ORDER
Harish Chander, Vice President
1. M/s. Reliance Petrochemicals Ltd. RPL House, 2nd Floor, 15, Walchand Hirachand Marg, Bombay-38, has filed an appeal being aggrieved from the order passed by Additional Collector of Customs, Bombay.
2. Briefly the facts of the case are that M/s. Reliance Petrochemicals Ltd. had imported a consignment consisting of one package containing “Dryer Slurry Inlet Ring Heaters” for PVC plants, vide Bill of Entry No. 3800 dated 8th June, 1990 per shipped ‘Vishva Parijat’ IGM No. 1385/773 – Project Import Registration No. S/5-312/89-CC. The appellant had claimed the clearance for the goods imported against Import Licence No. P/CG/2124527 dated 6th December, 1988. The goods were examined on first check by an expert A.O. and on examination, 4 numbers of dryer slurry inlet ring heaters were found, whereas the packing list attached to Bill of Entry indicated only two numbers, and the Import Licence No. P/CG/2124527 also mentioned two numbers of the subject goods. Since goods were not covered by the import licence and the importer waived the issue of show cause notice, a personal hearing was granted by the Additional Collector. The authorised representative of the importer argued that each machine costs only US $ 3,170.25. Thus even if there are four units, the cost of all four units have beeen included in the value, and the appellant had claimed the benefit of para No. 45 of Import Policy 1988-91. It was also contended that the item imported was not restricted and benefit of project import was also claimed. The Addl. Collector in his order had observed that the import licence specifically described only two numbers of heaters and DGTD had also recommended two numbers of heaters for the initial setting of the project, and, therefore, the plea of the importer that the two extra heaters were also required for the project was not correct, and therefore, the two extra heaters will not be eligible for the project import benefit since two extra heaters have not been recommended by the sponsoring authority, and the benefit of para No. 45 of the Import Policy 1988-91 was to be allowed only for capital goods which were required for the expeditious completion of the project. The benefit of this para could be extended only where some items are erroneously left out in the licence but which are urgently required for the completion of the project. The Addl. Collector observed that in the last nine months about 42% of the items required for the project had been cleared and it could not be concluded that the project was near-ing completion and that the flexibility under para No. 45 could not be extended to the importer. Regarding the cost of four units being included in the value, he did not accept the same because the invoice value is for goods listed in the packing list and the packing list is only for two nos. and as such, the value of only two nos. was given in the invoice and not of four nos. He further observed that the licence under reference covered only the description and value of the main equipment and sponsoring authority had recommended only the goods covered under the import licence for assessment under Heading 98.01 and in terms of Project Import Regulation 5(4) only those items which have been specifically described in the import licence could be registered and assessed under Heading 98.01, and as such, two extra dryer slurry inlet ring heaters should be assessed on merit as DGTD has recommended the list of goods attached to the said licence, for benefit of project import assessment. And, therefore, only two dryers could be given the benefit of assessment under Heading 98.01. The Additional Collector had confiscated the two numbers of dryer slurry inlet ring heaters under Section 111(d) of CTA, 1962, however, an option was given to redeem the same on a payment of fine of Rs. one lakh and a penalty of Rs. 10,000/- was imposed, and the benefit of project import for assessment under Heading 98.01 was not allowed, in excess of the two numbers of inlet ring heaters. Being aggrieved from the aforesaid order the appellant has come in appeal before the Tribunal.
