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TMI Blog2025 (2) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... g which goes into the manufacture of these items would be eligible to exemption under the said entry of this notification. It is settled position in law that the exemption notification need to be construed strictly as per the words and phrase used in the notification. From the phrase used we are of the view that this phrase would cover all the items that are consumed directly or indirectly for the manufacture of these items. Similar expressions were used while defining the "Capital Goods" as per Rule 57 Q of the Central Excise Rules, 1994 and Hon'ble Supreme Court has in the case of COMMISSIONER OF C. EX., COIMBATORE VERSUS JAWAHAR MILLS LTD. [2001 (7) TMI 118 - SUPREME COURT] interpreted the said phrase to be very wide to cover all things used in the factory of production to be covered by the said definition. It was held by Supreme Court that 'The aforesaid definition of 'Capital goods' is very wide. Capital goods can be machines, machinery, plant, equipment, apparatus, tools or appliances. Any of these goods if used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final product would be 'Capital goods', and, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2016 8,05,65,853 B-37 Sector 80 Phase II NOIDA By the impugned order the demand has been confirmed so respondent (party) filed the appeal. 2.1 Respondents, are 100% export oriented unit (100% EOU) engaged in the manufacture of battery chargers and parts/ components of mobile phone falling under tariff items 8504 40 30 and 8517 70 90 respectively of the First Schedule to the Central Excise Tariff Act, 1985. 2.2 Acting on intelligence received in Directorate General of Central Excise Intelligence to effect that. respondents were not paying Customs duty and Central Excise duty foregone on the raw materials/ inputs (imported as well as procured indigenously), utilized in the manufacture their finished goods, i.e., battery chargers and parts/components of mobile phone, cleared in the domestic tariff area (DTA) at nil rate of Central Excise duty w.e.f. 16.03.2015 in contravention of Notification No. 52/2003-Cus dated 31.03.2003 (as amended) and Notification No. 22/2003-CE dated 31.03.2003 (as amended), investigations were undertaken. 2.3 In view of the above provisions contained in the said Notification, a 100% EOU was required to pay an amount equivalent to the Customs duty an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty foregone under Notification No. 52/2003-Cus dated 31.03.2003, on the imported raw materials/ inputs comes to Rs. 35,46,53,813/-. Thus resulting in nonpayment of total Customs duty and CVD, during disputed period of Rs 36,39,72,762/-. 2.7 A show cause notice dated 04.04.2016 was issued to respondent 1 asking him to show cause as to why (i) Customs duty & Central Excise duty (inclusive of Education Cess and Secondary & Higher Education Cess) amounting to Rs. 36,39,72,762/- (Rs. Thirty Six Crore Thirty Nine Lakh Seventy Two Thousand Seven Hundred and Sixty Two only), as detailed in paras 6 and 7 above, should not be demanded and recovered from them under Section 28(4) of the Customs Act, 1962 and Section 11A(4) of the Central Excise Act, 1944; (ii) Interest at the appropriate rate payable on the said amount of Customs duty and Central Excise duty not paid by them, should not be demanded and recovered from them under Section 28AA of the Customs Act, 1962 and Section 11AA of Central Excise Act, 1944; and (iii) Penalty in terms of Section 114A of the Customs Act, 1962 and Section 11AC(1) (c) of the Central Excise Act, 1944 should not be imposed on them for their acts and omiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw materials, parts, sub-parts, consumable components and accessories separately. Each entry also specifies the intention of the notification to provide extent of exemption in each case to parts/sub parts/components/ accessories/ raw material / consumable separately in different contexts. Entry no. 407A or 431 have no mention of raw material or consumable, thus it is evident that raw material and consumable have been kept out of the ambit of exemption under these entries of notification no. 12/2012-Cus dated 17.03.2012 * The items procured by respondent Polycarbonate Resin, T A Wire, DC Cable, Solder Wire, 'Tape, Cable Tie etc, cannot be termed as parts/sub-parts of Cellular Phones or Battery Chargers, rather these are general raw materials in nature. The party's contention that they had imported parts and sub-parts of mobile phone is not tenable. * During the investigation, the respondents were asked to quantify the Customs and Central Excise duty foregone on input/raw materials used in the manufacture of goods cleared into DTA at NIL rate of duty. The party stated that duty foregone has been arrived at on proportionate basis as it was not possible for them to establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EOU/450/2006 dated 09- 02- 2007 of the Directorate General of Export Promotion arc not applicable, to the facts of this case as the respondent has never been denied duty free import of parts/s sub part and component duty free procurement of the or same indigenously or duty free clearances under notification 12/2012-Cus dated 17-03-2012 and 12/2012-CE dated 17-03-2012 * It is incorrect to say that impugned notice had proposed to deny the level playing field between the units under DTA and EOUs. On the contrary, the facts that DTA units are at a disadvantage in comparison to Repondents. The Adjudicating Authority has failed to appreciate that the impugned