Holding

Pressure gauges are parts of steam engines falling under heading 84.04/05 and, therefore, qualify for exemption under Notification 35/79, and Notification 41/80 exempts such goods from auxiliary duty irrespective of the actual duty differential.

Summary

Bharat Heavy Electricals Ltd (BHEL) imported pressure gauges for steam turbines and paid basic customs duty of 40% under heading 90.24 and an auxiliary duty of 5%. BHEL claimed a refund of the auxiliary duty, invoking Notification No. 35/79 (exemption for parts of articles falling under heading 84.04/05) and Notification No. 41/80 (exemption from auxiliary duty for goods partially or wholly exempt from customs duty). The Customs Department argued that the gauges, assessable under heading 92.04, were not covered by the notifications and that auxiliary duty exemption required a higher duty on the part than on the whole article. The Supreme Court held that it is sufficient that the gauges are parts of steam engines classified under heading 84.04/05, even if they are assessed under a different heading, and that Notification 41/80 exempts such goods from auxiliary duty irrespective of the actual duty reduction. Consequently, BHEL was entitled to the exemption and the appeals were dismissed.

Issues considered

Whether pressure gauges, assessed under heading 90.24, qualify as "parts of an article" falling under heading 84.04/05 for the purpose of Notification No. 35/79.
Whether exemption from auxiliary duty under Notification No. 41/80 is available when the basic duty rate on the part is not higher than that on the whole article.
Whether the notes to Schedule XVI affect the assessability of parts for the purpose of the notifications.

Legislation cited

Subjects

customs dutyauxiliary dutyexemptionNotification 35/79Notification 41/80parts of articlepressure gaugesBHELimport dutyinterpretation of notifications

Judgment

A COLLECTOR OF CUSTOMS, BOMBAY
v.
BHARAT HEAVY ELECTRICALS LTD., NEW DELHI.

AUGUST 25, 1992

B [S. RANGANATHAN, V. RAMASWAMI AND
B.P. JEEVAN REDDY, JJ.]

Customs Tariff Act, I975:

C Items No. 84.04/05 and 90.24 of the Schedule and Notifications
No.35/79-cus dated I5.2.79 and No.4I/80-cus dated 25.3.81>-Goods im-
ported Assessable to basic customs duty under Item No. 92.1#-Whether
entitled to exemption from auxiliary duty as part of steam engines falling
under Item No.84.04/05.

D Notification No.35/79-cus dated 15.2.1979 laid down conditions for ex·
emption Crom payment or import duty on the goods imported, viz. (1) the
exemption was given in respect of the duty on a part; (2) the part in question
was part or an article; (3) the article fell under one oCthe various headings
nos. set out in the notification; (4) the part was imported into India; and (5)
E the authorities concerned were satisfied that the part was required for the
purpose of the initial setting up of the article; its assembly or manufacture.
If these conditions were fulfilled, no import duty would be levied on the part
as was in excess of the duty that would have been leviable on the article, had
it been imported in a complete shape. Notification No.41/80-cus dated
25.3.1980 exempt•d the goods, which were partially or wholly exempt from
F the duty or customs specified in the first schedule to the Act, by virtue of
Notification No.35179 from the whole of the auxiliary duty of customs leviable
on such goods nnder sub-section (1) of Section 4 of the Finance Act oC1980.

The respondent-assessee, a public sector company engaged in the
G manufacture or heavy electrical machinery, imported various consign·
ments of "pressure gauges" for manufacture of steam turbines. These
pressure gauges were subjected to basic customs duty at the rate of 40%
under item No. 90.24 or the schedule to the Customs Tariff Act, 1975. The
assessee also paid an auxiliary duty at 5% in respect or the imports.

H Subsequently, the assessee claimed a refund of the auxiliary duty
16
COLLECTOR OF CUSTOMS v. B.H.E.L. 17

paid on the ground that the item was chargeable .to customs duty at 40% A
only, without the levy of the auxiliary duty of 5%, in terms of Notification
No. 35/79-cus dated 15.2.79 read with Notification No. 41/80-cus dated
_'.) 25.3.80. The assessee's case was that the pressure gauges imported by it
1 were the parts of articles falling under heading No. 84.04/05 and were
chargeable to basic customs duty of 40% and, therefore, the parts could B
not be charged to duty at a rate in excess of 40%. The assessee's claim for
refund was rejected by the Assistant Collector and the Appellate Collector.
The Tribunal allowed the assessee's appeals.

