcelain
Insulators required for Lightening Arrestors, are materials
which are required for producing the insulators in the
kilns.
It is true that in clause (viii) of the Explanation to
the Notification expression ‘materials’ has been defined to
mean goods which are raw materials, components, intermediate
products or consumables used in the manufacture of resulting
products and their packings or mandatory spares to be
exported in the resultant products. But the said definition
in the Explanation has to be read in consonance with the
main part of the notification. It is a well settled
principle of statutory construction that the Explanation
must be read so as to harmonise with and clear up any
ambiguity in the main provision. [See: Bihta Cooperative
Development Cane Marketing Union Ltd. & Anr. vs. The Bank
of Bihar & Ors. 1967(1) SCR 848 at p.854]. The definition
of “materials” in clause (viii) of the Explanation must,
therefore, be so construed as not to climinate the
distinction between the words ‘materials required for the
purpose of manufacture of products’ and the words ‘materials
used in the manufacture of the resultant products’ in the
main part of the definition.
On a proper construction the definition of “materials”
in Clause (viii) of the Explanation must be confined in its
application to the word “materials” in the expression
‘replenishment of materials used in the manufacture of the
resultant products’ in Notification No.116/88-Cus. dated
March 30, 1988.
It is not disputed that appellant had fulfilled the
conditions laid down for grant of exemption contained in
clause (a) to (g) of the Notification No. 116/88 dated March
30, 1988. In the circumstances, it must be held that the
appellant was entitled to exemption from customs duty and
additional duty under Notification No. 116/88 dated March
30, 1988 on the import of Crystar Beams. The appeal is,
therefore, allowed, the judgment of the Tribunal dated
November 5, 1992 as well as the order of Additional
Collector (Customs) dated march 8, 1981 are set aside and it
is held that the appellant is entitled to exemption from
payment of customs duty and additional duty on the import of
Crystar beams required for the purpose of manufacture of
Lightening Arrestors. No order as to costs.
