2017 (7) TMI 974 - HC - Customs

Benefit of exemption from basic Customs Duty - CVD - case of respondent is that Circular Knitting Machines imported by the petitioner are only (Knitted) Fabric Making Machines and are not required for manufacture of Garments - Held that - the Hon ble Supreme Court in the case of Commissioner of Customs, Kolkata Vs. Rupa And Co. Ltd., 2004 (7) TMI 90 - SUPREME COURT OF INDIA wherein the Hon ble Supreme Court while considering the similar facts with regard to the textile machinery imported under EPCG scheme defined what would be meant by the term capital goods has held that So long as the imported machinery is used by a person who manufactures garments, which are then used to meet the export obligation, the importer will be entitled to benefit of 100% exemption under the Notification - petition allowed - decided in favor of petitioner.

Summary

Issues:
Challenge to Orders-in-Original denying exemption from basic Customs Duty and levy of counter veiling duty for Circular Knitting Machines imported.

Analysis:
The petitioner challenged two Orders-in-Original passed by the respondent denying exemption from basic Customs Duty and imposing a 10% counter veiling duty on Circular Knitting Machines imported, stating they are only Fabric Making Machines and not capable of producing Garments. The legal issue revolves around the interpretation of the term "capital goods" required for the manufacture of textile garments, as defined in a Supreme Court decision. The Supreme Court clarified that capital goods include machinery for various processes like stitching, cutting, dyeing, and testing, essential for garment manufacturing. The Court emphasized that the exemption applies to manufacturers of garments using imported machinery under specific conditions, such as export obligations and installation requirements in the importer's factory.

Applying the Supreme Court decision to the case at hand, the Court concluded that the Circular Knitting Machines imported by the petitioner are indeed essential capital goods for garment manufacturing. Therefore, the impugned orders denying exemption from duty and imposing counter veiling duty were set aside. The judgment highlights the importance of interpreting the term "capital goods" broadly to encompass all machinery required for the ultimate manufacture of garments, ensuring that manufacturers receive the intended benefits under the relevant notification.