' In the appeals before this Court, on behalf of the department, it was
1 contended that Notification No. 35179 only exempted articles which fell C
under Item Heading No. 84.04/05 and since the pressure gauges had been
assessed and were clearly assessable under item Heading No. 92.04, there
was· no question of the asses see getting any concession under Notification
No. 35/79, and the relief in respect of auxiliary duty under Notification
No. 41/80 was available only where the goods in question were partially or D
wholly exempt from duty of customs by virtue of the notifications of the
Government of India specified in the Schedule, but in the instant case the
duty of customs leviable on the part taken by itself, under Item Heading
No. 92.04, as well as the duty leviable on the article of which it formed a
part, under Item No. 84.04/05 were the same, and consequently, the E
pressure gauges had not become entitled to any exemption of concession
by virtue of the Notification No. 35179, and the terms of Notification No.
41/80 were thus not fulfilled and the assessee was not entitled to the relief
claimed and that since the duty payable on the part, even without invoking
the notification, was not in excess of the duty payable on the article, the
assessee could not be said to have got a partial or complete exemption of F
basic duty by virtue of Notification No. 35179, and consequently, the
assessee could not claim any benefit under Notification No. 41/80; and
though this interpretation would lead to an anomoly, inasmuch as the
assessee would have been eutitled to complete exemption from auxiliary
duty if the rate of duty on the part had been 41 %, but it was not so, if the G
rate had been 39% or 40% because the Notification did not apply to it in
terms and since anomolies were inevitable in the case of provisions of this
type.

Dismissing the appeals, this Court, H
18 SUPREME COURT REPORTS [1992} SUPP. I S.C.R.

A HELD: I.I. To get the benefit of Notification No. 35/79 it is not
necessary that pressure gauge should be assessable under Item Heading
No. 84.04/05. All that is needed is that it should be a part of an article
falling, inter a/ia, under Heading No. 84.04/05 and that condition is fulfilled
in the instant case as the pressure gauges, though assessable under
Heading No. 92.04, are parts of steam engines which fall under Heading
f
B No. 84.04/05. There is no dispute that the pressure guages imported by the
assessee are parts of steam turbines manufactured by it and that the parts
have been imported for the purpose of initial setting up of the steam engine
or for its assembly or manufacture. The provisions of the first part of
Notification No. 25/79 are, therefore, fulfilled. (23 D-E]
c
1.2. Relief under Notification No. 41/80 will not depend upon the
actual operation or application of notification No. 35/79 in the case of a
particular item of goods. It is intended for a class of goods. The 1979
notification grants an exemption or concession in respect of the basic duty
D payable on certain classes of goods viz., parts of articles which fall under
one of the specified headings and required for certain purposes, The
purport and intention of the 1980 notification is to exempt the class of
goods falling under the purview of the 1979 notification from auxiliary duty
as well. The exemption under the 1980 notification does not depend, in this
view, on the practical effect of the application of the 1979 notification in a
E particular case. Its applicability should not be confined to items of goods
in respect of which a reduction in duty is actually enjoyed under one of the
notifications included in the schedule to the 1980 notification.
(24 G-H, 25A]

1.3. There is no logic in saying that the exemption from auxiliary
F duty in respect of the same part will be available only where the duty
chargeable on the part is more than, but becomes equal to, that on the
whole article by applying the 1979 notification but not where the duty on
the part is the same as that of the whole even otherwise. Equally, it is
wrong to say that when the part suffers a basic duty of 40% and the whole
G a duty of 40%, there will be a countervailing duty hut that there will be no
such duty where the basic duty on the part is 41 % or more but reduced
to 40% because of the 1977 notification. The correct position would be that
the purpose and purport of the 1979 notification is to ensure that, in
respect of the articles listed therein, the part should not suffer a higher
H duty than the whole. The 1980 notification likewise exempts this category
COLLECTOR OF CUSTOMS v. E.H.E.L. [RANGANATHAN, J.] 19

of articles, which enjoy the benefit of the same or less duty on the part A
than that on the whole, from auxiliary duty. This Interpretation not only
does not do any violence to the language of the notification but, on the
other hand, gives effect to Its trne Intent and purpose. (25 B-D]

1.4. In the circumstances, the Tribunal was right in holding that the B
assessee was entitled to exemption from auxiliary duty in respect of the
goods in question. (25 El

CIVIL APPELLATE JURISDICTION: Civil Appeal >las. 3307/88,
494- 500 & 696/89.
c
From the Orders Nos. 289, 471, 472, 465 to 469 and 479 of 1988/82
dated 27.4.88, 17.10.88, 21.10.88 of the Customs, Excise & Gold (Control)
Appellate Tribunal, New Delhi in Appeal Nos. C/1645/83- B2, CD(SB)
118/84-82, CD/SB/1226/84-82, C/611/84-82, C/612/84:82, C/613/84-82,
Cn39/84-B2, C/1240/84-82 and C/378/85-B. ( D

