1. The basic issue involved in this appeal is whether machinery and components etc. imported by the appellants for modernisation of their cement plant were entitled to be assessed under heading 84.66 of the Customs Tariff Act, 1975 or not. In order to facilitate a proper understanding of the matter, we reproduce the text of heading 84.66 in the Annexure to this order.
2. The case was argued before us at length on 25th February, 1983 and again from 16th March to 18th March, 1983. The appellants attacked the impugned order of the Additional Collector (hereinafter referred to as the "Collector") on the following grounds :- (1) The Collector has held against the appellants in his order on four counts- (i) Delay in registration of the contract on the part of the appellants, (ii) Failure on the part of the appellants to produce the endorsement of the licensing authority on the import licence, or a Recommendatory Letter, to the effect that the goods to be imported under the said licence were entitled to the benefit of Project Imports, (iii) Suppression by the appellants of the fact that the imports in question were not for initial setting up of a unit or for substantial expansion of an existing unit but were for modernisation and replacement only, and (iv) Ineligibility of the appellants to the benefit of heading 84.66 since this heading was confined to Project Imports for initial setting up of a unit or substantial expansion of an existing unit while it was ultimately found that the imports in question were not for this purpose but were for modernisation and replacement of the appellants' existing cement plant.
As regards delay in registration, Regulation 3(2) of the Project Imports (Registration of Contract) Regulations, 1965 requires that an importer intending to avail of the benefit of assessment under heading 84.66 should apply for registration of his contract as soon as he has obtained the import licence. The appellants argued that no doubt they applied for registration, on 11-6-82 after about one year of obtaining the licence, but the fact was that the Collector called for their explanation for this delay which they furnished in detail in their letter dated 25-6-82 whereupon the Collector granted their request for registration of the contract on 5-7-82. The only reasonable presumption that could be drawn from this was that the Collector had accepted their explanation for delay and he was, therefore, not justified in making the aforesaid delay a ground for revoking the registration later. In any case, the delay was not of a material character since all clearances under the contract took place only after the contract had been registered and thus the requirement of the Proviso to heading 84.66 stood compiled with.
(2) Regarding their failure to produce the Project Import endorsement on their import licence or a Recommendatory Letter to that effect, the appellants stated that there was no statutory obligation on their part to do so. Para 177 of the Hand Book on Import Trade Control Policy was only of a recommendatory nature. Hence, this failure on their part cannot be a ground for cancelling the registration.
(3) The show cause notice issued by the Collector contained no allegation that the appellants had suppressed any fact. It was, therefore, unfair on the part of the Collector to suddenly bring this charge against them in his impugned order. The appellants emphatically denied that they had suppressed any facts. The subject heading in their application for registration as well as in their subsequent letters in that connection stated clearly that the imports were for the purpose of modernisation. Further, with their application dated 11-6-82, they enclosed their industrial licence which showed their existing capacity as 2,600 tonnes per day. They also enclosed a copy of the contract which showed that after modernisation the revised capacity would stand at 2,500 tonnes per day. Had the Collector cared to read these documents carefully, he would have reached the obvious conclusion that the imports were only for modernisation and not for expansion of capacity. While at this point, attention of the appellants was drawn by the Bench to item (g) appearing at the end of their application for registration in which the appellants declared that the components to be imported were to be used for initial setting up of the plant. The appellants were asked to state what they meant by this declaration which was apparently contradictory to their stand that the imports were for modernisation of their existing cement plant. The appellants explained that what they meant was that the components imported would first be used for setting up the replacement plant and the said plant was later to produce cement. In any case, they added, the Collector had, at no stage, said that he was misled by their aforesaid declaration at item (g). They stated before us categorically that their imports in question were not for the purpose of initial setting up of a unit or for substantial expansion of an existing unit but only for the purpose of modernisation and replacement of their existing cement plant.
(4) Having ' passed final orders registering their contract for the benefit of heading 84.66, the Collector was not entitled to have second thoughts and de-register their contract. No doubt, the Collector had, while according registration, ordered simultaneously that the goods imported by the appellants should be assessed provisionally under Section 18 of the Customs Act, 1962 and subject to their executing a bond for the full differential duty involved between the heading 84.56 and 84.66 but, the appellants asserted, this provisional assessment could only have been made for the purpose of ensuring the proper end-use of the imported goods and not because the Collector had any reservations on the question of registration.
