2001 (3) TMI 94 - SC - Customs

Whether the import of Thyristor Converter and the ceramic wool by the appellant as parts of the Temper Mill and Bright Annealing Furnace is in contravention of the import permit issued to the appellant? Held that - While coming to the conclusion that the Thyristor Converter is an absolute necessity the Collector relied on the Inspection Report of M/s. Dona Electricals Pvt. Ltd. The observation in the Inspection Report relied upon by the Collector clearly shows that the Temper Mill would be incomplete and be of no use without the import of Thyristor control system. Therefore, the finding of the tribunal that the report of M/s. Dona Electricals does not support the view taken by the Collector also cannot be sustained. In regard to the import of the ceramic wool, it is to be noted that the Collector came to the conclusion that the said ceramic wool is a component which is fitted into the furnace as a periodically replaceable part and in the normal course has a life span was only five years. Therefore, in his opinion, while importing second-hand annealing furnace if the importer has replaced the periodically replaceable ceramic wool with a new one which also has a limited life span, same cannot be construed as importing a new machinery because in the opinion of the Collector there is nothing improper in importing second-hand machinery with certain parts which require periodical replacement with new parts so long as the nature of the basic machinery so imported remains to be a second-hand machinery. The tribunal though agreed with the finding of the Collector that the ceramic wool is a periodically replaceable part still held prior permission of the Board was necessary for such machinery which we find difficult to sustain in the view taken by us herein above. Hence we are in agreement with the view expressed by the Collector. Appeal allowed.

Summary

Issues:
Import of Thyristor Converter and ceramic wool in contravention of import permit.

Analysis:
The appellant, an approved unit in the Kandla Free Trade Zone, imported second-hand machinery for manufacturing CRCA and TNBP Coils. Customs Authorities alleged unauthorized import of new machinery parts - Thyristor Converter and ceramic wool. The Collector concluded that the import was covered by Notification No. 77/90-Cus. as the machinery was substantially old, and the disputed parts were integral components. The Department appealed, arguing contravention of import policy and lack of KFTZ Board approval. The tribunal remanded the matter for penalty adjudication, disagreeing with the Collector's interpretation of the import permit.

The central issue was whether the import of Thyristor Converter and ceramic wool violated the import permit. The import license allowed the import of second-hand machinery without specifying that every part must be second-hand. The Collector found the disputed items to be essential components of the permitted machinery for export production. The tribunal, however, held that the import of new parts required Board approval, interpreting the notification strictly. The Supreme Court emphasized that exemption notifications like 77/80-Cus. should be construed liberally to encourage exports, citing a previous case's interpretation of similar language.

Regarding the factual analysis, the Court noted that the disputed parts were small constituents of the larger machinery and essential for its functioning. The Thyristor Converter constituted only 9% of the Temper Mill's value, while the ceramic wool had a limited lifespan necessitating replacement. The Court disagreed with the tribunal's narrow approach, emphasizing that as long as the basic machinery remained second-hand, importing new parts for functionality did not violate the import permit's purpose. The Court also rejected the tribunal's requirement for prior Board approval for such parts, emphasizing the machinery's overall second-hand nature.

In conclusion, the Supreme Court upheld the Collector's findings, reversing the tribunal's decision. The appellant's challenge was successful, except regarding the import of special steel plates, which remained subject to penalty determination. The matter was remanded to the Commissioner for further action. The Court clarified that the appellant did not contest the tribunal's decision on the special steel plates, leaving that aspect undisturbed. The appeal was allowed without costs.