2025 (5) TMI 1735 - AT - Customs

Duty demand along with interest and penalty - Goods imported are Capital goods imported earlier Or Capital goods - imported goods are Crucible Pot pot Ring Abrasive Belt PVA wheels Bevelling Cone and Refractories - Validity of the provisions of the Customs Notification No. 104/2009-Cus read with para 3.16.3 of the FTP and para 3.10.6 of the Hand Book of Procedures - HELD THAT - From the definition of capital goods we observe that items required for replacement modernization technological upgradation or expansion of the plant have also been covered within the ambit of capital goods . A perusal of the functions of the above items imported by the appellant indicate that each of the said goods have specific functions which are essential and they aid in the manufacture of glassware by the appellant. Thus we observe that all these goods duly satisfy the requirement of being an accessory or equipment mentioned in the definition of capital goods . We find that these goods are required for manufacture or production either directly or indirectly of glassware by the appellant. Accordingly we find that the goods imported by the appellant are capital goods themselves and hence the restriction of debiting duty from SHIS scripts in excess of the allowable limit of 10% of the total scrip value is not applicable to the goods imported by them. Consequently we hold that the demand of Customs duty confirmed in the impugned order is not sustainable and hence we set aside the same. Since the demand of Customs duty is not sustainable the question of demanding interest or imposing penalty does not arise. Accordingly the same are set aside. Thus we observe that the Ld. adjudicating authority has appropriated the amount of Rs. 40, 29, 822/- and Rs.3, 17, 210/- deposited by the appellant during the course of investigation against the confirmed demand of Rs.57, 94, 968/-. Since the demand confirmed is not sustained we hold the amount of duty appropriated against this demand is not warranted. Hence we set aside the impugned order and allow the appeal filed by the appellant with consequential relief if any as per law.

Summary

The core legal questions considered in this judgment revolve around the interpretation and applicability of Customs Notification No. 104/2009-Cus dated 14.09.2009, read with para 3.16.3 of the Foreign Trade Policy (FTP) and para 3.10.6 of the Handbook of Procedures, Volume-I. Specifically, the issues are:

1. Whether the imported goods-Crucible Pot, Pot Ring, Abrasive Belt, PVA Wheels, Bevelling Cone, and Refractories-qualify as 'capital goods' under the relevant Customs notification and FTP provisions.

2. Whether the appellant was entitled to utilize Status Holder Incentive Scrips (SHIS) for debiting duty on these goods beyond the permitted limit of 10% of the total scrip value.

3. Whether the demand for customs duty, interest, and penalty confirmed by the adjudicating authority is sustainable in light of the classification of the imported goods.

Issue-wise Detailed Analysis

Issue 1: Classification of Imported Goods as 'Capital Goods'

Legal Framework and Precedents: The definition of 'capital goods' is pivotal and is provided both in Customs Notification No. 104/2009-Cus and para 9.12 of the FTP. The definition encompasses "any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernization, technological upgradation or expansion." This definition is inclusive and extends to various categories such as packaging machinery, refractories for initial lining, and equipment for quality and pollution control.

Court's Interpretation and Reasoning: The Tribunal examined the nature and functions of each imported item. The Crucible Pot is a high-temperature resistant container essential for melting glass; the Pot Ring prevents scum accumulation; the Abrasive Belt smoothens glass surfaces; PVA Wheels remove joint marks; Bevelling Cone smoothens item edges; and Refractories serve as furnace lining replacements. These items are integral to the manufacturing process, either directly or indirectly.

The Tribunal emphasized that the definition explicitly includes items required for replacement and modernization, which aligns with the appellant's use of these goods. The Tribunal found that these goods fall within the ambit of "accessories" or "equipment" necessary for manufacture or production.

Key Evidence and Findings: The functional description of each item demonstrated their essential role in the manufacturing process. The Tribunal observed that these goods are not mere spares or parts unrelated to capital goods but are themselves capital goods as per the statutory definition.

Application of Law to Facts: Applying the broad and inclusive definition of capital goods to the facts, the Tribunal concluded that the imported goods qualify as capital goods. Hence, the appellant's contention that the goods fall within the definition was accepted.

