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TMI Blog2025 (2) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... /2017 09/2017-CE 28.02.2017 16.03.2015 to 31.12.20 15 36,39,72,762/- 57 I/1&2, Ecotech -I, Extn -I Greater Noida 1.2 The respondents in these appeal are two units of M/s Elentec India Pvt. Ltd., having their registered office at B-8/14, 1st Floor Vasant Vihar, New Delhi operating from the two different premises as per the address in column 6. 1.3 One appeal has been filed by the Respondent as detailed below: C/70664/2017 02/Pr. Comm/Noida/2017-18 18.05.2017 01.01.2016 to 29.02.2016 8,05,65,853 B-37 Sector 80 Phase II NOIDA By the impugned order the demand has been confirmed so respondent (party) filed the appeal. 2.1 Respondents, are 100% export oriented unit (100% EOU) engaged in the manufacture of battery chargers and parts/ components of mobile phone falling under tariff items 8504 40 30 and 8517 70 90 respectively of the First Schedule to the Central Excise Tariff Act, 1985. 2.2 Acting on intelligence received in Directorate General of Central Excise Intelligence to effect that. respondents were not paying Customs duty and Central Excise duty foregone on the raw materials/ inputs (imported as well as procured indigenously), utilized in the manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.2015 to 31.12.20 15 2.5 In terms of general exemption notification No. 12/2012-CE dtd 17.03.2012 and 12/2012-Cus. dated 17.,03.2012, the exemption from duty is available to the sub-parts of the parts, components and accessories of tablet computers, mobile handsets including cellular phones. 2.6 The amount of Central Excise duty foregone by Respondent No 1, under Notification No. 22/2003- CE dated 31.03. 2003, on the indigenous procurements comes to Rs. 93,18,949/- and the amount of Customs duty foregone under Notification No. 52/2003-Cus dated 31.03.2003, on the imported raw materials/ inputs comes to Rs. 35,46,53,813/-. Thus resulting in nonpayment of total Customs duty and CVD, during disputed period of Rs 36,39,72,762/-. 2.7 A show cause notice dated 04.04.2016 was issued to respondent 1 asking him to show cause as to why (i) Customs duty & Central Excise duty (inclusive of Education Cess and Secondary & Higher Education Cess) amounting to Rs. 36,39,72,762/- (Rs. Thirty Six Crore Thirty Nine Lakh Seventy Two Thousand Seven Hundred and Sixty Two only), as detailed in paras 6 and 7 above, should not be demanded and recovered from them under Section 28(4) of the Customs Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.03.2003 * On the basis Notification no. 12/2012-Cus dated 17.03.2012 and notification no. 22/2003-CE dated 3103.2003 contend that "raw material, parts/sub-parts, components arc one and same thing". This is not correct as these terms have been differentiated in these notifications itself. Few examples from notification no. 12/2012-Cus dated 17.03.2012 are Entry No 357, 362, 460, 469, 407A and 431. * it is apparent that notification no. 12/2012-Cus dated 17,03.2012 itself treated raw materials, parts, sub-parts, consumable components and accessories separately. Each entry also specifies the intention of the notification to provide extent of exemption in each case to parts/sub parts/components/ accessories/ raw material / consumable separately in different contexts. Entry no. 407A or 431 have no mention of raw material or consumable, thus it is evident that raw material and consumable have been kept out of the ambit of exemption under these entries of notification no. 12/2012-Cus dated 17.03.2012 * The items procured by respondent Polycarbonate Resin, T A Wire, DC Cable, Solder Wire, 'Tape, Cable Tie etc, cannot be termed as parts/sub-parts of Cellular Phones or Battery C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2003-Cus dated 31-03-2003 and 22/2003-CE dated 31-03-2003, for the manufacture of finished goods, i.e., parts and components of mobile phones and battery chargers cleared in DTA at Nil rate of duty, they were required to comply with the conditions of the notifications which they have availed while procuring raw materials/inputs and were required to pay an amount equal to the duty foregone on inputs/raw materials procured without payment of duty * instructions issued vide F. No. DGEP/EOU/450/2006 dated 09- 02- 2007 of the Directorate General of Export Promotion arc not applicable, to the facts of this case as the respondent has never been denied duty free import of parts/s sub part and component duty free procurement of the or same indigenously or duty free clearances under notification 12/2012-Cus dated 17-03-2012 and 12/2012-CE dated 17-03-2012 * It is incorrect to say that impugned notice had proposed to deny the level playing field between the units under DTA and EOUs. On the contrary, the facts that DTA units are at a disadvantage in comparison to Repondents. The Adjudicating Authority has failed to appreciate that the impugned notice was issued just to effectuate the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12/2012- Cus do not fall under the definition of raw material which they have actually imported/procured indigenously. What respondents has imported is raw material and consumable from which they manufactured parts sub-parts, components and accessories of mobile phones/ battery chargers which are their finished products cleared under Notification No. 12/2012-Cus dated 17-03-2012. * However, merely by identification of an item in the finished product, the same cannot be defined as part/component of the finished goods, as any inputs such as raw material, consumable, parts, sub-parts, components will be constituent of the finished products. But the question whether the material procured falls under the expression raw material' or parts/components' remain unanswered. 