Judgment:
V.C. Daga, J.
1. Rule returnable forthwith. Shri Rana waives services for the respondents. By consent of parties petition is taken up for final hearing.
2. This petition raises an important question, that whether or not the use of fully built imported car, during the course of study and research, amounts to use of a car after importation thereof into India as contemplated under Section 74(2) of the Customs Act, 1962 ('Act' for short)
Contextual facts:
3. For the resolution of the above question, it is necessary to consider contextual facts.
The contextual facts depict that the petitioners are engaged, in the manufacture of passenger cars having their factory at Pune. The cars are manufactured from the completely knocked down kits and parts imported by the petitioners.
4. Petitioners wanted to increase the indigenisation of the components used in the manufacture of car rather than depending on the imported components. Therefore, for conducting study and also for development of the component parts in India, the petitioners imported a fully built car from South Africa in December 1995.
5. After importation of car, while conducting the study and research, it was driven within the factory premises. Further, for the purpose of export, the car was driven from Pune to Mumbai. The car had thus clocked a mileage of 232 Kms. The said car, after conducting studies of various components in India came to be exported on 17.2.1997, under cover of shipping bill for export of goods under claim for draw back.
6. The petitioners on 27.5.1997 filed draw back claim with respondent No. 4 claiming drawback a 98% as provided in Section 74(1) of the Customs Act, 1962 amounting to Rs. 18,85,868.88. On 13.4.2000, the petitioners were granted draw back @ 60% amounting to Rs. 11,52,648/-. in terms of Section 74(2) of the Customs Act, read with Notification No. 19/1995 dated 6.2.1995 issued thereunder, holding that the car was used in India prior to its exportation and hence the petitioners are not entitled for 98% drawback.
7. Not being satisfied with the grant of duty draw back @ 60% an appeal was preferred by the petitioners, against the aforesaid order dated 23.4.2000 passed by the Assistant Commissioner of Customs, to the Commissioner of Customs (Appeals), Mumbai, who vide its order dated 23.8.2000 had allowed the appeal holding that the car was not used before export and that the petitioners were entitled for duty drawback @ 98%, however, declined to grant interest under Section 27A on delayed payment of duty drawback.
8. Being aggrieved by the above order dated 18.10.2001 the petitioners as well as Revenue preferred revision applications before the Government of India- the Respondent No. 2, who, vide its impugned order dated 24.9.2002 allowed both revision applications holding that the car was used prior to export as such, the petitioners were not entitled to duty draw back at the rate of 98 of the duty paid at the same time, petitioners were held entitled for interest on delayed refund of duty drawback.
9. Dissatisfied with the aforesaid order of the respondent No. 2, holding that petitioners were not entitled to claim duty drawback @ 98% of the duty paid, the petitioners preferred this writ petition under Article 226 of the Constitution of India, contending that the impugned order is unsustainable and suffers from non- application of mind as such liable to be quashed and set aside.
Arguments:
10. Shri Shreedharan, learned Counsel appearing for the petitioners, based on his well research submissions urged that employment of the word 'use' in Section 74(2) of the Act contemplates commercial use of imported goods prior to its export. In his submission, use of car after its importation during the course of study, cannot be said to be 'use' of goods as contemplated under Section 74(2) of the Act. According to him, the goods must be used or commercially exploited for the purpose for which it was made. As a extension of the same submission, for the same reason, he submits that if for the purposes of export the car was driven from Mumbai to Pune, it did not amount to use of the car in India after its importation. He further contended that in the present case, car cannot be said to have been used since there is no depreciation in valuation. The car was imported for the purposes of study, on re-export basis. The foreign supplier did not charge the petitioners for the car supplies. After re-export also, the foreign supplier has not charged the petitioners.
11. According to Shri Shreedharan, under Section 39 of the Motor Vehicles Act, any car prior to its use, must be registered with the authorities specified therein. In otherwords, car could not have been put to use on road without its registration. The car in question was never used by plying on road after its registration under Motor Vehicles Act. In the instant case, he such registration was ever obtained since car was to be exported back. He also contended that the car was never meant for use in India. For this reason also, the car cannot be said to have been used after importation in India. He placed reliance on the judgment of the Supreme Court in the case of Anwarkhan Mahboob co. v. State of Bombay, : [1961]1SCR709 and in the case of Kathiawar Industries Ltd. v. Jafarabad Municipality 1979 SCC 56 to contend that the car only be said to have been used, if it is used for the purpose for which it was intended. Therefore, on the facts of this case, there is he use of car within the meaning of Section 74(2) of the Act as such petitioners are entitled for duty draw back @ 98% of the duty paid by them.
