Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.1831 OF 2006
Commissioner of Customs, (Prev.) Gujarat … Appellant
Versus
M/s Reliance Petroleum Ltd. … Respondents
J U D G M E N T
S.B. Sinha, J.
1. The validity of an exemption notification bearing No.11/97-Cus
dated 1.3.1997 as amended by notification No.55/97-Cus dated
13.6.1997 granting exemption to various imported goods including EOT
mobile crane required for setting up crude petroleum refinery subject to
fulfilment of certain conditions, is in question in this appeal which arises
out of judgment and order dated 8.7.2005 passed by the Customs, Excise
and Service Tax Appellate Tribunal, West Zonal Bench, Court No.2.
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2. The fact that the crane in question was imported for using the same
in setting up a refinery is not in dispute.
What is in dispute is that whether a crane when placed on a vehicle
which the appellant wrongly stated to be a ‘motor vehicle’ would fulfill
the description of a mobile crane or a ‘material handling equipment’.
Valuation of the said crane was also questioned.
The fact that different parts of the said crane were imported by the
respondent herein as second hand equipment is also not in dispute. It is,
however, accepted that the original manufacturers of the two part of the
said equipment were different. We may, at the outset, notice that the
Notification dated 11.4.1997 was issued by the Central Government, in
exercise of its power conferred upon it under Section (1) of Section 25 of
the Customs Act, 1962, being satisfied that it was necessary in the public
interest so to do, made further amendment in notification No.11/97, CUS.
dated 1.3.1997, the relevant entry whereof is as under :
“(1) (2) (3) (4) (5) (6)
144A 84 or any
other
Chapter
Goods specified
in List 8A
required for
setting up crude
petroleum
refinery
Nil Nil -”
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3. By reason of the amendment, it was, inter alia, provided that in the
annexure, for List 8A the goods specified therein shall be substituted,
relevant portion of which reads as under :
“16. All types of Materials Transporting
Equipments, including loading and unloading
arms and racks; gantries, dispatch tanks,
loading/ transfer pumps, hydraulic systems,
weighbridges, Diesel shunters, feed or
injenction or spray nozzles, skimmers, soot
blowers; with instrumentation and control
systems, including load cells and metering
stations.
XXX XXX XXX
18. All types of Material Handling
Equipments, including belt or pneumatic
conveyors, ducts, hoists, bucket or jib cranes,
(with or without access gangways), pipes and
hoses, funnels, hoppers, disenganging lock
hoppers; catalyst addition pots, valves and
sampler devices; bagging, weighing and bag
stitching systems; weigh bridges; buoy systems
for crude oil receipt; pipeline end manifolds
with valves, tenders, mooring aids, laser
docking systems, product tanker loading
facilities; with associated equipments,
instrumentation and control systems and
auxiliaries.
XXX XXX XXX
44. Special Maintenance Systems, including
hydrojetting tools, pneumatic torque wrenches;
EOT/mobile cranes; hoists, grinders, high
pressure cleaning systems, induction bending
machines; auto welding machines, various
welding equipments like girth-welding, vertical
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flux cord, bottom saw, four side edge
preparation, angle rolls; rolling and leveling
machines, sky climbers, hot tapping machines,
bolt tensioners, high pressure test pumps, tube
bundle pullers, tube nippers, ultrasonic leak
detectors, machine condition monitoring
systems and associated sub-assemblies;
vibration analysers and computerized
alignments systems.”
4. Respondent No.2, for the purpose of setting up a crude petroleum
refinery was required to make erections at 28 different locations. For the
said purpose, it entered into a contract with M/s. Europa BV of Holland
on or about 23.10.1997 with effect from 20.11.1997 for supply of the
crane and the trailer. Pursuant to and in furtherance of the said contract,
a heavy duty platform ringer mobile crane and other equipments were
imported on or about 31.1.1998 wherefor the bill of entry contained the
following declaration in respect of the said goods as:
“(a) Heavy Duty Platform Ringer Mobile
Crane and Grove MZ90 sky Worker
Mobile Crane.
