TaxTMI 
TaxTMI 
TaxTMI 
1995 (10) TMI 85
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....tted to expand the capacity of the said Industrial unit by installation of two circular knitting machines for manufacture of art silk knitted fabrics. By Licence dated 29-5-1975 the Government granted further substantial expansion of the installed capacity by 8 Warp Knitting machines and 8 Circular Knitting machines - corresponding to total consumption of 320 tons of caprolactum. The respondents were also further granted an Industrial Licence dated 8-6-1979 for installation of 12,500 spindles to manufacture man-made fibre yarn on worsted system. In November 84, the respondents applied for 29 preparatory and processing machines and Warp machines (12) and Circular knitting machines (21), which are production machines, indicating that the purpose of import was for modernisation/balancing and that there would be no increase in the licensed capacity. The first Licence covered various items of machinery such as Warp knitting machines, two-for-one twister, fancy yarn twister, patterning machines, etc., while the second one included only one unit of Karl Mayer stretching and Warping machine. The modernisation programme involved the replacement of 12 existing Warp knitting machines by 12 mo....
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....endatory letter as per para 288(1) of the Hand Book of Import-Export Procedure, 1985-88 which had been acknowledged by the said office in their letter dated 21-3-1986. Under cover of the same letter they enclosed the following documents : 1.Contract No. K-50473, dated 20-9-1985 of Tsudakoma Corporation, Japan. 2.Letter of Credit No. 214/2016/86, dated 21-1-1986 of Canara Bank 3.Catalogue 4.Blue Prints of the layout of the machine 5.Continuity bond No. 30186 dated 24-2-1986 for Rs. 26.40 lakhs being 5% of the FOB value duly backed by a bank guarantee. This was the application with reference to Licence No. 2099456. By letter dated 15-10-1986 the respondents drew the attention of the said Assistant Collector to the fact that the consignment under B/E Nos. 459/13, 385/22 and 385/39 were cleared provisionally on execution of the requisite guarantee pending the receipt of the recommendatory letter from the Textile Commissioner's Office. They further informed him that the said recommendatory letter had been received by the customs authority on 10-4-1986 recommending the assessment of the goods as project import under Heading 84.66. It was also brought to the notice of the Assistant....
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....respondents did not possess an industrial licence for substantial expansion in respect of the existing industrial unit at Naroda in Ahmedabad. They had only obtained permission for replacement of existing warp knitting machines by 12 imported Raschal Knitting Machines (permission letter dated 11-9-1985 at P. 229 of Vol. II of the paper book). The Textile Commissioner's recommendation dated 11-4-1986 and clarification dated 25-9-1986, recommending benefit of assessment as Project Imports which has been heavily relied on by the lower appellate authority is not binding on the Customs authorities and cannot supersede the function of the Customs authorities who are to arrive at an independent objective satisfaction, before extending the benefit, contends the learned Counsel. What is relevant for the purpose is "installed capacity" and not production capacity. In support of this proposition, he relies upon the order of the Tribunal on actual production in the case of National News Print and Paper Mills Ltd. v. Collector of Customs, Bombay reported in 1987 (32) E.L.T. 153 (T). The Project Import Regulations require to be interpreted and since these are self-contained, the necessity to con....
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....ubmits that the term "installed capacity" has not been defined in the Project Import Regulations even though the 1986 Regulations contain a definition of the term "substantial expansion". Assessment under Project Import is in the nature of exemption as it is a departure from the normal rule that goods are to be assessed on merits. The term "installed capacity" has been judicially interpreted by the Supreme Court in the case of Union of India v. Wood Papers reported in 1990 (47) E.L.T. 274 to mean productive capacity. He refers to the dictionary meaning of "instal" as "to set up in use of service" and meaning of "capacity" as "maximum possible outputs" in the Lexicon Webster Enclyclopedia Dictionary and Random House Dictionary. The Dictionary defines "capacity" as maximum possible output or production of a system of machinery or apparatus placed in position for use. 9. He contends that only if the production of the existing industrial limit has increased by more than 25% will the benefit of Project Import be available for substantial expansion and since admittedly such increase has taken place as found by the lower appellate authority and not challenged in this appeal, the imp....
