2004 (97) ECC 708 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

West Regional Bench -- Mumbai

Shri S.S. Sekhon, Member (T) and T. Anjaneyulu, Member (J)

Pratibha Industries Ltd. & CCE, Mumbai

Versus

CCE, Nhava Sheva & J.V. Gokal & Co.

Appeal No. C/692/2004 & C/678/2004

[Arising out of Order-in-Appeal No. 56/2004/JNCH dated 30.4.2004 & 270/2004/MCH dated 18.6.2004 passed by the Commissioner of Customs (Appeals) Nhava Sheva & Mumbai & application for stay & Intervention application MA/ORS/1397/2004]

Order No. A/1061-1062/C-III/WZB/2004, dt. 10.9.2004

Registration of Contracts

Project Import Regulations, 1986 -- Import -- Ductile pipes -- Classifiable under Chapter Head 9801 of Customs Tariff, only if the goods which are imported in accordance with the Regulations apply -- First of these regulations, prescribe registration of contract on application to be made prior to import, secondly, for "initial setting up" which is not supported by the actual purported use of imported pipes, as per the Map for the site produced. The declared user is `Improvement to Chandrapur Water Supply System'. The use in any manner in a Treatment Plant, could not be shown. There is no sponsorship certificate to cover such use. Eligibility under Heading 9801 is not available -- Hence, the use not being for Water Treatment Plant, the project notified has to be disallowed clearance under 980/0019 & or 9801.0020, 9801.30 & registration under PIR is not available.

Exemption (Customs)

Section 25(2), Customs Act, in exercise of powers of the Government & when read with the scope of the Finance Minister's Budget speech & the Boards classification & fact that on Central Excise side, exemption to such pipes used anterior to Water Treatment Plant stage have been specifically granted, pipe lines for transfer from source of water to Water Treatment & thereafter use in transfer distribution network of drinking water are not covered by PIR & or Chapter 9801. Discretion of the Government to notify a project under 9801 cannot be challenged.

PRESENT :

S/Shri V. Sridharan A. Hidayatullah, with S.N. Kantawala, Advs. M.I. Sethna Sr. Adv. for Assessees.

Shri B. Chanda, JDR for Revenue

Cases Cited :

1. Ajanta Off set & Packaging Ltd. v. CC, (1998) 95 CC 125................................. [Para 5]

2. Dunlop India Ltd. Calender v. CC, (2000) 105 CC 477........................................ [Para 5]

3. EID Parry, 1998 (100) ELT 275....................................................................... [Para 5]

4. K.M. Sugar Mills v. Commissioner of Customs, 2000 (119) ELT 170 (Tri)..... [Para 2.2, 5]

5. Kerala State Electricity Board, 2002 (82) ECC 228 (SC).................................... [Para 5]

6. Mihir Textiles Ltd. v. CC Bombay, (1997) 10 SCC 558....................................... [Para 5]

7. Pankaj Steel Corporation, 2004 (95) ECC 584 (Tri-Del)................................... [Para 3.1]

Per : S.S. Sekhon

Appellants in Appeal No. C/678/04, applied for registration of contract, awarded by `Maharashtra Jeevan Pradhitern Work' Division No. 2 Akola, under the Project Imports Regulation 1986. The Dy. Commissioner, after considering the submission & hearing the importer came to the following findings --

"The importer in their oral submission and as well as in written submission have stated that they are importing only Ductile Pipes as project import under Customs Tariff Heading 9801 read with Customs Exemption Notification No. 21/2002 Cus dated 1.2.2002. I find that pipes are not being items in the nature of machinery/Equipments or components for manufacturing the same, would not be eligible for exemption from duty under Notification No. 21/2002 as because the same are not classifiable under Chapter Heading 98.01".