notice was issued just to effectuate the statutory amendments specifically incorporated to remove the anomaly of level playing field between EOUs and DTA. This position has been clarified vide para 8 of the CBEC Circular No 54/2004-Cus dated 13-10-2004 reproduced as under: * SCN only requires the compliance of the provisions of the notifications which are available to EOUs and availed by Respondents. In the SCN, no allegation has been made for non-fulfilment of NPE * The SCN does not challenge the clarification given by the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /component of the finished goods, as any inputs such as raw material, consumable, parts, sub-parts, components will be constituent of the finished products. But the question whether the material procured falls under the expression raw material' or parts/components' remain unanswered. 1.30 The averments made by the adjudicating authority are denied, as - * As it is argued that if the material procured by respondents do not fall under the above-said notification, justification of dropping the demand docs not sustain * The demand of duty is justified as the materials have been procured under Notification No. 52/2003-Cus and 22/2003-CE both dated 31-03-2003 and as per provisions of these notifications the amount equal to the duty foregone is to be paid, when the finished goods were cleared at nil rate of duty to a DTA unit. 2.12 Respondents have filed cross objections in the matter. 2.13 Similarly the amount of Central Excise duty foregone by party (Respondent No 1), under Notification No. 22/2003- CE dated 31.03. 2003, on the indigenous procurements comes to Rs. 6,87,696/- and the amount of Customs duty foregone under Notification No. 52/2003-Cus dated 31.03.2003, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to be paid by such person shall be twenty-five per cent. of the penalty so determined subject to the condition that such reduced penalty is also paid within the period so specified." 2.15 Aggrieved party (Respondent No 1) has filed this appeal. 3.1 We have heard Shri Santosh Kumar, Authorized Representative for the revenue and Shri Pramod Kumar Rai, Advocate for the respondents-assessee. 3.2 Authorized representative reiterated the grounds of appeal. 3.3 Counsel for the respondents support the impugned order and submits: * The case of department as per the show cause notice is perverse. * DGEP Circular dated 09.02.2007 to take care of this perversity leading to uneven playing field * The interpretation adopted by revenue leads to absurd results and is contrary to principles laid down in following decisions. * South eastern Coalfields Ltd. [2006 (200) ELT 357 (SC)] * Arcelor Mittal Nippon Steel India Ltd. [2022 (379) 418 (SC)] * Benefit of exemption notification No 12/2012-CE and 12/2012-Cus would be admissible to be the party as has been held by ADG while dropping the demand, placing reliance on the following decisions: * Star Paper Mills [1989 (43) ELT 178 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , components and accessories were denied to an EOU, that would put an EOU at a disadvantageous position vis-a-vis DTA manufacturer. Hence, it was clarified that exemption of customs and central excise duties on parts, components and accessories of mobile handsets including cellular phones under Notification No. 21/2005-Cus dated 01.03.2005, 39/2005-Cus dated 02.05.2005 and 06/2006-CE dated 01.03.2006 shall be applicable for EOUs, if the substantive conditions of rules required to be followed under these notifications were fulfilled by an EOU to the satisfaction of the jurisdictional Asstt./ Dy. Commissioner 3.2.3 The AA found that the effective notifications granting the exemption from Customs duty/ Central Excise duty on parts, components and accessories of mobile handsets including cellular phones are 12/2012-Cus dated 17.03,2012 and 12/2012-CE dated 17.03.2012 3.2.4 The Board clarification dated 09.02.2007 also laid down that he benefit of general Notification had to be extended to the EOU post facto despite the fact that they haven't followed the procedure laid down under Notification No. 12/2012-Cus. and Notification No, 12/2012-C.E. The AA observed that Department cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Board circular had clarified that benefit of Notification No. 21 /2005-Cus. dated 02.05.2005, Notification No. 39/2005-Cus. dated 02,05,2005 and Notification No. 6/2006-C.E. [presently effective Notification No. 12/2012-Cus, dated 17,03.2012 and Notification No. 12/2012-C.E dated 17.03.2012] meant for DTA units shall also be extended to the EOUs. Thus, the AA decided this issue in the favor of the Noticee. 3.5 Accordingly, the entire demand present in the impugned SCN was dropped." 4.3 Basic issue involved in the matter is whether the benefit of Notification No 12/2012-Cus (S No 431) and 12/2012-CE (S No 272) can be extended to the respondent. Adjudicating authority has dropped the demand by extending the benefit of the same. Revenue is aggrieved. 4.4 The said entries of the notifications are for sake of convenience a reproduced below: Sl No Chapter or Heading or sub-heading or tariff item Description of goods Standard rate Additional duty rate Condition No 431. Any Chapter The following goods, namely:- (i) parts, components and accessories for the manufacture of mobile handsets; (ii) sub-parts for the manufacture of items mentioned at (i) above; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is used to take care of health issues of the workers and used as per Factory Act Appeal No E/70467/2017 1 Polycarbonate Resin It is in the form of granules which is melted through injection moulding to form the body of battery charger. 