(b) Fork Lift Manitw – HT-3500.”
5. Indisputably, the said item was imported in a dismantled condition
in 146 packages showing the consignment to be falling under Chapter
Sub-Heading 8426.19 and 8427.90 respectively of the Customs Tariff.
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6. Respondent claimed the benefit of concessional rate of duty in
terms of the said notification showing the value of the imported item to
be US $ 34,84,500 (CIF). The said declaration of valuation was made for
custom purposes only.
7. On the premise that the value declared therein was inadequate
and/or ingenuine, the valuation thereof was assessed by Jawahar/Mumbai
Customs House through an expert. It was opined :
“That the 6 Line Trailers (self propelled
modular transport system) supplied along with
Platform Ringer Crane could not be treated as
one unit i.e. Mobile Machine/Mobile Crane as
the Crane was neither mounted on the 6 Line
Trailers nor the Crane and the Trailers were
specially designed for each other forming an
integral mechanical unit and, accordingly,
suggested assessment of Cranes and Trailers
separately.”
8. The value of the said goods was assessed at DFL 60,00,000/-. A
provisional assessment was made in terms of Section 18 of the Act and
the goods were released on respondent’s furnishing a bond for a sum of
Rs.5,84,32,813 along with a Bank Guarantee of Rs.58,43,281/-.
9. An Appraising Officer valued the said equipment at
Rs.11,86,20,000/- as in the year of manufacture. A final assessment was
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made upon enhancing the value and denying the benefit of concessional
exemption claimed under Notification No.55/97-Cus. A total customs
duty of Rs.20,04,58,132/- was assessed by the Superintendent of
Customs.
10. A show cause notice was issued as to why the differential customs
duty of Rs.18,62,92,602/- should not be directed to be paid by the
respondent.
11. An appeal was preferred thereagainst. The Commissioner
(Appeal), in terms of his order dated 5.5.2000 noticed the clauses in the
contract for import of machinery and opined that the imported item was a
self-propelled modular transport system, stating :
“It is seen from the above discussion that the
appellants had imported a mobile crane,
technically known as “Heavy Duty Platform
Ringer Mobile Crane & Grover MZ 90
Skyworker Mobile Crane”. The description
itself suggests that is a mobile crane. The
invoices describe them as mobile crane and also
the Chartered Engineer who has issued a
certificate about the valuation and other
technicalities of the imported goods has
mentioned the goods as mobile crane. The
purpose of importing these goods is that the
appellants were in the process of setting up a
crude petroleum refinery and they required the
work of erection to be done at various points
and to carry the load to different locations, a
crane was required, as the crane which would
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carry such heavy load, could not remain static,
for the purpose of providing mobility to the
crane, 8 SPMTS i.e. self propelled modular
transport system have been provided, this crane
is mounted on the 8 SPMTS. The intention of
the appellants is very clear that they have
imported mobile crane. The said mobile crane
was disassembled by the supplier while
dispatching the same for the sake of
convenience in transport and the same has been
re-assembled at the site. It appears that this has
been misunderstood by the lower authority and
it has been held that these are two separate
items. I find substantial force in the
contentions raised by the appellants in this
regard that these are not two separate items but
a single mechanical unit.”
As regards classification of the said goods, it was held :
“In the present case, the crane and 8 SPMTS
have been imported as an integral unit, as
independently they cannot perform the work for
which they have been imported and for this
purpose the crane has been mounted on the 8
SPMTS to provide mobility and therefore, both
the goods have to be considered as a one single
unit. The heading 87.04 is in respect of “Motor
Vehicle for the transport of goods” and the
disputed goods 8 SPMTS are not motor
vehicles, they have been specifically designed
to make the crane mobile. Therefore, in any
view of matter, the classification of 8 SPMTS
under chapter heading 8704.90 is ruled out.