(5) Coming to the basic question of interpretation of heading 84.66, the appellants maintained that items (a), (b), (c) and (d) of sub-heading (i) of this heading were separate, independent and disjunctive and the condition appearing at the end of item (d) that the goods to be imported should be for the purpose of initial setting up of a unit or for substantial expansion of an existing unit, applied to item (d) only and not to items (a), (b) and (c). They stated that their imports in question were against items (a), (b) and (c) and the only requirement in respect of these items was that they should register their contract with the Customs before clearance of the goods for home consumption under the Project Imports (Registration of contract) Regulations, 1965, which they did. They were not required to fulfil any other condition. They were, therefore, entitled to the benefit of heading 84.66. They invited our attention to note 6 in Section XVI of the Customs Tariff which states that heading 84.66, would have overriding applicability to the goods which fulfil the conditions of that heading.
(1) The Collector never stated that he had accepted the appellants' explanation for delay. The fact that the Collector ordered provisional assessment under Heading 84.66 shows that the Collector still wanted to collect some more information.
(2). It was, no doubt, not a legal requirement that the appellants should produce Project Import endorsement on their import licence or, in the alternative, a Recommendatory Letter to that effect, yet production of such an endorsement or Recommendatory Letter would have helped the appellants' cause.
(3) The appellants indulged in a very clever device. They made no clear declaration in the body of their application for registration to the Collector of Customs and Central Excise, Ahmedabad that the contract was for modernisation and replacement. They left the relevant column of the application, which was very material and vital with reference to Regulation 3(3) (c), blank. On the other hand, they put pressure on the authorities on the ground of approaching monsoons to have registration of their contract done on imrmdiate basis lest the machinery be damaged by rains. In such a situation, it was well nigh impossible for the authorities to make a detailed scrutiny of the voluminous contract and of the industrial licence etc. and to gain the knowledge through such indirect method that the contract was for modernisation and replacement only and not for expansion of capacity.
(4) Though the Collector had registered the contract and assigned it a number, the registration process was not complete till the continuity bond required to be executed by the appellants was accepted by the Collector. This had been made clear in the Collector's Public Notice No. 20/1981 dated 4-11-81 relating to project imports. In this case, though the appellants prepared the bond and sent it to the Collector, it was not accepted by the Collector. The process of registration was, therefore, not complete or final.
(5) There was no estoppel in assessment matters. More so, since in this case assessment had been made provisionally under Section 18 and such provisional assessment had to be finalised. The show cause notice issued by the Collector and his Order-in-Original, which is the impugned order in the present appeal, were nothing but legally contemplated proceedings to finalise the provisional assessment after hearing the appellants.
(6) The basic question in this case was the interpretation of heading 84.66. The Department's representative, quoting that grammar was a good guide but a bad master to dictate, relied on AIR 1975 SC 2269 to say that the entire heading should be read as a whole. He explained that if the appellants' interpretation were to be accepted, then just by getting his contract registered, under the aforesaid Regulations, every importer of machinery and instruments would be able to claim assessment at the lower rate under heading 84.66, thus rendering substantial portions of Chapters 84 to 90 of the Tariff, which carried much higher rates of duty, nugatory. This would completely distort the scheme of the Customs Tariff. Such distortions could not have been intended by the Parliament and any meaning which introduces such distortions has to be eschewed. He stated that a harmonious construction of heading 84.66 in the context of the overall scheme of the Customs Tariff would establish beyond doubt that the conditions appearing at the end of item (d) of heading 84.66 applied to all the four items (a), (b), (c) and (d).
The conditions were that the contract should be for initial setting up of a unit or for substantial expansion of an existing unit.
