2002 (1) TMI 189 - AT - Customs

Summary

Issues Involved:
1. Denial of Exemption Notification No. 29/97-Cus.
2. Use of Imported Machines in the Manufacture of Textile Garments.
3. Interpretation of "Required for the Manufacture" in the Notification.
4. Legitimacy of Customs Authorities' Decision.

Issue-wise Detailed Analysis:

1. Denial of Exemption Notification No. 29/97-Cus.:
The authorities confirmed a demand of duty amounting to Rs. 39,41,353 by denying the benefit of exemption Notification No. 29/97-Cus., dated 1-4-97, for the import of seven machines under the EPCG Licence. The Customs Authorities argued that the machines were used for processing textile fabrics rather than directly manufacturing textile garments, thus not qualifying for the exemption.

2. Use of Imported Machines in the Manufacture of Textile Garments:
The appellants established a composite unit for manufacturing textile garments and imported various machines essential for producing quality garments of international standards. These machines included an Automatic Fabric Reversing Machine, Tubular Fabric Inspection Machine, Knitted Fabric Machine, Short Liquor Fabric Dyeing Machine, Finishing of Tubular Knitting Fabric & Accessories, Folding Device Type PP and Accessories, and Speed Display Machine. The appellants argued that these machines were integral to their manufacturing process, starting from inspecting grey fabric to the final garment production.

3. Interpretation of "Required for the Manufacture" in the Notification:
The core issue revolved around whether the imported machines were "required for the manufacture of textile garments" as per the Notification. The appellants contended that the entire process, including inspection, reversing, dyeing, finishing, and calendering, was essential for manufacturing quality garments. They argued that a narrow interpretation, limiting the exemption to only cutting and stitching machines, would render the Notification meaningless since these machines are not specified in the Notification.

4. Legitimacy of Customs Authorities' Decision:
The Customs Authorities maintained that the machines were used for processing textile fabrics, not directly for garment manufacturing, and thus denied the exemption. However, the Tribunal found that the appellants' manufacturing process, starting from grey fabric inspection to the final garment, required the imported machines. The Tribunal referenced the Hon'ble Supreme Court's decision in Oblum Electrical Industries Pvt. Ltd. v. Collr. of Cus., Bombay, which held that materials necessary for manufacturing, even if not directly used in the final product, qualify for exemption.

Conclusion:
The Tribunal concluded that the imported machines were essential for manufacturing textile garments and thus qualified for the exemption under Notification No. 29/97-Cus. The Tribunal emphasized that a narrow interpretation of the Notification was unwarranted and that the machines, though not directly used in cutting and stitching, were crucial for the overall manufacturing process. Consequently, the appeal was allowed, and the impugned orders were set aside, granting the appellants the benefit of the exemption and consequential reliefs.