Classification turns on inherent character and ordinary use, not purchasers' later incidental use of diesel engines on vehicles.

Imported component parts used to assemble diesel engines qualified for exemption under Notification No. 82/60 because classification depended on the goods' inherent character and ordinary use, not on purchasers' later incidental fitting of some engines on dumpers or locomotives. The bond requirement was also satisfied, since the parts were used to manufacture machinery and the importer was not responsible for the subsequent end use by buyers. The refund claim was not defeated by limitation or laches because the deposit was made for the appeal and the writ was filed promptly after appropriation. The note states that the customs demand and appropriation could not be sustained and refund was due with costs.

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Issues: (i) Whether imported component parts used to assemble diesel engines that were later fitted on dumpers or locomotives were entitled to exemption under Notification No. 82/60 issued under section 23 of the Sea Customs Act, 1878. (ii) Whether the bond executed at the time of import was breached because some of the assembled diesel engines were ultimately used on vehicles. (iii) Whether the refund claim was barred by limitation or laches.

Issue (i): Whether imported component parts used to assemble diesel engines that were later fitted on dumpers or locomotives were entitled to exemption under Notification No. 82/60 issued under section 23 of the Sea Customs Act, 1878.

Analysis: The exemption covered component parts imported for assembly or manufacture of machinery. The diesel engines assembled from the imported parts were of the same type and their ordinary or primary use was stationary, even though a small number were later fitted on dumpers or locomotives by purchasers. Classification for tariff and exemption purposes depended on the nature and ordinary use of the goods, not on their incidental end use after sale. The engines therefore remained machinery within item 72(a) and did not fall within item 75(12).

Conclusion: The exemption was available and the customs demand was not justified; this issue was decided in favour of the assessee.

Issue (ii): Whether the bond executed at the time of import was breached because some of the assembled diesel engines were ultimately used on vehicles.

Analysis: The bond required the imported parts to be used in the assembly or manufacture of machinery. That requirement was satisfied because the components were used to manufacture diesel engines, which were machinery. The description in the bill of entry as stationary type did not control the bond, and the later use of some engines on dumpers was not a breach attributable to the importer, as the importer did not fit the engines on the vehicles.

Conclusion: No breach of the bond was established; this issue was decided in favour of the assessee.

Issue (iii): Whether the refund claim was barred by limitation or laches.

Analysis: The amount had been deposited as a condition for maintaining the appeal and was appropriated only after the departmental appeal failed. The writ petition was filed promptly thereafter, so the claim was not defeated by limitation or laches.

Conclusion: The refund claim was not barred; this issue was decided in favour of the assessee.

Final Conclusion: The customs authorities' demand and appropriation could not be sustained, and the assessee was entitled to refund with costs.

Ratio Decidendi: For exemption and classification purposes, goods are to be identified by their inherent character and ordinary use, and incidental post-sale use by purchasers does not alter the tariff classification or defeat a bond condition requiring use in the manufacture of machinery.

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