COMMISSIONER OF CUSTOMS, KOLKATAversusM/S. RUPA AND CO. LTD.

                   COMMISSIONER OF CUSTOMS, KOLKATA                                A
                                   v.
                         MIS. RUPA AND CO. LTD.

                                    JULY 21, 2004

                   [S.N. VARIAVA AND ARIJJT PASAYAT, JJ.]                          B
            Customs Act, 1962; Notification No. 29197-Cus. Dated 1st April, 1997
       and its Proviso :

              Exemption Notification-Payment of custom duty/additional duty on C
       goods/spare parts imported under Export Promotion Capital Goods
       Scheme exempted-Machines for inspection and processing offabric/yarn,
       for knitting and dyeing of fabrics imported by assessees-Benefits of
       exemption denied by authorities on ground that the machines so imported
       not required for manufacture of garments Appeals dismissed by Appellate
       Authorities Tribunal held that the machines could be treated as goods and D
_...   covered under the Proviso to the Notification and thus assessees entitled
       to the benefits of the exemption On appeal, Held: Though an exemption
       Notificution has to be construed strictly but not to the extent that its object
       and purpose lost sight of-Jn terms of Proviso benefit of 100% exemption
       available to manufacturer of garments Since machinery imported so used E
       for the purpose of manufacturing garments to meet export obligations, the
        importerlassessee would be entitled to the benefit of 100% exemption under
       the Notification-Tribunal rightly allowed exemption under the Notifica-
        tion.

            Respondent-assessees, manufacturers of garments imported ma- F
       chines required for the purpose of processing of fabric/yam, for
       inspection of fabric, for knitting and dyeing of fabrics and other such
       purposes, and claimed benefits of 100% exemption from payment of
       custom duty/additional duty in terms of exemption Notification No. 29/
       97-Cus. dated April I, 1997 Revenue denied the benefit of exemption G
       on the ground that the machines so imported were not required for the
       purpose of manufacture of textile garments. Appellate Authorities
       dismissed the appeals. Custom, Excise and Gold (Control) Appellate
       Tribunal allowed the appeals holding that the machines in question
       were goods required for manufacture of garments, thus, covered under H
                                           99
    100               SUPREME COURT REPORTS (2004] SUPP. 3 S.C R.
A   Proviso to the Notification. Hence the present appeals by the Revenue.

          It was contended for the Revenue that a Notification must be
    strictly construed; that the term 'textile garment' would not include
    fabric, yarn etc.; that the machines imported by the assessee do not
B   fall in the list of machines which could be imported as capital goods
    and entitled to exemption under the Notification; and that in terms of
    various Circulars of the Revenue, 100% exemption would not be
    available to machines used for knitting/dyeing.

          Dismissing the appeals, the Court
c       HELD : I.I. An exemption Notification has to be construed
  strictly but that does not mean that the object and purpose of the
  Notification is to be lost sight of and the wordings used therein ignored.
  Where the wordings of the Notification are clear and unambiguous
  they have to be given effect to. Exemption cannot be denied by giving
D a construction not justified by the wordings of the Notification. The
  Notification has been issued pursuant to the Expert Promotion Capital
  Goods Scheme. The import of goods was under a licence which
  contains an export obligation. In all these cases, the obligation is to
                                                                                ·-
  export garments and it is fairly admitted that the Respondents
E manufacture garments. The Notification grants an exemption to capital
  goods imported under the EPCG Scheme. The Notification is very
  clear. 100% exemption is given to capital goods required for manu-
  facture of, amongst others, "textile garments". The term "capital
  goods" has been defined in the Notification. The term "Capital good"
F means goods which are used in the manufacture of that product and
  also goods which would be required for manufacture or production of
  other goods including packaging machinery and equipments. The term
  also includes instruments for testing, research and development. The
  term includes machines for pollution control, refrigeration, power
G generating sets etc. 1106-F-G; 107-E-F-G]
        Ob/um Electrical Industries Pvt. Ltd. v. Collector cf Customs, [1997]
    7 sec 581, relied on.

