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CASE NO.: Appeal (civil)  5944 of 2002

PETITIONER: Commissioner of Customs, Kolkata

RESPONDENT: M/s. Rupa & Co. Ltd.

DATE OF JUDGMENT: 21/07/2004

BENCH: S. N. VARIAVA & ARIJIT PASAYAT.

JUDGMENT: J U D G M E N T

(WITH C.A. Nos. 1975/2003, C.A. Nos. 3538- 3562/2003, C.A. Nos. 3761-3763/2003, C.A.  No. 4190/2003, C.A. Nos. 9306-9311/2003,  C.A. Nos. 9565-9569/2003, C.A. Nos. 1277- 1283/2004, C.A. Nos. 1284-1285/2004 and  C.A. No. 2619/2004)

S. N. VARIAVA, J.

       All these Appeals are being disposed of by this common  Judgment as the facts are identical and they all involve a common  point.         In all these Appeals the Respondents are manufacturers of  textile garments.  By Notification bearing No. 29/97-Cus dated 1st  April, 1997 exemption from custom duty was granted to capital goods,  components and spares thereof etc. imported under the Export  Promotion Capital Goods Scheme (for short EPCG Scheme).  The  relevant portion of the Notification reads as follows:         "Exemption to capital goods, components and spares  thereof etc. imported under EPCG Scheme.- In exercise of  the powers conferred by sub-section (1) of section 25 of  the Customs Act, 1962 (52 of 1962), the Central  Government, being satisfied that it is necessary in the  public interest so to do, hereby exempts goods specified in  the Table annexed hereto from whole of the duty of  customs leviable thereon which is specified in the First  Schedule to the Customs Tariff Act, 1975 (51 of 1975) and  from so much of the additional duty leviable thereon under  section 3 of the said Customs Tariff Act, as is in excess of  the amount calculated at the rate of 10% of the value of  goods:                  Provided that where the said goods are required for-

(i)     the manufacture of leather garments, textile  garments (including knitwears), agro products  and products of horticulture, floriculture, poultry  and bio-tech products, or

(ii)    rendering services to hotel industry,

such goods shall be exempted from the whole of the  additional duty leviable thereon under section 3 of the said  Customs Tariff Act.

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6.      The capital goods imported, assembled or  manufactured as in stalled in the importer’s factory  or premises and a certificate from the jurisdictional  Assistant Commissioner of Central Excise or  independent Chartered engineer, as the case may  be, is produced confirming installation and use of  capital goods in the importer’s factory or premises,  within six months from the date of completion of  imports or within such extended period as the said  Assistant Commissioner of Customs may allow.

xxx                     xxx                     xxx xxx                     xxx                     xxx

Explanation \026 In this notification \026

(1)     "Capital goods" means, -

(i)     any plant, machinery, equipment and  accessories required for-

(a)     manufacture or production of other  goods, including packaging machinery  and equipments, refractories,  refrigeration, equipment, power  generating sets, machine tools,  catalysts for initial charge, and  equipment and instruments for testing,  research and development, quality and  pollution control;

(b)     use in manufacturing; mining  agriculture, aquaculture, animal  husbandry, floriculture, horticulture,  pisciculture, poultry, viticulture and  sericulture; and  

xxx                     xxx                     xxx xxx                     xxx                     xxx

(4)     "export obligation"-

(i)     in relation to importers other than hotel  industry rendering services, means export  to a place outside India of products  manufactured with the use of capital goods  imported, assembled or manufactured in  terms of this notification or making of  supplies of such products in terms of  clauses (a), (b), (d), (e), (f) and (g) of   paragraph 10.2 of the Export and Import  Policy; and

xxx                     xxx                     xxx xxx                     xxx                     xxx"

       Thus capital goods imported under the EPCG Scheme were  exempted from payment of customs duty and so much of additional  duty as was in excess of 10% of the value of the goods.  Under the  proviso if the capital goods were imported for manufacture of items  mentioned therein then they were exempted from payment of whole of

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the additional duty.  Thus, if the capital goods were imported for  manufacture of textile garments then, under this Notification, the  importer would be exempted from payment of customs duty and  additional duty.     

