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TMI Blog2014 (3) TMI 798X X X X Extracts X X X X X X X X Extracts X X X X ..... on concessional rate of duty under heading 98.01 of the Customs Tariff as per the Project Import Scheme during 1995-99. In respect of imports under 4 project, the assessment had been finalised. However, in respect of 12 projects, the assessments were provisional and were pending finalization. 2.1 An investigation was undertaken into the project imports undertaken, which revealed that the appellant had imported raw materials in excess of the quantity required by them for manufacture of transformers for the specified project. In certain cases it was observed that the import under the Project Import Scheme had taken place after the transformers had been manufactured and dispatched to the project site by the importer. Statement of the Dy. General Manager (Materials) of the appellant-firm was recorded on 13/09/2000 wherein he was asked about the project undertaken in respect of M/s Haldia Petro. In his statement the said official confirmed that in respect of the said project, transformed has been manufactured and dispatched from the factory even before the imported material had been cleared by the Customs and when he was questioned about what was done with the imported material, he eva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, he imposed a fine in lieu of confiscation amounting to Rs. 1.25 crore. He also imposed a penalty of Rs. 50 lakhs on the appellant under Section 112(a) in respect of notice dated 30/07/2001 and a penalty of Rs. 16,12,401/- under Section 114A of the Customs Act, in respect of show cause notice dated 23/01/2002. It is against these orders, the appellant is before us. 3. The learned counsel for the appellant made the following submissions. 3.1 The contracts for the projects which they entered into, provided for a strict delivery schedule and a penalty if the delivery was not made on time. The total time required from the date of purchase order to actual import of raw materials under the Project Import Regulations is about 15 months and the time taken for manufacturing a transformer is at least three months. Therefore, if they had waited for 18 months to import the raw materials and manufactured the transformer s for the specified project, they would not have been able to deliver the transformers on time and they would have been liable to pay liquidated damages for the delay. Therefore, in order to meet the delivery schedule, they did not wait for the imports under Project Import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition. All the units to whom the transformers have been supplied are units as defined under Regulation 3. Regulation 4 provides that the assessments under heading 98.01 is available to these goods which are imported against one or more specified contracts which have been registered. The said Regulation does not speak of any end use or one-to-one correlation and therefore, there is no necessity for any one-to-one correlation between the raw materials imported and the goods manufactured and supplied to a specific project. Inasmuch as they have substantially complied with the provisions of these Regulations, the ratio of the decision of this Tribunal in the case of BSES Kerala Power Ltd. vs. Commissioner of Customs, Cochin 2006 (196) ELT 246 (T) would apply. They have not indulged in evasion of Customs duty whatsoever and the imported goods were used in the manufacture of transformers for other projects and all such contracts have been fulfilled and there is no allegation that they have diverted the imported materials in the open market. There is no bar or restriction in the use of imported inputs which have been assessed at concessional rate of duty under heading 98.01 to other proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Tribunal in the case of Photophone Ltd. vs. Collector of Customs, Bombay 1997 (92) ELT 596 in support of the above contentions. He submits that the procedural conditions stipulated in the Project Import Regulations have to be strictly followed and the procedures are not mere formalities and relies on the decisions of the Tribunal in the case of Eagle Flask Industries Ltd. vs. Commissioner of Central Excise, Pune 2004 (171) ELT 296 (SC) and Collector of Central Excise, Meerut vs. Modi Rubber Ltd. 2001 (133) ELT 515 (SC). Accordingly, he prays for upholding the impugned order. 5. We have considered the rival submissions. 5.1 It will be relevant at this juncture to consider the wordings of Chapter 98 relating to Projects Imports so that the issue arising for consideration can be appreciated better. Note 2 to Chapter 98 and Tariff Description of heading 98.01 are reproduced below: "2. Heading 9801 is to be taken to apply to all goods which are imported in accordance with the regulations made under section 157 of the Customs Act, 1962 (52 of 1962) and expressions used in this heading shall have the meaning assigned to them in the said regulations." "9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct is registered, the importer shall produce from the Customs House of registration such information as the proper officer may require. (2) The importer shall apply, as soon as may be, after he has obtained the Import trade control licence wherever required for the import of articles covered by the contract and in case of imports covered by the Open General Licence or imports made by Central Government, any State Government, statutory corporation, public body or Government undertaking run as a joint stock company (hereinafter referred to as "Government Agency") as soon as clearance from the concerned sponsoring authority, as the case may be, has been obtained. (3) The application shall specify - (a) the location of the plant or project; (b) the description of the articles to be manufactured, produced, mined