M. Gauri Shankar Murthy, AS. Rao, Ms. Sushma Suri, P. Parmesh-
waran and Dalip Tandon for the Appellant.

Raj Panjwani and Vijay Panjwani for the Respondents.
E
The Judgment of the Court was delivered by

RANGANATHAN, J. All these appeals raise a common point and
can be disposed of conveniently by the same judgment. The respondent in
all these appeals is Bharat Heavy Electricals Limited (hereinafter referred F
to as 'the assessee').

The assessee is a public sector company engaged in the manufacture
of heavy electrical machinery. It imported various consignments of "pres-
sure gauges" from abroad for its hardware unit for use in the manufacture G
of steam turbines. These pressure gauges were subjected to basic customs
duty at the rate of 40% under item no. 90.24 of the schedule to the Customs
Tariff Act, 1975, which reads as under :

H
20 SUPREME COURT REPORTS [1992] SUPP. 1 S.C.R.

A Heading Sub-heading No. and description Standard
No. of article rate of duty
90.24 Instruments and apparatus for measuring,
checking or automatically controlling the flow,
depth, pressure or other variables of liquids or
B gases or for automatically controlling
•
temperature
(for example, pressure gauges, thermostats,
level gauges, flow meters, heat meters,
automatic oven-draught regulators), not being
c articles, falling within Heading No. 90.14:
(1) Not elsewhere specified 40%
(2) Thermostats and humidistats 60%

(Emphasis added)
D
The assessee also paid an auxiliary duty at 5% in respect of the imports.

Subsequently, the assessee claimed a refund of the auxiliary duty paid
on the ground that the item was chargeable to customs duty at 40% only,
without the levy of the auxiliary duty of 5%. This Claim was based on the
E terms of notification no. 35/79-cus dated 15.2.79 read with notification no.
41/80-cus dated 25.3.80. This claim for refund was rejected by the Assistant
Collector and the Appellate Collector. When the matter came up before
the Tribunal, it was inclined to take a view against the assessee but, as there
was an earlier decision of the Tribunal to the contrary, decided to follow
F it and hold against the Department. The Tribunal, therefore, allowed the
assessee's appeals. The department has preferred these appeals.

The relevant portion of notification no. 35179 may now be extracted,
which reads thus :

G ''Exemption to pans of any anicle falling under Chapters 82,
84, 85, 86 and 87 and meant for initial set up or assembly
of that article : In exercise of the powers conferred by
sub-section (1) Section 25 of the Customs Act, 1962 (52
of 1962), and in supersession of the notification of the
H Government of India in the Department of Revenue and
COLLECTOR OFCUSTOMSv. B.H.E.L. [RANGANATHAN,J.] 21

Banking No. 350- Customs, dated the 2nd August, 1976, A
the Central Government being satisfied that it is necessary
in the public interest so to do, hereby exempt interest so
to do, hereby exempt parts of any article falling under the
Headings Nos. 82.05(2), 84.01/02, 84.03, 84.04/05, 84.07,
84.08(1), 84.09, 84.10(1), 84.11.(1), 84.11(4), 84.13, 84.14,
84.15(1), 84.16, 84.17(1), 84.18(1), 84.22, 84.23, 84.24(1),
B
84.25, 84.26, 84.28, 84.29, 84.30(2), 84.31, 84.32, 84.33,
83.34,84.35, 84.36, 84.37(1), 84.38(1), 84.39, 84.40(1),
84.41(1), 84.42(1), 84.42(2), 84.43, 84.44, 84.45/48, 84.49,
84.56, 84.57, 84.59(2), 85.02(1), 85.11(1), 85.18/27(3),
85.19/27(7), 86.01/03, 87.01(1) and 87.02(3) of the First c
Schedule to the Customs Tariff Act, 1975 (51 of 1975),
when imported into India and proved to the satisfaction of
the Assistant Collector of Customs to be required for the
purpose of the initial setting up of that article or for its
assembly or manufacture as is in excess of the rate ap-
D
plicable to the said article when imported complete, subject
to the following conditions, namely :-
11
:XXX XXX :XXX

If we analyse the notification the conditions of exemption will be seen E
to be as follows :

(1) The exemption is given in respect of the duty on a part;

(2) The part in question should be the part of an article;

(3) TheArticle must fall under one of the various headings nos. set out;
F

(4) The part must be imported into India;

(5) It must be .shown to the satisfaction of the authorities that the
part is required for the purpose of the initial setting up of the article, its G
assembly or manufacture.