Secondly, the unit should be one of the six specified industries and projects. Thirdly, the contract should be registered with the Customs before clearance of the goods for home consumption. The Department's representative repeated that all these conditions were applicable to each of the items of heading 84.66 (i). This had been made clear in a Hand Book on Salient Features of the New Customs Tariff brought out by the Department when the new Tariff came into force during 1976. This was also clear from Note 6 to Section XVI of the Customs Tariff which talked of fulfilment of "conditions" of heading 84.66 and not of just one condition.
4. We have carefully considered the matter. We agree with the appellants that the Collector, by granting registration after considering their explanation for delay, had, impliedly, accepted their explanation and it was, therefore, not fair on his part to make the question of delay a ground for proceeding against the appellants later.
We also agree with the appellants that their failure to produce the Project Import endorsement on their import licence or a Recommendatory Letter to that effect was not a bar to their availing of the benefit of heading 84.66 if otherwise due to them. As regards the Collector's charge of suppression of facts on the part of the appellants, we find force in their grievance on this count too. No such allegation was contained in the show cause notice issued by the Collector and, consequently, the appellants were not heard on this count. Collector's order holding the appellants guilty of suppression of facts was, therefore, a unilateral one and this part of his order has to be struck down on that ground alone. Even on merit, we find no substance in the charge that the appellants were guilty of suppression of facts. No doubt, they made no clear declaration in the body of their application for registration that their imports in question were for modernisation and replacement only. It is also true that it would be rather too much to expect the authorities to come to this conclusion through the devious method of correlating the voluminous contract with the industrial licence. Yet, if the Collector really felt that only imports for initial setting up of a unit or for substantial expansion of an existing unit alone were entitled to be assessed under heading 84.66, we wonder why he registered the appellants' contract at all in the first instance when there was no declaration anywhere in the application submitted by them or in the documents enclosed therewith that the imports were for initial setting up of a unit or for substantial expansion of an existing unit. On the other hand, whatever vague and incomplete information the appellants did furnish, for example, the subject heading in their letters and application for registration and their leaving the column relating to capacity in the application for registration blank, it pointed to the proposition that the contract was not for initial setting up of any unit or for expansion of an existing unit. In the circumstances, the charge of suppression of facts on the part of the appellants cannot stand.
5. We do not agree with the appellants on their plea of estoppel. It is now well settled that there can be no estoppel in a taxation law. No finality attaches to assessment orders. Mistakes are likely to be committed both by the assessee as well as by the assessing officers. It is for this reason that the Customs Act, 1962 itself creates a complete machinery for rectification of such mistakes through the process of claims for refund by the assessee under Section 27 and demands of duty short-levied by the Department under Section 28. There are further remedies provided to parties feeling aggrieved by way of appeal to the Appellate Collector, then to the Tribunal and thereafter to the High Court and the Supreme Court. The finality comes only with the Supreme Court's orders. The process of registration of contracts under heading 84.66 is a part of the assessment process under that heading. If the Collector made a mistake in registering the contract-irrespective of the fact whether he admits it or not-he was entitled to initiate the process of recovery under Section 28 by issuing a show cause notice.
That the assessment was not final in this case is also proved by the fact that the Collector had ordered a provisional assessment.
Provisional assessments are governed by Section 18. The only relevant portion of the section which could apply to the facts of the present case is Clause (c) of Sub-section (1) of the section, namely, that the appellants had submitted the documents which they could but the Collector required further information before making a final assessment. This is borne out by the Collector's action in writing letters to the Chief Controller of Imports & Exports as well as to the appellants in order to make sure whether the imports in question were for initial setting up of a unit or for substantial expansion of an existing unit or not. It was only in their letter dated 27-9-82 that the appellants stated in clear terms that their imports were only for modernisation and replacement. This was immediately followed by the Collector's show cause notice which culminated in the order impugned in these proceedings. We see nothing wrong in the Collector's action since under the law, in terms of Section 18 as well as Section 28, he was entitled to do so if he felt that the facts of the case did not make the imports in question eligible to be assessed under heading 84.66.
6. That brings us now to the basic question of interpretation of heading 84.66. We have given our earnest consideration to this matter.
