M/S DHARTI DREDGING AND INFRASTRUCTURE LTD.versusCOMMISSIONER OF CUSTOMS AND CENTRAL EXCISE, GUNTUR

                         [2023] 4 S.C.R. 739                            739


   M/S DHARTI DREDGING AND INFRASTRUCTURE LTD.                          A
                                 v.
   COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE,
                     GUNTUR
                  (Civil Appeal No. 3005 of 2010)                       B
                         MARCH 01, 2023
    [S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]
       Customs Tariff Act, 1975 – Note 2 to Section XVII –
Inapplicability of – Items excluded and denied the benefit of
                                                                        C
exemption notification, if integral parts of “Cutter Suction Dredger”
– Appellant imported a Cutter Suction Dredger along with other
accessories and equipments including Pipes, Anchor Boats,
Multicats, Dredging pumping units, Engines and other spares and
accessories classified under the Chapter Heading 8905 10 00 of
the 1975 Act – Claimed benefit of nil rate of duty under the            D
notification – Assistant Commissioner held that the multicats, pipes,
imported dredging pumping units and other goods were classifiable
under different tariff headings and thus, were not entitled to
exemption under the notification as Dredgers – Appellate
Commissioner dealt with each item separately and held that nine
                                                                        E
items were entitled to exemption – CESTAT restored the order of the
Assistant Commissioner – On appeal, held: As per Note 2 of the
Section XVII, parts and parts of accessories cannot apply to
specified articles, including items classifiable under 8401-79, 8481-
82, and to some extent, 8483 – The error committed by the CESTAT
is that each of the excluded items was treated as a separate part       F
and not integral to the functioning of a Cutter Dredger – Each of
the units excluded by CESTAT are integral for the functioning of a
Cutter Dredger – Without the compressors and the pipes necessary
to pump the dredged material, the cutter dredger would cease to
function as such – Other items are also integral parts of the Cutter
                                                                        G
Dredger, even though independently utilized for other purposes –
The test is not whether multiple uses are possible but whether these
parts are essential for the purpose of dredging in a Cutter Dredger
– Thus, the revenue’s reliance on Note 2 of the Section XVII is
insubstantial – Impugned order set aside – Order of Appellate
Commissioner restored.                                                  H
                                  739
740             SUPREME COURT REPORTS                             [2023] 4 S.C.R.


A            Steel Authority of India Ltd. vs. Commissioner, Central
             Excise & Customs, Bhubaneshwar 2022 SCC Online
             (SC) 1232 – held inapplicable.
             Commissioner of Customs Vs. Boskalis Dredging India
             Pvt. Ltd. [2002 (139) ELT A 313 (SC); Saraswati Sugar
B            Mills vs. Commissioner of Central Excise (2014) 15 SCC
             625 : [2011] 13 SCR 579 – referred to.
             Boskalis Dredging India Pvt. Ltd. Vs Commissioner of
             Customs, Bhubaneshwar, [2001 (135) E.L.T. 1396 –
             referred to.
C                               Case Law Reference
      [2011] 13 SCR 579                  referred to                  Para 6
            CIVIL APPELLATE JURISDICTION : Civil Appeal No.3005
      of 2010.
D           From the Judgment and Order dated 28.05.2009 of the Customs,
      Excise and Service Tax Appellate Tribunal, South Zonal Bench, Bangalore
      in Appeal No.C/690/2008.
            Kumar Visalaksh, Udit Jain, Ajitesh Dayal Singh, Abhay
      Chattopadhyay, Praveen Kumar, Advs. for the Appellant.
E           N. Venkataraman, A.S.G., Mukesh Kumar Maroria, V. C.
      Bharathi, S. A. Haseeb, Ms. Alka Agarwal, Ms. Ruchi Gour Narula,
      Syed Abdul Haseeb, Advs. for the Respondent.
             The Judgment of the Court was delivered by
F            S. RAVINDRA BHAT, J.
             1. The appellant had imported a “Cutter Suction Dredger” along
      with other accessories and equipments including Pipes, Anchor Boats,
      Multicats, Dredging pumping units, Engines and other spares and
      accessories. These were classified under the Chapter Heading 8905 10
G     00 of the Customs Tariff Act, 1975 (hereinafter “the Act”). The appellant
      claimed the benefit of Nil rate of duty, in terms of Notification No. 21/
      2002- CUS dated 01.03.2002. The appellant had relied upon a certificate
      dated 27.02.2008 issued by the Chartered Engineer, based on the
      inspection of the goods. After verification of the Bill of Entry, the Assistant
      Commissioner was of the opinion that the multicats, M.S. pipes, imported
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 M/S DHARTI DREDGING AND INFRASTRUCTURE LTD. v. COMM’R OF                    741
 CUSTOMS AND CENTRAL EXCISE, GUNTUR [S. RAVINDRA BHAT, J.]