If these conditions are fulfilled, not import duty will be levied on the
part as is in excess of the duty that would have been leviable on the article,
had it been imported in a complete shape. Here the assessee's case is that
the pressure gauges imported by it are the parts of articles which admittedly H
22 SUPREME COURT REPORTS [1992] SUPP. 1 S.C.R.

A fall under Heading No. 84.04/05 and are chargeable to a basic customs duty
of 40%. So the parts cannot be charged to duty at a rate in excess of 40%.
On this, indeed, there is no dispute.

There is dispute however, regarding its claim for exemption from the
levy of auxiliary duty. This claim is based on notification no. 41/80 which,
B to the extent relevant, reads as follows :

"In exercise of the powers conferred by sub-section ( 1) of
Section 25 of the Customs Act, 1962 {52 of 1962), read
with sub-section (4) of Section 4 of the Finance Act, 1980
(13 of 1980) and in supersession of the Notification of the
c Government of India in the Ministry of Finance (Depart -
ment of Revenue) No. 27-Customs, dated the 12th March,
1980, the Central Government, being satisfied that it is
necessary in the public interest so to do, hereby exempts
the goods which are partially or wholly exempt from the duty
D of Customs specified in the First Schedule to the Customs
Tariff Act, 1975 (51 of 1975) by virtue of the Notifications
of the Government of India in the Ministry of Finance or
in the Department of Revenue and Banking, specified in
the Schedule below from the whole of the Auxiliary Duty
of Customs leviable on such goods under sub-section (1)
E
of Section 4 of the said Finance Act."

xxx xxx xxx

SCHEDULE
F
xxx xxx xxx

198, No. 35-Customs, dated the 15th February, 1979.

xxx xxx xxx11
G
(Emphasis added)

Sri Gauri Shanker Murthy, learned counsel appearing for the depart-
ment, raises two contentions :

H (i) Notification No. 35179 only exempts articles which fall under Item
COLLECTOR OF CUSTOMS v. B.H.E.L. [RANGANATHAN, J.] 23

Heading No. 84.04/05 and since the pressure gauges, the articles presently A
in question, have been assessed and are clearly assessable under item
Heading No. 92.04, there is no question of the assessee getting any conces-
sion under Notification Nu.35/79. In this connection our attention is drawn
to the terms of the Note l(g) and (1) and 2 to section XVI of the Schedule.

(ii) The relief in respect of auxiliary duty under Notification No . B
. 41/80 is available only where the goods in question are partially or wholly
exempt from duty of customs by virtue of the notifications of the Govern-
ment of India specified in the Schedule. In the present case the duty of
customs leviable on the part taken by itself, under Item Heading No. 92.04,
as well as the duty leviable on the article of which it forms a part, under C
item 84.04/05, are the same. Consequently, the pressure gauges have not
become entitled to any exemption or concession by virtue of the Notifica-
tion No. 35/79. The terms of the Notification No. 41/80 are thus not fulfilled
and the assessee is not entitled to the relief claimed.

D
So far as the first point raised by the learned counsel is concerned, we
think it proceeds on a misconception. To get the benefit of Notification No.
35/79 it is not necessary that pressure gauge should be assessable under item
Heading No. 84.04/05. All that is needed is that it should be a part of an article
falling, inter alia, under Heading No. 84.04/05 and that condition is fulfilled
here as the pressure gauges, though assessable under Heading No. 92.04, are E
parts of steam engines which fall under Heading No. 84.04/05. There is no
controversy before us that the pressure gauges imported by the assessee are
parts of steam turbines manufactured by it and that the parts have been im-
ported for the purpose of initial setting up of the steam engine or for its as-
sembly or manufacture. The provisions of the first part of Notification No. F
35179 are, therefore, fulfilled. The contents of the Note of which our attention
has been drawn are act, in our opinion, of any assistance. Note l(g) is of no
assistance at all. Note 1(1) only makes it clear that pressure gauges will be
assessable under item Heading No. 90.24 and cannot be brought under
84.04/05 or any other item heading in chapters falling under section XVI
merely because they are parts of such article. Similarly, Note 2 to Section XVI G
only makes it clear that even parts of machinery may be assessable under the
same heading as the main machinery, provided they form an integral part of
the machine and are suitable for use more or Jess or principally with a par-
ticular kind of machine or number of machines falling under a .particular
heading. But since this note is subject to note 1(1), it does not alter the position H
24 SUPREME COURT REPORTS [1992] SUPP. I S.C.R.