Per Contra:
12. In a persuasive address by Shri Rana, learned Senior Counsel for the Revenue, submitted that the 'use' after importation contemplated under Section 74(2) of the Act, does not mean use for commercial activity only. According to him, use for short period for demonstration, exhibition or study, research or display is covered under the provisions of Section 74(2) of the Act. He placed reliance on decision in the case of Millipore (India) Private Limited v. Union of India : 1999ECR465(Karnataka) , wherein the Karnataka High Court held that exhibition or demonstration of the machinery amounts to its use within the meaning of Section 74(2) of the Act. In that case, it was observed that once machinery is operated, may be for a shorter time, for demonstration or exhibition the machinery is treated as used. If the machinery is put to use in exhibition, for some time then, it does not remain a new machinery. Shri Rana thus contended that the submissions advanced by the petitioners are misplaced.
In Rejoinder:
13. Shri Shridharan urged that reliance placed upon the judgment of the Karnataka High Court in Millipore (India) Ltd. (supra) would not apply to the facts of the present case since for the purpose of study, the car has to be driven within the factory to study the functioning of the parts and the same was driven from Pune to Mumbai for export. He thus tried to distinguish the said judgment on the basis of the facts involved in the present case.
The issue:
14. The substantive issue which needs consideration is whether on the facts and in the circumstances of the case, petitioners are entitled for duty draw back @ 98% of the Customs duty paid at the time of importation?
Relevant Provisions :
15. Before we proceed to resolve the above issue, it is appropriate first to consider the provisions applicable to the present case. Section 74 in general and Sub-section (2) thereof in particular, is relevant for the purposes of deciding the issue raised in the petition. Section 74 of the Act comes into operation when articles are imported and exported and such articles are easily identifiable. Sub-section (5) of Section 74 provides that the rate of draw back in the case of goods which have been used after importation thereof shall be as notified by the Government. Relevant portion of Section 74(2) reads as under:
'Notwithstanding anything contained in Sub-section (1), the rate of drawback in the case of goods which have been used after the importation thereof shall be such as the Central Government, having regard to the duration of use, depreciation in value and other relevant circumstances, may, by notification in the Official Gazette, fix.'
The aforesaid Sub-section (2) of Section 74 provides that the rate of drawback shall be such as may be fixed by the Central Government by Notification issued in that behalf. Notification No. 19/95-Cus. dated 6.2.1995 has been issued by the Government of India, in supersession of the notification of the Government of India, Ministry of Finance, (Department of Revenue), Customs No. 48, dated 1st February 1963. The Central Government fixed the rate as mentioned in column 2 of the table reproduced hereinbelow, as the rates at which drawback of import duty is to be allowed in respect of goods used which have been out of Customs control for the period mentioned therein, the details of which are as under :
Length of period between of clearance for home consumption and the date when the goods are placed under Customs control for export.
Percentage of import duty to be paid as drawback .
Not more than 6 months
85%More than 6 months but not more than 12 months
70%More than 12 months but not more than 18 months
60%More than 18 months but not more than 24 months.
50%More than 24 months but not more than 30 months.
40%More than 30 months but not more than 36 months.30%More than 36 months.Nil.
Analysis of submissions:
Having heard the rival parties at length, it appears that Sub-section (2) of Section 74 allows duty drawback in respect of used goods subject to Central Government's notification in this regard. If one turns to text of Section 74(2) of the Act, use of the duration of the goods decides the extent of refund of duty draw back. The basis question needs to be answered is what do you mean by the word 'use' employed in the Sub-section (2) in question. In order to answer this question one has to turn to the basis fact as to under which scheme of the import policy the import of the car was made by the petitioners, keeping in mind the policy under which the import of the car was made the question or issue raised herein will have to be answered. The Hand Book of Procedure (Vol.I) for the period 1st April 1992 to 31st March 1997 issued by the Ministry of Commerce, Government of India, vide its Clause (98) provides for certain concession for the importability for certain category of imports not involving foreign exchange remittances. The relevant Sub-clause (xiii) of Clause (98) reads as under:
(xii) 'Import of prototypes and samples and exceeding 5 in number in a year by Actual Users, industrial or recognised research and development institutions already engaged in the production of or research in the item for which prototype/sample is sought for product development or research, as the case may be, upon a self declaration to that effect to the satisfaction of the Customs authorities. Import of prototypes/samples may also be made on payment by the Actual Uses, industrial or research and development institutions as per the above mentioned terms and conditions.
