Dismissed

The Commissioner of Customs v. M/S Rajeshwari Graphix

Madras HC10 Nov 2017CMA/1298/2007

Case brief

AI extract

What is this about?

The Madras High Court dismissed civil miscellaneous appeals filed by the Revenue against CESTAT orders. The Court held that second-hand photocopies imported for the service sector are 'Capital goods' and freely importable, relying on the Supreme Court judgment in Atul Commodities Pvt. Ltd. The Court ruled that without a specific amendment by the Central Government, DGFT circulars could not change

What did the court decide?

The civil miscellaneous appeals were dismissed, and all substantial questions of law were answered against the Revenue.

The Commissioner of Customs Vs M/S Rajeshwari Graphix — Cheque Dishonour | Madras HC (2017)

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IN THE HIGH COURT OF JUDICATURE AT MADRAS

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DATED: 10.11.2017

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CORAM:

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THE HONOURABLE MR.JUSTICE S.MANIKUMAR and THE HONOURABLE MR.JUSTICE R.SURESH KUMAR

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C.M.A. Nos.1298 and 1299 of 2007

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The Commissioner of Customs, Tuticorin .. Appellant in both CMAs/Appellant/Respondent

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Vs.

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M/s.Rajeshwari Graphix .. Respondent both CMAs/Respondent/Appellant Civil Miscellaneous Appeals filed under Section 130-G of Customs Act, 1962 against the Order dated 30.3.2005 made in order in appeal No.63/05 and 105/2005 passed by the Commissioner of customs and central Excise appeals, Tiruchirapalli as confirmed by the final order No.1335 of 2005 & 1336/2005 dated 28.09.2005 respectively on the file of the customs, Excise, and Service Tax Appellate Tribunal, South Zonal Bench, Chennai.

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For Appellant : Mr.T.Pramod Kumar Chopda in both CMAs

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For Respondent : Ms.P.Srija in both CMAs for Jaikumar

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COMMON JUDGMENT (Delivered by S.MANIKUMAR, J.)

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Final Order dated 28.09.2005 made in Final Order Nos.1335 and 1336/2015 on the file of CESTAT, South Zone, Chennai, is extracted hereunder:

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"These applications of the Revenue (appellant) seek stay of operation of the impugned orders. As we are inclined to dispose of the appeals finally at this stage, we reject the applications and proceed to deal with the appeals.

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https://hcservices.ecourts.gov.in/hcservices/

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After examining the records and hearing both sides, we find that the short question arising for considering in these appeals is whether the second-hand photocopying machines imported by the assessee were capital goods or not. The lower appellate authority has held the said machines to be capital goods and, accordingly, it has refrained from confiscating the goods or imposing penalty on the importer. The Revenue is aggrieved by the decision of the Commissioner (Appeals). Ld.counsel has submitted that the question whether the second-hand photocopiers could be treated as "capital goods" or "consumer goods" has already been settled by the Tribunal in the case of Atul Commodities (P) Ltd. Vs Commissioner, 2005 (184) ELT 135 (TriLB), wherein it was held that such machines, when imported for use by the service secotr in India, should be considered as "capital goods" and not as "consumer goods". No better case law has been cited before us. Accordingly, we hold that the second-hand photocopies imported by the respondents, being capital goods, were freely importable and hence not liable to confiscation. Consequently, the importer was not liable to be penalised either. The impugned orders are upheld and these appeals are dismissed."

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The above said order is assailed on the following substantial questions of law:

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(i) Whether the Commissioner (Appeals) and Appellate Tribunal are correct in holding that the second - hand photocopiers imported and meant for service sector are "Capital goods" free importable and not "Consumer goods"?

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(ii) Whether the commissioner (Appeals) and the Appellate Tribunal are correct in relying upon the decision in Atul Commodities (P) Ltd., vs. Commissioner 2005 (184) ELT Page 135 (Tri-LB) which has not reached finality?

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(iii) Whether the Commissioner (Appeals) and the Appellate Tribunal are correct in not following the clarification issued by the DGFT who is the competent Authority under the FTP governing the above imports and further in the context that as per para 2.3 of FTP, if any doubts arises in respect of the interpretation of policy, procedure etc. and the said doubt shall be referred to DGFT, whose decision shall be final and binding?

