Full Judgment
2. M/s. Hathwa Metals & Tubes imported, under a Bill of Entry, 4 items of machinery accessories and spares namely :- (i) One unit of Hydraulic Extrusion Press (which has been considered to be the main machinery), They claimed assessment of the goods under Heading 84.45/48 CTA read with Notification No. 40/78-Cus.
3. In respect of item (i), the Customs extended the benefit of the Notification at the time of clearance. There was and is no dispute about this item. The next 2 items were assessed on merits without the benefit of Notification No. 40/78.
4. In respect of item (iv) however the Assistant Collector ordered assessment at the highest rate applicable in terms of Section 19 of the Customs Act on the ground that separate individual values were not available for the spares covered by this item.
5. M/s. Hathwa Metals & Tubes Ltd. (hereinafter referred to Hathwa) appealed to the Appellate Collector. The Appellate Collector by the impugned order extended the benefit of the notification to items (ii) & (iii) and further ordered that inasmuch as individual values were available for the spare parts their assessment should be on merits and not at the highest rate.
6. Hathwa filed an appeal (No. 76 of 82) against the refusal of the Appellate Collector to extend the benefit of exemption notification to item (iv) (There was some delay in filing the revision application. The same is hereby condoned).
7. The Revenue did not accept the order of the Appellate Collector with reference to items (ii) and (iii). The Govt. issued a show cause notice dated 16.1.1982 whereby they communicated their tentative view that the Mandrel Internal Cooling device as well as the additional set of tooling items (ii) and (iii) were correctly classifiable under Heading No. 84.45/48 CTA at the standard rate of duty (without the benefit of exemption Notification). The Government's notice was based on the following :- (a) The Mandrel Cooling device appears to be a complete item by itself designed for installation along side the Extrusion press. As per the manufacturer's leaflet "the press can be equipped with cooling facilities for containers, die and Mandrel. This helps to improve quality of the product and increase the service lift of the tools" the function of this Mandrel Cooling Device appears to supply the cool and inside the insert pipes of the Mandrel and thus help cooling down the temperature of the latter. This function appears conform to the definition of "Accessory". As per the "Dictionary of technical terms" by F.S. Grepain, an 'Accessory' is a mechanical part of attachment but not necessarily a part of the machine but does made possible a wider range of work or better performance and as per the Explanatory notes to the CCCN 'accessories', are subsidiary devices used in connection with the machine tools - to perform a particular service relative to the main function of the machine. Since as per the manufacturer's leaflet the Mandrel cooling device appears to be a separate assembly which helps improvement of the quality of the product and also appears to increase the service lift of the Mandrel, it is essentially an accessory for the Extrusion press. Further the description in the leaflet noted above, also appears to indicate that this cooling equipment is optional and not a compulsory supply. The fact that it has been separately charged for in the invoice appears to corroborate the above facts.
In view of the above, it appears that the goods in question are correctly assessable on merits.
(b) The Appellate Collector appears to have been under the impression that Central Board of Excise and Customs while deciding the appeal against Collector's order of adjudication had taken the Mandrel cooling device as part of the machine, but it appears that the Central Board of Excise and Customs had taken the cooling device as part of the plant only.
(c) It appears that as per the details of the goods imposed, the Extrusion press is complete with a set of tooling, it appears, are clearly accessories making possible over range of work in the Extrusion press.
This notice, considered as an appeal by Revenue, is now before us (Appeal No. 1567/82-B2).
8. We heard Shri J.N. Roy for Hathwa and Shri D.K. Saha, JDR for the Revenue.
9. Shri Saha arguing for Revenue submitted that the machines needed only one set of Tooling and the additional set of Tooling could not be considered as part of the man machine and, therefore, do not deserve the concessional assessment. He submitted that the 2nd set of tooling was charged for separately. Referring to Accessories (Condition) Rules, 1963 he submitted that as the goods were charged separately and were not essential for the function of the machine, the Appellate Collector's order was wrong in extending to them the benefit of concessional notifiction. Submitting that Notification No. 40/78 applied to the machine only, the Ld. JDR emphasised that the notification had to be interpreted independently and strictly. In respect of the Mandrel Internal Cooling System item (ii), Shri Saha reiterated the grounds contained in the review show cause notice.
10. Shri J.N. Roy, Ld. Counsel for Hathwa submitted that the Central Board of Excise & Customs already decided (in respect of Licensing) that the second set of Mandrel Internal Cooling System was an essential and integral part of the machinery. He explained that each set of tools had a specific purpose. One set was intended for manufacture of copper tubes and another for Cupro nickel tubes. Therefore both are parts as correctly recognised by the Central Board of Excise and Customs according to the Ld. Advocate. With regard to the Mandrel Cooling device Shri Roy submitted that Revenue has not proved any alternate use for the same and emphasised that the manufacturer's certificate establishes the exclusive use of the same in the main machine, namely, Hydraulic Extrusion Press.
