Composite import under EPCG benefits cannot be denied by isolating one integral component as a consumable.

A composite gas suppression system imported under a valid EPCG licence was treated as capital goods for Notification No. 97/2004-Cus., and Customs could not isolate the gas component to deny the exemption by calling it a consumable. The analysis noted that the EPCG licence had been issued after scrutiny, the import was assessed as a single system, and the Foreign Trade Policy definition of capital goods was wide enough to include equipment used for rendering services. The essential-character rule for composite goods supported classification of the system as presented, with the gas forming an integral part of the whole.

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Issues: Whether the imported gas suppression system and its gas component were entitled to the benefit of Notification No. 97/2004-Cus. under the EPCG scheme, and whether the Customs authorities could treat the gas separately as a consumable so as to deny the benefit.

Analysis: The EPCG licence had been issued for the gas suppression system after scrutiny by the competent committee, and the gas was only one component of that system. The system was imported and assessed as a composite unit, and the Customs authorities could not dissect it to deny the benefit by isolating one component. The definition of capital goods under the Foreign Trade Policy was wide enough to cover equipment required for rendering services, and the gas used for fire suppression formed an essential part of the system. The subsequent deletion of the word "consumables" in the notification was treated as relating to existing plant and machinery, not to a composite import of capital goods. The goods were also required to be classified in the form presented, and under the rule for composite goods, classification had to follow the component giving the whole its essential character.

Conclusion: The imported goods were eligible for the EPCG benefit under Notification No. 97/2004-Cus., and the Customs objection to denial of the exemption on the footing that the gas was a consumable was rejected.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Where a composite imported system is covered by a valid EPCG licence, Customs cannot isolate one integral component and deny exemption by reclassifying it as a consumable when the system, as presented, retains its essential character as capital goods.

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