2 Seiko Ink Used for printing the Samsung Logo on the back of battery cover. 3 Paint The paint, primer and thinner is used in required proportions in the process of coating on the front cover, rear cover and battery cover as per the specifications of Samsung. 4 Weld Cover Primer 5 Metal Source/ Tungsten Filament It is used to facilitate the drying of paint after coating process. It is essential component of drying machine of chapter 85. 6 Tape It is the tape used on the inside of the rear battery cover for absorbing heat generated from mobile phones while on continuous use and also to make it functionally good 7 Graphite Thermal Sheet/ Label/ Vinyl Battery Cover 8 Hot Runner Valve Pin It is essential component of mould and is used for housing melted resin into mould to form battery coves and front/ rear cover. 9 Plate Tool It is used for checking the flatness of battery cover, front cover and rear c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for bringing about any change in any substance for the manufacture of final products; (b) components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, apparatus, tools or appliances used for aforesaid purpose; and (c) moulds and dies, generating sets and weigh-bridges used in the factory of the manufacturer. (1) …... (2) …….." 3. The Tribunal by the impugned judgment and order dated 13th April, 1999, considered various items which were involved in different appeals and by a common judgment and order decided the controversy in favour of the manufacturers rejecting the stand of the revenue that those are not 'Capital goods' within the meaning of Explanation (1)(a) defining 'Capital goods'. Some of the items considered by the Tribunal are : power cables and capacitors in case of Jawahar Mills Ltd.; control panels, cables distribution boards, switches and starters and air compressors in the case of Indian Refrigeration Co. Ltd.; electric wires and cables in the case of Kothari Sugar and Vijay Chemicals. The Tribunal on consideration of the aforesaid provision and various decisions including some of this Court one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication, it was held that there was no good reason why the exemption should be limited to the raw naphtha used for producing urea that is utilized directly in the urea plant since the notification only required that the ammonia should be used in the manufacture of fertilizers and not that it should be used directly in the manufacture of fertilizers. The Court said that : "The exemption notification must be so construed as to give due weight to the liberal language it uses. The ammonia used in the water treatment, steam generation and inert gas generation plants, which are a necessary part of the process of manufacturing urea, must, therefore, be held to be used in the manufacture of ammonia and the raw naphtha used for the manufacture thereof is entitled to the duty exemption." 6. The contention of learned Additional Solicitor General that the aforesaid decision and other decisions referred by the Tribunal in the impugned order were cases involving sales tax and income tax and, therefore, the Tribunal should not have relied on those decisions is without any substance because the real question is that of the principle laid down by a decision. In view of the liberal language of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creation of the goods. 4.7 The way in which the revenue has sought to interpret the expression used in the notification can be only by way of replacing the word "for" used in the notification by the word "of". We refer to explanation in this regard available on web-page "https://english.stackexchange.com/questions/ 528337/definition-of-vs- definition-for#:~:text=According%20to% 20Seth %20Lindstromberg%20in,purpose%20of%20defining%20this%20word)" assessed on 22.01.2025. "According to Seth Lindstromberg in English Prepositions Explained, while "of" expresses referential possession (the word has a definition) or a verb-object relationship (the word is defined), "for" expresses purpose (I want a definition for the purpose of defining this word)." 4.8 In view of the above we find that the controversy sought to be raised in the present case as to whether these goods qualify as "component" part or accessory, etc., is totally irrelevant for determining the issue of admissibility of these notifications. The benefit of these notifications will be available in respect of all goods used for manufacture/ production of mobile parts and battery chargers. 4.9 Further we f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90 was issued in the same terms. This notification also exempted another item 'soft ferrite' under Chapter Heading 69.09 from duty in excess of 55% ad valorem. The exemption in regard to auxiliary duty of customs was provided in Notification 112/87. Item 28 of the Table took in "Refractory Bricks of special shape or quality for use as component parts of industrial furnaces" of Chapter 69 of the Customs Tariff Act, 1975. 12. "Part" is defined in Black's Law Dictionary Sixth Edition at page 1117 as under :- "An integral portion, something essential belonging to a larger whole; that which together with another or others makes up a whole ........ a portion, share or purpart". In Chambers 20th Century Dictionary the meaning given for "component" is as under :- "one of the parts or elements of which anything is made up, or into which it may be resolved". In Oxford Dictionary the meaning of "component" is :- "Contributing the composition of whole" In Webster's Dictionary the meaning given is "A part; a constituent, an ingredient." In our view, the common parlance meaning of the expression "component" is also the same, that is, one of the parts or elements of which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Uttar Pradesh - 1970 (26) STC 108 (All. HC) a similar question arose under the provisions of the U.P. Sales Tax Act and a notification issued thereunder. It was held that body of a motor vehicle is not a spare part, though it is a component since a spare part means a part kept in readiness for use in emergency and no owner of vehicle will keep body of a vehicle in readiness for use in emergency. It was held that every component part need not be a spare part while every spare part will necessarily be a component part. 14. In Paul Lazar v. State of Kerala - 1977(40) STC 437 (Kerala HC) it was held that copper wire used in manufacture of transformers is not a component part thereof. It was indicated that component part has to be an identifiable object and copper wire used in the manufacture of transformer is not an identifiable object. 15. In Ghaziabad Engg. Co. (P) Ltd. v. Commr. of Sales Tax - 1991 (80) STC 243 (Delhi HC) under the provisions of the Bengal Finance (Sales Tax) Act, the court considered entry 1 of first schedule of Bengal Finance (Sales Tax) Act, namely, motor vehicles, including motor vehicles tyres and tubes and spare parts of motor vehicles and hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "constituting or forming; essential; elemental; component; electing; constitution-making - n. an essential or elemental part; one of those who elect a representative, esp. in parliament; an inhabitant of one's constituency." Thus, "constituent" only means an essential part or component. Use of the words "component parts" or "constituent parts" is an example of tautology. "Constituent" and "component" essentially mean the same thing, that is, an essential part of which anything is made of or into which it may be resolved. When parts are put together to create an end product, they are regarded as component parts. When an assembled product is dismantled, it gives rise to component parts. Whatever be the stage, that is, before assembling, after assembling and after dismantling, such essential are [integral] part is a component, when a component part is damaged or is worn out and therefore requires replacement and is replaced, the replacing part does not cease to be a component part because it was not present in the initial assembly and had been put in the place of a damaged or worn out component part. The much wider meaning given to the expression "component" in Khodey Distilleries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 117/70 Spare parts required for the purpose of manufacture 74/85 Components are imported for the purpose of providing warranty coverage or after sales service by the manufacturer to his customers 77/85 -Do- 503/86 -Do- 155/86 Parts required for the purpose of initial setting up or assembly or manufacture 158/86 Components required for the manufacture of goods 66/88 Component parts of goods covered by Notification No. 65/88 imported into India for the manufacture of the said goods 269/88 Components required for the manufacture of forklift trucks 97/89 Parts required for the manufacture of specified goods when imported into India by a manufacturer of such goods 106/92 Components and parts when imported into India for repair of dredges. In the above Notifications, wherever it was intended to restrict the amplitude and significance of the word "component", specific and appropriate language was used to bring out the intention. The Notifications contain illustration of intention to restrict the meaning of components as those to be used in assembly or manufacture or as spare. It is obvious that the word "component" includes "spare" and has very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord "component" cannot be understood in such a restricted manner. "Component" indicates that it must be an integral part. "Spare" is a component used for replacement. In other words, the word "component" indicates the nature of the article and not the user of the article while the word "spare" indicates the use to which the article is put and not the nature of the article. The nature of the spare is that it is a component and its use is as replacement. "Component" means an essential or integral part of the whole. Its user is in different contexts, in the initial manufacture or as spare. As already indicated, "component" is the genus and spare is a species. The word "component" without any qualifying or restrictive words must be allowed free play and must comprehend components used for initial manufacture or for replacement. 20. Reference is made to the treatment given to these words in Import-Export Policies of different years. The following definitions occur in 1992-97 Policy :- "Component means one of the parts of a sub-assembly or assembly of which a manufactured product is made up and into which it may be resolved. A component includes an accessory or attachment." "S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ....an assessee claiming relief under an exemption provision in a taxing statute has to show that he comes within the language of the exemption. But, in trying to understand the language used by an exemption notification, one should keep in mind two important aspects : (a) the object and purposes of the exemption and (b) the nature of the actual process involved in the manufacture of the commodity in relation to which exemption is granted....... so far as (a) is concerned, the object of the notification - even as the Tribunal finds - is to grant a