For the reasons given above, the 8 SPMTS is an
integral part of Platform Ringer Crane and
would merit classification under chapter
heading 84.26.”
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On the aforementioned finding, it was held that the said imported
item attracts the benefit of the exemption, stating :
“Since it is now clear that the imported item is a
mobile crane which has been imported for
setting up of crude petroleum refinery, which is
an undisputed fact, the exemption from duty is
admissible to the present goods under the said
notification. These goods in the alternative,
can also be considered as material handling
equipment. The definition of the term “material
handling equipment” as given in Encyclopedia
Britannica which has also been discussed in the
decision of the Tribunal in the case of Ranadip
Shipping (supra), defines material handling
equipment in different classes, in terms of
product handled, it includes machinery for bulk
products in large continuous volumes,
continuous processing based on industrial parts
movement, discontinuous processing of a wide
variety of goods and order filling of large
varieties of goods. Secondly it classifies in
relation to its mobile characteristic and includes
both stationery and movable facilities. Thirdly,
it identifies the types of equipments itself and
includes wheeled carts, power and lift trucks,
trailer trains, racks and pallets, bins and boxes,
mono rails and conveyors, containers, unit
loads and cranes and hoists. There is no doubt
that the mobile crane is a material handling
equipment as per this definition and is
therefore, also covered under Sr.No.18 of the
notification which covers all types of material
handling equipments and is exempt from the
duties specified thereunder.”
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On the question of valuation, it was held :
“In this regard, I find that the addition of 1% of
the value of the imported goods towards the
transportation charges for bringing the goods
from anchorage to jetty has no sanctity of law.
The appellants have included 1% landing
charges in the assessable value of goods for
import of goods, which is evident from the bill
of entry. Further adding 1% is in contravention
of Rule 9(2)(b) of the Valuation Rules. In this
regard, the appellants have placed reliance on
the judgment of the Hon’ble Supreme Court in
the case of Coromandel Fertilizers Ltd. (supra)
wherein the Apex Court has held that landing
charges when assessed at a percentage,
Customs cannot add any amount thereto on the
ground that expenses for unloading were not
covered in the landing charges, since they cover
the totality of all that an importer expends for
bringing imported goods from ship to land.
Further, I find that for resorting to Rule 5 of the
Customs Valuation Rules, 1988, the value can
be determined on the basis of “similar” or
“identical goods”. These terms are defined
u/s.2(1)(c) and (e) of these aid Rules. As per
the definition of these terms, identical goods or
similar goods mean the imported goods which
are same in all respects, including physical
characteristics, quality and reputation, produced
in the same country and produced by the same
person. It is seen from the literature of both the
items that these two cranes are not similar. The
Platform Ringer Crane moves in a ring and for
the purpose of mobility it has been mounted on
8 SPMTS, whereas, the comparable crane is a
Crawler Crane, as the name suggests it has
crawler mechanism which distinguishes it from
the crane in question, the present crane has 8
SPMTS which are not there in the crawler
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crane, the crawler crane is new, the crawler
crane is certified to move on its crawlers with
75% of its maximum load on the hook which is
its unique feature, the year of manufacture of
two cranes are different, the crawler crane
being branded crane can realize a much higher
commercial value whereas the crane in dispute
is nearly an assembled tailor made crane.”