1.30 The averments made by the adjudicating authority are denied, as - * As it is argued that if the material procured by respondents do not fall under the above-said notification, justification of dropping the demand docs not sustain * The demand of duty is justified as the materials have been procured under Notification No. 52/2003-Cus and 22/2003-CE both dated 31-03-2003 and as per provisions of these noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Section 11AA of the Central Excise Act, 1944; and (iii) I also impose a penalty of Rs. 80,00,000/- (Rs. Eighty Lakh only) upon them under Section 112(b)(ii) of the Customs Act, 1962 and Rule 25 of the Central Excise Rules, 2002 read with Section 11AC(1)(a) of the Central Excise Act, 1944. If the duty as determined and interest payable thereon is paid within thirty days from the date of communication of the order of the proper officer determining such duty, the amount of penalty liable to be paid by such person shall be twenty-five per cent. of the penalty so determined subject to the condition that such reduced penalty is also paid within the period so specified." 2.15 Aggrieved party (Respondent No 1) has filed this appeal. 3.1 We have heard Shri Santosh Kumar, Authorized Representative for the revenue and Shri Pramod Kumar Rai, Advocate for the respondents-assessee. 3.2 Authorized representative reiterated the grounds of appeal. 3.3 Counsel for the respondents support the impugned order and submits: * The case of department as per the show cause notice is perverse. * DGEP Circular dated 09.02.2007 to take care of this perversity leading to uneven playing field * Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.B.E.C. instruction issued vide F. No. DGEP/EOU/450/2006 dated 09.02.2007. (Para 24 (Al) of O-i-O refers) 3.2.2 From the clarification by the Board the AA found that the board enjoins upon an EOU to be treated at par with a DTA unit, if it substantially satisfies the requirements of the Rules to be followed as stipulated under the Notifications 21/2005-Cus dated 01.03.2005, 39/2005-Cus dated 02.05.2005 and 06/2006-CE dated 01.03.2006. It was mentioned that if the exemption on parts, components and accessories were denied to an EOU, that would put an EOU at a disadvantageous position vis-a-vis DTA manufacturer. Hence, it was clarified that exemption of customs and central excise duties on parts, components and accessories of mobile handsets including cellular phones under Notification No. 21/2005-Cus dated 01.03.2005, 39/2005-Cus dated 02.05.2005 and 06/2006-CE dated 01.03.2006 shall be applicable for EOUs, if the substantive conditions of rules required to be followed under these notifications were fulfilled by an EOU to the satisfaction of the jurisdictional Asstt./ Dy. Commissioner 3.2.3 The AA found that the effective notifications granting the exemption from Customs dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012-Cus. (Sr. No. 431) or under Exemption Notification No. 12/2012 -C.E (Sr. NO. 272). Three items viz. High Frequency Iron Machine, Aluminated Magnifier and Mask continued to be covered as capital goods, tool etc. under Notification No. 52/2003-Cus. and under Notification No. 22/2003-C.E., both dated 3 1.03.2003. 3.4 As regard the issue whether M/s Elentec could challenge the assessment made at the time of import indigenously procurement or the same has become final the AA found that the Board circular had clarified that benefit of Notification No. 21 /2005-Cus. dated 02.05.2005, Notification No. 39/2005-Cus. dated 02,05,2005 and Notification No. 6/2006-C.E. [presently effective Notification No. 12/2012-Cus, dated 17,03.2012 and Notification No. 12/2012-C.E dated 17.03.2012] meant for DTA units shall also be extended to the EOUs. Thus, the AA decided this issue in the favor of the Noticee. 3.5 Accordingly, the entire demand present in the impugned SCN was dropped." 4.3 Basic issue involved in the matter is whether the benefit of Notification No 12/2012-Cus (S No 431) and 12/2012-CE (S No 272) can be extended to the respondent. Adjudicating authority has dropped the demand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terlocking 7 High Frequency iron machine This machine is used for manual soldering of PCB parts. Using this all parts can be soldered at their defined place. 8 Barcode sticker It is essential as per BIS (Bureau of Indian Standard), pasted to charger for scanning purpose. 9 Alluminated magnifier It is essential tool for visual inspection of defects in mobile phones & chargers, through these minor defects can be tracked. 10 Mask To avoid fumes inhaling into body while soldering of PCB. It is used to take care of health issues of the workers and used as per Factory Act Appeal No E/70467/2017 1 Polycarbonate Resin It is in the form of granules which is melted through injection moulding to form the body of battery charger. 2 Seiko Ink Used for printing the Samsung Logo on the back of battery cover. 