dredging pumping units and other goods were classifiable under different     A
tariff headings and were not entitled toexemption under the notification
as “DREDGERS”.
       2. Feeling aggrieved, the assessee appellant preferred an appeal
to the Commissioner of Customs (Appeals), Guntur (hereinafter “the
Appellate Commissioner”). The Appellate Commissioner, by an order            B
dated 30.06.2008, after elaborately analysing the functions of each
individual part, granted relief and held that nine items were entitled to
exemption. These were set out in paragraph 25 of the Appellate
Commissioner’s order, which is extracted for easy reference:
                                                                             C




                                                                             D




                                                                             E

       3. The Appellate Commissioner had while granting relief, relied
upon the previous order of the CESTAT reported as Boskalis Dredging
India Pvt. Ltd. Vs Commissioner of Customs, Bhubaneshwar, [2001
(135) E.L.T. 1396] (“hereinafter as “Boskalis Dredging India Pvt.            F
Ltd”).
       4. The revenue appealed to the CESTAT. The CESTAT relied
upon other previous decisions and took into consideration Chapter Note
to Section XVII of the Act which states that ‘parts’ and ‘parts of
accessories’, could not apply to certain articles, whether or not they are   G
identifiable, as far as the goods of that section were concerned. Note
2(e) was interpreted to held that the parts – which the Appellate
Commissioner held were essential to a Cutter Dredger, were separate
articles. CESTAT upset the findings of the Appellate Commissioner and
restored the order of the Assistant Commissioner.
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742             SUPREME COURT REPORTS                            [2023] 4 S.C.R.


A            5. The appellant urges that the impugned order wrongly interfered
      with the Appellate Commissioner’s determination. It was submitted that
      each article, that were denied the benefit of exemption, performed
      functions integrally connected with a Cutter Dredger. Learned counsel
      relied upon the decision in Commissioner of Customs Vs. Boskalis
      Dredging India Pvt. Ltd. [2002 (139) ELT A 313 (SC)] by which this
B
      Court affirmed the CEGAT’s order in Boskalis Dredging India Pvt.
      Ltd. (Supra).
            6. Learned counsel for the revenue relied upon the decision of
      this Court in Steel Authority of India Ltd. vs. Commissioner, Central
      Excise & Customs, Bhubaneshwar [2022 SCC Online (SC) 1232]. In
C     that decision, this Court had to deal with the question as to whether
      transportation of hot coke from a coke oven battery with the aid of a
      guide car resulted in transport vehicle i.e., the guide car being an integral
      part of the coke oven battery. The Court on that occasion had relied
      upon previous rulings in Saraswati Sugar Mills vs. Commissioner of
D     Central Excise, (2014) 15 SCC 625). In Saraswati Sugar Mills (supra),
      the Court had the occasion to deal with what constitutes the word
      “COMPONENT”.
             7. This Court after relying upon Saraswati Sugar Mills (Supra)
      and taking aid from the dictionaries held that the Guide Car could not be
E     said to be a component of the Coke Oven Battery. It was submitted that
      by the same analogy, the pumping units, air compressors, pumps, pipes,
      wire mesh, steel angle plates and outward engine boat, all of which
      were granted the benefit of exemption notification, cannot be considered
      ‘components’. It was besides urged that the Appellate Commissioner
      had disregarded Note 2 to Section XVII of the Act which had clearly
F     excluded the articles in question; they had to be classified separately
      under the relevant heads.
             8. The order of the Tribunal in Boskalis Dredging India Pvt.
      Ltd. (Supra) dealt with a similar aspect; the article imported which was
      in question in that case was a cutter suction dredger, much like the same
G     one in the present case. The Tribunal had after considering the various
      components and the relative functions, described their utility in the overall
      unit in the following terms:
                  “From the definitions of various Dredgers as extracted
            above, we find that Dredging, no doubt, means excavation.
H           But there is definitely a need for continuous lifting of the
M/S DHARTI DREDGING AND INFRASTRUCTURE LTD. v. COMM’R OF              743
CUSTOMS AND CENTRAL EXCISE, GUNTUR [S. RAVINDRA BHAT, J.]


