caselaws
Supreme Court of India
M/S Ivrcl. Infrastructure & … vs Commnr. Of Customs, Chennai on 15 April, 2015Author: R Nariman
Bench: A.K. Sikri, Rohinton Fali Nariman
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5282 OF 2004
M/S. IVRCL INFRASTRUCTURE &
PROJECTS LTD. …APPELLANT
VERSUS
COMMISSIONER OF CUSTOMS,
CHENNAI …RESPONDENT
J U D G M E N T
R.F. Nariman, J.
1. The facts necessary to decide this appeal are as follows.
The appellant entered into a Joint Venture Agreement with M/s
Shapoorji Pallonji & Company Limited for the purpose of
construction of roads in the State of Andhra Pradesh. The Joint
Venture was awarded a contract by the National Highways
Authority of India for construction of roads as a part of the
Golden Quadrilateral, Phase-2 Project in Andhra Pradesh.
2. Vide a notification dated 1.3.2001, in exercise of powers
under Section 25(1) of the Customs Act, certain items were
exempted from payment of customs duty and additional duty
leviable under the Customs Tariff Act. We are concerned with
serial No.217 of this notification which reads as follows:
“217. 84 or any other Goods specified in List 11 Nil Nil 38
Chapter required for construction
of roads.”
The conditions by which the exemption is attracted is set out in
item 38 as follows:
“38. If, –
a) the goods are imported by –
i) the Ministry of Surface Transport, or
(ii) a person who has been awarded a contract for the
construction of roads in India by or on behalf of the
Ministry of Surface Transport, by the National
Highway Authority of India, by the Public Works
Department of a State Government or by a road
construction corporation under the control of the
Government of a State or Union Territory; or
(iii) a person who has been named as a sub-contractor
in the contract referred to in (ii) above for the
construction of roads in India by or on behalf of the
Ministry of Surface Transport, by the National
Highway Authority of India, by Public Works
Department of a State Government or by a road
construction corporation under the control of the
Government of a State or Union Territory;
b) the importer, at the time of importation, furnishes an
undertaking to the Deputy Commissioner of Customs or the
Assistant Commissioner of Customs, as the case may be, to
the effect that he shall use the imported goods exclusively
for the construction of roads and that he shall not sell or
otherwise dispose of the said goods, in any manner, for a
period of five years from the date of their importation;
and
c) in case of goods of serial nos. 12 and 13 of List 11, the
importer, at the time of importation of such goods, also
produces to the Deputy Commissioner of Customs or the
Assistant Commissioner of Customs, as the case may be, a
certificate from an officer not below the rank of a Deputy
Secretary to the Government of India in the Ministry of
Surface Transport (Roads Wing), to the effect that the
imported goods are required for construction of roads in
India.”
List 11 with which we are concerned contains several entries.
We are concerned with Entry No.1 which reads as follows:
“(1) Hot mix plant batch type with electronic controls and
bag type filter arrangements more than 120 T/hour
capacity.”
A purchase order was placed by the appellant on M/s Lintec GmbH
& Co.KG, Germany, for supply of a hot mix plant for a total
value of 906,574 DM. Lintec and the appellant decided to split
the purchase order between Lintec, Germany and M/s Marshalls,
Chennai. Lintec was now to receive a total value of 585,700 DM
and Marshalls was to receive the balance. Lintec was to supply
the “critical items” required for the setting up of the said
plant, whereas Marshalls was to supply various containers,
frames, ducting, tanks and a thraw belt conveyer apart from
agreeing to set up the plant after it is imported. Vide a Bill
of Entry dated 28.12.2001, the import of equipment from M/s
Lintec was made by the appellants, who claimed that the said
items fell within the scope of the exemption notification dated
1.3.2001 and, therefore, were exempt from payment of customs
duty on the same. The Customs Authorities, however, maintained
that what was imported was not a hot mix plant but only certain
parts of such plant and, therefore, the exemption notification
would not apply. Various representations were then made to the
Chief Commissioner of Customs to allow the goods into India
without payment of customs duty. On 22.2.2002 the goods were
assessed provisionally and then allowed to be cleared. By an
order of the same date, the Commissioner of Customs held that
the exemption notification did not apply for two reasons. As
per condition 38 of the said notification, imports have to be
made by a Joint Venture Company and not by one of the partners
of the said company. Secondly, the exemption applies to a
complete plant that is imported and not to parts/components of
such a plant. The Commissioner, therefore, held:-
“14.2 Coming to the issue whether the goods imported are
the complete plant or not, I find that M/s. IVRCL, placed
an order for the supply of the whole plant on M/s. Marshall
– Lintec, Chennai, (a Joint Venture collaboration between
M/s. Marshall & M/s. Lintec, Germany). M/s. Marshall –
Lintec, Chennai, entered into an agreement with M/s. IVRCL,
for the supply, erection and commissioning of the plant.