"I, therefore order that "Ductile pipes" are not classifiable under heading 98.01 of Customs Tariff and thus the importer is not eligible for the exemption Notification No. 21/2002-Cus dated 1.3.2002. I, therefore, reject the application for registration under project import filed by the said importer in Jawarlal Nehru Customs House, Nhava Shava."

2. The Commissioner (Appeals) vide order dated 30.4.2004 after considering the issues & heaving the importer held-

"I have gone through the fact of the case and the submission made in the grounds of appeal as well as at the time of personal hearing. I find that the lower authority has observed that the ductile pipes are not classifiable under heading 98.01 of Customs Tariff and thus not eligible for the exemption under Notification No. 21/2000 are dated 1.3.2002. I find that pipes not being items in the nature of machinery/equipments or components for manufacture the same, do not appear to be covered under heading 9801 of the Custom Tariff and are not eligible for exemption from duty under projects. However, the appellants stated in his written submission that they are importing only ductile pipes and no machinery or raw materials. Further, the appellant also did not submit any document of project report -- plan etc, on this aspect, I am inclined to agree with the stand taken by the lower authority. Hence, I uphold the order of the lower authority and reject the appeal filed by the authority".

Hence Appeal No. 692/04.

2.1 Another importer, at Mumbai Customs House made an application dated 7.5.2004 for registration of a contract under Project Imports Regulation 1986. The same was considered & the respondent vide letter dated 8.6.2004 was initimated by the Dy. Commissioner, that the application made for registration of the contract for supply of pipes is rejected.

2.2 The Commissioner (Appeals) vide order dated 18.6.2004, found & ordered

I have gone through the records of the case. The appellants wanted to register their contract under benefit of project import. The contract relates to supply of DI.Pipes to be used in the drinking water supply project of the authority. The same is claimed under Notification No. 21/2002 (Sr 401) as amended. Drinking water supply project are covered under Sr. No. (6) of the heading 98.01 being a notified project. The same is not disputed whereas claim under Sr. (1) is available for industrial plants. So the question of deciding whether imported goods are plants or not is not relevant. The scope of the said entry in the notification have been further expanded by adding some other items in the explanation to classify the doubt. So, the said explanation is not exhaustive of the main entry. As per catena of Apex Court decisions, it is settled principle of interpretation that the word `including' is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. When it is so used these words and phrases must be constructed as comprehending not only such things as they signify according to their nature and import but also those things which the interpretation clause declares that they shall include. (Ref. Principles of statutory interpretation of G.P. Singh, Ninth Edition 2004). So I should be taken contrary to settled decisions of the Apex Court. It is not disputed by the lower authority that the imported pipes are to be used for the drinking water supply project, and the pipes are an integral part of the project. The appellants are relying on Tribunal decision in case of K.M. Sugar Mills v. Commissioner of Customs, 2000 (119) ELT 170b (Tri) in which the appellants were allowed benefit of project import benefit to empty gas cylinder used in for setting up plant for manufacture of oxygen gas being in the nature of "authority equipment." The reason was that without a pipe line or cylinder, neither storage of gas produced nor supply is feasible. I find the ratio of the said decision is applicable to the present case, the lower authority is relying upon some case of Kolkata Municipal Corporation in which they were allowed `nil' duty benefit under Adhoc Exemption under Section 25(2) of the Customs Act, 1962. I find that prevailing judicial decision has not been considered in this case, so the same is not applicable here as in the present case the appellants are claiming the benefit of project import heading 98.01. The two case are different. The appellants contention is that a number of pipeline projects have been notified under clause (6) of heading 98.01. It is not disputed that pipes are integrate to the water supply project being in the nature of "auxiliary equipments" as per the Tribunal decision. The item to be imported can also be called "appliances" in view of dictionary meaning and the same is clearly covered under heading 98.01. It has been pointed by the appellants at the time of personal hearing that import of pipes under project imports is also allowed to other importers by lower authority, in support of the same they have submitted a copy of Bill of Entry for import of pipes by M/s Petronat LNG Ltd. vide F.No. S/5-42/2001 of the contract cell. So it is not understood why a different approach should have been taken in this case. It appears that the appellants are eligible for project import benefit under heading 8.01. Accordingly, I set aside the order of the lower authority and allow the appeal with consequential relief.

