2022 (3) TMI 1327 - AT - Customs

Appellate authority upholds exemption for imported slurry seal machine under road construction category. Criticizes narrow interpretation.

The appellate authority dismissed the appeal, finding that the imported slurry seal machine qualified for exemption under notification no. 21/2002-Cus for ... Benefit of exemption - second-hand slurry seal machine for filling up cracks in roads (slurry paver) - Classification of imported goods - non-acceptance of the intent of ‘deployment of the goods in construction of roads’ on the finding that the equipment could be used only for repair/maintenance work of existing roads on the part of Revenue - HELD THAT:- It is seen from the communication of 17th April 2009 that work of ‘micro surfacing of various roads’ for a period of one year under ‘M.Maintenance-I PWD (NCTD)’ was awarded to the appellant. The exemption notification envisages concessions from the standard rate of duty upon demonstrated qualification, as contract awarding authority or as contractor of project for ‘construction of road’, and upon furnishing of certain undertakings and certifications. In the present dispute, the certifications are not of relevance and any breach of the undertaking is to be elicited upon post-importation deployment of the equipment. The apprehension of the original authority, and of the reviewing authority, that the goods were intended to be used in breach of the condition of exemption is built upon their determination of the permitted activity as cutting of paths to be levelled and hardened before being layered with macadam – just enough provide a ride smoother than on the cobblestoned highways of ancient Rome – with no immediate requirement of ‘microsurfacing’ until a few years down the line. In GAMMON INDIA LTD, CHARAN SINGH, UMAKANT TIWARI VERSUS COMMISSIONER OF CUSTOMS (IMPORT) MUMBAI [2018 (12) TMI 1122 - CESTAT MUMBAI], the Tribunal makes it abundantly clear that any violation of the post-importation conditions is to be responded to by enforcement of the undertakings furnished at the time of import and not by pre-emptive burdening of some part of the ‘construction of ‘roads’ project by executive overreach. The eligibility of the project itself or the status of the appellant, as contractor eligible to import specified goods for the project, is not in dispute; it is the use that the impugned equipment has for the project that is with the original authority restricting the proceedings to the eligibility of the impugned goods at the threshold. Without examining the nature of the project itself, a finding on use or misuse – intended or actual – is beyond the scope of assessment to duties of customs as the actual usage of the goods thereafter are not the subject of the impugned proceedings. In COMMISSIONER OF CUSTOMS (IMPORT) , MUMBAI VERSUS M/S. DILIP KUMAR AND COMPANY & ORS. [2018 (7) TMI 1826 - SUPREME COURT], the Hon’ble Supreme Court adjured rigid application of the contents of exemption notification. As narrated supra, the eligibility for availment of the notification at the time of import is not under challenge of Revenue and entitlement to the exemption is within the terms of the notification. The cautionary directive of the Hon’ble Supreme Court is not disharmonious with the findings of the first appellate authority. The appeal, itself, is based on apprehension of likely usage after clearance by breach of condition in notification that lies entirely within the realm of empirical evidence of actual usage for purposes not intended in the notification which has not been brought on record by Revenue in the present proceedings. The strict enforcement that is obligated by the cited decision is no less pertinent to interpretation of the stage of denial or consequent recovery, as the case may be, in the exemption notification by customs authorities. In the present case, the inclusion of the description of the imported goods in the enumeration of the eligible equipment makes it abundantly clear that, even if its purpose is to fill cracks on road surface, its utility in eligible projects is not deniable. Furthermore, we cannot conjecture the possibility of resort to filling up of cracks in ‘greenfield’ roads and it would appear that the deployment of this equipment, so essential in upgradation of existing roads, for other than ‘greenfield’ road development, is within the intent of the notification. There is nothing on record to indicate that the proposed project was not intended for permissible upgradation. There is no reason to conclude that the road construction, as intended in the exemption notification, is limited to ‘black topping’ of surface or that the importer is likely to indulge in ineligible activities during the period of lock-in prescribed in the exemption notification. The importer has complied with all the conditions specified in the said notification and it would be incorrect in law to deny exemption allowed by the first appellate authority - appeal dismissed. Issues Involved:1. Interpretation of the term 'construction of roads' in the context of exemption notification.2. Eligibility for exemption under notification no. 21/2002-Cus dated 1st March 2002.3. Validity of the original authority's decision denying exemption.4. Applicability of the principle of strict interpretation of exemption notifications.5. Relevance of post-importation usage of the imported goods.Issue-wise Detailed Analysis:1. Interpretation of the term 'construction of roads':The core issue revolves around whether the term 'construction of roads' includes activities such as micro-surfacing and repairing existing roads. The original authority denied the exemption on the grounds that the imported slurry seal machine was intended for repair/maintenance rather than new road construction. The appellate authority, however, concluded that the term 'construction of roads' should encompass activities aimed at enhancing traffic capacity, including horizontal expansion and vertical strengthening of existing roads.2. Eligibility for exemption under notification no. 21/2002-Cus dated 1st March 2002:The respondent claimed exemption under serial no. 230 of the notification, which would allow a 'nil' rate of duty for the imported slurry seal machine. The original authority assessed the goods at the standard rate, arguing that they were not meant for new road construction. The appellate authority disagreed, finding that the notification's intent included equipment used for significant road enhancement projects, not just new constructions.3. Validity of the original authority's decision denying exemption:The original authority's decision was based on a literal interpretation of the term 'construction of roads' and the technical opinion from the Public Works Department (PWD). The appellate authority criticized this approach, noting that the original authority lacked the technical expertise and did not consult authoritative documentation or expert opinions. The appellate authority found that the original authority's decision was overly restrictive and did not align with the broader policy objectives of the exemption notification.4. Applicability of the principle of strict interpretation of exemption notifications:The appellant-Commissioner argued for a strict interpretation of the exemption notification, citing the Supreme Court's decision in Gammon India Limited v. Commissioner of Customs, Mumbai. The appellate authority acknowledged the principle of strict interpretation but emphasized that the eligibility for exemption at the time of import was not in dispute. It held that any potential misuse of the exemption post-importation should be addressed through enforcement of undertakings, not by denying the exemption at the threshold.5. Relevance of post-importation usage of the imported goods:The appellate authority noted that the dispute was centered on the intended use of the imported goods. It emphasized that the actual usage of the goods post-importation, and any breach of conditions, should be monitored and enforced separately. The decision highlighted that the exemption notification's intent was not limited to 'greenfield' projects but included significant road enhancement activities. The appellate authority found no evidence that the imported equipment would be misused, and thus, the exemption should not be denied preemptively.Conclusion:The appellate authority dismissed the appeal, concluding that the respondent met all conditions for the exemption and that the original authority's restrictive interpretation was not justified. The decision emphasized the broader policy objectives of the exemption notification and the need for a balanced approach in its interpretation. The appellate authority reinforced that any post-importation misuse should be addressed through appropriate enforcement mechanisms rather than preemptive denial of the exemption.