Therefore, the order placed on M/s. Marshall – Lintec,
Chennai, was terminated since the Joint Venture Company was
not finally formed and separate orders were placed on M/s.
Lintec, Germany, and M/s. Marshall. M/s. Lintec, Germany
was to supply certain components and one part of the plant
in a fully assembled container and M/s. Marshall were to
manufacture the indigenous components and assemble the
imported components and the indigenous components in the
indigenously manufactured containers. Further, the scope
of supply included testing, erection and commissioning of
the plant by M/s. Marshall. The cost of the plant is
divided in the ratio approximately 60:40 between the
partners M/s. Lintec, Germany and M/s. Marshall.
14.3 Further the agreement includes the cost of
transportation of the imported components to the factory of
M/s. Marshall. As per their Technical Transfer Contract,
M/s. Lintec supplied the drum assembly and the components
for the manufacture of the plant by M/s. Marshall. No
separate agreement had been entered either by the principal
or the local representatives with the importer M/s. IVRCL.
I find that the principal and the local representative of
the supplier as per their discussion and communications
with the importer, had arranged to raise the import
documents by describing the goods as a complete plant
though the goods supplied are only the drum assembly and
components. The examination of the imported goods
confirmed that out of 11 segments of the whole plant to be
supplied in a fully assembled condition to the importers,
only one assembled segment viz. drum container covering the
screening and drying drum had been supplied apart from the
components in another commercial container.
14.4 I also find that Shri S. Ramachandran, Sr. Vice
President of the importing firm has clearly admitted, in
his voluntary statement dated 03.01.2002 that the goods
imported were not a complete plant and once assembled with
the indigenous components would form a complete plant.
Though he claimed that he had given the statement dated
03.01.2002 under duress, in his subsequent statement given
on 21.02.2002, he again admitted that imported goods were
only components and they have not attained essential
characteristics of a plant.
14.5 Further I find that Shri M.V. Narasimha Rao, Project
Director of NHAI, with reference to the exemption
certificate issued by them, after careful scrutiny of the
related import documents and also the examination
proceedings dated 24.01.2002, has clarified that the goods
under import were not the complete plant and that the
imported components did not have the essential
characteristics of the plant.
14.6 Under Notification No.17/2001, that the benefit of
duty exemption is available only for the import of the
plant in full either in CKD or SKD condition. The subject
import can be considered only as a part of the plant.
Therefore, the goods under import are not eligible for the
duty exemption as provided under the Notification
No.17/2001.”
3. An appeal was carried by the appellant to CESTAT which set
aside the Commissioner’s reasoning on condition 38 of the
notification. It held that there was in fact no Joint Venture
Company formed and the Joint Venture between the appellant and
M/s Shapoorji Pallonji & Company Limited was in the nature of a
partnership, in which case any of the partners could import
goods covered by the exemption notification. However, it agreed
with the Commissioner that what had in fact been imported was
not a complete plant and, therefore, it would follow that the
exemption notification would not be available on this score.
CESTAT held:-
“10. The next issue is whether the goods imported and
cleared under the Bill of Entry filed by IVRCL were
eligible for the benefit of exemption in terms of Sr.