It was furthermore held :
“It is also pertinent to note that the present
crane is a second hand machinery, which has
been imported for a specific job to be carried
out and it has not been purchased by the
appellants, it has been hired by them with a
condition to re-export the same after the job is
accomplished. As regards the valuation of 8
SPMTS, I find that the year of manufacture of
6 Line Trailer imported at Jawahar Custom
House has not been disclosed, moreover, it was
a 6 Line trailer, whereas, the present one is 8
SPMTS, therefore, there is difference in the
capacity of the two and they are not comparable
goods. The lower authority has been found to
have given deductions on account of
depreciation for arriving at the fair value for all
the disputed items, which he has considered as
separate items, but there is no reason
forthcoming to show the basis adopted by him
for giving such deductions on the original value
of comparable goods. Moreover, I find that
since the present goods are second hand goods,
there is no contemporaneous import of similar
goods or identical goods brought on record by
the lower authority, declared value is the fair
value U/s. 14 of the Customs Act, 1962. There
is no dispute nor any evidence that the
appellants have remitted any extra payments
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clandestinely to the foreign suppliers over
above the invoice value. In absence of such
allegation, there is no justification in resorting
to Rule 5 of the Valuation Rules, without
adequate comparable goods. Accordingly,
there is no legal justification in enhancing the
value of the imported goods. Especially so in
the present case, because the goods imported
are second hand goods and there is a provision
under EXIM policy as could be seen from the
Handbook of Procedures 1997 – 2002, in para
5.4 it has been said that actual user shall, inter
alia, furnish a certificate from any of the
Inspection and Certification Agencies listed in
Appendix 32A, where the CIF value of the
imported goods is Rs.one crore and above,
certifying the residual life of the capital goods
and reasonability of the purchase price. In
accordance with this proviso, the appellants
have obtained and produced a certificate from a
Chartered Enginer, whose name appears at
Sr.No.6 of Appendix 32A, wherein he has
certified the fair market value of the goods,
which is the same as has been declared by the
appellants. Therefore, I find that there is no
legal justification for enhancing the value of the
imports made in the present case.
12. The Commissioner (Appeals) furthermore found that the
assessment having been made behind the back of the respondent, the
same was violative of the principles of natural justice.
13. The Tribunal agreed with the said findings of the Commissioner
noticing several Chapter Headings. It was found that such mounted
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cranes primarily used for hauling pressing or changing the site of
operation at this, shall would be classified under Heading 84.26 or under
Heading 8431 even if presented with the tractor (whether or not mounted
thereon), such tractors, with its operating equipment are to be classified
separately under Heading 87.01.
14. Noticing the notes on machine mounted on tractor type appears
under Heading 84.26, it was held :
“The word ‘presented separately’ in the HSN
chapter note has to be interpreted ‘Imported
independently of a lifting device of a Crane’
and not when the import is along with such
lifting device of Crane and platform, it has to
be placed under 84.25 to 84.30, when sought
for assessment & presented to be cleared on
same BE as a set. Chapter note 3 to Section
XVI would call for such a classification. The
notes are being misread by Revenue. We find
no reason to classify the propelling
configuration platform of 8 SMPTs separately,
in this case, than the Ringer Crane.
Classification has to be under heading 84.26
and not under 8701 on the reasons as stated in
the background of the case and or the grounds
adopted. We find no reason to consider the
SPMTs to be an independent equipment
imported and presented for classification
separately in the facts of this case, and on the
grounds made out.”
It was furthermore held :
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“The uncontested role played, is to render the
operations of the crane useful at different
locations at the Refinery site, for which it has
been imported; how it functions to lift a
particular load, i.e., while on the moving
platform or on its jack, is not relevant to rule
out is common understanding to be as a
‘Mobile Crane’. A ‘Mobile Crane’ would be
one which can perform its function at different
locations; a crane that can move with the load
to different sites would be a ‘Travelling Crane’
like an EOT crane, while a crane on propelling
platform haulage tractors or guided on rails,
capable of operations at different sites would be
a Mobile Crane.”
It was observed :
“Surely all elements/components as envisaged
under note 3 to Section XVI cannot work
simultaneously all the time. A component
machine will function only when the ascribed
function is called for. Propelling base SPMTs
would be called for in use to change the
location in this case and change in location
need not be with the load lifted since it is not a
traveling crane. The importer of SPMTs is
admittedly is to import mobility to the Crane to
operate at different places. A ‘mobile crane’ as
would be understood has to be a crane which
can move and relocate; as to how it functions at
different sides i.e. mounted on its propelling
mechanism or otherwise or partly on the
propelling mechanism or otherwise or partly on
the propelling mechanism and partly on jacks to
gain leverage for lifting will not disentitle it
from being ‘mobile’.