3 Paint The paint, primer and thinner is used in required proportions in the process of coating on the front cover, rear cover and battery cover as per the specifications of Samsung. 4 Weld Cover Primer 5 Metal Source/ Tungsten Filament It is used to facilitate the drying of paint after coating process. It is essential component of drying m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in their factory. The expression 'Capital goods' has been defined in the Explanation to Rule 57Q. For the proper appreciation of the controversy between the parties, it would be convenient to reproduce Rule 57Q along with its Explanation. It reads as under : "57Q Applicability. - (1) ......... Explanation. - For the purposes of this section, - (1) 'capital goods' means- (a) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products; (b) components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, apparatus, tools or appliances used for aforesaid purpose; and (c) moulds and dies, generating sets and weigh-bridges used in the factory of the manufacturer. (1) ...... (2) ........" 3. The Tribunal by the impugned judgment and order dated 13th April, 1999, considered various items which were involved in different appeals and by a common judgment and order decided the controversy in favour of the manufacturers rejecting the stand of the revenue that those are not 'Capital goods' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onia provided such ammonia was used elsewhere in the manufacture of fertilizers. The facts of that case were that the appellant was manufacturer of urea - a fertilizer and utilized for that purpose raw naphtha. The question therein was whether ammonia used in the off-site plants was also ammonia which is "used elsewhere in the manufacture of fertilizers". The off-site plants were held to be part of the process of the manufacture of urea. Relying upon the phraseology used in the exemption notification, it was held that there was no good reason why the exemption should be limited to the raw naphtha used for producing urea that is utilized directly in the urea plant since the notification only required that the ammonia should be used in the manufacture of fertilizers and not that it should be used directly in the manufacture of fertilizers. The Court said that : "The exemption notification must be so construed as to give due weight to the liberal language it uses. The ammonia used in the water treatment, steam generation and inert gas generation plants, which are a necessary part of the process of manufacturing urea, must, therefore, be held to be used in the manufacture of ammonia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle from raw material and processing signifies an operation for bringing about any change in any substance for the manufacture of the final product. However, we are concerned with the meaning of the expression 'used for producing or processing'. The said expression would not, to use the language of the Supreme Court in J.K. Cotton Spg. & Wvg. Mills Co. Pvt. Ltd. be limited to ingredients or commodities used in the process or those directly and actually needed for turning out or the creation of the goods. 4.7 The way in which the revenue has sought to interpret the expression used in the notification can be only by way of replacing the word "for" used in the notification by the word "of". We refer to explanation in this regard available on web-page "https://english.stackexchange.com/questions/ 528337/definition-of-vs- definition-for#:~:text=According%20to% 20Seth %20Lindstromberg%20in,purpose%20of%20defining%20this%20word)" assessed on 22.01.2025. "According to Seth Lindstromberg in English Prepositions Explained, while "of" expresses referential possession (the word has a definition) or a verb-object relationship (the word is defined), "for" expresses purpose (I want a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us it became necessary to issue Notification No. 242/76 to maintain the rate of duty at the old level. The notification exempted refractory bricks of special shape or quality for use as component parts of industrial furnaces falling under Heading 69.02 of the First Schedule to the Customs Tariff Act, 1975, from so much of that portion of the duty of customs leviable thereon which is specified in the First Schedule as is in excess of 40% ad valorem. Notification No. 77/90 was issued in the same terms. This notification also exempted another item 'soft ferrite' under Chapter Heading 69.09 from duty in excess of 55% ad valorem. The exemption in regard to auxiliary duty of customs was provided in Notification 112/87. Item 28 of the Table took in "Refractory Bricks of special shape or quality for use as component parts of industrial furnaces" of Chapter 69 of the Customs Tariff Act, 1975. 12. "Part" is defined in Black's Law Dictionary Sixth Edition at page 1117 as under :- "An integral portion, something essential belonging to a larger whole; that which together with another or others makes up a whole ........ a portion, share or purpart". In Chambers 20th Century Dictionary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including chassis of motor vehicles, motor tyres and tubes and spare parts of motor vehicles" under item 1 of first schedule to the Bengal Finance (Sales Tax) Act. It was held that spare part is an extra part kept for use in emergency for replacement, that every component will not be a spare part and no owner of vehicle would keep a body of motor vehicle as spare part and, therefore, it cannot be regarded as a spare part. In Bajoria Halwasiya Service Stn. v. The State of Uttar Pradesh - 1970 (26) STC 108 (All. HC) a similar question arose under the provisions of the U.P. Sales Tax Act and a notification issued thereunder. It was held that body of a motor vehicle is not a spare part, though it is a component since a spare part means a part kept in readiness for use in emergency and no owner of vehicle will keep body of a vehicle in readiness for use in emergency. It was held that every component part need not be a spare part while every spare part will necessarily be a component part. 14. In Paul Lazar v. State of Kerala - 1977(40) STC 437 (Kerala HC) it was held that copper wire used in manufacture of transformers is not a component part thereof. It was indicated that compon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made of or into which it may be resolved", or "a constituent part" and this meaning has been accepted by the Supreme Court in Star Paper Mills Ltd. - 1989 (43) E.L.T. 178. Much is sought to be made out of the meaning stated as "constituent part" . The suggestion is that it must be a part in the initial constitution of the manufactured product. This suggestion is merely based on a priori assumption. "Constituent", according to Chambers 20th Century Dictionary means :- "constituting or forming; essential; elemental; component; electing; constitution-making - n. an essential or elemental part; one of those who elect a representative, esp. in parliament; an inhabitant of one's constituency." Thus, "constituent" only means an essential part or component. Use of the words "component parts" or "constituent parts" is an example of tautology. "Constituent" and "component" essentially mean the same thing, that is, an essential part of which anything is made of or into which it may be resolved. When parts are put together to create an end product, they are regarded as component parts. When an assembled product is dismantled, it gives rise to component parts. Whatever be the stage, that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here are a large number of Notifications using appropriate language to bring out an intention to restrict the scope and amplitude of the word "component". The following table refers to the particulars :- S No. Notification No. Language used 82/60 Component parts of any machinery ...... required for the purpose of initial setting up of that machinery or for its assembly or manufacture 80/70 Imported as replacement for defective component parts or peripherals 117/70 Spare parts required for the purpose of manufacture 74/85 Components are imported for the purpose of providing warranty coverage or after sales service by the manufacturer to his customers 77/85 -Do- 503/86 -Do- 155/86 Parts required for the purpose of initial setting up or assembly or manufacture 158/86 Components required for the manufacture of goods 66/88 Component parts of goods covered by Notification No. 65/88 imported into India for the manufacture of the said goods 269/88 Components required for the manufacture of forklift trucks 97/89 Parts required for the manufacture of specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d necessary to set up and run export oriented production units. The fact that care has been taken to furnish an exhaustive list is not sufficient to give rise to an inference that word "component part" will necessarily exclude from its scope "spare parts" also. 19. It has been urged on behalf of the department that since the subject Notifications refer to "Refractory Bricks for use as component parts of.....", that is an indication that the Bricks must be intended for use in the manufacture of furnace and not for use as spares. We have indicated that the word "component" cannot be understood in such a restricted manner. "Component" indicates that it must be an integral part. "Spare" is a component used for replacement. In other words, the word "component" indicates the nature of the article and not the user of the article while the word "spare" indicates the use to which the article is put and not the nature of the article. The nature of the spare is that it is a component and its use is as replacement. "Component" means an essential or integral part of the whole. Its user is in different contexts, in the initial manufacture or as spare. As already indicated, "component" is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 46/72 and 25/75 came up for consideration. The Notifications allowed rebate or exemption in case rice bran oil is used in the manufacture of soap. The oil has to be purified before use in the soap manufacturing process. Purification and manufacture were attended to by the assessee in two different factories. The court rejected the contention of the department that the Notifications were not attracted since the oil was not directly used in the manufacture of soap. Hydrogenated Rice bran oil did not cease to be rice bran oil. The court observed as follows :- ".....an assessee claiming relief under an exemption provision in a taxing statute has to show that he comes within the language of the exemption. But, in trying to understand the language used by an exemption notification, one should keep in mind