or explored; (c) the installed or designed capacity of the plant or project and in the case of substantial expansion of an existing plant or project the installed capacity and the proposed addition thereto; & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s imported and the unit/projects where they are going to be used. Similarly, importation under contracts mentioned in Regulation 4 refers to contracts for a specific project. For a given project, there can be more than one contract under which the goods are required to be supplied after importation. After the project is completed the contracts have to be finalised under Regulation 7 so that the Revenue can be satisfy that the terms and conditions of the project imports have been complied with by the importer. If one-to-one co-relation is not maintained, fulfilling of the condition regarding usage of the imported product in a particular project cannot be established. That is the reason why the Project Import Regulations envisage registration of the contract for a specified project. In the case before us it is an admitted position that the materials have been imported after the machinery have been already supplied to a project. If the machinery has already been supplied to a particular project, usage of the imported raw materials for the manufacture of machinery which is required to be supplied to a specific project cannot happen at all and, therefore, it is clear that the appellants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was denied. In that context it was held that since the licence was renewed retrospectively and the essentiality certificate was given by the competent authority, the conditions precedent for obtaining exempt on stood fully satisfied. It should be remembered that, in these cases, the goods were used for the purpose for which they were imported and only the requisite permission from the appropriate authorities were obtained later. Hence the ratio of these judgments cannot apply to the present case. 5.7 Coming to the decision in the case of BSES Kerala Power Ltd. cited supra, the issue before the Tribunal was the applicability of the concessional project import rate for the replacement imports. The facts of the case were that the appellant therein, M/s. BSES Kerala Power Ltd. had an agreement with Kerala State Electricity Board for the initial setting up and generation of power plant at Udyogmandal and after completing the formalities they imported certain parts. During the execution of the project, it was noticed that three numbers of rotable hot section assemblies which are very essential for power generation had to be replaced and the replacements were received and cleared at con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to 98.01) and the appellant is liable to pay duty at the normal rates prescribed in the Tariff. It was further held that the goods are liable to confiscation under Section 111(o) of the Customs Act and penalties are imposable under Section 112. 5.9 Therefore, we do not find any merit in the argument of the appellant that so long as the goods have been used in some projects which are also registered and not in the specified project in respect of which the goods were imported, the benefit under 98.01 would be available and accordingly we reject this contention. 5.10 The appellant has also raised a point that in view of the huge time lag involved in obtaining permission under the Project Imports, they were forced to utilize the materials imported earlier in lieu of the materials to be imported under the Project Import Regulations. In other words, they are pleading hardship or inconvenience in following the terms and conditions of the Project Import Regulations. This argument of the appellant has no merits. The hon'ble apex Court in Shankar Raju vs. Union of India 2011 (271) ELT 492 (SC) observed as follows: "Where the Legislature clearly declares its intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; "In a taxing statute, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." Therefore, we do not agree with the contention raised by the appellant in this regard. 5.13 This argument is also not acceptable for another reason. There are various schemes under the Customs law wherein one-to-one co-relation is not required between the imported materials and their usage in a particular project. For e.g. under the DEEC scheme, the export obligation can be fulfilled in advance and raw materials required for the manufacture of the export products can be imported subsequently by availing the benefit of exemption. Similarly, in the case of duty-free replenishment scheme, imports can be made duty-free for replenishing the materials already used in the manufacture of the exported products and in those cases also one-to-one co-relation is not required. In other words, wherever the legislature wanted flexibility with regard to use of materials without any nexus between the imported ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belief. It would imply a belief which has been reached after a sincere attempt to understand the issue and examining it reasonably. Similarly, in the case of Inter Scape [2006 (198) ELT 275 (Tri.)] this Tribunal held that belief can be said to be bonafide only when it is formed after all reasonable consideration are taken into account. It is not the case of the appellant that they sought legal advice in the mater or were so advised by any one. On the contrary, we find that there are a number of judicial pronouncements which prohibited diversion of goods from one project to another and, therefore, the plea of bona fide belief does not sustain. 