1995 (10) TMI 85 - AT - Customs

Summary

Issues Involved:
1. Eligibility for Project Imports assessment under Heading 84.66 or 98.01.
2. Definition and relevance of "installed capacity" versus "production capacity."
3. Binding nature of Textile Commissioner's recommendation on Customs authorities.
4. Interpretation of "substantial expansion" in the context of Project Import Regulations.

Detailed Analysis:

1. Eligibility for Project Imports Assessment:
The core issue was whether the imported knitting machines qualified for concessional duty under Project Imports (Heading 84.66 or 98.01). The respondents argued that the imports were part of a substantial expansion project, thus eligible for concessional duty. The Customs authorities initially provisionally assessed the imports under these headings but later issued a show cause notice questioning the eligibility, leading to reassessment under different headings and a demand for differential duty.

2. Definition and Relevance of "Installed Capacity" versus "Production Capacity":
The respondents contended that the term "installed capacity" should be interpreted as "productive capacity," citing judicial interpretations and dictionary definitions. However, the judgment emphasized that "installed capacity" is determined by the number of machines, not the production output. The court noted that the respondents themselves admitted in their reply to the show cause notice and in a writ petition that the purpose of the import was modernization, not increasing licensed capacity. The court held that for Project Imports, the relevant factor is the increase in installed capacity, not production capacity.

3. Binding Nature of Textile Commissioner's Recommendation:
The respondents argued that the Textile Commissioner's recommendation for concessional duty under Project Imports was binding on the Customs authorities. The court disagreed, stating that the Textile Commissioner is only a recommending authority, and the Customs authorities must independently assess eligibility. The court cited the case of National Newsprint and Paper Mills Ltd. v. Collector of Customs, Bombay, which supported the view that the Customs authorities are not bound by the recommendations of the sponsoring authority.

4. Interpretation of "Substantial Expansion":
The term "substantial expansion" was defined in Regulation 3(b) of the Project Import Regulations, 1986, as an expansion increasing the existing installed capacity by not less than 25%. The court held that the increase in production capacity does not equate to an increase in installed capacity. The court referenced several judgments, including National Newsprint and Paper Mills Ltd. and Saurashtra Cements and Chemical Industries Ltd., which supported the interpretation that "substantial expansion" refers to installed capacity, not production capacity.

Conclusion:
The court concluded that the imported knitting machines did not qualify for the benefit of assessment as Project Imports because there was no increase in the installed capacity. The Textile Commissioner's recommendation was not binding on the Customs authorities, who were correct in independently assessing the eligibility. The appeal by the Revenue was allowed, and the impugned order was set aside.