Parties are agreed that cutting and stitching machine would be  capital goods required for manufacture of garments.  The  Respondents, in this batch of Appeals, had however imported  machines required for processing of fabric/yarn, fabric inspection  machines, machines for knitting and dying fabrics and other such  machines.   The Respondents were denied benefits of 100% exemption  on the ground that the machines imported by them were not required  for the purposes of manufacture of textile garments.   The Appeals  filed by the Respondents to the Commissioner (Appeals) had been  dismissed.   

The Customs Excise & Gold (Control) Appellate Tribunal (CEGAT)  has, in these cases, held that the term "goods are required for  manufacture of" in the proviso  was wide enough to cover even these  machines.  The Tribunal has relied upon a letter dated 15th January,  1999 from the International Federation of Knitting Technologists which  states that for export of garments to Europe and U.S.A. good quality is  required.  It is opined that to manufacture  good quality garments one  has to first select a good quality fabric, then the fabric is required to  be reversed to prevent the right side of the fabric from abrasion and  tear and wear.  It is stated that whilst reversing the fabric has to be  inspected for holes and other mistakes like needle marks, needle  breakage etc.  The letter goes on to state that a garment  manufacturer has to have a well equipped laboratory to test the dyes  because after dying there has to be shrinkage tests, peeling fastness  test and various other such tests.   It is stated that the fabric then has  to be dried as drying plays an important role in controlling shrinkage  and maintaining dimensional stability.   It is stated that one needs  dryers by which the temperature can be controlled so as to avoid any  unhygienic method of drying by leaving the wet fabric open in the sun.   The letter then goes on to highlight the use of wet expanders and  padding mangles for special finishes like softness, velvet finish etc.   The letter states that it is only thereafter that cutting and stitching can  take place.  The Tribunal also relied upon an authority of this Court in  the case of Oblum Electrical Industries Pvt. Ltd. vs. Collector of  Customs reported in (1997) 7 SCC 581.  The Tribunal has held that  the Respondents were entitled to the benefit of 100% exemption  under the above mentioned Notification.         Mr. Ganguli submits that a Notification must be strictly  construed.  In support of this submission, he relied upon the authority  of this Court in the case of H.M.M. Limited vs. Collector of Central  Excise reported in (1996) 11 SCC 332.   He also relied upon the case  of Novopan India Ltd. vs. Collector of Central Excise and  Customs reported in (1994) Supp (3) SCC 606.  He pointed out that  this Notification has been subsequently amended in 1999 wherein  Annexure III has been added. He points out that a list of machines  which could be imported as capital goods for manufacture of "textile  products" has been set out in this Annexure.  He submits that the list  does not contain cutting and stitching machines as that list is for  machines required for manufacture of "textiles products".   He submits  that the same Notification uses the words "textile products" in respect  of exemption being granted under the first part of the Notification and  the words "textile garments" when 100% exemption is to be granted  under the proviso. He submits that it is significant that 100%  exemption is granted only to capital goods used for manufacture of  "textile garments", whereas for capital goods used for manufacture of  "textile products" the exemption is restricted only to whole of custom  duty and so much of the additional duty as is in excess of 10% of the  value of the goods. He submits that the words "textile products" would  include fabric, yarn etc.  He submits that the term "textile garments"