          1.2. For the purposes of manufacture of garments it cannot be
H   said that only stitching and knitting machines are required. Apart from
          COMMR. OF CUSTOMS v. RUPA AND CO. LTD.                    101

stitching and cutting the manufacturer may himself manufacture the A
yarn or fabric. The quality of the yarn or fabric would have to be
tested. Machines would be required for t.hat. Similarly, machines for
dyeing and/or drying the fabric or yarn, machines for inspecting the
defects etc. would be required. The term "capital goods" required for
manufacture of textile garments would thus include all machines B
required for the ultimate manufacture of the garments. The Notifica-
tion has its own safeguards. The import can only be under a licence
issued under the EPCG Scheme. [108-A-B]

     1.3. The use of different terms in the Proviso and the Notification
merely indicates that the 100% exemption is given to a manufacturer C
of garments. If the import is by a person who is manufacturing textile
products then that importer would get exemption from payment of
custom duty and so much of the additional duty as is in excess of 10%
of the value of the goods. The difference in language is only for
purposes of emphasizing that the 100% exemption is only to manufac- D
turers of garments. So long as the imported machinery is used by a
person who manufacturers garments, which are then used to meet the
export obligation, the importer would be entitled to benefit of 100%
exemption under the Notification. Hence, there is no infirmity in the
judgement of the Tribunal. (108-D-E-F)                                   E
     CIVIL APPEL LA TE JURISDICTION : Civil Appeal No. 5944 of
2002.

     From the Judgment and Order dated 31.1.2002 of the Central Excise
and Gold (Control) Appellate Tribunal, East Zonal Bench at Kolkata in A.   F
No. C/R-532 of 2001 in F.O. No. A/154/Kol/2002).

                                 WITH

    C.A. Nos. 1975, 3538-62, 3761-63, 4190, 9306-9311, 9565-69/2003, G
1277-83, 1284-85 and 2619 of 2004.

     A.K. Ganguli, Dileep Tandon, P. Parmeswaran, Om Prakash and B.K.
Prasad for the Appellant.

     Sudhir Chandra, S. Balakrishnan, R. Mohan, T.R. Andhyarujina, H
    102                 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A Parijat Sinha, Snehasish Mukherjee, S.C. Ghosh, Mrinal Kanti Manda!,
    Subramonium Prasad, Abhay Kumar, R. Gopalkrishnan, J.M. Khanna, A.
    Sathath Khan, Ms. Shefali Sethi, T.N. Bhat, S.B. Kumar, R. Nedumaran,
    Rakesh K. Sharma and Shankar Divate for the Respondents.

          The Judgment ·of the Court was delivered by
B
          S.N. VARIAVA, J. : All these Appeals are being disposed of by this
    common Judgment as the facts are identical and they all involve a common
    point.

C        In all these Appeals the Respondents are manufacturers of textile
    garments. By Notification bearing No. 29/97-Cus dated !st April, 1997
    exemption from custom duty was granted to capital goods, components and
    spares thereof etc. imported under the Export Promotion Capital Goods
    Scheme (for short EPCG Scheme). The relevant portion of the Notification
D   reads as follows:

                   "Exemption to capital goods, components and spares thereof
             etc. imported under EPCG Scheme.- In exercise of the powers
             conferred by sub-section (I) of section 25 of the Customs Act,
             1962 (52 of 1962), the Central Government, being satisfied that
E            it is necessary in the public interest so to do, hereby exempts
             goods specified in the Table annexed hereto from whole of the
             duty of customs leviable thereon which is specified in the First
             Schedule to the Customs Tariff Act, 1975 (51 of 1975) and from
             so much of the additional duty leviable thereon under section 3
F            of the said Customs Tariff Act, as is in excess of the amount
             calculated at the rate of I 0% of the value of goods:

                    Provided that where the said goods are required for-

             (i)    the manufacture of leather garments, textile garments (in-
G                   cluding knitwears), agro products and products of horticul-
                    ture, tloriculture, poultry and bio-tech products, or