Hence Appeal No. 678/04 by Revenue.

3.1 Early hearing application filed by Revenue and Assessee in C692/04 was granted and the matter was heard. As regards stay application filed by Revenue and an Intervention application filed by "Ductile Iron Pipes & Castings Manufacturers Association, a company Limited by guarantee and under Section 25 of the Companies Act as an intervener in Appeal No. C/678/2004. The application for stay of operation of CC (Appeals) order dated 18.6.2004 is disposed directing Revenue to clear the goods on a Bank Guarantee ensuring the entire duty leviable thereon on merits i.e. sans project import rates. The Intervention Application is dismissed following the decision of this Tribunal in case of Pankaj Steel Corporation, 2004 (95) ECC 584 (Tri-Del) : 2004 (169) ELT 228 (Tri-Del) since intervenor was not a party to the proceedings before the lower authorities.

3.2 Appeals are thereafter taken up, heard & are being disposed by this Common order; after considering the issues it is found--

(a) For classification under chapter heading 9801 of Customs Tariff, first note 1 thereof has to be satisfied and that note reads --

"This chapter is to be taken to apply to all goods which satisfy the conditions prescribed therein, even though they may be covered by a more specific heading elsewhere in his schedule."

Therefore, an entity imported would fall under 9801, only if it satisfies the conditions, prescribed. The same could be cleared under 9801. Note 2 of this very chapter 98 stipulates that heading 9801 is to be taken to apply to goods which are imported in accordance with the Regulation made. These regulations are "Project Import Regulations, 1986 (hereinafter referred as PIR) Therefore, before even considering whether the entity is covered by CTH 9801 wordings, it is imperative to first determine whether the import per se was effected as per the PIR.

(a2) Examining the stipulation of PIR, it is found --

(i) There are in all seven regulations, regulation 1 is the title clause, Regulation 2 specify that PIR applies to assessments and clearance of goods under 9801. Regulation 3 is the definition clause & definitions herein are to be adopted vide Note 2 to Chapter 98 to apply to expressions used is heading No. 9801. Regulations 4 & 5 reads as --

"4. Eligibility. The assessment under the said heading No. 98.01 shall be available only to these goods which are imported (whether in one or more than one consignment) against one or more specific contracts, which have been registered with the appropriate Custom House in the manner specified in regulation 5 and each such contract or contracts has or have been so registered,

(i) Before any order is made by the proper officer of Customs permitting the clearance of the goods for home consumption.

(ii) In the case of goods cleared for home consumption without payment of duty subject to re-export in respect of fairs, xx, before the date of payment of duty.

5. Registration of Contracts --

(1) Every importer claiming assessment of the goods falling under the said heading No. 98.01, on or before their importation shall apply in writing to the proper officer at the ports where the goods are to be imported or where duty is to be paid for registration of the contract or contracts, as the case may be."

These regulations, prescribe registration of contract on application to be made a condition precedent to actual importation of the goods. In the case of Appeal No. C/678/04 the import was on 6.5.2004 while the application for registration of contract has been made on 7.5.2004. The imports made, prior to registration of the contract, were not approved for classification and clearance under "Projects Imports" by the Apex Court in a series of decisions. Reliance by revenue on Mihir Textiles Ltd. v. CC Bombay, (1997) 10 SCC 558; Ajanta Off set & Packaging Ltd. v. CC, (1998) 95 CC 125; Dunlop India Ltd. Calender v. CC, (2000) 105 CC 477 is well founded. This condition precedent of registration has to be complied with. The plea that out of charge order has not been effected and as per Regulation 4 application made cannot be rejected, this proviso of Regulation 4, cannot over ride the Mandatory Provision of Regulation 5 that registration application has to be made "on or before importation." Which in Appeal No. C/678/04 would put the application therein in jeopardy.

