Exemption for replacement spare parts: imported spares used for worn-out machinery components qualified as machine components under the notification.

Imported spare parts used to replace defective or worn-out machinery parts under the DEEC scheme were treated as components of the machine for exemption purposes. The denial of Notification No. 36/97-Cus. on the ground that it covered only components and not spares was rejected as unsustainable, because the controlling principle is that replacement spares assume the character of machine components. The earlier tribunal view relied on below had been overtaken by an overruled decision and could not govern the issue. The later authoritative position, supported by the Board circular issued on that basis, confirmed eligibility for exemption.

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Issues: Whether the benefit of Notification No. 36/97-Cus. dated 01.04.1997 was available to imported spare parts used to replace defective or worn out parts of machinery under the DEEC scheme.

Analysis: The denial of exemption was based on the view that the notification covered only components and not spares. That approach was unsustainable because the controlling principle was that a spare part, when imported for replacement of a defective or worn out part, becomes a component of the machine. The earlier tribunal view relied upon by the Commissioner (Appeals) had been founded on an overruled decision and could not govern the issue. The later authoritative position, along with the Board circular issued on that basis, supported allowance of the exemption to such spare parts.

Conclusion: The imported spare parts were eligible for the benefit of the exemption notification, and the denial of such benefit was incorrect.

Ratio Decidendi: Spare parts imported for replacement of defective or worn out machinery parts are to be treated as components of the machine and are entitled to exemption where the notification extends to components.

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