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It was concluded :
(i) Comparison from the Technical literature
and then comparing the present import
with the values of a Crawler Crane CC-
12600 an accepted Mobile Crane
imported at Jawahar Custom House to be
identical and similar to goods herein only
on the grounds of Lifting Capacity of the
Crawler Crane CC-12600 and the present
imported Crane to be same and thereafter
taking the purchase price of Crawler
Crane CC-12600 as available in the
literature to be DM 25 Million in 1997
and then applying the valuation to the
crane in the present case cannot be
upheld. One cannot appreciate
comparison valuation, as arrived at,
merely on capacity basis when goods are
of different models old machinery with
different usage and have ‘Opportunity
Costs’ inbuilt for such specific old used
machinery. The application of Best
Judgment Rules also has to be in
conformity with the Valuation Rules.
One cannot compare unlike or dissimilar
goods, to arrive at valuations based on by
comparable goods rules, even under best
judgment rules. The proposal as made in
the appeal cannot be therefore upheld.
(ii) CC (Appeal) in the impugned order has
dealt with the aspect of valuation in
extension in para 11 and we find no valid
grounds to repeal those findings.”
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15. Learned Solicitor General, in support of this appeal, would submit
that a distinction must be made between a mobile crane and a crane
mounted on a moving platform fitted with wheels. It was urged that the
finding of the Tribunal is not clear as to whether the equipment is a
mobile crane or a material handling equipment. It was urged that in any
event only the crane would be a material handling equipment and not a
platform fitted with wheels as they had been manufactured by two
different manufacturers. As regards valuation, it was contended that
keeping in view the report of the expert, the Commissioner (Appeals) as
also the Tribunal committed a serious error in accepting the invoice
value.
16. Mr. Harish N. Salve, learned senior counsel appearing on behalf of
the respondent, on the other hand, would urge that the notifications
contained overlapping entries. An equipment may fall within the
meaning of the term ‘electric overhead traction’ or ‘mobile’. Our
attention was drawn to the fact that the said equipment was imported for
a temporary period and it has already been re-exported.
17. We have noticed hereinbefore that the First Appellate Authority
has delved deep into the matter to arrive at a finding of fact that the
purpose for which the crane had to be used is an ordinary mobile crane.
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It was opined that having regard to the nature of the work for setting up
of a crude petroleum refinery would not have been possible and only for
that purpose, such a material handling equipment, as per the definition
contained in the said notification No.11/97 as amended by notification
No.55/97 had to be imported.
18. The notification must be interpreted in a broad manner.
Exemption had been granted to a large number of goods specified in List
8A required for setting up crude petroleum refinery. The project
evidently was a huge one.
In List 8A, as many as 45 items were listed. Some of the headings
are overlapping. Item Nos.16 and 18 wherewith we are concerned use
the word ‘all types of materials’ and ‘all types of material handling
equipments’. The fact that there are two parts in the crane in question is
not in dispute. The fact that two parts thereof were manufactured by two
different manufacturers is also not in dispute. It is also not in dispute
that the respondent had imported the same as a second hand item from
the same party. It was to be used as a crane and/or a material handling
equipment. The findings of fact, as noticed hereinbefore, were arrived at
by the Commissioner (Appeals) as also by the Tribunal. The
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Commissioner (Appeals), while accepting the respondent’s case, had
considered the report of the expert thoroughly.
19. Submission of learned Solicitor General, that the observation of
the tribunal to the effect “(T)he note 3 to Section XVI that when a
combination of machines, the Ringer and propellers imported in this case
are intended to contribute together for a clearly defined function,
governed by one of the headings in Chapter 84, lifting special machinery
on this case at different sides, then the whole folk to be classified in the
heading appropriate to that function. Therefore, propelling base in this
case, which is presented as imported along with ringer crane cleared on
the same BE, consisting of 8 haulage SPMTs in this case, are not
elements presented separately for assessment in this case. They have
been imported as a specific configuration set along with the Ringer
Crane, platform etc.; are not clear, may not be correct. The Appellate
Authority having considered the matter from several angles, it was not
necessary for the Tribunal to deal with all aspects of the matter.”; is not
apposite.