Applications for grant of license/CCP for import of additional requirements of prototypes/samples not exceeding five in number in a year may be considered by the Regional Licensing Authority.'
16. Now, let us examine whether the petitioners are justified in their contention that under Section 74(2) of the Act 'use' contemplated is commercial use of the imported goods prior to its export. In other words, is it necessary for the purposes of Section 74(2) that the goods must be used prior to its export for the purpose for which it was intended. Can it be said that in absence of such included user the goods were not used or that there was no use within the meaning of Section 74(2) of the Act. In order to answer these questions, undisputed facts noticed are : The petitioners were desirous of manufacturing car spare parts to avoid depending on imported components. In order to carry out study and research in that behalf with a view to developed technical of manufacturing spare parts in India, the import of car was made from south Africa in December 1995. While conducting study, the car was driven within the factory premises. It was further driven from Pune to Mumbai for the purposes of export. The car had thus clocked a mileage of 232 Km. The word 'use' is not defined in the Act. It must, therefore, carry its ordinary meaning subject to such modification as the context requires.
17. Let us examine the ordinary meaning of the word 'use;. In Shorter Oxford Dictionary the word 'use' as a verb has been given a large number of meanings, the most appropriate of which so far as we are concerned, is 'to make use' Black's Law Dictionary has defined the word 'use' as a verb, to mean ' to make use of to convert into one's service, to avail one's self of, to employ.' It will, therefore, be noticed that the word 'use' carries a very wide meaning. Thus, applying the dictionary meaning, one has to reach to the conclusion whether the use of the car was made after its import, for the purpose for which it was imported. It was utilised for the purpose of study for which import was permitted or allowed. Having acted upon the import policy or the Government of India; having taken advantage of importability not involving foreign remittance, having used the goods/Car for research for which it was imported, can it be said that car was not used for the purpose for which import was made. The answer, in our opinion should be in the negative.
18. Learned Counsel for the petitioners relied upon judgment of the Apex Court in the case Anwarkhan Mahboob v. State of Bombay : [1961]1SCR709 and in the case of Kathiawar Industries Ltd. v. Jaffarabad Municipality : [1980]1SCR243 . In our considered view, the facts involved in those cases were altogether different and could be of no assistance to resolve the issue involved in this case.
19. Shri Rana, learned Counsel for the Revenue, rightly placed reliance upon the judgment of the Karnataka High Court in Millipore (India) (Supra); wherein the said Court has observed as under:
'There is a difference between display and demonstration. It is not the case of the petitioners that the machineries imported were kept intact and were not operated. No evidence to this effect was submitted. Once, the machinery is operate, may be for a shorter time for demonstration or exhibition to show its performance etc,, the machinery is used. If machinery is put to use in exhibition, for sometime, then, it does not remain as a new machinery. Even the machineries which are brought for exhibition, after display, normally they are sold at lesser price. There is always depreciation of the machinery. The finding which has been recorded that the machineries were operated is not challenged. Once there is operation of a machinery, it amounts to its use and as such, the refund could be claimed only under Section 74(2) of the Customs Act and not under Section 74(1). The decisions which has been relied on by the learned Counsel for the petitioner has no application, because, in that case, the machineries were to put to any use at all, and distinctions were drawn between the provisions of Sections 74 and 75 of the Customs Act. Section 75 of the Customs act refers to the use in the manufacture of goods. There is no such contemplation under Section 74 and, therefore, the use for exhibition would be covered under the term used under Section 74(2). The refund has rightly been granted. No case for interference is made out.
Writ petitions are dismissed accordingly.'
The above case can be said to be little closer to the facts of the present case. We respectfully propose to follow the above view taken by the Karnataka High Court.