A that the parts are assessable under Heading No. 92.04. We do not think it
necessary to discuss the contents of these Notes more elaborately; it is suffi-
·-· cient to say. that they do not advance the first contention urged on behalf of the
appellants.

The second contention of the learned counsel runs thus : the concession
B or exemption from auxiliary duty under Notification No. 41/80 can be claimed
only in respect of goods which are partially or wholly exempt by virtue of
notification no. 35/79. The parts in the present case as well as the principal
article of which they are part are both assessable to basic duty at the same rate.
Since the duty payable on the part, even without invoking the notification, is
C not in excess of the duty payable on the article, the assessee cannot be said to
have got a partial or complete exemption of basic duty by virtue ofNotification
No. 35/79. Consequently, the assessee cannot claim any benefit under
Notification No. 41/80. This interpretation no doubt leads to an anomaly in
marginal cases. If the rate of duty on the part had been 41 %, the assessee
D would have been entitled to a complete exemption from auxiliary duty. On the
other hand, if the rate of duty on the part had only been 39% or 40%, he would
have to pay the auxiliary duty because the Notification does not apply to it in
terms. Counsel, however, submits that such anomalies are inevitable in the
case of provisions of this type and that, in taxing matters, it is imperative to
concentrate on the language of the statute or the relevant statutory instru-
E ment. If the wording clearly imposes a tax or gives a relief, that should be given
effect to. If the wording does not justify either the imposition or the relief, it
should not be extended merely on the ground that there may be some unin-
tended anomaly as a consequence of the interpretation or that the equities of
the situation require a more liberal interpretation.
F
There is, however, another way of reading the notifications before us
and it is this which appeals to us as the more reasonable one. On this inter-
pretation, relief under notification no. 41/80 will not depend upon the actual
operation or application of notification no. 35179 in the case of a particular
G item of goods. It is intended for a class of goods. The 1979 notification grants
an exemption or concession in respect of the basic duty payable on certain
classes of goods viz. parts of articles which fall under one of the specified
headings and required for certain purposes. The purport and intention of the
1980 notification is to exempt the class of goods falling under the purview of
the 1979 notification from auxiliary duty as well. The exemption under 1980
H notification does not depend, in this view, on the practical effect of the ap-
COLLECTOR OF CUSTOMS v. 8.H.F.L. [RANGANATHAN,J.] 25

plication of the 1979 notification in a particular case. Its applicability should A
not be confined to items of goods in respect of which a reduction in duty is
actually enjoyed under one of the notifications included in the schedule to the
1980 notification. There appears to be no logic in saying that the exemption
from auxiliary duty in respect of the same part will be available only where the
duty chargeable on the part is more than, but becomes equal to, that on the B
whole article by applying the 1979 notification but not where the duty on the
part is the same as that of the whole even otherwise. Equally, it seems absurd
to say that when the part suffers a basic duty of 40% and the whole a duty of
40%, there will be a countervailing duty but that there will be no such duty
where the basic duty on the part is 41 % or more but reduced to 40% because
of the 1977 notification. The correct position appears to be that the purpose C
and purport of the 1979 notification is to ensure that, in respect of the articles
listed therein, the part should not suffer a higher duty than the whole. The
1980 notification likewise exempts this category of articles, which enjoy the
benefit of the same or less duty on the part than that on the whole, from
auxiliary duty.
D
We think that this interpretation not only does not do any violence
to the language of the notifications but, on the other hand, gives effect to
its true intent and purpose. We, therefore, uphold the view taken by the
Tribunal some what hesitantly, that the assessee was entitled to exemption
from auxiliary duty in respect of the goods in question. E
Shri Murthy, at one stage, pointed out that the claims in the present
case also related to consignments imported on or after 1.3.81. He submitted
that the notification no. 41/80 had ceased to be in force on 28.2.81 and that
the exemption from countervailing duty was not available thereafter.
Though this was a new point, we were inclined to consider it. But, after F
some further research into the terms of the various notifications issued on
or after 1.3.81, he conceded that the exemption continued to be available
on the same or similar terms. We, therefore, do not discuss the position
after 1.3.81 separately with detailed reference to the relevant notifications.
We make it clear that our conclusion earlier set out will apply to the import G
consignments falling for consideration in all the appeals now before us.

For the reasons s.ated above, all these appeals are dismissed. We,
however, make no order regarding costs.

N~P.V. Appeals dismissed.