5.16 The next issue for consideration is whether the goods are liable to confiscation and whether fine can be imposed in lieu of confiscation and whether penalties can be imposed on the appellant. In this context it should be remembered that in respect of 12 contracts where the assessments were provisional, the goods were released to the appellant on the strength of a bond and bank guarantee submitted by the appellant. In other words, it was only a provisional clearance. At the time of final assessment, when the violations were noticed of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y learned brother Shri P.R.Chandrasekharan, Member (Technical), but with all humility, I differ with the view taken by learned Member (Technical). 8. To appreciate the facts, we have to appreciate the scheme of Project Import Regulation. 8.1 As heavy customs duty was normally leviable on import of machinery for projects, which made the initial project cost very high and at times, the project may become unviable; hence the scheme of project import was introduced by Govt. to bring machinery etc. required for initial set up or substantial expansion at concessional customs duty. The concept of concession in customs duty for project(s) was introduced way back in 1965 when the country was in the need of set up of major projects and industries for industrialization of the country. The provision was made for import under the specified heading 9801 of the Customs Tariff Act for items like machinery including prime movers, instruments, apparatus and appliances, control gear and transmission equipments as well as components or raw materials for manufacture of machinery and their components required for initial set up of a unit or substantial expansion of specified industrial project, power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e PO) 6 months Liquidated damage @ 0.5% (minimum) of value (Rs.26,20,000/-) per week of delay 6,28,800/- LD @ 5% (maximum) of value per week of delay 62,88,000/- 8.3 From the purchase order at Exhibit -A, it is evident that the purchase price as per purchase order is Rs. 26,20,000/- to be delivered ex-works which includes packing and forwarding charges. Clause 9 of the purchase order read with clause 8 provides that delivery period is 6 months from the date of placement of Letter of Intent (LOI) or order whichever is earlier and will be subject to liquidated damages for delay which will be payable @0.5% per week subject to a maximum of 5% of the value of order. 8.4 Thus, it is evident that time was the essence of the contract. Timely completion of the purchase order by the appellant was in national interest so as to facilitate timely completion of the project to avoid the evils of cost over run and the technology becoming out of date or obsolete. At the same time, delay also results in loss of production which increases the cost of project. The appellants have explained that the raw materials required for manufacture of electrical transformers are mainly CRGO electrical st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect, raw materials have been imported in excess than actually required for the fabrication of the transformers required for the project, and thirdly the fabrication was started and or completed and supplied even before the arrival of the raw material at concessional tariff under the scheme, in some cases. 8.8 From the findings recorded by the Commissioner, it is seen that the Commissioner have taken a view that as the fabrication was started in some cases prior to arrival of the requisite raw material under the scheme or in some case even fabrication of the transformer was completed and supply made before the arrival of the requisite raw material. The Commissioner has taken the view by quoting regulation 4 of the Project Import Regulation, 1986 that one-to-one correlation is essential for eligibility for availing the concessional tariff of duty. The Commissioner has relied on the judgment of NRB Bearings (supra). The same is distinguishable because in that case pre-fabricated machineries were imported and installed elsewhere, wherein in the present case raw materials have been imported for fabrication of the transformers. 8.9 The appellant as a person of ordinary prudence, instea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation, it is immaterial from which side of the tank water is drawn for irrigation. 8.15 In view of the aforementioned observations, I hold that the appellant have complied with the conditions of the 'Project Import Regulations' and the benefit of concessional duty cannot be denied. 9. Thus the impugned order is set aside and quashed. The appeal is allowed. 21.1.2013 Anil Choudhary, J. The difference of opinion as detailed below is placed before the Hon'ble President/HOD for reference to the 3 rd Member:- (a) Whether the appellant is not eligible for the benefit of Project Import Concession under CTH 9801 and consequently the imported goods are liable to confiscation with option to redeem the same on payment of fine and the appellant is liable to penalty as held by the Hon'ble Member (Technical) placing reliance on the decision of the Hon'ble Supreme Court in the case of NRB Bearing Ltd., 2003 (159) ELT 755, Jacsons Thevara, 1992 (61) ELT 343 (SC), Shankar Raju vs. Union of India 2011 (271) ELT 492 (SC) and Mihir Textiles Ltd. [1997 (92) ELT 9 (SC)] OR (b) The appellant is eligible for the benefit of project import conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. reported in 2012 (281) ELT 321 (Mad) to bring the point fiscal law is to be construed strictly while the Economic Legislation is construed with intention of developing domestic industry. He also quoted the judgment of this Tribunal in the case of Punjab Worsted Spg. Mills Vs. CCE, Chandigarh reported in 2001 (136) ELT 1016 (Tri-Del) to submit that penalty is not imposable in case of provisions assessments which were being finalized. 