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CASE NO.: Appeal (civil) 3940  of  1998

PETITIONER: M/S.SHRIRAM VINYL & CHEMICAL INDUSTRIES

       Vs.

RESPONDENT: COMMISSIONER OF CUSTOMS, MUMBAI

DATE OF JUDGMENT:       20/03/2001

BENCH: S.P. Bharucha, N. Santosh Hegde & Y.K. Sabharwal.

JUDGMENT:

Y.K.SABHARWAL,J. L...I...T.......T.......T.......T.......T.......T.......T..J

   After   dismantling  in  their   factory  the   existing furnaces,  the  appellants   assembled  modernized  furnaces partly  using  imported parts, partly indigenously  procured parts and partly serviceable components/parts recovered from the  dismantled furnaces.  In respect of imported parts used in  the  assembly  of the furnaces, the  appellants  claimed benefit  of Notification No.155/86-Cus dated 1st March, 1986 which provides for lower rate of duty.  The Director General of  Technical Development, as the competent authority  under the  notification,  recommended the grant of lower  rate  of duty  prescribed  in  the  notification in  respect  of  the imported  parts.   The  benefit  of  the  notification  has, however, been denied to the appellants on the ground that no new  furnace emerges in the assembly operation undertaken by them.   The Tribunal in the order under challenge  affirming the order of Collector of Customs of Appeals states:

   "The  furnace  from which the unserviceable  parts  were discarded, serviceable parts were re-used along with some of the  imported  parts  and  some   of  the  indigenous  parts purchased  locally, were not entirely different from the old furnace  and the incorporation of the improvements into them did not make them substantially new.  The expression used in the  exemption  notifications  are   ‘initial  setting  up’, ‘assembly’  and ‘manufacture’ of the specified articles.   A harmonous   reading  of  these   expressions  will   clearly establish  with what is required is the setting up, assembly or manufacture of a new article which if imported could have been  liable to customs duty and that even if the parts  are imported  and  not  the complete article the  same  rate  of customs  duty,  as  applicable to complete article  will  be applicable  to such parts.  The parts in this case were  not for  the  initial setting up, assembly or manufacture  of  a furnace:   the modernisation of the already existing furnace will  not  amount  to  the assembly of  a  furnace  for  the purposes  of the treatment of such parts as at par with  the complete furnace, had the complete furnace been imported (in place of the parts).  The Collector of Customs (Appeals) had

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observed that modernisation and assembly for the purposes of Notification  No.155/86-CUS  were two different  things  and that  in  case  of assembly an entire  new  product  emerges whereas  in  case of modernisation certain  alterations  and modifications  are made increasing production efficiency and reducing costs."

   The material part of notification reads as under:

   "In exercise of the powers conferred by sub- section (1) of  section 25 of the Customs Act, 1962 (52 of 1962), and in supersession of the notifications of the Government of India in   the  Ministry  of   Finance  (Department  of   Revenue) Nos.94/86-Customs   and   95/86-Customs   both  dated   17th February, 1986, the Central Government, being satisfied that it  is  necessary  in the public interest so to  do,  hereby exempts  parts  required for the purpose of initial  setting up,  or  for  the assembly or manufacture,  of  any  article specified  in  column (2) of the Table hereto annexed,  when imported  into  India and proved to the satisfaction of  the Assistant  Collector  of Customs to be so required for  such setting  up,  assembly or manufacture, from so much of  that portion  of  the duty of customs leviable thereon  which  is specified  in  the corresponding entry in column (3) of  the said Table..."

   The  main  ground on which the benefit of the  aforesaid notification  has  been  denied to the  appellants  is  that serviceable  parts  out of the dismantled furnace were  used besides  some indigenous parts along with the imported parts and,  therefore,  new furnace has not come  into  existence. The  contention of learned counsel for the appellant is that the  notification  does not require that a new article  must come  into  existence.   We agree.   The  three  expressions ‘initial setting up’, ‘assembly’ and ‘manufacture’ cannot be construed  to  mean  same  thing.  It is  evident  from  the notification  that  the  expression   ‘assembly’  has   been separated  from the expression ‘initial setting up’.   These expressions  are intended to cover different situations.  We are  unable  to  accept the contention of  learned  Attorney General  that  the expression ‘assembly’ is to  take  colour from  the  expression ‘initial setting up’  and,  therefore, without  new article coming into existence, the question  of claiming  benefit  under the notification would  not  arise. The  language  of the notification is clear and plain.   The notification  is  to be construed reasonably and  rationally and not in a manner which deprives the benefit thereof.  The expression ‘assembly’ in the context and setting in which it has been used cannot be construed to mean bringing into of a new  article.   This expression cannot be equated  with  the expression  ‘manufacture’.  If the construction as placed by the  Tribunal  is accepted, it would render  the  expression ‘assembly’  in  the notification redundant.  The  expression ’assembly’  has  been  used as opposed  to  dismantle.   The notification  does not contemplate denial of its benefit  on the  ground  of  reuse of certain parts and/or use  of  some indigenous  parts  with  the   imported  parts.   Thus,  the appellants  are  clearly  entitled  to the  benefit  of  the notification.

   As  a result of aforesaid discussion, the impugned order is  set  aside and the appeal is allowed.  The parties  are, however, left to bear their own costs.

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