Case Note & Summary
The dispute concerned customs duty exemption on imported Crystar Beams used as kiln furniture in the manufacture of H.T. Porcelain Insulators required for Lightening Arrestors. The appellant, a manufacturer and exporter of Lightening Arrestors, was awarded a Deemed Export Order by the Railway Board for supply of 937 numbers of Metal Oxide Gapless Type Lightening Arrestors under an International Development Scheme. For manufacturing these arrestors, porcelain housing insulators were produced in ceramic kilns, and Crystar Beams made of Silicon Carbide were used for firing dry and hollow H.T. porcelain bushings. These beams were susceptible to breakage and required continuous replacement. The appellant applied for a Special Import Licence on 29.03.1990, which was issued on 24.04.1990 along with a Duty Exemption Entitlement Certificate (DEEC). Upon import, the appellant claimed duty-free clearance under Notification No.210/82-Cus dated 10.09.1982. The Additional Collector of Customs denied the exemption, holding that Crystar Beams were capital goods and not raw materials or components of the resultant product. The Customs Excise & Gold (Control) Appellate Tribunal upheld this view by order dated 05.11.1992, stating that the expression 'raw materials and components required for the manufacture of goods' could not include items required for a kiln or furnace used in manufacturing. The appellant argued that the conditions of Notification No.210/82-Cus were fulfilled and that Crystar Beams should be treated as components required for manufacture. The appellant also relied on Notification No.116/88-Cus dated 30.03.1988, which used the phrase 'materials required to be imported for the purpose of manufacture of products'. The respondent revenue contended that the definition of 'materials' in clause (viii) of the Explanation to Notification No.116/88-Cus required direct use in the manufacture of resultant products and relied on Tata Oil Mills Co. Ltd. v. Collector of C. Ex., 1989 43 ELT 183. The Supreme Court held that the expression 'materials required to be imported for the purpose of manufacture of products' must be given its natural meaning and includes materials that are required in order to manufacture the resultant products, even if not directly used. The court also held that the Explanation to the notification must be read in consonance with the main part and cannot narrow the exemption. Consequently, Crystar Beams imported by the appellant were held to be materials required for producing insulators and eligible for exemption under Notification No.116/88-Cus. The appeal was allowed, and the orders of the lower authorities were set aside.
Headnote
A) Customs Law - Exemption Notification - Interpretation of 'Materials Required for Manufacture' - Notification No.116/88-Cus dated 30.03.1988 - The expression 'materials required to be imported for the purpose of manufacture of products' must be given its natural meaning and includes materials that are required in order to manufacture the resultant products, even if not directly used in the final product - Held that Crystar Beams used as kiln furniture for producing H.T. porcelain insulators are eligible for exemption despite not being components of lightening arrestors (Paras 1-6). B) Customs Law - Exemption Notification - Definition of Materials in Explanation - Notification No.116/88-Cus dated 30.03.1988, Explanation clause (viii) - The definition of 'materials' as goods used in the manufacture of resultant products has to be read in consonance with the main part of the notification and cannot narrow the exemption granted for materials required for the purpose of manufacture - Held that the explanation does not restrict exemption to only materials directly used in the resultant product (Paras 1-6). C) Customs Law - DEEC Certificate and Customs Authority Jurisdiction - Customs Act, 1962, Section 25 - Inclusion of goods in DEEC Part C does not preclude customs authorities from determining eligibility for duty exemption, as exemption notifications are interpreted by customs authorities - Held that the Tribunal's view on jurisdiction is correct but denial of exemption on merits is erroneous (Paras 1-6). D) Customs Law - Object and Purpose of Exemption - Notification No.116/88-Cus dated 30.03.1988 - Exemption intended to encourage exports by allowing duty-free import of materials required for export production; interpretation must promote that object - Held that Crystar Beams required for kiln operation satisfy the purpose of manufacture and are eligible for exemption (Paras 1-6).
Issue of Consideration
Whether Crystar Beams imported as kiln furniture are eligible for customs duty exemption under Notification No.210/82-Cus dated 10.09.1982 and Notification No.116/88-Cus dated 30.03.1988; whether inclusion of items in DEEC Part C precludes customs authorities from independently determining duty exemption; interpretation of 'materials required to be imported for the purpose of manufacture of products'
Final Decision
The Supreme Court held that Crystar Beams imported by the appellant are materials required for the purpose of manufacture of H.T. Porcelain Insulators and are eligible for exemption from customs duty under Notification No.116/88-Cus dated 30.03.1988. The appeal was allowed, and the orders of the Additional Collector and the Tribunal were set aside.
Law Points
- Exemption notification must be interpreted in light of its object and purpose
- expression 'materials required to be imported for the purpose of manufacture of products' includes materials necessary for manufacturing process even if not directly used in resultant product
- explanation to notification must be read in consonance with main part
- DEEC inclusion does not preclude customs authorities from determining exemption eligibility
