1999 (5) TMI 35 - HC - Customs

Machinery Demonstration Triggers Customs Duty Refund Limitation Under Section 74(2) with Operational Depreciation Considerations

HC ruled that demonstration and exhibition involving machinery operation constitutes 'use' under Customs Act Section 74(2). The court determined that ... Drawback Issues: (i) Whether demonstration and exhibition of imported machinery/equipment amounts to 'use' of the goods for the purposes of Section 74 of the Customs Act, and consequently whether refund is to be governed by Section 74(1) or Section 74(2).Analysis: Section 74(1) provides for refund of 98% of duty where goods imported and subsequently re-exported, subject to conditions. Section 74(2) and the relevant notifications permit a lesser refund where the goods have been used after import; the notifications fix an 85% refund if re-exported within six months. Demonstration requires operation of the machinery to show performance. Where machinery is operated during exhibition or demonstration, even for a short period, it undergoes use and depreciation. No evidence was produced to show that the machinery remained intact and unoperated. Prior administrative and appellate findings recorded that the instruments were operated for demonstration and treated demonstration as use. Distinctions drawn in other cases where machinery was not put to use are inapplicable where operation/demonstration occurred.Conclusion: Demonstration and exhibition that involve operating the machinery constitute 'use' within Section 74(2) of the Customs Act, 1962; the refund is therefore governed by Section 74(2) and the notifications, not by Section 74(1). The writ petitions are dismissed and the refund determination under Section 74(2) stands in favour of the Revenue.