3. Shri K. Srinivasan, learned Consultant, has appeared on behalf of the appellant. He reiterated the facts. Shri Srinivasan pleaded that the appellant has imported two drayer slurry inlet ring heaters and the appellant has claimed assessment under Heading 98.01, and benefit of project import, and the Bill of Entry is dated 8th June, 1990. Shri Srinivasan pleaded that under the project import two heaters were required to be imported, but the appellant has imported four (2 + 2). He pleaded that the import licence for two Nos. was applied in the beginning and during erection it was found that four heaters were needed. He drew the attention of the Bench to para No. 45 of the Import Policy 1988-91 which provided that 5% of the value of capital goods licence issued to a project could be utilised for any item of capital goods not already covered by it for expeditious completion of the project. He further stated that there is no excess import till this date. He stated that the value of two extra heaters is Rs. 1,14,000.00. Shri Srinivasan, learned Consultant, stated that the learned Additional Collector has rejected the appellant’s prayers on the ground that only 42% of the project has been completed. He pleaded that erection of project cost by sections and for every section importation is made as and when needed. He relied on a decision of the Madras High Court in the case of Appraiser, Madras Customs v. Tamil Nadu Newsprint Papers reported in 1988 (36) E.L.T. 272. Shri Srinivasan drew attention to para Nos. 7, 8 and 9 of the said judgment which relate to regulation for project import and Heading No. 84.66. Shri Srinivasan stated that the appellant had entered into a contract for the supply of plant and machinery and the supply has to be in terms of the contract. He has also referred to Project Imports Regulations, 1986 in particular reference to Regulation No. 5(II). He pleaded that there was no justification for the levy of fine and penalty as there was complete absence of element of metis rea.
4. Shri Srinivasan further referred to the Equipment Supply Agreement between M/s. Reliance Petrochemicals Limited and Lummus Crest B.V. He referred to Article 2 of the Agreement of the contract. He laid special emphasis on Article 2.1 which says that “in order to enable RELIANCE to undertake the manufacture of Product using BFG’s Processes, LCV shall supply the Equipment to RELIANCE within the Battery Limit.” He also referred to Articles 1.3 and 1.5 which relate to Definitions – “EQUIPMENT” means the equipment and material listed as LCV’s supply in Annexure A which are required inside the Battery Limit and are to be used in plants (as hereinafter defined) and Article 1.5 defines ‘Battery Limit’ of the Plant means the area up to one (1) meter outside the walls or limits of the plant. Shri Srinivasan pleaded that the plant layout piping had to be changed providing for two sections and page 24 is the packing list. He also referred to Para No. 45 of Import Policy 1988-1991. He also referred to the ITC Policy (at page 14) of the para No. 45 of I&E Policy 1988-91 which provides that capital goods licence issued to a project will be valid for the import of any item of capital goods not already covered by it, provided the item is needed for the expeditious completion of the project, and its value does not exceed 5 per cent of the value of the licence, subject to a maximum of Rs. 25 lakhs within the overall value of the licence. Under this facility, import of restricted items of capital goods will not be permitted. He also referred to import licence relating to the licence No. 2 regarding capital goods which appears on page 9 of the paper book and it is mentioned that as per list attached on page 9 which appears the List of goods attached of the appeal paper book. Shri Srinivasan has referred to Heading 98.01. He also referred Section XXI of Chapter 98 – Project Imports, Baggage etc., which provides that Heading 98.01 is to be taken but applied to all goods which are imported in accordance with regulation made under Section 157 of the Customs Act, 1962 and expression used in this heading shall have the meaning assigned to them in the said regulation. Shri Srinivasan argued that the only condition is that the contract must be registered before the clearance of the goods and in the present matter the contract was duly registered before the clearance of the goods, and once the goods are covered by the licence, it should be deemed that the goods are covered by the licence. Shri Srinivasan pleaded that the importation by the appellant is in accordance with law, and there was no justification for the levy of redemption fine of Rs. one lakh and imposition of penalty of Rs. 10.000/-.
5. Shri M.K. Sohal, learned JDR, has appeared on behalf of the respondent. He pleaded that the appellant had declared two dryer slurry inlet ring heaters in the Bill of Entry and the bill of entries were duly signed by the importer as well as clearing agent, and the bill of entry goes to docks after examination and the invoice is dated 2nd May, 1990. He referred to the description given in the bill of entry. The invoice gives the value of the goods and the packing list describes two slurry inlet ring heaters. He fairly stated that the contract for project import was duly registered and the show cause notice was waived by the appellants. He referred to para 45 of the ITC policy. He argued that the benefit of project import is only available for two heaters. He argued that there is no infirmity in the order passed by the Additional Collector and further argued that there was misdescription in the invoice as well as in the bill of entry. He pleaded for the rejection of the appeal.