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Opposing the prayer sought for, learned counsel for the respondent relied on the decision of the Hon'ble Supreme Court in Atul Commodities Pvt. Ltd. vs. Commissioner of Customs, Cochin reported in 2009 (235) E.L.T. 385 (S.C.), https://hcservices.ecourts.gov.in/hcservices/ wherein it was held as follows:

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"18. We have referred to the provisions of the 1992 Act and Para 2.3 of the FTP to demonstrate the difference between amendment and clarification. The power to amend the FTP is exclusively vested in the Central Government whereas the power to clarify is vested in DGFT. On 31.8.2004, the Central Government vide Notification No. 1/2004-09 notified the FTP 2004-09. The Policy was announced on 31.8.2004. The Policy came into force from 1.9.2004. That Policy came to be amended vide Notification No. 31 dated 19.10.2005 issued by the Central Government under Section 5 of the 1992 Act by which the position came to be changed and, for the first time, import of second-hand photocopying machines imported under the "general" category came under the "restricted" category of imports, which made the importer to import the said machine only against a licence issued in that behalf. Why was that Notification necessary? By the said Notification, import of photocopying machines came to be restricted. It was provided that the said import shall be against a licence. Such a restriction could be placed only by an Amendment and not by Policy Circular(s). Hence, after 19.10.2005, secondhand photocopying machines came within the "restricted" category. Such a change of category has to take place by way of Amendment by Central Government under Section 5 of the 1992 Act. On the other hand, the three administrative/policy circular Nos. 16/03, 19/03 and 20/05 only refer to clarifications issued by DGFT pursuant to representations received by him from the Trade. These circulars are clarificatory and not amendatory in nature. Therefore, under the scheme of the Statute, one finds a clear demarcation between an amendatory provision and a clarificatory provision. Section 5 of the 1992 Act contemplates amendment to the FTP. It empowers only the Central Government to amend the Policy. This power is not given to the DGFT. It is not open to DGFT vide circulars to change categorization of items from the category of "free" to the category of "restricted" imports. This aspect is important for two reasons. Firstly, notification no. 31 dated 19.10.2005, quoted hereinabove, is an amendment to the Policy. It operates only from 19.10.2005. It recites that second-hand capital goods are importable freely. The Notification states that after 19.10.2005, however, import of second-hand photocopying machines will be allowed only against a licence. This amendment pre-supposes

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https://hcservices.ecourts.gov.in/hcservices/

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that photocopying machines are kept out of the purview of "second hand capital goods" only after 19.10.2005. Secondly, as stated above, broadly imports fall in two categories - general and restricted categories including prohibited category. When there is change of categorization, it can be done only by an amendment. This has been done by notification no. 31 dated 19.10.2005. It is only by Amendment that import of second-hand photocopying machines can be kept out of the definition of "secondhand capital goods".

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As stated above, in this case, we are concerned with imports dated January, 2005. It is submitted on behalf of the Department that in January, 2005 Policy circular No. 20 dated 23.2.2005 was applicable. However, Policy circular No. 20/05 is in continuation of Policy circular Nos. 16/03 and 19/03. They have to be read together. In this connection, it may be noted that para 1 of Policy circular No. 16/03 recites that import of all second-hand goods stood restricted under the FTP (2002-07). That circular clarified that import of second-hand PCs/Laptops would fall in the category of "second hand goods". That circular was in the context of FTP 2002-07. However, in the Handbook of Procedures relating to FTP (2002-07) it was provided that import of second-hand capital goods, not more than 10 years old, would be allowed freely (see para 2.33 of the Handbook). In other words, old and used goods of not more than 10 years was treated as "second-hand capital goods". This led to confusion. Therefore, representations came to be made to DGFT seeking clarifications as to whether second-hand PCs/Laptops stood covered under the definition of second-hand capital goods, provided they were not more than 10 years old. It is these representations which came to be answered vide Policy circular No. 16 dated 29.9.2003 in the manner indicated above. Accordingly, by Policy circular No. 16/03, it was clarified that second-hand PCs/Laptops would not fall under "second hand capital goods" as defined under Para 2.33 of the Handbook and consequently their import could only be against a licence. In continuation of Policy circular no. 16/03, circular no. 19/03 came to be issued by which photocopying machines were sought to be brought in the connotation of "second hand goods" in contradistinction to "second hand capital goods". However, both these Policy

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https://hcservices.ecourts.gov.in/hcservices/

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circular nos. 16/03 and 19/03 pertain to period prior to January, 2005 when appellant imported photocopying machines. Both the said circulars referred to FTP (2002-07) whereas appellant imported the machines under FTP (2004-09) in which para 2.17 of FTP and para 2.33 of the Handbook had undergone a change. As can be seen from para 2.17 of the FTP (2004-09) a statement is added to para 2.17 of the FTP (2002-07) that statement reads as under:

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"Import of second hand capital goods, including refurbished/reconditioned spares, shall be allowed freely."

