2004 (7) TMI 90 - SC - Customs

Notification bearing No. 29/97-Cus. dated 1st April, 1997 exemption from custom duty was granted to capital goods, components and spares thereof etc. imported under the Export Promotion Capital Goods Scheme benefit denied - Held that - For the purposes of manufacture of garments it cannot be said that only stitching and knitting machines are required. Apart from stitching and cutting the manufacturer may himself manufacture the yarn or fabric. No substance in the submission that the use of different words textile garments indicates that only machinery used directly for manufacture of garments gets 100% exemption. The use of different terms merely indicates that the 100% exemption is given to a manufacturer of garments. If the import is by a person who is manufacturing textile products then that importer will get exemption from payment of custom duty and so much of the additional duty as is in excess of 10% of the value of the goods. The difference in language is only for purposes of emphasizing that the 100% exemption is only to manufacturers of garments. 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. Appeal dismissed.

Issues Involved:
1. Interpretation of the term "capital goods" under the EPCG Scheme.
2. Eligibility for 100% exemption from customs duty for machines used in the manufacture of textile garments.
3. Validity of the Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT)'s decision.
4. Impact of Board circulars and letters on the interpretation of the Notification.

Detailed Analysis:

1. Interpretation of the term "capital goods" under the EPCG Scheme:

The court examined the definition of "capital goods" as provided in the Notification No. 29/97-Cus. dated 1st April, 1997. The Notification exempts capital goods imported under the EPCG Scheme from customs duty and additional duty exceeding 10% of the value of the goods. The term "capital goods" includes plant, machinery, equipment, and accessories required for the manufacture or production of other goods, including packaging machinery, refrigeration equipment, power generating sets, and instruments for testing, research and development, quality and pollution control. The court emphasized that this broad definition covers not only machinery directly used in manufacturing but also those indirectly required for the ultimate manufacture of the resultant product.

2. Eligibility for 100% exemption from customs duty for machines used in the manufacture of textile garments:

The Respondents, manufacturers of textile garments, imported machines for processing fabric/yarn, fabric inspection, knitting, and dyeing fabrics. They were denied 100% exemption on the grounds that these machines were not directly used for manufacturing textile garments. However, the court interpreted the phrase "goods are required for manufacture of" in the proviso of the Notification to be wide enough to include these machines. The court agreed with the Tribunal's reliance on a letter from the International Federation of Knitting Technologists, which outlined the necessity of various machines for ensuring good quality garment production.

3. Validity of the Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT)'s decision:

The Tribunal had held that the term "goods are required for manufacture of" was broad enough to include machines for processing fabric/yarn, fabric inspection, knitting, and dyeing fabrics. The Tribunal relied on the Supreme Court's decision in Oblum Electrical Industries Pvt. Ltd. v. Collector of Customs, which interpreted similar language in another exemption notification to include materials indirectly used in manufacturing. The Supreme Court upheld the Tribunal's decision, agreeing that the term "capital goods required for manufacture of textile garments" includes all machines necessary for the ultimate manufacture of garments.

4. Impact of Board circulars and letters on the interpretation of the Notification:

The court considered the Board circular No. 13/2000-Cus., dated 22nd February, 2000, and letters from the Ministry of Finance, which clarified that 100% exemption should not be given to machines used for knitting, dyeing, and compacting fabrics. However, the court found these interpretations erroneous, stating that an exemption Notification must be construed strictly but should not lose sight of its object and purpose. The court emphasized that where the wording of the Notification is clear and unambiguous, it must be given effect to, and exemption cannot be denied by an unjustified construction of the Notification.

Conclusion:

The Supreme Court concluded that the Notification's language was clear in granting 100% exemption to capital goods required for the manufacture of textile garments. The court found no infirmity in the Tribunal's judgment and dismissed the appeals, affirming that machines for processing fabric/yarn, fabric inspection, knitting, and dyeing fabrics qualify for 100% exemption under the EPCG Scheme. The appeals were disposed of with no order as to costs.

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