(a3) The other plea made by the Ld. Advocate about the declarations in application in Appeal No. C/678/04, made by the Respondent, whose position is also doubted by Revenue, are found to have a force, to disentite the application made as the application made shows the imported goods to be used for `Initial Setting Up" of a project, without giving the designed capacity in the prescribed application form. The perusal of the certificate of prescribed sponsoring authority i.e. District Collector of Chandrapur District Maharashtra dated 23.4.2004 reads as follows --

.............the ductile Iron/pipes imported and supplied to them by supplier/importer as above shall be used only for the intended purpose of setting up of drinking water supply to make water suitable for human/animal consumption......" (underlining supplied)

And especially the underlined position of `intended purpose of setting up of drinking water supply' would cause the declaration of initial setting up "as declared, in the application to be correct. However, from the map and plans which were shown to us during the hearing, were showing the intent of the said imported pipes to be used in Zone 7 map plan which has legend on the side of it declaring the said map plan to be for as "Improvement to Chandrapur water supply scheme, "The map plan was explained to us, denoting existing water distribution arrangements with a specific marking of a line, showing proposed improvement or expansion of the existing water supply system in situ in Chandrapur. `Improvement'. can't be `initial setting up' as declared. One can improve by augmenting altering what already exists. A water supply system as per this map/plan in Chandrapur already exists. Same has to be improved. It can therefore not be a project for initial setting up of a water supply system in Chandrapur. Therefore, the registration has to be rejected as the declarations in application under DIR made thereunder, are for "initial setting up" which is not supported by the actual purported use of imported pipes, as per the Map for the site produced. There is no recommendation for an "Improvement to Chandrapur water supply Scheme project" from the prescribed sponsoring authority i.e. The District Collector Chandrapur. That authority has only recommended for `an intended water supply system" and not for "Improvement of an existing system".

(b) Considering heading 9801. 00, the sponsored project in Appeal No. C6 78/04 for `Intended Purpose of setting up of drinking water supply' would only be covered under 6. Notification which would cover such other projects, as the Central Government may having regard to the economic development of the country notify in the official gazzette" Notification issued No. 49/96-Cus dated 23.7.96 which vide amendment dated 91/2002-Cus dated 6.9.2002 has introduced item No. 26 which reads as

"26 drinking water supply projects for supply of water for human or animal consumption."

Explanation -- drinking water supply project include a plant for desalination, demineralisation or purification of water or for carrying out any similar process or process intended to make the water fit for human or animal consumption but does not include a plant supplying water for industrial purpose."

The term "Water Supply Projects" has not been defined.

(C) Chapter heading 9801 reads as --

"All items of machinery including prime movers, instruments, and appliances, control gear and transmission equipment, auxiliary equipment (including those required for research and development purposes, testing and quality control), as well as all components (whether finished or not) or raw materials for the manufacture of the aforesaid items and their components, required for the initial setting up of a unit, or the substantial expansion of an existing unit, or a specified:

(1) XXX

(2) XXX

(3) XXX

(4) XXX

(5) XXX

(6) Such other projects as the Central Government may, having regard to the economic development of the country notifying in the Official Gazette in this behalf and spare parts, other raw materials including semi-finished material, or consumable stores not exceeding 10% of the value of the goods specified above provided that such spare parts, raw materials or consumable stars are essential for the maintenance of the plant or project mentioned in (1) to (6) above.

A plain reading of this heading, would permit as eligible all items in nature and component and parts thereof provided they are required for `initial setting up of a unit' or the substantial expansion of an existing unit of Drinking Water Supply Projects for supply of water for human or animal consumption. All unit entities such would be covered under 9801.00.19 components or raw material, would fall under 98.0020 and spare parts would fall under 98.0030.