20. The Supreme Court recently had an occasion to consider the similar issue in case of Director of Entry Tax v. Mainbrace & Mahindra, 2001(5) Supreme 394. Interpretation of the word 'use' in the light and context of Taxes of Entry of Goods into Calcutta Metropolitan Area Act, 1972 (the 'Act of 1972' for short) was required to be considered. The respondents therein had brought machines within the metropolitan area of Calcutta for exhibition. The said machine was exhibited. It was demonstrated to those who were interested in these machines and who wanted demonstration. The respondents after demonstration was over, removed those machines from the metropolitan area of City of Calcutta within six months of its entry therein and applied for a refund of the tax paid thereon under the provisions of Section 19 of the Act of 1972. Application was heard by the West Bengal Taxation Tribunal. The application was allowed. The Tribunal held that for the purposes of Sections 6 and 19, a demonstration for promoting business interests without charging any fees for such demonstration could not be treated as 'use. This order of the Tribunal came to be challenged at the instance of the Director of Entry Taxes before the Apex Court in S.L.P. While setting aside the order of the Tribunal, the Apex Court observed thus :
'We are unable to accept the submission on behalf of the respondents. This is not a case where a machine had only been displayed. As the affidavit on behalf of the respondents makes clear, a demonstration of the said machine was sought and it was given. In otherwords, the machine was started up and its working was shown. It was, therefore, used and it is of no consequence that the use was not for the purpose of it was made. Its use being established, the provisions of Section 19 do not permit the refund. That the demonstration was free of charge does not make any difference to this position.'
Turning to the facts of the present case, on the legal canvas quoted hereinabove, one has to take into account the purpose for which the import of car was made and the scheme under which it was imported. The import of the car in question was in made under the policy of the Government of India, which permitted free importability of the goods for certain categories of imports not involving foreign exchange remittances. In the case at hand, car was imported under Clause 98(xii) quoted supra, which permitted import of the prototypes and samples by the actual users, industrial or research and development institutions as per the terms of the policy framed in this behalf. After importation of car it was actually used as a specimen for conducting research to initiate spare parts thereof, with a view to developed its manufacture in India. The car was driven within factory premises for the said purpose. In our opinion, on the factual matrix of this case, which is not in dispute, the car was used for the purpose for which it was imported, taking advantage of free importability permitted by the export policy of the country. Use of the car for the purpose of research can also be said to be use for commercial purpose. As a matter of fact, petitioners, in our opinion, are estopped from canvassing any contrary contention. The impugned order though did not take this view, which Revenue could persuade us to support the ultimate conclusion reached in the impugned order may be for the different reasons recorded herein. The impugned order thus can be sustained for the reasons recorded herein, in addition to the reason given by the authorities below.
20. Alternatively, assuming that the above use is not contemplated in Section 74(2) of the Act; even then the petitioners cannot be said to be in a better position. Petitioners are not right in contending that the car was not used for the purpose for which it was meant. They are also not right in contending that the vehicle was not put to commercial use prior to its export. Submission is misplaced even on the factual score.
21. The vehicle in question was actually used, it was driven from Pune to Mumbai, may be for the purpose of export, but the fact remains that it was actually used for the purpose for which it was made, if the actual question raised by the petitioners is to be answered. The extent of use of the car on public road may be for a specific limited purpose, will also amount to use of car for the purpose for which it was imported. As a matter of fact, the car could not have been driven from Pune to Mumbai on public road without there being registration under the Motor Vehicles Act. The breach of the provisions of the Motor Vehicles Act, if any, cannot go to the advantage of the petitioners. It is not open for the petitioners to take advantage of its own wrong to contend that the absence of registration of the vehicle under Motor Vehicles act must lead to an inference that it was not used for the purpose for which it was imported. From the admission given by the petitioners in the petition, that the vehicle was used for conducting study and research, with a view to developed manufacture of spare part in India and the same was driven in the factory premises and also on public road from Pune to Bombay, is sufficient to hold that the vehicle was put to use as contemplated under section 74(2) of the Act.
22. In the above view of the matter, in our considered view, the vehicle was put to use after its importation and respondent No. 2 was justified in directing refund of duty drawback @ 60% in terms of Section 74(2) read with Notification No. 19/65-Cus. dated 6th February 1965.
23. In the result, petition is dismissed. Rule stands discharged with no order as to costs.