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SC allows appeal in Customs duty case

R.N. Sahai

IN Shriram Vinyl & Chemical Industries vs. Commissioner of Customs, Mumbai (Civil Appeal No. 3940 of 1998 decided on March 20, 2001), a three-Judge Bench comprising Mr Justice S.P. Bharucha, Mr Justice N. Santosh Hedge and Mr Justice Y.K. Sabharwal, came to the rescue of SVC Industries, and allowed their appeal against the Customs Authorities who had illegally denied them the benefit of concession in duty for imported parts used in assembling the machinery in accordance with Notification No. 155/86-Cus dated March 1, 1986, by interpreting it in an incorrect manner.

The Supreme Court rejected the construction placed on the word `assembly' by the Tribunal which favoured the Customs Authorities.

In this case, SVC Industries after dismantling in their factory the existing furnaces, assembled modernised furnaces partly using imported parts, partly indigenously procured parts and partly serviceable components/parts recovered from the dismantled fur naces.

In respect of imported parts used in the assembly of the furnaces, SVC Industries claimed benefit of the notification dated March 1, 1986, which provides for lower rate of duty.

The material part of the notification states that 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 an y article specified in column (2) of the Table, when imported into the country 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 o f customs leviable thereon which is specified in the corresponding entry in column (3) of the said Table.

The Director-General of Technical Development, as the competent authority under the notification, had recommended the grant of lower rate of duty prescribed in the notification in respect of the imported parts.

But the benefit of the notification was denied to SVC Industries by the Customs authorities on the ground that no new furnace emerges in the assembly operation undertaken by them. The appeal to the Supreme Court by SVC Industries was against the order o f the tribunal which while affirming the order of the Collector of Customs, inter alia, stated that 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 indige nous 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.

While allowing the appeal, the Supreme Court observed that the main ground on which the benefit of the aforesaid notification has been denied to SVC Industries is that serviceable parts out of the dismantled furnace were used besides some indigenous part s along with the imported parts and, therefore, new furnace has not come into existence.

Agreeing with the counsel of the appellant that the notification does not require that a new article must come into existence, the judges pointed out that the three expressions `initial setting up', `assembly' and `manufacture' used in the notification c annot be construed to mean the 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.

The judges also expressed their inability to accept the contention of the 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 o f claiming benefit under the notification would not arise.

The judges, further, remarked that 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'.

The judges finally observed that 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 no t contemplate denial of its benefit on the ground of reuse of certain parts and/or use of some indigenous parts with the imported parts.

(By arrangement with the Corporate Law Adviser, New Delhi.)