             (ii)   rendering services to hotel industry,

H            such goods shall be exempted from the whole of the additional
          COMMR. OF CUSTOMS v. RUPA AND CO. LTD. [VARIAVA, J.]              I 03

            duty leviable thereon under section 3 of the said Customs Tariff A
            Act.

                  xxx                  xxx                   xxx
                  xxx                  xxx                   xxx

            6.    The capital goods imported, assembled or manufactured as B
                  installed in the importer's factory or premises and a certificate
                  from the jurisdictional Assistant Commissioner of Central
                  Excise or independent Chartered engineer, as the case may
                  be, is produced confirming installation and use of capital
                  goods in the importer's factory or premises, within six C
                  months from the date of completion of imports or within
                  such extended period as the said Assistant Commissioner of
                  Customs may allow.

                  xxx                  xxx                   xxx
                                                                                   D
                  xxx                  xxx                   xxx

            Explanation - In this notification

            (I) "Capital goods" means, -
                                                                                   E
            (i)   any plant, machinery, equipment and accessories required
                  for-

                  (a)   manufacture or production of other goods, including
                        packaging machinery and equipments, refractories,
                        refrigeration, equipment, power generating sets, ma-       F
                        chine tools, catalysts for initial charge, and equipment
                        and instruments for testing, research and development,
                        quality and pollution control;

                  (b)   use in manufacturing; mining agriculture, aquaculture, G
                        animal husbandry, floriculture, horticulture, pisciculture,
                        poultry, v.iticulture and sericulture; and
.·'"'-'
                  xxx                  xxx                   xxx
                  xxx                  xxx                   xxx
                                                                                   H
    104                 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A           (4) "export obligation"-

                  (i)   in relation to importers other than hotel industry ren-
                        dering services, means export to a place outside India
                        of products manufactured with the use of capital goods
                        imported, assembled. or manufactured in tenns of this
B                       notification or making of supplies of such products in
                        tenns· of clauses (a), (b), (d), (e), (t) and (g) of
                        paragraph I 0.2 of the Export and Import Policy; and

                  xxx                   xxx                  xxx
c                 xxx                   xxx                  xxx

         Thus capital goods imported under the EPCG Scheme were exempted
    from payment of customs duty and so much of additional duty as was in
    excess of I 0% of the value of the goods. Under the proviso if the capital
    goods were imported for manufacture of items mentioned therein then they
D   were exempted from payment of whole of the additional duty. Thus, if
    the capital goods were imported for manufacture of textile garments then,
    under this Notification, the importer would be exempted from payment of
    customs duty and additional duty.

E         Parties are agreed that cutting and stitching machine would be capital
    goods required for manufacture of garments. The Respondents, in this
    batch of Appeals, had however imported machines required for processing
    of fabric/yarn, fabric inspection machines, machines for knitting and dying
    fabrics and other such machines. The Respondents were denied benefits
F   of 100% exemption on the grnund that the machines imported by them
    were not required for the purposes of manufacture of textile garments. The
    Appeals filed by the Respondents to the Commissioner (Appeals) had been
    dismissed.

          The Customs Excise & Gold (Control) Appellate Tribunal (CEGAT)
G   has, in these cases, held that the term "goods are required for manufacture
    of' in the proviso w,as wide enough to cover even these machines. The
    Tribunal has relied upon a letter dated 15th January, 1999 from the
    International Federation of Knitting Technologists which states that for
    export of garments to Europe and U.S.A. good quality is required. It is
H   opined that to manufacture good quality garments one has to first select
     COMMR. OF CUSTOMS v. RUPA AND CO. LTD. [VARIAVA, J.]              I 05