No.217 of the Table (read with Item No.(1) in List-11)
annexed to the Notification. It is settled law that an
exempting provision under a taxing statute requires to be
construed strictly vide Novopan India (supra) wherein the
apex Court held that a person invoking an exempting
provision to relieve him of tax liability must establish
clearly that he is covered by the said provision and that,
only in the case of doubt or ambiguity, the benefit thereof
must go the State. If the goods in question satisfy the
description given at Item No.(1) in List-11, it will be
eligible for the exemption. The description reads : “Hot
mix plant batch type with electronic controls and bag type
filter arrangement 160 tons per hour capacity.” The Revenue
has argued that a complete hot mix plant was not imported
and that only some components thereof were imported. The
appellants have contended that, barring some steel
structures, all the essential components of hot mix plant
were imported in terms of purchase order placed on the
German supplier. We have come across two purchase orders
in the file, marked as Annexures-4 and 6 of the memorandum
of appeal, both identically numbered and identically dated
(No.11 dated 21.7.2001). The Annexure-4/purchase order
shows an amount of DM 906,574 while Annexure-6/purchase
order shows an amount of DM 550,000 as the total price of
what is described as “hot mix plant (batch type) CSD 2500,
CAP 160 tons per hour as per specifications enclosed”. It
has been claimed by the appellants that the amount shown in
Annexure-6/purchase order is the final price as settled
through negotiations with the German Supplier. We have
already noted that both the purchase orders are identically
numbered and identically dated. Any negotiation between
IVRCL and the Germany supplier should have taken place on
21.7.2001 itself. No evidence of any such negotiation is
available on record. We have also come across the work
order issued by IVRCL to M/s Marshall Sons & Co. (Mfg.)
Ltd., Chennai. This work order gives the following
description of work: “assembling of equipment supplied by
Lintec vide P.O. No. SRP/CAP/11/2K1-02 dated 21.7.2001 and
also supply and erection of own structures as mentioned in
Annexure”. The total cost of work shown in the work order
is DM 356,574. We note that the amount shown in Annexure-
4/purchase order is the arithmetical sum of the amounts
shown in Annexure-6/purchase order and Annexure-7/work
order and, further, that the description of work allotted
to Marshall includes supply and erection of structures,
apart from assembling of the equipments supplied by Lintec.
It is clear from these facts that some of the components
viz. structures for the hot mix plant were supplied by
Marshall, that the amount paid to them towards cost of such
components and cost of assembling of Hot Mix Plant was DM
356,574, that the amount paid by IVRCL to Lintec for the
components supplied by the latter was DM 550,000 and that
the total cost of the hot mix plant as erected at the
project site was DM 906,574. Lintec’s letter to IVRCL vide
Annexure-5 itself had called upon the appellants to place
the necessary order with Marshall for their share of the
deal of setting up hot mix plant. Only 9 containers were
listed in the first annexure to that letter, which
represented the “Lintec scope of supply”. The second
annexure to the letter, representing the “Marshall scope of
supply”, mentioned 2 containerised items besides structural
parts. The documentary evidence is squarely in support of
the Commissioner’s finding that only some components of hot
mix plant were imported from Germany by the appellant-
company.
11. Coming to the oral evidence under Section 108 of the
Customs Act, we note that it was stated by Sh. P.S. Banik
of Marshall that they were the Indian agents of Lintec for
sale of hot mix plants in India and that, as per orders
received from IVRCL, they had provided bitumen tanks and
storage silo (containers with internal fabrication) and
other structural fabrications for the hot mix plant in
question. He also stated that the plant consisted of 11
containerised sections, of which a few were provided by
Marshall. Sh. J. Bhattacharjee of Marshall stated that the
components manufactured indigenously were essential for the
function of the plant. Sh. S. Ramachandran of IVRCL
himself admitted that the plant was not complete without
addition of the indigenous items. Shri M.V.N. Rao of NHAI
stated, after examining the import documents, that the
complete plant had not arrived and that the imported
components did not have the essential characteristics of
hot mix plant. All these statements – none of them
retracted or controverted – coupled with the documentary
evidence would prove beyond doubt that the goods imported
by IVRCL did not represent anything with essential
character of a hot mix plant, let alone a complete plant,
to satisfy the description at Item No. (1) of List-11 under
the Notification. Therefore, we are unable to accept the
counsel’s argument that the imported goods should be
treated as ‘hot mix plant unassembled.’ What was exempted
from import duty in terms of Sr. No.217 read with Item
No.(1) of list 11 under the Notification was a complete hot
mix plant fully described at the said Item No. (1) and not
some components thereof. There can be no doubt or
ambiguity with regard to the description of goods at the
said Item No. (1).”