11. Arguing in support of Hathwa Shri J.N. Roy the Counsel for the respondents in appeal (No. 76/82) submitted that the imported plant was "costly one valued at 1.25 crores at that time. It is tailor-made and not an off-the-shelf item and was intended to manufacture copper tubes & cupro nickel tubes. He submitted that the price was fixed by quotations and negotiations. Referring to the invoice the Ld. Counsel argued that what was supplied was one complete unit of Extrusion press.
Therefore assessment of all the items which comprised the Extrusion press should have been under one heading only. The other articles imported included erection and maintenance spares and cooling system which were essential for running the plant. Shri Roy submitted that individual values were given only when customs required that such value should be given. He submitted that the Appellate Collector ignored some strong arguments (but the Bench did not have the benefit of the details of such arguments). Shri Roy submitted that the supplies of spare parts as parts of the main machinery was a standard practice. He also referred to the order of Central Board of Excise & Customs wherein a reference was made to "plant" a term used by the ITC Policy book as nomenclature for the relevant QGL item. Shri Roy argued that the definition in ITC should apply to Tariff and in support of his argument referred to the note given to Schedule-I, ITC order, appendix 2, (78-79 Hand Book). Shri Roy relied on the manufacturer's certificate dated 16.1.81 and dwelt on the object of Notification No. 40/78 which was issued to allow growth of industry. He termed the refusal of concessional assessment as childish and stated that it was a result of "whims and fancies".
12. Opposing Shri Roy's arguments, Shri D.K. Saha, Ld. JDR submitted that the order placed for the machinery gave separate values for cooling and spares. He submitted that Accessories (Condition) Rules do not apply here as separate values were available and the various items imported cannot be considered, for the purpose of charging the same rate of duty, as parts of the main machine. Shri Roy in his rejoinder submitted that mention of separate values at order stage should not be considered relevant and it is only the invoice, wherein only a consolidated value is given, that should be taken into consideration.
He reiterated that the supply of spares and tooling was compulsory.
14. Insofar as item (i) of the Bill of Entry is concerned (Hydraulic Extrusion Press) there is no dispute as this machine with certain accessories has been allowed the benefit of the Notification.
15. In respect of Mandrel Internal Cooling System the Government's view as expressed in the review show cause notice was that the Mandrel Cooling Device appeared to be a complete item by itself, designed for installation alongside the Extrusion Press. The Govt. took the view that installation of this machine helps to improve quality of the product and to increase the service life of the tools. This view was based on the catalogue pertaining to the machine. Noting that the cooling equipment is an accessory to the main machine, the Govt.
recorded that the equipment is optional and not a compulsory supply. In the review notice, it was stated that the "fact that it has been separately charged for in the invoice appears to corroborate the above facts". In their reply dated 16th Feb. 1982, Hathwa stated that the value given as DM 247000 was a consolidated value. We have perused the invoice. While the various instruments have been mentioned separately in detail the value was found to be consolidated. Therefore the allegation that separate value has been given to this item in the invoice cannot be sustained. It is already accepted that this item is an accessory to the main machine. Therefore, extension of the benefit of the Accessory (Condition) Rules, 1963 to the item would be just and fair. We, therefore, reject the Revenue's appeal in this regard.
16. In respect of the Additional Set of Tooling the position is that the Appellate Collector has allowed the benefit of the notification.
The argument of the Revenue is that the benefit of Notification No.40/78-Cus. is applicable to the machine and not to the parts thereof or accessories thereto. We have considered the arguments of Hathwa that the toolings are required for alternative operation of the machine and to achieve the maximum utility therefrom. It may be so but from what has been explained and from what we find from the available documents we cannot hold that these constitute a part of the machine. The Appellate order impugned before us did not specifically examine this aspect at all. We, m the circumstances, hold that extension of the benefit of the Notification No. 40/78 to the Additional Set of Tooling was wrong. We allow the Revenue's appeal in this regard.
17. The last item is spares. These spares consist of erection spares and maintenance spares. We note, from perusal of the invoice, that these spares have been separately listed and separate value was given.
Their supply with the machine has not been shown to be compulsory. They being spares, there can be no question of compulsory supply. The Appellate Collector has already ordered that the spares should be assessed on individual merits and not at the highest rate. Considering the nature of the goods which are spares, we do not accept claims of Hathwa that these spares should also be considered as part of the machine and that they should be extended the benefit of Notification No. 40/78-Cus.
18. As a result the Revenue's appeal is partly allowed as indicated above. The appeal filed by Hathwa is rejected.