Substantial reconditioning can make imported machinery "new" for development rebate, but only when it amounts to reconstruction of the whole machine.

Reconditioned machinery imported into India may qualify as "new machinery" for development rebate only where the reconditioning is so substantial that it amounts in substance to reconstruction or substitution of the whole machinery. Applying that test, the Court treated items (a) to (c) and item (h) as qualifying because the extent and cost of reconditioning made them practically new. Item (d) was excluded because the boiler was not substantially replaced, while items (e) and (f) failed for lack of reliable evidence of original acquisition cost and insufficient proof that the machinery had become substantially new. Development rebate was therefore admissible only on the identified qualifying items.

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Issues: Whether reconditioned machinery imported into India and used for the first time in India could be treated as "new machinery" for the purpose of development rebate, and whether the specified items of machinery satisfied the test laid down for allowance of such rebate.

Analysis: The governing test was whether the reconditioning was so extensive that the machinery became substantially new, amounting in substance to reconstruction or substitution of the entire machinery rather than mere repair or use of second-hand equipment. Applying that principle, the Court accepted items (a) to (c) as new machinery because the reconditioning cost and extent of work were substantial compared with the acquisition cost. Item (d) was rejected because the reconditioning in India did not result in a substantial change or replacement of the boiler. Items (e) and (f) were also rejected because there was no reliable evidence of the original acquisition cost before reconditioning, and the Indian expenditure did not establish that the machinery became substantially new. Item (h) was held to be practically a new item and to satisfy the same test.

Conclusion: Development rebate was admissible only on items (a) to (c) and (h), and the second question was answered in favour of the assessee and against the department.

Final Conclusion: The reference was disposed of by holding that only the identified reconditioned items qualified as new machinery for development rebate, while the remaining disputed items did not.

Ratio Decidendi: Reconditioned machinery may qualify as "new" where the reconditioning is so substantial that the equipment is, in substance, a practically new machine or a reconstruction/substitution of the whole machinery.

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