4. Shri Lakshmikumaran, learned counsel who appeared on
behalf of the appellant has argued that Rule 2(a) of the general
rules for the interpretation of the schedule to the Customs
Tariff Act would make it clear that so long as essentially the
plant in question had been imported, merely because all items
that go into the making of such plant were not imported would
not matter. Further, it is clear that such imports can also be
made in unassembled form. His further argument was that the
plant as a whole had been imported and only structural work had
to be done by Marshalls in India and, therefore, the benefit of
the exemption notification would be available. Ms. Pinky Anand,
learned Additional Solicitor General countered these submissions
and argued that there are concurrent findings of fact by both
the Commissioner and the CESTAT that what was in fact imported
was not the complete plant and since that was so, the benefit of
the exemption notification would not be available. She further
pointed out that there were various admissions made by the
appellant as well as by persons who deposed on their behalf
which would show that in any case even the essential portions of
the plant had not been imported.
We have heard learned counsel for the parties. We find
that the first argument made by Shri Lakshmikumaran can be
disposed of immediately. The subject matter before us is an
exemption notification issued under Section 25 of the Customs
Act, 1962. The interpretative notes that have been referred to
by Shri Lakshmikumaran are in the Customs Tariff Act. Note 2(a)
referred to by Shri Lakshmikumaran reads as follows:
“2. (a) Any reference in a heading to an article shall
be taken to include a reference to that article incomplete
or unfinished, provided that, as presented, the incomplete
or unfinished article has the essential character of the
complete or finished article. It shall also be taken to
include a reference to that article complete or finished
(or falling to be classified as complete or finished by
virtue of this rule), presented unassembled or dis-
assembled.”
It is clear that such note will have no application to an
exemption notification which is issued under Section 25 of the
Customs Act. Therefore, the fact that an unassembled plant
which is incomplete but which has the essential character of a
complete plant is not the test to be applied in the present
case. On the other hand, the applicable test would be what has
been laid down in a catena of decisions. Two such decisions will
suffice. In Commissioner of Customs (Imports), Mumbai v. Tullow
India Operations Ltd., (2005) 13 SCC 789, this Court held:
“34. The principles as regards construction of an exemption
notification are no longer res integra; whereas the
eligibility clause in relation to an exemption notification
is given strict meaning wherefor the notification has to be
interpreted in terms of its language, once an assessee
satisfies the eligibility clause, the exemption clause
therein may be construed liberally. An eligibility
criteria, therefore, deserves a strict construction,
although construction of a condition thereof may be given a
liberal meaning.”
Similarly in G.P. Ceramics Private Limited v. Commissioner,
Trade Tax, Uttar Pradesh, (2009) 2 SCC 90, this Court held:-
“29. It is now a well-established principle of law that
whereas eligibility criteria laid down in an exemption
notification are required to be construed strictly, once it
is found that the applicant satisfies the same, the
exemption notification should be construed liberally.
[See CTT v. DSM Group of Industries [(2005) 1 SCC 657] (SCC
para 26); Tisco v. State of Jharkhand [(2005) 4 SCC 272]
(SCC paras 42 to 45); State Level Committee v.
Morgardshammar India Ltd. [(1996) 1 SCC 108]; Novopan India
Ltd. v.CCE & Customs [1994 Supp (3) SCC 606] ; A.P. Steel
Re-Rolling Mill Ltd. v. State of Kerala [(2007) 2 SCC 725]
and Reiz Electrocontrols (P) Ltd. v. CCE [(2006) 6 SCC
213].]”
Judged by this test, it is clear that a hot mix plant of the
type mentioned alone is exempt from payment of customs duty.
Obviously, what is meant is that such plant in its entirety must
be imported albeit in an unassembled form. Judged by this test,
it is clear that the concurrent findings of fact of the
Commissioner and the CESTAT requires no interference by this
Court inasmuch as both authorities have held that a complete
plant in an unassembled form has not in fact been imported.
