1. In this appeal filed by M/s. Ispat Alloys Ltd. against the Order-in-Appeal dated 29.05.97 passed by the Commissioner of Customs (Appeals), Kolkata, the matter relates to the eligibility to the benefit of customs duty exemption under Notification No. 111/95 Cus dated 5.6.95 in respect of (i) Paints and (ii) Special Tools. These paints and tools were imported alongwith the various items/equipment forming the power plant in Semi Knocked Down (SKD) Condition. The paint in Semi Knocked Down (SKD) Condition. The paints was for coating the configuration of power plant after their assembly. The power plant was imported in SKD condition. The tools were for operating the plant after the same was made operational. In the relevant invoices, separate description and prices were shown for both the paint and special tools.
With regard to paints, the appellants have argued that it was an essential item for manufacturing machine. As regards the special tools, it was admitted that these could not be treated as capital goods. It was however pleaded that they could be covered under the Accessories (Condition) Rules 1963. The Commissioner of Customs (Appeals) held that paints were not covered by the exemption notification. As regards the special tools, he took a view that they were optional and separate prices had been shown for them in the invoices. He held both the paints and the special tools as in-eligible for the benefit of Notification No. 111/95 Cus.
2. Shri K.K. Acharya, Advocate appearing for M/s. Ispat Alloys Ltd. when the matter was heard on 24.4.2001 at Kolkata argued that the exemption notification provided exemption to the capital goods, components of capital goods and spare parts. He submitted that paints could be considered as a component of the goods imported. He referred to the list of items at page 167 of the paper book. As regards the special tools, he pleaded that they were for the operation of the power plants. While they could not be considered as capital goods, they should be covered by the provisions of the Accessories (Condition) Rules, 1963. Although the price of paints and special tools had been shown separately in the invoices, the essential nature of these items was not in doubt. He also pleaded that there was no justification for charging of interest. Reference was made to the Kerala High Court decision in the case of Paul Lazar Vs. State of Kerala - 1977 (40) STC 437 (Kerala).
In reply, Shri V.K. Chaturvedi, SDR submitted that both the paints and the special tools were not required for assembling the equipment and their role was only for running of the plant. The post-erection and post-manufacturing equipment were not covered by the scheme of exemption under Notification No. 111/95 Cus. The exemption under this notification was provided from the payment of Customs duty only to the capital goods, components, for assembling or manufacture and spare parts for maintenance of the capital goods imported. The tools, which could not be considered as spare parts, and whose role was only after the plant has been erected and was operational could not be considered as covered by the scheme of the exemption notification.
The issue for our consideration in this appeal is whether (1) paints for coating of the equipment after assembly and (ii) special tools - - pneumatic tools, electric tools and other hand operated tools for operating the completed power plant after the equipment had been assembled, were eligible for exemption under Notification No. 111/95 Cus dated 5.6.95.
4. Under Notification No. 111/95 Cus, the following goods imported were eligible for exemption:- 2.
Capital goods in SKD/CKD condition to be assembled into capital goods by the importer.
3.
Components of capital goods required for assembly or manufacture of capital goods by the importer.
4.
Spare parts not exceeding 10% of the value of goods specified at serial nos. 1, 2 and 3 as actually imported and required for maintenance of capital goods so imported, assembled or manufactured." Capital goods for the purposes of the aforesaid exemption notification meant 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 set, machine tools, catalysts for initial charge, and equipments and instruments for testing, research and development, quality and pollution control; 5. We will first take up the eligibility of the paints in the present case. The power plant had been imported in SKD Condition. There were a number of equipment and they were required to be assembled after import. Paint was required for coating of the equipment after assembly.
Coating by paint is an essential requirement when such machinery, equipment, etc. is delivered in the market. In such a case, the cost of the paint will form in integral part of the value of the equipment sold. In this case, a number of items were imported for assembling the power plant. After the power plant was assembled, painting/repainting could just be considered as part of the finishing of the equipment so assembled. We consider that a reasonable view has to be taken in this matter and the cost of the paint should be taken as a part of the cost of the equipment.
6. In the technical specification at page 167 of the paper book, it has been so mentioned about the paint:- "Paint for 1 finish coating of the additional equipment and for 1 primer and 1 finish coating of the pipes as well as paint for marking of the individual systems." "The outer surfaces of the completely assembled Diesel engines will be delivered with a coat of paint.
The outer surfaces of additional equipment receive a primer with the exception of parts made of aluminium, non-ferrous metals or plastics, galvanised parts, small fittings, piping (for lube oil, cooling water, fuel and compressed air) and flexible pipe connections.
