2008 (8) TMI 328 - HC - Customs

Project Import Exemption under notification no. 269/76 - CBEC being a higher authority, this order of the CBEC is binding on the department.. The two Show Cause Notices issued are thus bad being contrary to the order of a higher authority viz. CBEC. The said Show Cause Notices are contrary to the settled interpretation of Tariff Item 84.66 read with Notification No. 269/76. The said Show Cause Notices are thus not binding on the Petitioners. As a result, we are clearly of the view that the Petitioners are entitled to the benefit of the project import.

Summary

Issues Involved:
1. Applicability of Notification dated 2nd August 1976 and Heading 84.66 for concessional customs duty.
2. Entitlement to duty drawback under Section 74 of the Customs Act.
3. Validity of Show Cause Notices issued by the 2nd Respondent.
4. Availability of alternative remedy by way of an appeal.

Issue-wise Detailed Analysis:

1. Applicability of Notification dated 2nd August 1976 and Heading 84.66 for concessional customs duty:

The Petitioner, a French company involved in underwater construction, was awarded a project by the Municipal Corporation of Greater Mumbai in 1990. The Petitioner contended that the project was notified under sub-item 6 of clause (d) of Heading 84.66(i) of the First Schedule to the Customs Tariff, which allowed a flat rate of 40% customs duty on all items related to the project. The Petitioner argued that similar projects had been exempted from customs duty under Section 25 of the Customs Act, and thus applied for a similar exemption, which was not granted. The Central Board of Excise and Customs (CBEC) had informed the Petitioner that they were entitled to the benefit of the Notification dated 2nd August 1976 and would be eligible for duty drawback upon re-exporting the goods.

2. Entitlement to duty drawback under Section 74 of the Customs Act:

The Petitioner imported equipment essential for the project, such as bulldozers and hydraulic pumps, and cleared them provisionally by executing bonds and bank guarantees. The Petitioner argued that these items were covered under Heading 84.66 and the Notification dated 2nd August 1976, as well as the CBEC order dated 18th October 1984, which confirmed entitlement to concessional duty and duty drawback under Section 74 of the Customs Act.

3. Validity of Show Cause Notices issued by the 2nd Respondent:

The 2nd Respondent issued a Show Cause Notice on 21st September 1987, alleging that the imported goods did not form part of the project and were ineligible for the concessional customs duty rate. Despite the CBEC's order, a second Show Cause Notice was issued on 28th October 1987, indicating a pre-decided stance against the Petitioner. The Petitioner argued that the Show Cause Notices were without jurisdiction and contrary to the CBEC's binding order. The court agreed, stating that the CBEC's order was binding on the 2nd Respondent, making the Show Cause Notices invalid and contrary to the settled interpretation of Tariff Item 84.66 read with Notification No. 269/76.

4. Availability of alternative remedy by way of an appeal:

The Respondent contended that the Petitioner had an alternative remedy by way of an appeal. However, the court cited several precedents, including the Supreme Court's decision in Hirday Narain v. IT Officer Bareilly, which held that the availability of an alternative remedy does not justify dismissing a petition that has been entertained and heard on merits. The court also referenced other cases where it was held that once a petition is admitted for final hearing, the availability of an alternative remedy cannot be used to non-suit the petitioner at the final stage.

Conclusion:

The court ruled in favor of the Petitioner, making the rule absolute in terms of prayer clauses (a), (b), and (c). The Petitioner was entitled to the benefit of the project import under Notification No. 269/76 and the CBEC's order. The court also directed that the bank guarantee given by the Petitioner be kept alive for a further period of 24 weeks from the date of the judgment.