a good quality fabric, then the fabric is required to be reversed to prevent A
the right side of the fabric from abrasion and tear and wear. It is stated
that whilst reversing the fabric has _to be inspected for holes and other
mistakes like needle marks, needle breakage etc. The letter goes on to state
that a garment manufacturer has to have a well equipped laboratory to test
the dyes because after dyeing there has to be shrinkage tests, peeling B
fastness test and various other such tests. It is stated that the fabric then
has to be dried as drying plays an important role in controlling shrinkage
and maintaining dimensional stability. It is stated that one needs dryers
by which the temperature can be controlled so as to avoid any unhygienic
method of drying by leaving the wet fabric open in the sun. The letter then C
goes on to highlight the use of wet expanders and padding mangles for
special finishes like softness, velvet finish etc. The letter states that it is
only thereafter that cutting and stitching can take place. The Tribunal also
relied upon an authority of this Court in the case of Oblum Electrical
Industries Pvt. Ltd. v. Collector of Customs reported in [1997] 7 SCC 581.
The Tribunal has held that the Respondents were entitled to the benefit of D
 100% exemption under the above mentioned Notification.

      Mr. Ganguli submits that a Notification must be strictly construed.
In support of this submission, he relied upon the authority of this Court
in the case of HMM Limited v. Collector a/Central Excise reported in E
[1996] I 1 SCC 332. He also relied upon the case of Novopan India Ltd.
v. Collector ofCentral Excise and Customs reported in [1994] Supp 3 SCC
606. He pointed out that this Notification has been subsequently amended
in 1999 wherein Annexure III has been added. He points out that a list of
machines which could be imported as capital goods for manufacture of
"textile products" has been set out in this Annexure. He submits that the F
list does not contain cutting and stitching machines as that list is for
machines required for manufacture of"textiles products". He submits that
the same Notification uses the words "textile products" in respect of
exemption being granted under the first part of the Notification and the
words "textile garments" when I 00% exemption is to be granted under the G
proviso. He submits that it is significant that I 00% exemption is granted
only to capital goods used for manufacture of"textile garments", whereas
for capital goods used for manufacture of"textile products" the exemption
is restricted only to whole of custom duty and so much of the additional
duty as is in excess of I 0% of the value of the goods. He submits that the H
    106               SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A words "textile products" would include fabric, yarn etc. He submits that
  the term "textile garments" would not include fabric, yarn etc. He submits
  that the use of the words "textile garments" clearly show that the capital
  goods required for manufacturing of yam or fabric do not fall within the
  proviso. He submits that it is only capital goods directly required for
B manufacture of textiles garments which get I 00% exemption. He also
  relies upon a Circular bearing No. 13/2000-Cus dated 22nd February, 2000
  issued by the Board wherein it has been clarified that I 00% exemption as
  per the Notification is not to be given to machines which are used for
  knitting, dyeing and/or for compacting machines which are used in the
C manufacturing/processing of fabrics. The Circular states that 100%
  exemption is only to be given to machines which are used for the
  manufacturing or processing of textiles garments. Mr. Ganguli also relies
  upon a letter dated 18th April, 1999 from the Joint Secretary, Government
  of India, Central Board of Excise and Customs, to one Mr. Rajagopalan,
  Commissioner of Cutoms, wherein also it has been clarified that 100%
D exemption is only to be given to machines which are used for manufacture
  of garments. He also relies upon a letter dated 20th July, 1999 from the
  Ministry of Finance to Mr. Rajagopalan, Commissioner of Customs,
  clarifying that the 100% exemption could not be given to fabric processing
  machines like knitting machines, dyeing machines, compacting machines
E etc.
        Undoubtedly, the Board circular and letters relied upon support Mr.
  Ganguli. However, ifthe interpretation given by the Board and the Ministry
  is clearly erroneous then this Court cannot endorse that view. An exemp-
  tion Notification has to be construed strictly but that does not mean that
F the object and purpose of the Notification is to be lost sight of and the
  wording used therein ignored. Where the wordings of the Notification are
  clear and unambiguous they have to be given effect to. Exemption cannot
  be denied by giving a construction not justified by the wordings of the
  Notification. The Notification has been issued pursuant to the EPCG
G Scheme. The import of goods is under a license which contains an export
  obligation. In all these cases, the obligation is to export garments. It is
  fairly admitted that, in all these cases, the Respondents manufacture
  garments. The Notification grants an exemption to capital goods i'mported     -'
  under the EPCG Scheme. The Proviso grants 100% exemption to capital
H goods which are required for manufacture, amongst other, of "textiles
              COMMR. OF CUSTOMS v. RUPA AND CO. LTD. [VARIA VA, J.]              I 07