20. In our opinion, the entire order has to be read as a whole.
Exemption was granted to equipments made to be used for a particular
purpose. A contextual meaning to the entries, keeping in view the
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nature of exemption sought to be granted by reason of the said
notification, must be assigned. The crane was to be shifted from place
to place covering a huge area. Its services were required at a large
number of places. It has been found that the description of the crane,
technically given as Heavy Duty Crane was, in fact, a mobile crane.
Only with a view to provide mobility thereto, a self-propelled modular
transport system had been provided.
It had to be consigned in different parts for convenience of
transport so as to enable the importer to reassemble the same. It was on
that basis, the equipment was found classifiable under Heading 84.26
and not 8724.90. In the alternative, the goods were found to be falling
under serial No.18 of the notification. This finding of fact is not in
question.
What is in question is that only the crane part of the equipment
would come within the purview of the exemption notification and not
the entire equipment.
We do not agree with the said contention. The purpose for which
the exemption was granted must be considered in its entirety. The
purpose of grant for exemption cannot be lost sight of. The Central
Government must be held to be aware, if not of the equipment itself,
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but about the nature thereof which would be required for setting up a
crude oil refinery.
We are not oblivious of the proposition of law that an exemption
notification should be construed directly but it is also well settled that
interpretation of an exemption notification would depend upon the
nature and extent thereof. The terminologies used in the notification
would have an important role to play. Where the exemption
notification ex facie applies, there is no reason as to why the purport
thereof would be limited by giving a strict construction thereto.
21. The comparison made by the learned Solicitor General that
mobility of a person would depend upon his personal fitness and not
when he is placed on a wheelchair, in our opinion, is not apposite. The
purpose of grant of exemption is different. The object for grant of
notification shall be considered in a broad based manner. The
wordings used therein have to be given its natural meaning. The
purpose must be allowed to be achieved. The words ‘all types of
materials’ should be construed widely.
22. We, therefore, are of the opinion that in view of the entries an
furthermore the purport and object the notification sought to achieve,
the Commissioner (Appeals) and the Tribunal cannot be said to be
20
wrong in their findings that the equipment in question would be entitled
to the benefit of exemption.
23. So far as the valuation aspect is concerned, why a different view
has been taken from the one disclosed in the invoices has not already
been spelt out by the assessing authority. The valuation was found to
be a plausible one. It was a second hand machinery. Valuation of the
equipment which was in the mind of the expert of the equipment in
question was found as of fact to be of different nature. Those who deal
with valuation of a second-hand machinery and valuation of a newly
manufactured equipment may be different persons. No fraud on the part
of the assessee has been alleged. No illegality or any suppression has
also been alleged.
24. The Appellate Authority has gone into the said question at some
details. Its finding to the effect that addition of 1% of the value of the
imported goods towards the transportation charges is contrary to Rule 9
(2)(b) of the Valuation Rules has not been disputed. The Appellate
Authority, furthermore, apart from arriving at a finding of fact that the
crane which was in the mind of the expert was different from the one
which was imported by the respondent herein, also opined that the
crane was a second hand machinery which had been imported for a
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specific object to be carried out and has not been purchased by the
appellant, was also a relevant factor which, however, in our opinion,
rightly been taken into consideration..
25. For the aforementioned reasons, we find no merit in this appeal.
It is dismissed accordingly with costs. Counsel’s fee assessed at
Rs.50,000/- (Rupees fifty thousand only).
………………………..J.
[S.B. Sinha]
………………………..J.
[Lokeshwar Singh Panta]
New Delhi;
May 16, 2008.