Second-hand temper mill and furnace imports: thyristor converter and ceramic wool parts held within licence; appeal allowed

The dominant issue was whether import of a thyristor converter and ceramic wool, as parts of a second-hand temper mill and bright annealing furnace imported under an export-zone permit, contravened the import licence by effectively importing new machinery. The SC held that contravention arises only if, under the guise of second-hand machinery, the importer substantially imports new machinery; a converter constituting a small fraction of value and shown by inspection to be indispensable for the mill's functionality did not alter the machinery's second-hand character, and the Tribunal's contrary reading of the inspection report was unsustainable; consequently, the import of the converter was within the licence. The SC further held that replacing a periodically replaceable component with limited lifespan (ceramic wool) in a second-hand furnace did not require prior board permission and did not convert the furnace into new machinery; consequently, the import was permissible. Appeal allowed.

---

---

Issues:
Import of Thyristor Converter and ceramic wool in contravention of import permit.

Analysis:
The appellant, an approved unit in the Kandla Free Trade Zone, imported second-hand machinery for manufacturing CRCA and TNBP Coils. Customs Authorities alleged unauthorized import of new machinery parts - Thyristor Converter and ceramic wool. The Collector concluded that the import was covered by Notification No. 77/90-Cus. as the machinery was substantially old, and the disputed parts were integral components. The Department appealed, arguing contravention of import policy and lack of KFTZ Board approval. The tribunal remanded the matter for penalty adjudication, disagreeing with the Collector's interpretation of the import permit.

The central issue was whether the import of Thyristor Converter and ceramic wool violated the import permit. The import license allowed the import of second-hand machinery without specifying that every part must be second-hand. The Collector found the disputed items to be essential components of the permitted machinery for export production. The tribunal, however, held that the import of new parts required Board approval, interpreting the notification strictly. The Supreme Court emphasized that exemption notifications like 77/80-Cus. should be construed liberally to encourage exports, citing a previous case's interpretation of similar language.

Regarding the factual analysis, the Court noted that the disputed parts were small constituents of the larger machinery and essential for its functioning. The Thyristor Converter constituted only 9% of the Temper Mill's value, while the ceramic wool had a limited lifespan necessitating replacement. The Court disagreed with the tribunal's narrow approach, emphasizing that as long as the basic machinery remained second-hand, importing new parts for functionality did not violate the import permit's purpose. The Court also rejected the tribunal's requirement for prior Board approval for such parts, emphasizing the machinery's overall second-hand nature.

In conclusion, the Supreme Court upheld the Collector's findings, reversing the tribunal's decision. The appellant's challenge was successful, except regarding the import of special steel plates, which remained subject to penalty determination. The matter was remanded to the Commissioner for further action. The Court clarified that the appellant did not contest the tribunal's decision on the special steel plates, leaving that aspect undisturbed. The appeal was allowed without costs.

---