Treatment of Competing Arguments: The Revenue argued that the goods were parts or spares not pertaining to capital goods imported earlier and thus not eligible for SHIS benefits beyond the 10% limit. The Tribunal rejected this, noting the statutory definition's inclusiveness and the functional necessity of the goods in production.

Conclusion: The imported goods are 'capital goods' within the meaning of the notification and FTP.

Issue 2: Utilization of SHIS Scrips Beyond 10% Limit

Legal Framework and Precedents: The Customs Notification and FTP impose a restriction that duty debited against SHIS scrips for parts/spares/components of capital goods should not exceed 10% of the total scrip value, except when the goods themselves are capital goods.

Court's Interpretation and Reasoning: Since the Tribunal held the imported goods to be capital goods themselves, the restriction of 10% limit applicable to parts/spares does not apply. The Tribunal reasoned that the appellant's utilization of SHIS scrips for debiting duty on these goods beyond the 10% limit was permissible.

Key Evidence and Findings: The Tribunal relied on the statutory definitions and the nature of the goods to determine the applicability of the restriction.

Application of Law to Facts: The appellant's use of SHIS scrips was in accordance with the law because the goods imported qualify as capital goods, not merely parts or spares.

Treatment of Competing Arguments: The Revenue's contention that the goods were parts/spares and thus subject to the 10% limit was dismissed based on the inclusive definition of capital goods and the functions of the goods.

Conclusion: The appellant was entitled to utilize SHIS scrips beyond the 10% limit for the imported goods.

Issue 3: Sustainability of Duty Demand, Interest, and Penalty

Legal Framework and Precedents: Under the Customs Act and relevant provisions, demand for customs duty, interest, and penalty are contingent upon the correctness of the classification and the legality of the benefit availed.

Court's Interpretation and Reasoning: Since the Tribunal found the imported goods to be capital goods and the appellant's utilization of SHIS scrips lawful, the confirmed demand of customs duty, interest, and penalty was unsustainable.

Key Evidence and Findings: The adjudicating authority had imposed a penalty under Section 114A of the Customs Act and confirmed the duty demand based on the premise that the goods were not capital goods.

Application of Law to Facts: Given the Tribunal's classification, the demand was set aside. Consequently, the penalty and interest, which are derivative of the demand, were also set aside.

Treatment of Competing Arguments: The Revenue's justification for the demand and penalty was based on the incorrect classification of goods, which the Tribunal rejected.

Conclusion: The demand of customs duty, interest, and penalty imposed on the appellant is not sustainable and is set aside.

Additional Findings:

The Tribunal also addressed the issue of appropriation of amounts deposited by the appellant during the investigation. Since the demand was set aside, the appropriation of Rs. 40,29,822/- and Rs. 3,17,210/- was held to be unwarranted.

Significant Holdings

"We find that these goods are required for 'manufacture or production, either directly or indirectly' of glassware by the appellant. Accordingly, we find that the goods imported by the appellant are 'capital goods' themselves and hence the restriction of debiting duty from SHIS scripts in excess of the allowable limit of 10% of the total scrip value is not applicable to the goods imported by them."

"Consequently, we hold that the demand of Customs duty confirmed in the impugned order is not sustainable and hence we set aside the same."

"Since the demand of Customs duty is not sustainable, the question of demanding interest or imposing penalty does not arise. Accordingly, the same are set aside."

"Since the demand confirmed is not sustained, we hold the amount of duty appropriated against this demand is not warranted."

Core Principles Established:

- The definition of 'capital goods' under Customs Notification and FTP is broad and inclusive, covering equipment and accessories required directly or indirectly for manufacture or production, including those for replacement or modernization.

- Goods that are integral and essential to the manufacturing process, even if consumable or replaced periodically, can qualify as capital goods.

- Restrictions on utilization of SHIS scrips for parts/spares do not apply when the imported goods themselves qualify as capital goods.

- Demand for customs duty, interest, and penalty based on misclassification of goods is unsustainable.

Final Determinations:

1. The imported goods are capital goods within the meaning of the Customs Notification and FTP.

2. The appellant was entitled to utilize SHIS scrips for debiting duty beyond the 10% limit applicable to parts/spares.

3. The confirmed demand of customs duty, interest, and penalty is set aside.

4. The appropriation of amounts deposited by the appellant against the demand is unwarranted and set aside.