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This statement was not there in para 2.17 of the FTP (2002-07). Similarly, as quoted hereinabove, para 2.33 of the Handbook of Procedures (2004-09) has been completely recasted. Therefore, Policy circular nos. 16/03 and 19/03 has no application to the facts of the present case.

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(B) Interpretation of Circular No. 20 dated 23.2.2005 read with Para 2.17 of FTP (2004-09) and Para 2.33 of the Handbook of Procedures:

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Policy circular No. 20/05 appears to be in continuation of Policy circular Nos. 16/03 and 19/03. In this connection, para 1 of Policy circular No. 20/05 requires to be noted. As stated above, under FTP (2002-07) import of "second-hand goods" could be made only against a licence. They came in the restricted category. However, in the Handbook (2002-07) it was inter alia provided that old and used capital goods which were not more than 10 years old could be imported freely. Those goods, therefore, were treated as "new" goods. This resulted in confusion. Therefore, DGFT stepped in to clarify that second-hand photocopying machines, irrespective of the period of use, shall fall in the restricted category (see Policy circular No. 19/03). Para 1 of Policy circular no. 20/05 recites that photocopying machines are not to be imported without a licence even if they are less than 10 years old and even if the photocopying machines are imported for service providers. Vide para 3, the Policy circular no. 20/05 clarifies that second- hand photocopying machines are covered under the definition of "second- hand goods", therefore, their import shall be governed by the provisions of para 2.17 of the Policy and shall not be permitted to be

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https://hcservices.ecourts.gov.in/hcservices/

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imported under para 5.1 of the Policy. Reverting to para 2.17 of FTP (2004-09) read with para 2.33 of the Handbook (2004-09) one finds that import of second-hand capital goods is made "free". Para 2.17 of FTP (2004-09) is in two parts. The first part deals with the meaning of the words "second-hand goods". The second part states that import of second-hand capital goods shall be allowed freely. Para 3 of the Policy circular no. 20/05 states that import of secondhand goods shall be governed by the provisions of para 2.17 of the Policy. Para 2.17 has to be read in its entirety. That para draws a dichotomy between "second-hand goods" and "second-hand capital goods". Para 2.33 of the Handbook (2004-09) places restriction only qua computers and not qua photocopying machines. In our view, therefore, one has to give weightage to the second part of para 2.17 which allows "free" import of second-hand capital goods. What is not permitted vide para 3 of the Policy circular no. 20/05 is importation under EPCG. As stated above, in this case, we are concerned with imports under general category and not under EPCG. We are in agreement with the view expressed by the Larger Bench of the Tribunal that photocopying machines are capital goods as defined under para 9.12. The Tribunal has held that the use of these machines for rendering services makes them capital goods. In fact, this finding on the "user" is not challenged by the Department. Therefore, import of old and used photocopying machines stands covered by the concept of "second- hand capital goods" in para 2.17 (particularly in the light of the last statement in the said para, which we have underlined hereinabove).

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One more aspect needs to be mentioned. Para 2.33 expressly states that import of old and used computers/second-hand computers are restricted. Para 2.33 of the Handbook do not restrict photocopying machines. Import of photocopying machines are expressly restricted only by Notification no. 31 dated 19.10.2005. This itself indicates that categorization/recategorization cannot be done by policy circulars. Such exercise has to be undertaken by specific amendment to the Policy vide Section 5 of the 1992 Act. In this case, Notification no. 31 dated 19.10.2005 indicates that the Central Government has brought in photocopying machines into the category of second-hand goods vide amendatory Notification, therefore, import of

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https://hcservices.ecourts.gov.in/hcservices/

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photocopying machines stand restricted only on and after 19.10.2005. In fact, if the argument of the Department is to be accepted, then there was no need to issue Notification no. 31 dated 19.10.2005."

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In the instant case, second hand photocopying machines were imported during 2004 and 2005. Though Mr.Pramod Kumar Chopta, learned counsel for the Revenue made submissions supporting the prayer sought for, going through the material on record and the decision of the Hon'ble Supreme Court, cited supra, we are of the view that said decision is squarely applicable to the facts on hand.

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In the light of the above discussion and decision, these civil miscellaneous appeals are dismissed and all the substantial questions of law are answered against the Revenue.

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Sd/Assistant Registrar(CS-VI) //True Copy// Sub Assistant Registrar Asr To 1. The Assistant Registrar, Customs, Excise and Service Tax Appellate, Tribunal Chennai-6.

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