1991 (5) TMI 138 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility of the imported raw materials (1000 tonnes of H.R. Coils) for concessional duty under Heading 84.66 of the Customs Tariff Act, 1975.
2. Whether the Assistant Collector was bound to register the contract as Project Import.
3. Applicability of the rule of beneficial construction in favor of the appellants.

Detailed Analysis:

1. Eligibility of the imported raw materials (1000 tonnes of H.R. Coils) for concessional duty under Heading 84.66 of the Customs Tariff Act, 1975:

The appellants, an industrial plant producing stainless steel sheets, imported machinery from West Germany under a contract valued at Rs. 30 crores. The initial imports received concessional duty under Heading 84.66. However, the application for the subsequent import of 1000 tonnes of H.R. Coils for testing was rejected. The adjudicating authority ruled that these goods were not covered under Heading 84.66 as they were not raw materials required for manufacturing capital goods specified under Clauses A, B, or C of sub-heading No. 1 of Heading 84.66, nor were they essential for plant maintenance.

The appellants argued that the imported raw materials were for the initial setting up of the unit, as the unit could not commence commercial production without testing with the imported materials per the performance guarantee in the contract. They cited multiple clauses from their contract and correspondence with government authorities to support their claim. The Department, however, maintained that the raw materials were for testing, not manufacturing, and thus not covered by Heading 84.66.

Upon review, the Tribunal found that the terms and conditions of the contract indicated that the raw materials were indeed for the initial setting up of the unit. The contract specified that testing with the imported raw materials was necessary for the unit to commence production, making these materials integral to the initial setup.

2. Whether the Assistant Collector was bound to register the contract as Project Import:

The appellants contended that the import had been endorsed by the sponsoring and licensing authorities as Project Import, and thus, the Assistant Collector was bound to register it as such. They argued that the Project Import Regulations mandated the Assistant Collector to register the contract as Project Import as long as the application was in order.

The Tribunal noted that the Government of India had recognized the raw materials imported for testing as required for the initial setting up of the unit. This endorsement by the government authorities supported the appellants' claim that the Assistant Collector should have registered the contract as Project Import.

3. Applicability of the rule of beneficial construction in favor of the appellants:

The appellants argued for the application of the rule of beneficial construction, which should be applied in their favor to grant them the benefit of concessional duty under Heading 84.66. They cited several case laws to support this proposition.

The Tribunal referred to the Supreme Court's ruling in Swadeshi Polytex, which stated that while fiscal statutes should be construed strictly, the full effect of exemption notifications should be given without undue interpretation. The Tribunal also cited its own previous decisions, which supported the appellants' claim for registration of the Project Import.

Conclusion:

The Tribunal concluded that the imported raw materials were indeed for the initial setting up of the unit, as testing with these materials was essential per the performance guarantee in the contract. The Government of India's recognition of these materials for initial setup further supported this conclusion. The Tribunal ruled that the benefit of Project Import should be extended to the import of H.R. Coils by the appellants. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.