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.....) = 1984 ECR 1345 is squarely applicable to the facts of this case and hence Project Import benefit is available to the respondents. He cites the decision of the Hon'ble Supreme Court in the case of Bajaj Tempo reported in 1992 (3) SCC 78. Since Headings 84.66 and 98.01 of the CTA are aimed at encouraging production, an interpretation which advances this objective and not one which defeats it, should be adopted, and in this context, he draws support from the decisions reported in 1992 (55) E.L.T. 437, 1994 (73) E.L.T. 769 and 1994 (74) E.L.T. 775. He, therefore, prays that the order of the lower appellate authority may be upheld and the appeal dismissed. 11. In a brief rejoinder, Shri M. Chandrasekharan contends that installed capacity is not synonymous with productive capacity, the IDR Act uses both terms to mean two different things. He refutes the argument of learned Counsel that `may' is to be read as `shall' by pointing out that this is to be done only where a legal right exists in a person coupled with a legal duty cast upon an authority, while in the case of Project Imports, the sponsoring authority is only a recommending authority and so customs authorities are to in....
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....igned to them in the said Regulations. Under Section 157, the Project Import Regulations 1986 were framed vide Notification No. 230/86, dated 3-4-1986 and Regulation 3(b) defines substantial expansion as "an expansion which will increase the existing installed capacity by not less than 25%". During the period when Project Imports fell under Heading 84.66, Project Imports (Registration of Contract) Regulations, 1965 were framed and even though under the 1965 Regulations, the term substantial expansion was not defined, Regulation 3(3)(c) provided for specifying the installed capacity of the proposed addition thereto, in the case of substantial expansion of an existing Plant or Project. From the above, it is clear that what is relevant for the purpose of determining the eligibility to the benefit of Project Imports is the installed capacity of the respondents. This is also the understanding of the respondents as reflected in their reply dated 16-9-1991 to the show cause notice in paragraph 5 in which the respondents have stated that "in a textile mill, the installed capacity is determined on the basis of a spinning or weaving capacity i.e. on the spinning machines or weaving machines"....
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.... machines will either be scrapped in the presence of an Officer of the Regional Office of the Textile Commissioner, Ahmedabad or will be permitted to be sold to a permit holder only and not to any dealers of machinery, within six months form the date of commercial production of new machines. 5. The proposed replacement should be completed within a period of 12 months from the date of issue of this permission. 6. The details of the progress made should be submitted in the appropriate form by the mills every six months to this office till the replacement is completed. 7. This permission is issued as per para 2 of letter No. CG/454 (84) 68A (85), dated 14-8-1985 of SIA, capital goods section, Dept. of Industrial Development, New Delhi." They have relied upon letter dated 10/11-4-1986 issued by the office of the Textile Commissioner, Bombay recommending duty concession under Project Imports. The relevant extracts from the letter is reproduced below : "M/s. Reliance Industries Ltd. Bombay have approached this office for availing concessional rate of duty as provided under para 288 (1) of the Hand Book of Import-Export procedure 1985-88 against import of various capital goods c....
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....ation No. 230/86, dated 3-4-1986, it was decided in consultation with the Ministry of Textiles that an increase of 20% and above in the installed production capacity would be considered as substantial expansion to become eligible for concessional rate of customs duty. When the customs notification No. 230/86 dated 3-4-1986 was issued, it was again decided in consultation with the Ministry of Textiles that the Office of the Textile Commissioner should continue to extend the facility of issuing certificate for project import concessional duty wherever the installed productive capacity increases to the extent of 25% in spinning and weaving even when it is by way of replacement and modernisation. As stated in the original letter of recommendation, the replacement of powerlooms and knitting machines with modern imported machines amount to substantial expansion in their production of man-made fibre fabrics and to achieve the full production capacity, the connected preparatory and other balancing equipments are also required to be installed and as such their various machines detailed in the said letter are part of the project of modernisation which will increase the installed productive ....