(d) The concept of `unit' project specified has to be limited and understood as per Chapter Note 2 to chapter 98 by the definition in Regulation No. 3 of PIR which reads as --

"Unit means any self contained potion of an industrial plant or any self contained portion of a project specified under sub-heading No. 9801 and having an independent function in execution of the said project".

McGraw Mill (sic, Hill)Dictionary of Scientific and Technical Terms (fifth Edition) specifies at page 2153 --

"Water supply engineering (Civ. Eng) A branch of Civil Engineering concerned with the development of sources of supply, transmission, distribution and treatment of water"

This authoritative understanding would induce us to conclude that `Drinking Water Supply Project for Human & Animal' will encompass and consists of the following units viz--

(i) Source of water supply

(ii) Treat unit (filtration aeration pumping and storage of source water as Drinking Water.

(iii) Distribution network from the stored treated Drinking Water to sub storage etc. pumping and transmission up to the consumers (ie Human/animal)

These `units' have to be inter-connected. This understanding has to be arrived at since there is no definition provided in the notification issued and or relied by both sides before us of the term `Drinking Water Supply project'. This understanding when read with the explanation given in the notification (as extracted supra) would lead us to conclude that `Units' of a Water Supply Project covered by the PIR as covered under 9801.0019, would be, only Water Treatment Plants' as brought out lucidly by the Ld. DR for Revenue in the arguments. The coverage of Source of Water Supply unit or and Distribution network unit, will not be covered. The explanation could only be interpreted to mean and cover all sorts of units for water purification systems for rendering source water supply fit for drinking by humans and animals is an argument advanced by Ld. Sr. Advocate for revenue, and is accepted.

(e) Once it is found that the scope of the `Unit' or `substantial expansion' as notified is to be limited to `Water Treatment Plants', the imports have to be examined in light of them being required or being components and parts of the `Treatment Plant' or whether they would be instruments, appliances, Transmission Gear equipments or auxiliary equipment (including for research testing etc) or raw material to erect a treatment plant. The declared user claims, in Appeal C/678/04, is `improvement to Chandrapur Water Supply System' and the perusal of the map plan, relied upon by both sides and shown to us, the pipes are meant as parts/component or equipment to lay additional pipe lines to distribute in an improved manner the water to improve the system existing. The use in any manner in a Treatment Plant, could not be shown. There is no sponsorship certificate to cover such use. Eligibility under heading 9801 is not available.

(f) The plea of the Ld. Sr. Advocate, for the respondents in C/678/04 that the entities have been upheld to be Auxiliary Equipment by CC (Appeal) & reliance on K.M. Sagar Bills, 2000 (119) ELT 170 and the decision in the case of EID Parry, 1998 (100) ELT 275 and other cases will not help the imports being cleared under heading 980/0019, as on facts they are not found to be and admitted to not for use in any Water Treatment Plant Unit but are to be used as and in Water Distribution Improvement Scheme. No findings are therefore required whether they are auxiliary equipments as auxiliary equipment of a non-notified unit, cannot be classified under Chapter 98 and get registered under PIR.

(a) As regards Appeal (C/692/04), from the PIR registration application made, it is apparent that the request is to register a project `FOR WATER TREATMENT PLANT FOR THE WORK OF 84 VILLAGES RRWSS FOR AKOT TALUKA DIST AKOLA". However the use of the pipes under import are certified by the sponsoring authorities viz District Collector of Akola District Maharashtra State as per Letter dated 12.6.03 is certifying in the following words:

"............Hereby, we are certifying the quantities of pipes to be supplied are used for the transmission of water from source to W.T.P and up to the reservoir as indicated in the statement attached and verified by Ex. Engineer Akola......"