Reading the heading as a whole and giving due weight to the marks of punctuation-use of small letters (a), (b), (c) and (d) for the four items of import in the heading, beginning the description of each item with a small first letter, putting a comma at the end of each of the items (a), (b) and (c), the entire sub-heading 84.66 (i) being one running, continuous matter- -and, above all, the scheme of the Customs Tariff and the purpose of heading 84.66 convince us that the qualifying words occurring at the end of item (d) "required for the initial setting up of a unit, or the substantial expansion of an existing unit, of a specified..." apply to all the four items and not to item (d) alone, notwithstanding the fact that these words appear in the print as a continuation of item (d) and not as a separate hanging paragraph below it. Any other conclusion would introduce distortion in the Tariff. Items (a), (b) and (c) of heading 84.66 cover all items of machinery including prime movers, instruments, apparatus and appliances, control gear and transmission equipment and the heading prescribes a single fiat rate of duty of 40% ad valorem for all these goods. Now, these very goods are more specifically covered under numerous other headings of Chapters 84 to 90 of the Customs Tariff which carry much higher rates of duties. As it happens in the international trade, there is a contract between the importer and his foreign supplier for every importation. If, just by having the said contract registered with the Customs, the importer could avail of much lower rate of 40%, it would make, as the Department's representative put it, a substantial portion of the Tariff nugatory. We agree with the Departments' representative that such an interpretation has to be eschewed. The appellants say that besides registration of the contract, the importer would require an import licence too and if the Government wanted to avoid distortion of the Tariff, it could do so by simply not granting the import licence. This argument of the appellants is fallacious. Import licence and customs duty are two separate and distinct matters governed by two separate laws. One is not dependent on the other unless there is an express provision to the contrary. The industry does require maintenance parts and machines to carry on production. The import policy makes provision for granting such licences or places some of these imports under an Open General Licence.
The question of rate of duty applicable to imports is determined by Customs when the goods actually arrive. If, at this stage, an importer of machinery, instruments etc., were to claim assessment under heading 84.66 just by having his contract registered under the Regulations, regardless of the purpose of his import and regardless also of the fact that his particular purpose may have nothing to do with the six industries and projects specified in that heading, the scheme of the Tariff would certainly be distorted.
7. Interpreting heading 84.66, the way the appellants want us to do, will also create practical problems of implementation. Large size machines or complete plants can seldom be imported in one piece. They are unassembled and are imported in the form of components to be reassembled later. Because of the need to encourage indigenous industry and to conserve foreign exchange, the sponsoring authorities in the Government entrusted with regulating imports generally insist that as many components and machines as are available within the country, should not be imported from abroad. In some cases, only raw materials would be allowed to be imported so that components and machines could be manufactured out of them within the country. Import of components and raw materials is covered by item (d) of heading 84.66 (i), There are three conditions laid down in heading 84.66 which the appellants contend apply only to them (d)- (i) the components and materials should be for the manufacture of machines and instruments etc. mentioned against items (a), (b) and (c) of the heading, (ii) such machines and instruments etc. should be required for initial setting up of a unit or for substantial expansion of an existing unit, and (iii) such unit should belong to one of the six industries and projects specified in the heading.
It would thus be seen that even going by the appellants' own interpretation, all these three conditions get attached to the machinery and instruments etc. of items (a), (b) and (c) indirectly, if manufactured out of components and materials falling under item (d).
8. It is clear from the above discussion that a harmonious and practical interpretation has to be given to the description of heading 84.66. Such an interpretation, in our view, is that heading 84.66 has an overriding application to cases where imports of machinery, instruments, components and raw materials are required for initial setting up of a unit, or for substantial expansion of an existing unit, of the specified or approved industry or project, subject to the condition of the contract for import being duly registered with the Customs before clearance of the goods for home consumption. If any of these conditions are not satisfied, the goods will be assessed under their respective specific heading occurring elsewhere in the Tariff.
9. Having held that heading 84.66 applies only to initial setting up of a unit, or for substantial expansion of an existing unit, of a specified or approved industry or project and not to any and every contract for importation of machinery and instruments, and since it is the declared case of the appellants that their imports were only for modernisation and replacement of their existing cement plant and no expansion of capacity was involved, we have to agree with the Collector that the appellants were not entitled to the benefit of this heading for their imports.