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....ation. For the same reasoning, the reference to declaration of ex-factory value of annual production contained in Form IL for application for Licence for effecting substantial expansion under Section 13(1)(d) of the IDR Act, 1951 and Press Note No. 2, dated 1-1-1986 wherein the procedure for amendment in industrial Licence in cases where increased output is the direct consequence of old equipment has been laid down, is not directly relevant for the purpose of this case, which involves interpretation of the Project Import Regulations. 13. We do not agree with the learned Counsel for the respondents that once the Textile Commissioner has recommended the benefit of Project Imports, the Customs authorities are bound by such recommendation. In the case of Project Imports, the sponsoring authority is only a recommending authority and Customs authorities are entitled to independently apply their mind before assessment of imports. 14. We are fortified in our view that it is the installed capacity and not production capacity that is relevant for the purpose of determining eligibility to the benefit of assessment as Project Imports, by the order of the Tribunal in the case of National News....
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.... view, having regard to a combination of factors. This will be seen from the operative final paragraph of that order, which is reproduced below : "In the case before us, no material has been placed before us as to the nature of the enquiry under the Regulations made by the Assistant Collector. He has merely held that this is not a case of initial setting up or substantial expansion. The review notice also does not specify why Government has come to the conclusion that the order-in-appeal is not proper, beyond the bald assertion that no amendment to the industrial licence showing substantial expansion is produced and substantial expansion would mean increase in rated capacity. There is no doubt in this case that the additions were in the nature of a multi-crore Project and there is no doubt that the DGTD recommended the imports and the licences were suitably endorsed. While we cannot agree with the Appellate Collector that expansion of rated capacity is not relvant for the purposes of concession, we also hold that modernisation and revamping do not in themselves preclude substantial expansion of an existing unit. On the facts and circumstances of this case, we are of the view that ....
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....f the contract under Project Imports was rejected by the Tribunal as there was no increase in installed capacity even though the production capacity increased by a small percentage over the existing capacity and hence, the ratio of these judgments applied on all fours to the present appeal. Therefore, the submission of the learned Counsel for the respondents that these judgments are distinguishable is not tenable. 15. The argument of the learned Additional Solicitor General that the provisions of the IDR Act are not in pari materia with those of the Customs Act is well founded - The IDR Act relates to regulation of production while the Customs Act provides for collection of revenue. It is settled that the words in a Statute must be interpreted in the context of the Statute in which they appear. In the case of State of Punjab v. OGB Syndicate reported in AIR 1964 SC 669, the Hon'ble Supreme Court has held that "the scope of the two enactments viz. the Displaced Persons (Institution of Suits) Act, 1948 and the Displaced Persons (Debts Adjustment) Act, 1951 are widely different and, therefore, even if the end use in the two Statutes were identical...... it was not even the case there....
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....ore us, it has not been satisfactorily established that the increase in production capacity is understood in trade and commercial parlance as increase in installed capacity.) As there is no increased installed capacity, there is no substantial expansion of the existing industrial undertaking as required under the Project Import (Registration of Contract) Regulations, 1965. 16. The case law relied on by the learned Counsel for the respondents in support of the proposition that increase in production capacity is the relevant criterion, is distinguishable. In the case of Auto Tractors reported in 1989 (39) E.L.T. 494 (SC), one of the conditions specified in Notification No. 200/79 granting concessional rate of duty to components required in the manufacture of heavy commercial motor vehicles....... or of tractors was production of certificates from DGTD of approved industrial programme for manufacture of tractors. The appellants cleared the goods on payment of duty and, thereafter, filed refund applications and applied to the DGTD subsequently for amendment of the original certificates referring only to Notification 179/80 to clarify that the goods imported by them were eligible for t....