(b) Thus, the certificate of the sponsoring authority is not for `Water Treatment Plant' being exempted but is for supply of pipes to be used from source up to reservoir and the Water Treatment Plant, W.T.P as abbreviated in the collector Letter dated 12.6.03. The water source and supply of water to reservoir of such untreated water at the Water Treatment Plant would be a use in Unit of Water Supply System which is a `Unit' anterior to the Water Treatment Plant Unit, while in the case of C/658/04 use was in a unit ulterior to Water Treatment Unit. Both such uses would not be use covered by the notification issued under 9801 clause (6) coverage, as arrived by us. The use not being for Water Treatment Plant, the project notified has to be disallowed clearance under 980/0019 and or 9801.0020, 9801.30 and registration under PIR is not available.

(c) The Ld. Sr Counsel for Revenue took us through that the Finance Minister's Budget speech consequent to which the water supply was declared an eligible project, the Boards instruction to explain that the coverage of such Projects is limited to the Water Treatment Plants and Pipes used prior to such stages, i.e. from source or subsequent stage in distributing the treated water are not covered, it was his case that for that reason the Government had issued exemption notification under Section 25(2) to grant exemption to such pipes used anterior or in distribution system ulterior to Water Treatment Plant stages in Kolkota Municipal case. We agree with this interpretation. We agree with the Ld. Sr. Counsel for respondent that issue of an Adhoc exemption order under Section 25(2) cannot be binding inter-relation of a law, since interpreting the classification eligibility based on such an interpretation would be worse than arriving at classification by reading exemption notifications. The settled law on the subject is that classification cannot be arrived at by looking at notifications of exemption of duty. However, we find that the grant of exemption under Section 25(2) in exercise of powers of the Government and when read with the scope of the Finance Minister's Budget speech and the Board's classification and fact that on Central Excise side, exemption to such pipes used anterior to Water Treatment Plant stage have been specifically granted, we find reason to conclude, that pipe lines for transfer from source of water to Water Treatment and thereafter use in transfer distribution net work of drinking water are not covered by PIR and or Chapter 9801. Discretion of the Government to notify a project under 9801 cannot be challenged before us.

(d) The reliance of the Ld. Advocate for the appellant in C/692/04, on the case of Kerala State Electricity Board 2002 (82) ECC 228 (SC) : 2002 (142) ELT 278 (SC) will not help them. That was a case to intercept the word `Power Project' as it appears in the tariff heading itself. It was not as per a notification issued by the Government. The intention to limit the notified project can be derived from the Finance Ministers Budget speech and the Board's instructions exercise of discretion in granting adhoc exemption to Kolkata Municipal Corporation case. The case of Kerala State Electricity Board, was a case of interpretation of legislative intent and not the exercise of discretion of Central Government in notifying a project. The other cases relied are not found relevant since the use as certified by the sponsoring authority i.e. District Collector is found in both case not as per the use claimed in the application made under PIR. The reliance on benefit on 9801 clearance to pipes is being granted by the department is being urged, is well met by Revenue, by showing that in those cases, the projects were for a `Pipeline for distribution or and transmission of fluids/gas `and or' for as components of a Petro or Chemical Complex. It is the use for a notified project that would be relevant for eligibility and not the nature of entity itself, as is being urged.

(e) The reliance on CBEC circular at 151165 by the appellant in C/692/04 will not make pipes imported eligible. A perusal of these instructions reveal that they provide that when practical difficulties arise they should be reported to Board for clarification. The imports in these cases should have been referred to the Board, and as in Kolkata Municipal Corporation case, Board could have suitably recommended for an Adhoc exemption. However, that, itself cannot be a cause to register under PIR, contracts which are not eligible on a prima facie reading or classify the subsequent imports of the pipes in these cases under heading.

4. In view of the findings arrived herein, the appeal of Revenue i.e. C/678/2001 is to be allowed after setting aside the order of CC (Appeal) and appeal of importer i.e. C/692/2004 is required to be dismissed.

5. Both appeals and all miscellaneous application stand disposed as per findings and order herein above.

6. Ordered accordingly.

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