6. Shri K. Srinivasan, learned Consultant, in reply, stated that packing list consists two numbers which means each of two sections and in United. States of America, it is described like that. He referred to the page No. 17 of the paper book which describes the PVC Resin Drying Section. Shri Srinivasan argued that two heaters are needed for each section since there were two sections 4 heaters are needed. He referred to page 28 of the Order-in-Original. He argued that the penalty has been imposed for no reason. Shri Srinivasan referred to Order-in-original and stated that nowhere Section 111(m) has been invoked, and there is no justification for confiscation and imposition of the penalty. He pleaded that the benefit of project import should be allowed.
7. We have heard both the sides and have gone through the facts and circumstances of the case. It is not disputed that the appellant had applied for registration of the contract before the clearance of the goods. It is also not disputed that the appellant has not exceeded the value of the project import by virtue of the licence that the appellant is having. The issue for determination before us is whether there is ITC violation by the appellant or not. It is also not disputed that in the list attached with the import licence two heaters have been mentioned. We have also perused the bill of entry and the packing list where two heaters have been mentioned, whereas actually the appellant had imported four heaters of dryer slurry inlet ring heaters, and the import licence also mentioned two numbers of the subject goods. The argument of the appellant is that two numbers of heaters are needed for each sectionwise. The learned Consultant had referred to para No. 45 of the Import & Export Policy April 1988-March 1991 Volume I at page 14. The said para is reproduced below :-
“Import of Capital Goods under flexibility
45. Capital goods licence issued to a project will be valid for the import of any item of capital goods not already covered by it, provided the item is needed for the expeditious completion of the project, and its value does not exceed 5 per cent of the value of the licence, subject to a maximum of Rs. 25 lakhs within the overall value of the licence. Under this facility, import of restricted items of capital goods will not be permitted.”
The Additional Collector has observed that only 42 per cent of the items required for the project has been cleared. The appellant has relied on the letter dated 18th July, 1990, written by Lummus Crest B.V. where it has been mentioned that the total cost for slurry inlet ring heater each is USD 3,170.25 FOB value and the total cost of all four CIF is USD 12,937.98. In the bill of entry also the cost has been mentioned is USD 12,937.98.
8. We have perused the agreement between Reliance Petrochemicals Limited and LUMMUS CREST B.V. which appears as annexure ‘A’ and the articles imported imcluded in L.1 in annexure ‘A’ and the equipment supply agreement. Item L.1 is reproduced below:-
“L. PVC Resin Drying Section
1. PVC resin drying system consisting of dryer centrifuges with drive, 2 Nos., SS 304L/inconel 600, centrifuge hoppers, 2 Nos., SS 304, dryer slurry inlet ring heaters, 2 Nos., SS 316, centrate tank, SS 304, centrate pump with drive, SS, dryer wet cake conveyors with drive, 4 Nos., screw type, rotary dryers with drive, 2 Nos., SS 304, direct parallel flow rotary drum dryer, dryer magnets, 2 Nos., SS 304, magnet to separate from particles.”
