2023 (2) TMI 242 - AT - Customs

Exemption from the whole of the duty of customs - Import of Machinery as Gift - bilateral Agreement - imported plant and machinery from the European Union for setting up a Fruit Processing Plant at Muvattupuzha in Kerala - exemption notification dated 18.07.1994 - whether the import could be treated as a free gift to enable the appellant to claim the benefit of the exemption notification? HELD THAT - In view of the amendment incorporated in clause (b) of clause 3 on 08.03.2002 the capital investment cost of the Agro-Processing Component (85%) was to be provided as a grant and the working capital (15%) was to be provided as a loan to be repaid in a revolving fund - In the present case the machinery and plant was a capital investment and so the cost was provided as a grant. A grant has been defined in Chambers Dictionary as something bestowed an allowance; a gift . It would be seen from the Agreement that though initially the cost of Agro-Processing Component under clause 3 of the Annexure-A (Technical and Administrative Provisions) was to be transferred to the Project by the Government of India as a loan of 4.108 million euro but subsequently an amendment was incorporated on 08.03.2002. The amended clause 3 provides that the Agro-Processing Component was increased from 4.108 million euro to 7.196 million euro and out of this amount the capital investment cost (85%) was to be provided as a grant and the working capital (15%) was to be provided as a loan to be repaid in a revolving fund. Thus the plant and machinery which would be included in the capital investment cost was provided as a grant which means as a gift. Clause 8 of the exemption notification would therefore be satisfied. This factual portion is also reflected from the Certificate dated 09.11.1999 given by the European Union. The Certificate clearly mentions that the plant and machinery was gifted free of cost to the Programme under the bilateral Agreement between the Government of India and the European Union - the Commissioner (Appeals) failed to notice the amendment made in clause 3(b) of Agreement while recording a finding that the plant and machinery was provided on a loan which was to be repaid. On a plain reading of the Agreement it is clear that clause 8 of the exemption notification stands satisfied - appeal allowed.

Summary

Issues Involved:
1. Whether the appellant could claim exemption from customs duty under the exemption notification dated 18.07.1994 for imported plant and machinery.
2. Interpretation of the term "free of cost" in the context of the exemption notification.
3. Validity of the findings by the Commissioner (Appeals) and Tribunal regarding the exemption claim.
4. Impact of the Financing Agreement and subsequent amendments on the exemption eligibility.

Detailed Analysis:

Issue 1: Claim for Exemption from Customs Duty
The appellant sought exemption from customs duty on imported plant and machinery under the exemption notification dated 18.07.1994, which exempts specified free gifts, donations, relief, and rehabilitation material imported by charitable organizations, Red Cross Society, CARE, and Government of India.

Issue 2: Interpretation of "Free of Cost"
The core question was whether the imported plant and machinery were "gifted free of cost" under a bilateral agreement between the Government of India and a foreign government, as stipulated in the exemption notification. The Deputy Commissioner and Commissioner (Appeals) held that the import was not free of cost because it was covered by a grant and involved repayment as a long-term loan.

Issue 3: Findings by Commissioner (Appeals) and Tribunal
The Commissioner (Appeals) dismissed the appellant's claim, noting the cost was to be repaid in installments with interest, thus not qualifying as a free gift. However, the Tribunal initially allowed the appeal, relying on a certificate from the European Union stating that the plant and machinery were gifted free of cost under the bilateral agreement.

Issue 4: Financing Agreement and Amendments
The Financing Agreement dated 17.01.1992 between the European Economic Community and the Republic of India, and its subsequent amendments, were pivotal. The agreement initially indicated a loan arrangement, but an amendment on 08.03.2002 clarified that 85% of the capital investment cost was provided as a grant, and 15% as a loan to be repaid in a revolving fund.

High Court's Remand:
The Kerala High Court remanded the matter to the Tribunal, emphasizing the need to consider whether the goods were truly imported free of cost, taking into account the repayment obligations and the primary documents. The High Court found the Tribunal's earlier findings unsustainable as they did not thoroughly consider the sequence of circumstances and the repayment obligations.

Tribunal's Final Decision:
Upon reconsideration, the Tribunal noted:
- The amended clauses of the Financing Agreement indicated that the capital investment cost (85%) was provided as a grant, which qualifies as a gift.
- The certificate from the European Union confirmed that the plant and machinery were gifted free of cost under the bilateral agreement.
- The Commissioner (Appeals) failed to recognize the amendment in the agreement, which was crucial to determining the exemption eligibility.

Conclusion:
The Tribunal concluded that the plant and machinery were indeed provided as a grant, satisfying the conditions of the exemption notification. Consequently, the order of the Commissioner (Appeals) was set aside, and the appeal was allowed, granting the appellant the benefit of duty-free import under the exemption notification.

Order Pronounced:
The appeal was allowed, and the order was pronounced in the Open Court on 03.02.2023.