10.4 On issue of limitation, the learned advocate quoted this Tribunal decision in Sujana Metal Products Ltd. Vs. CCE, Hyderabad reported in 2011 (273) ELT 112 (Tri-Bang). Similarly another judgment of this Tribunal in the case of Mexin Adhesive Tapes vs CCE reported in 2013 (291) ELT 195(Tri-Ahd) was pressed to bring out the point that limitation and penalty cannot be imposed on issues involving interpretation/discussion of law and rules. 11.1 The learned A.R., on the other hand, stated that the concept of Project Import is not with an idea to extend the benefit of lower duty but is a system of assessment. In a big Project a large number of equipments, materials etc are imported and many a time the value of each and every item is not separately av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods under the Project Import is with an idea of facilitating the assessment and faster clearance of the goods by Customs in respect of Projects. Chapter V of the Customs Manual which was referred to by the learned A.R. is reproduced below: "1. The 'Project Import Scheme' is an Indian innovation to facilitate setting up of and expansion of industrial projects. Normally, imported goods have to be classified separately 'on merits' under the Customs and Excise Tariffs for levy of duty. This implies that each individual article has to be classified and assessed to appropriate duty but also for the purposes of Countervailing Duty (CVD). For setting up of a 'project', a number of goods may be imported in one or many consignments. If all goods are required for the project are to be classified and valued separately for assessment to duty, the process becomes cumbersome. This may to delay in clearance of goods. Further, the suppliers, while sending goods for a contracted project, do not value each and every item or parts of machinery manufactured and supplied in stages. Ascertaining values for different items further delayed assessment on merits and leading t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of duty have been prescribed at times to boost industrialization of a particular sector. However, such steps by the Government are normally through exemption notification. Even when capital goods are imported classifying under Chapters 84, 85, 90 or other Chapters, exemption Notifications issued are with a view to encourage industrialization in that particular sector. For example, a lower rate of duty is prescribed for manufacture of jewellery or diamond processing, the same may be with an idea to boost jewellery and diamond processing centers. Thus in my view classification under 98.01 is for case of assessment and clearance by Customs while exemption notification are with a view to encourage particular sector. 12.4 In the present case, Power Projects have been given a lower rate of duty by exemption Notification No. 90/94-Cus dated 1.3.1994. However, before availing the benefit of said notification goods are required to be classified under Heading 98.01. 12.5 In order to resolve the issue we have to appreciate that Customs duty is charged under Section 12 of the Customs Act, 1962. The said Section reads as under: 12. Dutiable goods - (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pear to be any reason for requiring such a long time because even before getting an order applicant would have estimated how much and what type of CRGO sheets are required. Nine months have been indicated for getting a recommendation letter from the Ministry of Industry. If the appellant has filed all the documents in time and followed up, there does not appear to be any reason for such a long time. In fact to my mind, making an application to Ministry of Industry, placing the order for Import etc. can all be done parallel. Even application for registering the contract under Project Import on provisional basis can be made even if for some reason there is a delay in getting a recommendatory letter from Ministry of Industry. The goods can be imported and cleared by the appellant provisionally under project import at concessional rate or normal rate (and claim refund later on). The appellant has entered into the contractual delivery and highlighted that he is required to pay damage for delay in supplying the goods in time. The applicant should estimate and indicate a reasonable time to the buyer to execute the Project. The various reasonings given for delay in execution of Project are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nery including prime movers, instruments, ........etc." are classifiable under the said heading. Obviously, after the import, raw materials has to be used in the manufacture of machinery required for the initial setting up of a unit/substantial expansion. While there is no stipulation that importer cannot use raw material imported under different Heading for the manufacture of machinery under Project import but there is definite stipulation that raw material imported under Project Import has to be used in the manufacture of machinery required for that Project. 12.10 I also note that Hon'ble Supreme Court in the case of Shanker Raju Versus Union of India reported in 2011 (27) ELT 492 (S.C.) has observed as under:- "The learned counsel Shri Narasimha submits that the Legislature, while amending Section 8 of the Act, has not placed any bar or embargo or any outer limit of number of years that can be served by a Member of the Tribunal. Therefore, a Member of the Tribunal who has served for ten years as a Member is still eligible to apply and participate in the selection process for being appointed as a Member. Though the argument advanced looks attractive, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as Member to participate in the selection process for being appointed as a Member of the Tribunal for another term of five years. This, in our opinion, is impermissible since the total term that a person can hold the office of the Member of the Tribunal is only for a period of 10 years. In our view, if the office is created by the Legislature under due authority, it