concession to a manufacturer of soap who manufactures soap from rice bran oil to a substantial extent and thus discourage the use of edible oils in the manufacture. If these two aspects are considered together, it is clear that the emphasis in the notification is not that rice bran oil should be used as raw material in the very factory which produced the soap. The requirement is that the soap manufacture should, to a prescribed extent, be from rice bran oil as contrasted with other types of oil. The contrast is not between the use of rice bran oil as opposed to rice bran fatty acid or hydrogenated rice bran oil, the contrast is between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the Notifications to indicate any intention to maintain the level of duty only in regard to Refractory Bricks used in initial assembly or manufacture of Furnaces and not to maintain the level of effective rate of duty in respect of Refractory Bricks used as spares. The language used in the Notification is clear, unambiguous and of wide import. Considering the process involved and the broad object, import and language of the Notifications, the absence of any words of restriction or qualification, any restrictive interpretation will lead to frustration of the underlying object and cannot be adopted. On a reasonable interpretation, it is clear that application of the Notification is not restricted to cases of intended use in initial assembly or manufacture of Furnace and covers cases of intended use as spares also. 23. It is contended on behalf of the department that meaning of words used in one statute cannot be used in interpreting the words used in another statute, without reference to the subject matter or the context or the language used in the two statutes. The proposition canvassed is unexceptionable. This proposition is projected to contend that the various dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mport of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. In this regard we find that in the peculiar facts of the present case, initially when the goods were imported, the same were received in the factory of the appellant who was 100% EOU and admittedly used within the 100% EOU. The exemption is claimed only at the time of debonding of 100% EOU. The procedure provided under Customs Rules, 1996 is mainly for the purpose of movement of goods from port of Custom up to the factory and use thereof. In the present case, since the goods were imported by 100% EOU which were cleared under notification 52/2003-Cus., dated 31-3-2003. Even as per this notification, the goods are cleared on the presentation of the exemption certificate issued by the jurisdictional officer and on that basis, the movement of goods from the port up to the factory of the appellant is done under bond. More or less the similar procedure is followed either in notification 52/2003 or under notification 25/1999-Cus. and 25/2002-Cus. Therefore, the movement of goods imported by the appellant from Custom port up to the factory as well as use thereof is completely within the monitoring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ications. 3. Such parts, components and accessories imported procured indigenously by an EOU are used for manufacture of mobile hand sets including cellular phones in their licensed premises under Section 58& 65 of Customs Act, 1962. It follows the provisions of Manufacture & Other Operations in Warehouse Regulations, 1966 and executes a bond B-17 binding itself in respect of endues of the imported/ indigenous goods, to maintain records of receipt, consumption and balance in stock and to pay duty on inputs in case they are not used in connection with production within a period of three years along with interest. Further, EOU follows procedure of procurement certificate/ CT-3 certificate for import/ indigenous procurement, gives information of receipt of the goods which are physically verified and warehoused by the officer-in-charge and re-warehousing certificates are issued. These are mandatory features of the EOU scheme for the uni operating under EOU notification 52/2003-Cus and 22/2003-CE. Thus an EOU following such a procedure substantially satisfies the requirements of the Rules to be followed as stipulated under the notifications 21/2005-Cus dated 01.03.2005, 39/2005-Cus d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dical case (supra) was followed by the Hon'ble Tribunal in the case of Cipla Limited Vs Commissioner of Customs, Chennai, 2007 (218) ELT 547 (Tri.-Chennai), where in it was held that it was a settled law that the benefit of an exemption Notification can be claimed at appellate stage also following the ratio of the judgement of Share Medical case (supra). It is therefore even more clear that in the instant case, the benefit of alternative exemption notification of Notification No.12/2012- C.E. and Notification No.24/2005-Cus cannot be denied to the party, particularly in light of Board clarification dated 01.02.2017, since the said clarification allows benefits of these Notification to EOUs in addition to DTA units. 7. The Revenue's grievance in their memo of appeal is that the fact of availability of Alternate Exemption Notification No.24/2005-Cus and 12/2012-CE is not being disputed but as the appellant had not initially claimed the benefit of the said notifications and the imports were not imported under the claim of exemption in terms of the said notification, the subsequent claim is only a after though and misleading. The same is hypothetical to a state that they cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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