The prime and finishing coat of paint for piping as well as finishing coat of paint for accessories forms part of the assembly work." 7. Thus in so far as the paint is concerned, we hold that it was eligible for the benefit of notification No. 111/95 Cus.
8. As regards the special tools, they were neither for the assembly nor for the installation of the power plant. They were for operating the power plant after it had been assembled and completed as capital goods.
They were not covered by the definition of capital goods. This position has been admitted by the appellants when they submitted that these special tools, could not be treated as capital goods for the purpose of Notification No. 111/95 Cus. Thus, they could not be considered as capital goods. They were separately shown in the invoices.
9. The appellants have pleaded that the special tools in question should be covered under Accessories (Condition) Rules, 1963. Thus Accessories (Condition) Rules, 1963 are extracted below:- In exercise of the powers conferred by section 156 of the Customs Act, 1962 of (sic) 1962), the Central Government hereby makes the following rules, namely:- 2. Accessories of an spare parts and maintenance of repairing implements (sic) any article, when imported along with that article shall be chargeable at the (sic) rate of duty as that article, if the proper officer is satisfied that in the (sic) course of trade:- (i) such accessories, parts and implements are compulsorily supplied along with that article; and (ii) no separate charge is made for such supply, their price being included in the price of the article.
(iii) "Licensing Authority" means the Director General, Foreign Trade appointed under section 6 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) or an officer authorised by him to grant a licence under the said Act.
(iv) "CIF value, in relation to second-hand capital goods, means the CIF value of the corresponding new capital goods; (v) "Export obligation", in relation to importers other than those rendering service, 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, and, in relation to importers rendering services, means receiving payments from abroad of freely convertible foreign currency for services rendered through the use of such capital goods.
The provisions of Accessories (Condition) Rules 1963 will only be applicable when the goods imported were accessories of and spare parts and maintenance or repairing implements of the articles imported. In the present case, the special tools did not from part of the equipment. They could not be considered as spare parts and their role was only for operating the plant after it had been installed. Further, in the present case, separate charges have been made for the special tools. The appellants have pleaded that a consolidated price was paid by them and thus, separate indication of value of different items was not material. We find that in the contract price, under Article 3 of the Agreement dated 26.4.94, separate price had been indicated for different items comprising mechanical equipment, spare parts, electrical equipment, packing and forwarding etc. (refer page 27 and 28 of the paper book). In para 3.2 of the Agreement, individual rates and prices were said to be firmed. Para-3.2 is extracted below:- 3.2 It is clearly understood between the parties that the prices are on firm basis and that no adjustment of the contract price or the individual rates and prices therein shall be made in respect of any rise or fall in the cost of labour, materials or transport or any matter affecting the cost of the execution of MBD's obligations hereunder. If L/Cs are established beyond 90 days of the effective date of contract, then price and delivery shall be mutually discussed and decided." In para-5.5 of the same agreement, the value of equipment to be supplied was to be intimated by the supplier. Thus, within the overall value, each equipment was separately priced. It could not, therefore, be said that these special tools were not separately charged in the present case.
10. The appellants have referred to their suppliers communication dated 29.8.95 at page 259 of the paper book. The suppliers had written as under:- "We hereby clarify that we have sold you 2 Nos. of DG sets complete in all respect with all the accessories and necessary tools for a consideration of DM 12 Million each under our above commercial invoice. The commercial invoice in detail indicating the separate value of each components and accessories has been made for our internal convenience, but we hereby certify that we have not charged separately and amount for any items other than those required for 2 nos. of complete DG sets. The total value DM 24 million stands only for 2 nos. of complete DG sets which includes the value of the accessories and tools." We are concerned with the exemption notification Np. 111/95 Cus dated 5.6.95 and the appellants have admitted that special tools were not capital goods for the purpose of the said notification. We have also gone through the provisions of the Accessories (Condition) Rules, 1963.
We do not consider that this communication from the suppliers will change the legal position in so far as the special tools are concerned.
11. We, therefore, find no infirmity in the view taken by the ld.Commissioner of Customs (Appeals), in so far as the special tools are concerned.
12. As regards the interest, the ld. Commissioner of Custom (Appeals) had taken a view that as there was no question of refund of duty, there was no ground for refund of the interest also. As we have taken a view that the benefit of exemption Notification No. 111/95 Cus was available in respect of the paints, but was not available as regards the special tools, the question of interest will have to be re-examined by the jurisdictional authorities in the light of the legal provisions as in force during the relevant time.
In view of the above discussion, the appeal is allowed in so far as the paints are concerned. The appeal is dismissed as regards the special tools. Thus, the appeal is partly allowed. Order accordingly.