2018 (6) TMI 47 - AT - Customs

Import of second hand diesel engine with turbocharger - Benefit of N/N. 21/2002-Cus dated (at sl. no. 357) denied - whether Capital Goods or not? - parts of dredger - Confiscation orders - redemption fine - Penalty - Held that - The exemption claimed by the appellant was restricted to parts of dredger and the original authority relied upon the note in section XVII (within which chapter 89 of the First Schedule to Customs Tariff Act, 1975 is contained), which excludes coverage of goods falling under heading 8401 to 8479 of the First Schedule to Customs Tariff Act, 1975 therefrom, to deny connection with dredgers to parts classified under heading 8412 of the First Schedule to Customs Tariff Act, 1975 - The description in the exemption notification must be read in its entirety and harmoniously in accordance with which, all parts of dredgers, including engines, must be accorded the benefit of exemption. There is no dispute that it was an engine, that was imported and not a generator . Capital goods are not restricted to manufacturing activity; they find use in rendering of services or other activity that contributes to rendering of service. Dredging is a service and dredger cannot function without an engine - engines are, therefore, undoubtedly capital goods. There is no requirement of license for import of used capital goods - Confiscation order fails - appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to denial of exemption on import of second-hand diesel engine with turbocharger, imposition of fine and penalty under Customs Act, 1962.

Analysis:
The appeal challenges the denial of exemption under notification no. 21/2002-Cus on the import of a second-hand diesel engine with a turbocharger, valued at a specific amount. The imported goods were confiscated under section 111(d) of the Customs Act, 1962, for lacking a necessary license for used goods other than capital goods. Additionally, a fine and penalty were imposed under section 112 of the Customs Act, 1962, which the appellant seeks to quash.

Upon hearing both parties and examining the submissions and records, it was noted that the exemption claimed by the appellant was limited to 'parts of dredger'. The adjudicating authority relied on a note in section XVII to deny the connection of the imported parts with dredgers classified under a specific heading, thus rejecting the exemption claim.

The Tribunal found the logic adopted by the adjudicating authority to be flawed. The exemption notification was meant to cover 'parts of dredgers', and the exclusion based on classification rules was deemed improper. Parts not classified in the same chapter as the main goods should still be considered for exemption under the notification, including engines.

The adjudicating authority's reasoning on capital goods and the exclusion of 'generating sets' from the definition of capital goods in the Foreign Trade Policy was also criticized. The Tribunal emphasized that engines are capital goods essential for services like dredging, and the requirement of a license for importing used capital goods was deemed unnecessary. Consequently, the confiscation under section 111(d) of the Customs Act, 1962 was deemed invalid, leading to the appeal being allowed and the impugned order set aside.