Further, both authorities have relied upon statements made by
none other than the Vice President of the Appellant who after
retracting a statement made on 3.1.2002 has made a subsequent
statement on 21.2.2002 admitting that the imported goods were
only components and had not attained the essential
characteristics of a plant. The subsequent statement has not
been retracted. Further, Shri P.S. Banik an employee of
Marshalls also made a statement that the plant in its entirety
consisted of 11 containerised sections of which a few were
indigenously produced by Marshalls. Shri Bhattacharjee also an
employee of Marshalls added that what was manufactured
indigenously was essential for the functioning of the plant.
Further, Shri M.V.N. Rao, of the National Highways Authority of
India stated that a complete plant had not been imported and
that the components of such plant which were imported did not
have the essential characteristics of a hot mix plant.
5. It is settled law that statements made to an Officer of
Customs are admissible in evidence under Section 108 of the
Customs Act, 1962. This Court has held in Gulam Hussain Shaikh
Chougule v. S. Reynolds, Supdt. of Customs, Marmgoa, (2002) 1
SCC 155, after quoting from several other judgments, that such
statements are admissible in evidence. The Court has merely to
scrutinize whether the admissions made were voluntarily or
otherwise. In the present case, it is clear that unretracted
statements made by none other than the Vice President of the
appellant company, representatives of Marshalls, and a
representative of National Highways Authority of India, having
never been retracted later, were made voluntarily. Reliance on
the said statements, therefore, by the authorities below cannot
be said to be unwarranted in law.
Shri Lakshmikumaran in a written submission has accepted
that statements given under Section 108 are admissible as
evidence. However, he has cited a number of authorities to the
effect that when such statements are in direct conflict with
documentary evidence, the latter should be given greater weight.
Thus, he relied upon a letter dated 18.1.2002 written by
the Vice President of the appellant to the Chief Commissioner of
Customs, Chennai and another letter dated 20.1.2002 by National
Highways Authority of India to the Chief Commissioner of
Customs, Chennai. A perusal of these letters would also show
that what had to be manufactured in India would alone ultimately
go to make up a complete plant. This is clear from a statement
made in the letter dated 18.1.2002 to the following effect:
“The above mentioned items shall be assembled in the
indigenously procured steel structural container to make up
the complete mixture container.”
However, Shri Lakshmikumaran relied upon the following
statements in the said letter:
“We wish to mention at this stage that the steel structures
which include containers, tank and storage silo are low
technology fabrications and do not form essential
components/ parts to the main Hot Mix Plant systems and
import of such items from Foreign Country shall
unnecessarily result in outflow of valuable foreign
exchange for the country.
We wish to reiterate that we have not compromised with
regard to importing the major essential characteristics of
the plant thereby keeping the character of the hot mix
plant unchanged.”
This, however, has to be read with the following statement made
in the same letter.
“We however strongly feel that our company has genuinely
imported the basic character of the hot mix plant as
explained in detail to the concerned officer of the SIIB
and are eligible for availing duty exemption as per
Notification No.17 of March, 2001 as originally filed in
our Bill of Entry.”
It is clear that on a holistic reading of the said letter
what has been imported is “the basic character” of the hot mix
plant and not a complete plant as it is clear that what is
manufactured indigenously would alone ultimately complete the
plant.
Equally the letter dated 20.1.2002 being a letter by the
National Highways Authority of India does not take us much
further. In fact, as has been pointed out above, Shri M.V.N.
Rao of the said authority candidly admitted that a complete
plant had not been imported and that the imported components did
not have the essential characteristics of the hot mix plant in
question. In the present case, both the oral evidence and the
documentary evidence ultimately lead to the same conclusion:
namely, that what was imported was not a hot mix plant that was
complete in itself.
6. It may be pointed out that CESTAT has already given the
appellant considerable relief. The redemption fine of
Rs.5,00,000/- imposed by the Commissioner was reduced to a fine
of Rs.1,00,000/- and a penalty of Rs.1,00,000/- imposed by the
appellant has also been set aside. In the circumstances, the
appeal is dismissed with costs of Rs.1,00,000/-.
…………………..J.
(A.K. Sikri)
…………………..J.
(R.F. Nariman)
New Delhi;
April 15, 2015.
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