The learned Consultant, Shri Srinivasan had referred to the drawings and stated that there are two sections and two heaters were needed for each section. The adjudication authority had rejected the claim of the appellant mainly on the ground that the benefit of para 45 is only to be allowed in respect of capital goods. The project is in the setting up stage. The learned consultant had referred to the Madras High Court decision in the case of Appraiser, Madras Customs v. Tamil Nadu Newsprint Papers Ltd. reported in 1988 (36) E.L.T. 272 (Mad.). Para No. 8 from the said judgment is reproduced below :-
“8. The purpose of introducing Heading No. 84.66 in the First Schedule is to avoid hardship to the importers in establishing new projects which may be caused by a delay in clearance by the Customs authorities. In respect of setting up of project initially or extending an existing project, various equipments, machinery, apparatus, raw materials, spares and consumables, will be required. In normal course, those items are classifiable under tariff heads, and they will attract different rates of customs duty. It would involve careful scrutiny of each and every item for assessment, which would necessarily lead to a delay in clearance and certain amount of hardship on the importers. In order to alleviate the same and to streamline the process of clearance of imported materials for the project as a whole and taking into consideration the purpose for which the various items are imported, a separate heading numbered as 84.66 was incorporated in the First Schedule. It will not be out of place to refer to the observations made by the Finance Minister when the Heading was introduced in the Act. Those observations are extracted in the counter-affidavit filed by the Assistant Collector of Customs, Legal Section, Custom House, in the writ petitions. They are as follows :-
“There have been complaints that the import of equipment by project is impleaded as a result of meticulous assessment at the appropriate rates of each constituent item required for setting up the project. I now propose to introduce a new tariff item to cover the import of equipment needed for the initial setting up of new projects or for undertaking substantial expansion of existing projects in the fields of industry, power, mining and prospecting for minerals or oil. Not only complete consignment but also component parts and raw materials imported specifically for fabricating equipment within India, for a project and same quantity of initial stock of spare parts and other stores needed for the maintenance of the project can be imported under this item. The contract or contracts would have to be registered in advance with the Customs authorities and a provisional assessment will be made immediately obviating to the maximum possible extent the need for detailed assessment of individual lots, after the goods arrive. The equipment is imported under the item will be charged to duty at the machinery rate …”
It is not disputed that the appellants are setting up a new project. There is also an affidavit of Shri V.K.S. Nair to the effect that the appellants had not imported any goods in excess of the quantity permitted to be imported by the import licence No. P/CG/214527. In the statement of facts the appellants have mentioned as under :-
“3. The appellants say that the original design of the plant envisaged the slurry pipe of 4″ diameter with the heating joint provided between 2 sections of the pipe. The heating joint, called the heater is a vendor procured item and is also of 4″ diameter with an inlet of 2″ diameter. The inlet opening has short pipe leading into the heater-joint. Steam is fed into this section through the inlet and the cold slurry fed into the section from one end is heated in this section and goes out as hot slurry. Subsequently, at the time of detailed engineering the Licensors and the Equipment Suppliers considered it necessary to change the design marginally by increasing the diameter of the slurry pipe from 4″ to 6″ and to use either 4″ diameter inlet heater joint or to branch out the slurry pipe and use two 2″ inlet dia. heater joints. The plant lay-out did not leave adequate design parameters to increase the size of the heater joints to 4″ diameter inlet and hence 6″ slurry lines had to be bifurcated into 2 branches of 4″ diamater each, each branch provided with a 2″ diameter heater joint and after heating the slurry to again join the 2 branches into one 6″ hot slurry pipe. The 2 arrangements are diagramatically presented in the sketch at Exhibit ‘C. Thus, for each slurry line the appellants required 2 heater joints or heaters and for 2 such lines 4 were required. The import was necessitated purely by design consideration and not by the desire of the appellants to import unauthorisedly 2 more heater joints.”
Exhibit ‘C’ page 26 is also reproduced below :-
9. In view of the above discussion and keeping in view the judgment of the Madras High Court and para 45 of the ITC Policy, we are of the view that the appellants are entitled to the benefit of project import under Heading 98.01. Accordingly, we set aside the imposition of redemption fine of Rs. 1,00,000.00 and penalty of Rs. 10,000.00. There is no evidence on record whether the value declared is for 2 heaters or 4 heaters. We are extending the benefit of project import in the present matter keeping in view the peculiar facts and circumstances of the case. On the point of valuation, we would like to observe that the value was declared for 2 heaters, whereas the appellants had imported 4 heaters. There appears to be absence of element of mens rea. From the facts and circumstances of the case, we are of the view that there is no justification as to the levy of penalty, but the appellants have to pay the duty at appropriate rate on the value of the 4 heaters which has not been declared. There is no sufficient material available on record to enable us to give our findings on value. Adjudicating authority to find out value after giving an opportunity of personal hearing. We are allowing relief in view of the peculiar facts of the case and this will not be a precedent for other cases. The appeal is disposed of in the above terms.
