1997 (9) TMI 104 - SC - Customs

Importer entitled to customs and additional duty exemption under Notification No. 116/88-Cus for materials necessary in manufacture

SC allowed the appeal and held the importer entitled to customs and additional duty exemption under Notification No. 116/88-Cus for import of materials ... Eligibility for duty exemption under Notification No. 210/82-Cus. - Duty Exemption Scheme (Customs) - Meaning of Interpretation of statute - Materials - manufacturer and exporter of `Lightening Arrestors' which are supplied to electricity boards, railways and other public sector undertakings - HELD THAT:- A perusal of Notification No. 116/88-Cus. shows that the object and purpose of the said notification is to encourage exports by granting exemption from customs duty on materials that are required to be imported for the purpose of manufacture of the resultant products or for replenishment of the material used in the manufacture of the resultant products, or both or for export as mandatory spares along with the resultant products. The manufacture of the resultant products has to be for execution of one or more export orders. In order to ensure that the exemption is availed only by deserving people, conditions have been laid down in clauses (a) to (g), which must be fulfilled for availing the exemption. One such condition, as laid down in clause (a), is that the material imported must be covered by a Duty Exemption Entitlement Certificate issued by the licensing authority. Under Clause (c) it is required that the goods corresponding to the resultant products and the mandatory spares should be exported within the time specified in the DEEC or such extended period as may be granted by the licensing authority. The wordings in the notification have to be construed keeping in view the said object and purpose of the exemption. In the notification two different expressions have been used namely, `materials required to be imported for the purpose of manufacture of products' and `replenishment of materials used in the manu- facture of resultant products' which indicates that the two expressions have not been used in the same sense. The expression `materials required to be imported for the purpose of manufacture of products' cannot be construed as referring only to materials which are used in the manufacture of the products. The said exemption must be given its natural meaning to include materials that are required in order to manufacture the resultant products. On that view, the exemption cannot be confined to materials which are actually used in the manufacture of the resultant product but would also include materials which though not used in the manufacture of the resultant product are required in order to manufacture the resultant product. Crystar beams imported by the appellant are materials, which though not used in the manufacture of H.T. Porcelain Insulators required for Lightening Arrestors, are materials which are required for producing the insulators in the kilns. It is true that in clause (viii) of the Explanation to the Notification expression `materials' has been defined to mean goods which are raw materials, components, intermediate products or consumables used in the manufacture of resultant products and their packings or mandatory spares to be exported in the resultant products. But the said definition in the Explanation has to be read in consonance with the main part of the notification. It is a well settled principle of statutory construction that the Explanation must be read so as to harmonise with and clear up any ambiguity in the main provision. The definition of `materials' in clause (viii) of the Explanation must, therefore, be so construed as not to eliminate the distinction between the words `materials required for the purpose of manufacture of products' and the words `materials used in the manufacture of the resultant products' in the main part of the definition. It is not disputed that appellant had fulfilled the conditions laid down for grant of exemption contained in clauses (a) to (g) of the Notification No. 116/88, dated March 30, 1988. In the circumstances, it must be held that the appellant was entitled to exemption from customs duty and additional duty under Notification No. 116/88, dated March 30, 1988 on the import of Crystar Beams. The appeal is, therefore, allowed, the judgment of the Tribunal dated November 5, 1992 as well as the order of Additional Collector (Customs) dated March 8, 1981 are set aside and it is held that the appellant is entitled to exemption from payment of customs duty and additional duty on the import of Crystar Beams required for the purpose of manufacture of Lightening Arrestors. No order as to costs. Issues Involved:1. Eligibility for duty exemption under Notification No. 210/82-Cus.2. Interpretation of Notification No. 116/88-Cus.3. Definition and scope of 'materials' in the context of duty exemption.Detailed Analysis:1. Eligibility for Duty Exemption under Notification No. 210/82-Cus.The appellant, a manufacturer and exporter of Lightening Arrestors, claimed duty-free clearance for Crystar Beams under Notification No. 210/82-Cus., dated September 10, 1982. This notification exempts raw materials and components required for manufacturing goods supplied to specified international and development organizations from customs duty. The appellant argued that the Crystar Beams, used in kilns for manufacturing Porcelain Housings, should qualify as such components. However, the Additional Collector of Customs and the Tribunal held that the beams are capital goods, not raw materials or components of the resultant product, and thus do not qualify for the exemption.2. Interpretation of Notification No. 116/88-Cus.Notification No. 116/88-Cus., dated March 30, 1988, exempts materials required for the manufacture of resultant products or for replenishing materials used in their manufacture from customs duty. The appellant contended that Crystar Beams fall within the scope of this notification as 'materials required to be imported for the purpose of manufacture of products.' The Tribunal, however, upheld the Additional Collector's view that the exemption applies only to materials directly used in the manufacture of the resultant products, not to materials used in the manufacturing process, such as kiln furniture.3. Definition and Scope of 'Materials' in the Context of Duty ExemptionThe appellant's counsel argued that the term 'materials required for the manufacture' should include materials necessary for the manufacturing process, even if not directly used in the final product. The counsel for the Revenue countered that the exemption should apply only to materials directly used in the manufacture of the resultant products, as defined in Notification No. 116/88-Cus. The court considered the purpose of the notification, which is to encourage exports by exempting necessary materials from customs duty. The court concluded that the term 'materials required for the purpose of manufacture' should be interpreted broadly to include materials necessary for the manufacturing process, such as Crystar Beams.ConclusionThe Supreme Court allowed the appeal, holding that the appellant is entitled to exemption from customs duty and additional duty on the import of Crystar Beams under Notification No. 116/88-Cus. The judgment of the Tribunal and the order of the Additional Collector were set aside. The court emphasized that the exemption should be interpreted in a manner that aligns with the notification's objective of encouraging exports by exempting necessary materials, including those required for the manufacturing process. The appeal was allowed with no order as to costs.