         garments (including knit-wears)". The words used are thus "goods are A
         required for manufacture of'. This Court has in the case of Ob/um
         Electrical Industries (supra), whilst considering another exemption Noti-
         fication wherein also the words used were "raw material and components
         required for manufacture" held that the purpose and object of the Notifi-
         cation were to encourage export by granting ex.emption from the custom B
         duty on material required to be imported for manufacture of the resultant
         product. It has been held that the manufacture of the resultant product has
         to be for execution of the export orders. It has been held that the term
         "capital goods required for purposes of manufacture" cannot be construed
         as referring only to materials which are used in the manufacture of that
         product. It was held that the term must be given its natural meaning to C
         also include materials which would be required in order to manufacture
         the resultant product. It has been held that the term would also include
         materials which are not directly used in the manufacture of resultant
         product but are still required for the purposes of manufacturing the
         resultant product. It is held that the term was wide enough to include not D
         just products which are directly involved in the process of manufacturing
         but also products which would be necessary for the ultimate manufacture.
         We are in agreement with this view.

               Further, in our view, this Notification is very clear. The 100% E
         exemption is given to capital goods required for manufacture of, amongst
         others, "textile garments". The term "capital goods" has been defined in
         the Notification. The term "capital goods" means goods which are used
         in the manufacture of that product and also goods which would be required
         for manufacture or production of other goods including packaging machin-
         ery and equipments. The term also includes instruments for testing, F
         research and development. The term includes machines for pollution
         control, refrigeration, power generating sets etc. Thus, for example, if after
         manufacturing of textile garments the same have to be packed, the
         machinery required for packing would be capital goods required for
         manufacture of textile garments. Similarly, refrigeration machinery for G
         refrigerating the plant would also fall within the term capital goods
         required for manufacture of textile garments. If such sort of equipments
, ..J-   and machinery get covered by the term "capital goods" we fail to
         understand as to how machinery required for knitting, dyeing, compacting
         are not covered.                                                               H
    108                SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.                 •.
A       For the purposes of manufacture of garments it cannot be said that
  only stitching and knitting machines are required. Apart from stitching and
  cutting the manufacturer may himself manufacture the yarn or fabric. The
  qualjty of the y~m or fabric would have to be tested. Machines would be
  required fof that. Similarly, machines for dyeing and/or drying the fabric
B or yam, machines for inspecting the defects etc. would be required. The
  term "capital goods" required for manufacture of textile_garments would
  thus include all machines required for the ultimate manufacture of the
  garments. The Notification has its own safeguards. The import can only
  be under a license issued under the EPCG Scheme. The license would
  contain a condition that garments must be exported by the importer. The
C Notification also contains a condition that the capital goods (which are
  imported) are installed in the importers' factory or premises and a
  certificate to that effect has to be produced within 6 months of the date
  of the import.

D        We also see no substance in the submission that the use of different
    words "textile garments" indicates that only machinery used directly for
    manufacture of garments gets I 00% exemption. The use of different terms
    merely indicates that the I 00% exemption is given to a manufacturer of
    garments. If the import is by a person who is manufacturing textile
E   products then that importer will get exemption from payment of custom
    duty and so much of the additional duty as is in excess of I 0% of the value
    of the goods. The difference in language is only for purposes of
    emphasizing that the I 00% exemption is only to manufacturers of gar-
    ments. So long as the imported machinery is used by a person who
    manufactures garments, which are then used to meet the export obligation,
F   the importer will be entitled to benefit of I00% exemption under the
    Notification.

         In this view of the matter, we see no infirmity in the Judgment of the
    Tribunal. We see on reason to interfere.
G
         The Appeals stand disposed of accordingly. There will be no order
    as to costs.

    S.K.S.                                               Appeals disposed of.