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would not include fabric, yarn etc.  He submits that the use of the  words "textile garments" clearly show that the capital goods required  for manufacturing of yarn or fabric do not fall within the proviso. He  submits that it is only capital goods directly required for manufacture  of textiles garments which get 100% exemption.   He also relies upon  a Circular bearing No. 13/2000-Cus dated 22nd February, 2000 issued  by the Board wherein it has been clarified that 100% exemption as per  the Notification is not to be given to machines which are used for  knitting, dyeing and/or for compacting machines which are used in the  manufacturing/processing of fabrics.   The Circular states that 100%  exemption is only to be given to machines which are used for the  manufacturing or processing of textiles garments. Mr. Ganguli also  relies upon a letter dated 18th April, 1999 from the Joint Secretary,  Government of India, Central Board of Excise and Customs, to one Mr.  Rajagopalan, Commissioner of Cutoms, wherein also it has been  clarified that 100% exemption is only to be given to machines which  are used for manufacture of garments.  He also relies upon a letter  dated 20th July, 1999 from the Ministry of Finance to Mr. Rajagopalan,  Commissioner of Customs, clarifying that the 100% exemption could  not be given to fabric processing machines like knitting machines,  dyeing machines, compacting machines etc.           Undoubtedly, the Board circular and letters relied upon support  Mr. Ganguli.  However, if the interpretation given by the Board and the  Ministry is clearly erroneous then this Court cannot endorse that view.   An exemption Notification has to be constrained strictly but that does  not mean that the object and purpose of the Notification is to be lost  sight of and the wording used therein ignored.  Where the wordings of  the Notification are clear and unambiguous they have to be given  effect to. Exemption cannot be denied by giving a construction not  justified by the wordings of the Notification. The Notification has been  issued pursuant to the EPCG Scheme.  The import of goods is under a  license which contains an export obligation.    In all these cases, the  obligation is to export garments.  It is fairly admitted that, in all these  cases, the Respondents manufacture garments.  The Notification  grants an exemption to capital goods imported under the EPCG  Scheme.  The Proviso grants 100% exemption to capital goods which  are required for manufacture, amongst other, of "textiles garments  (including knit-wears)".  The words used are thus "goods are required  for manufacture of".    This Court has in the case of Oblum Electrical  Industries (supra), whilst considering another exemption Notification  wherein also the words used were "raw material and components  required for manufacture" held that the purpose and object of the  Notification were to encourage export by granting exemption from the  custom duty on material required to be imported for manufacture of  the resultant product.  It has been held that the manufacture of the  resultant product has to be for execution of the export orders.  It has  been held that the term "capital goods required for purposes of  manufacture" cannot be construed as referring only to materials which  are used in the manufacture of that product.  It was held that the term  must be given its natural meaning to also include materials which  would be required in order to manufacture the resultant product.  It  has been held that the term would also include materials which are not  directly used in the manufacture of resultant product but are still  required for the purposes of manufacturing the resultant product.  It is  held that the term was wide enough to include not just products which  are directly involved in the process of manufacturing but also products  which would be necessary for the ultimate manufacture.  We are in  agreement with this view.  

Further, in our view, this Notification is very clear.  The 100%  exemption is given to capital goods required for manufacture of,  amongst others, "textile garments".  The term "capital goods" has  been defined in the Notification.  The term "capital goods" means  goods which are used in the manufacture of that product and also

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goods which would be required for manufacture or production of other  goods including packaging machinery and equipments. The term also  includes instruments for testing, research and development.  The term  includes machines for pollution control, refrigeration, power generating  sets etc.  Thus, for example, if after manufacturing of textile garments  the same have to be packed, the machinery required for packing  would be capital goods required for manufacture of textile garments.   Similarly, refrigeration machinery for refrigerating the plant would also  fall within the term capital goods required for manufacture of textile  garments.   If such sort of equipments and machinery get covered by  the term "capital goods" we fail to understand as to how machinery  required for knitting, dyeing, compacting are not covered.

For the purposes of manufacture of garments it cannot be said  that only stitching and knitting machines are required.   Apart from  stitching and cutting the  manufacturer may himself manufacture the  yarn or fabric.   The quality of the yarn or fabric would have to be  tested.  Machines would be required for that.  Similarly, machines for  dyeing and/or drying the fabric or yarn, machines for inspecting the  defects etc. would be required.  The term "capital goods" required for  manufacture of textile garments would thus include all machines  required for the ultimate manufacture of the garments.  The  Notification has its own safeguards.  The import can only be under a  license issued under the EPCG Scheme.  The license would contain a  condition that garments must be exported by the importer.  The  Notification also contains a condition that the capital goods (which are  imported) are installed in the importers’ factory or premises and a  certificate to that effect has to be produced within 6 months of the  date of the import.  

We also see no substance in the submission that the use of  different words "textile garments" indicates that only machinery used  directly for manufacture of garments gets 100% exemption.  The use  of different terms merely indicates that the 100% exemption is given  to a manufacturer of garments.  If  the import is by a person who is  manufacturing textile products then that importer will get exemption  from payment of custom duty and so much of the additional duty as is  in excess of 10% of the value of the goods.  The difference in language  is only for purposes of emphasizing that the 100% exemption is only  to manufacturers of garments.  So long as the imported machinery is  used by a person who manufactures garments, which are then used to  meet the export obligation, the importer will be entitled to benefit of  100% exemption under the Notification.  

In this view of the matter, we see no infirmity in the Judgment  of the Tribunal.  We see on reason to interfere.   

       The Appeals stand disposed of accordingly.  There will be no  order as to costs.