may fix the term and alter it. We can understand the heart burn of a person who has served as Member of the Tribunal for ten years and thereafter, is ineligible for being appointed as a Member of the Tribunal. We cannot help this situation. In a court of law or equity, what the legislature intended to be done or not to be done can only be legitimately ascertained from what it has chosen to enact either in express words or by reasonable and necessary implication. It is apt to remember the words of Lord Salmon in IRC Vs. Ross Minister Ltd. (1979) 52 TC 160 (HL). It is stated, "however, much the courts may deprecate an Act, they must apply it. It is not possible by torturing its language or by any other means to construe it so as to give it a meaning which Parliament clearly intend it to bear." We may also add that where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which contract was registered under Project Import Regulation and now on being caught is justifying the action as purposive interpretation of law. 12.13 Learned advocate has quoted Hon'ble Madras High Court judgment in the case of Tamil Nadu Small Industrial Corporation Ltd vs. CCE, Chennai (supra). In the said case the appellant was having number of manufacturing units. Issue was whether each factory can get benefit of SSI exemption under Notification 175/86 or not. An explanation was added in the said Notification, clarifying that where the specified goods are manufactured in a factory, belonging to or maintained by the Central Government, or by a State Government, or by the Khadi and Village Industries Commission, then the value of excisable goods cleared from such factory alone shall be taken into account. Question was whether explanation will have a retrospective effect. It is in this context that the Hon'ble Madras High Court had held that the purposive interpretation of notification is required to be adopted. From the plain reading of the said explanation, it is clear that intention is to encourage the Central Government or State Government or KVIC to setup units. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (201) ELT 321 (S.C.). Here again the delay was in production of essentiality certificate. As mentioned earlier, case relating to delay and that of not using the goods imported under Project Import for the Project, are two different things and are not comparable. Another judgment quoted by the learned Advocate is Zuari Industries Ltd. Vs. Commissioner of Central Excise & Customs reported in 2007 (210) ELT 648 (S.C.). In this case, during expansion of a fertilizer plant, a power plant was also being set up. The question was whether the power plant can be considered as part of fertilizer plant or is an independent plant. It is in this context the Hon'ble Supreme Court has taken a view that power plant can become part of entire Project, and it can also be independent power plant. I do not find anything similar in the present case. Another judgment quoted is BSES Kerala Power Ltd. Vs. Commissioner of Customs, Cochin reported in 2006 (196) ELT 246 (Tri.-Bang). In this case certain goods were imported under Project Import. After installation, few items imported were found to be defective. Importer imported new items to replace the defective part from other supplier. Since the new par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the communication from the Customs House, department was mislead to believe that the material is being imported for the manufacture of capital goods. Further these capital goods shall be installed only for the Project for which such imported goods were cleared under Project Import Regulations, 1986. Further, from the declaration made by the appellant, it is clear that they knew that they shall be liable for any legal action in case of diversion of the goods imported under concessional duty or misuse of the imported material. In the present case it is an admitted position that imported electrical sheets were not used in the manufacture of transformers which were sent for the particular Project for which these were imported. The electrical steel sheets were diverted for the manufacture of other goods which were supplied to various customers, perhaps for some other Projects also. Under these circumstances, the action of the appellant is contrary to the declaration given to the authorities and it cannot be said that the appellant was not aware of the said provisions. Therefore, there can be no doubt that the imported goods are liable to confiscation, and the appellant is liable to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar goods are covered under Section 4A or not viz. M.R.P. based assessment. The Tribunal has taken a view that the issue involving interpretation of law and rules, no evidence of intention to evade duty by suppression of facts, misdeclaration, fraud etc. hence extended period was not invocable nor penalty is imposable. 13.4 Facts of the present case are totally different. Appellants have cleared goods/obtained Recommendatory letter based upon false declaration, knowing the implications. There is no interpretation of law involved. This is clear from the declaration given by them. 14. In view of the above, I agree with view of Hon'ble Member (Technical) that the appellant is not eligible for the benefit of Project Import Concession under CTH 9801 and consequently the imported goods are liable to confiscation with option to redeem the same on payment of fine and the appellant is liable to penalty. (Pronounced in Court on 4.10.2013) ORDER NO.A/2148/13/CSTB/C-I MAJORITY ORDER 15. In view of the majority decision, the appeal is dismissed. However, the fine is reduced from Rs. 1.25 crore to Rs. 1 crore and penalty is reduced from Rs. 50 lakhs to Rs. 10 lakhs. Date: 10.10.2013 A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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