two important aspects : (a) the object and purposes of the exemption and (b) the nature of the actual process involved in the manufacture of the commodity in relation to which exemption is granted....... so far as (a) is concerned, the object of the notification - even as the Tribunal finds - is to grant a concession to a manufacturer of soap who manufactures soap from rice bran oil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed rate of duty was 85%. The statement of objects and reasons of the new Act indicated intention to maintain old level of effective duty by issuing appropriate exemption notifications. It was with this object that Notification No. 242/76 was issued exempting Refractory Bricks of special shape or quality for use as component part of Industrial Furnaces falling under Heading 69.02 from so much of the portion of the duty as is in excess of 40% ad valorem. Notification No. 77/90 continued this state of affairs. There is nothing in this background or the terms of the Notifications to indicate any intention to maintain the level of duty only in regard to Refractory Bricks used in initial assembly or manufacture of Furnaces and not to maintain the level of effective rate of duty in respect of Refractory Bricks used as spares. The language used in the Notification is clear, unambiguous and of wide import. Considering the process involved and the broad object, import and language of the Notifications, the absence of any words of restriction or qualification, any restrictive interpretation will lead to frustration of the underlying object and cannot be adopted. On a reasonable interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he condition specified by Sl No 2 of Notification No 12/2012-CE and, Sl No 5 of Notification No 12/2012-Cus. We find that this issue is squarely covered by the decision of Ahmedabad bench in the case of Salora Components Pvt Ltd. [2019 (370) ELt 925 (T-Ahmd)] holding as follows: "4. ....... As regard the entitlement of the exemption notification Nos. 25/1999-Cus., dated 28-2-1999 and 25/2002-Cus., dated 1-3-2002, we find that the lower authorities have denied this exemption only on the ground that the appellant have not followed the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. In this regard we find that in the peculiar facts of the present case, initially when the goods were imported, the same were received in the factory of the appellant who was 100% EOU and admittedly used within the 100% EOU. The exemption is claimed only at the time of debonding of 100% EOU. The procedure provided under Customs Rules, 1996 is mainly for the purpose of movement of goods from port of Custom up to the factory and use thereof. In the present case, since the goods were imported by 100% EOU which were cleared under notification 52/2003-C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso exempted from excise duty under notification no. 6/2006-C.E.dated 01.03.06 as amended with a condition for the manufacturer to follow the procedure set out in the Central Excise (Removal of Goods at Concessional rate of Duty for Manufacture of Excisable Goods) Rules, 2001. The DTA manufacturers of mobile phones are thus entitled to import/ indigenously procure parts, components and accessories of mobile handsets including cellular phones free of duty under the aforesaid notifications whereas EOU units are being denied the benefit of these notifications. 3. Such parts, components and accessories imported procured indigenously by an EOU are used for manufacture of mobile hand sets including cellular phones in their licensed premises under Section 58& 65 of Customs Act, 1962. It follows the provisions of Manufacture & Other Operations in Warehouse Regulations, 1966 and executes a bond B-17 binding itself in respect of endues of the imported/ indigenous goods, to maintain records of receipt, consumption and balance in stock and to pay duty on inputs in case they are not used in connection with production within a period of three years along with interest. Further, EOU follows pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ELT 679 (T-All)] coordinate bench has held as following: "5.19 Apart from the above, I also place reliance upon the Hon'ble Apex Court's decision in the case of Share Medical Care V/s Union of India, 2007 (209) ELT 321 (SC), wherein it was held by the Hon'ble Supreme Court that even if an applicant does not claim benefit under a particular notification at the initial stage, he is not debarred, not prohibited or estopped from claiming such benefit at a later stage. I also note that the ratio of the above Apex Court decision in Share Medical case (supra) was followed by the Hon'ble Tribunal in the case of Cipla Limited Vs Commissioner of Customs, Chennai, 2007 (218) ELT 547 (Tri.-Chennai), where in it was held that it was a settled law that the benefit of an exemption Notification can be claimed at appellate stage also following the ratio of the judgement of Share Medical case (supra). It is therefore even more clear that in the instant case, the benefit of alternative exemption notification of Notification No.12/2012- C.E. and Notification No.24/2005-Cus cannot be denied to the party, particularly in light of Board clarification dated 01.02.2017, since the said cla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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