    dredged material and dumping the same at some other place.        A
    This can be done by a separate disposal system of discharge
    system can be a part of the Dredger by itself. Referring to the
    British Standard Specification (BS 6349, Part- 5 L 199) we
    find that there are various types of Dredgers like Stationary
    Suction Hopper Dredger, Trailing Suction Hopper Dredger,
                                                                      B
    Cutter Suction Dredger etc. The Dredger in the instant case
    is a Cutter Suction Dredger in contrast to the Hopper Dredger
    which keeps the dredged material in its hold (hopper). When
    the hold is filled up, the said Hopper Dredger moves to the
    designated area of discharging dredged materials without the
    assistance of any pipelines. In such type of Hopper Dredgers,     C
    neither the Suction Pipe nor the discharge Pipe may be
    essential. In the case of Cutter Suction Dredger, the procedure
    for carrying out the dredging work is different. The Cutter-
    Head is fitted with the Dredger with a Suction Pipe beneath
    it. The said Cutter cuts the earth, rock etc. under the water
                                                                      D
    when the dredged material accumulates. As these dredged
    material has to be taken form the Dredger for the continuous
    uninterrupted dredging work, Suction Pipe sucks the dredged
    material. The Suction Pipes are connected with the discharge
    pipe with the aid of flanges/belts, nuts and bolts etc. The
    discharge pipes then throw these dredged material at the          E
    designated area which may be at a distant place. It is this
    function of the Cutter Suction Dredger which involves the
    dredging as well as the discharging, which makes the Pipelines
    an essential part of the Dredger inasmuch as without these
    Pipelines the Dredger of the type in question will not be able
                                                                      F
    to work properly, Para 4.4.1 of the British Standard
    Specification is being reproduced below for better
    appreciation;-
    “4.4.1 General”
    ….. ….. ….. A Cutter Suction Dredger may be self-propelled        G
    but is more commonly dumb (non-self-propelled). Dredging
    only takes place with the dredger moored in some way and it
    involves an initial powerful cutting action with suction and
    pumped discharge to barges or more commonly, via a pipeline
    to a remote onshore area for disposal of land reclamation.
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744     SUPREME COURT REPORTS                       [2023] 4 S.C.R.


A            The Cutter Suction Dredger is normally rated according
      to either the diameter of the discharge pipe, which may range
      from 150 mm to 1100 mm, or by the cutter head driving
      horsepower, which may range from 20 to 5000, or in the case
      of very large dredgers by the total installed horsepower…….
B     The main pontoon structure contains the dredge pumps(s),
      the main engines and all ancillary engines, drives and
      equipment……
      The discharge from the dredge pumps(s) passes over the stern
      (or opposite end the cutter) of the pontoon to a heavy hose
C     or flexible coupling, to which is connected a floating pipeline
      (see A. 4.5.3) which in turn is connected to an onshore
      pipeline. Sometime an intermediate sea bed pipeline may be
      used.” Para 4.4.2 of the British Standard Specification is also
      being reproduced below for better appreciation.

D     “4.4.2. Pipelines
      Pipelines affect both the performance and operational
      efficiency of the Cutter Suction Dredger. The diameter of the
      pipeline has a direct bearing on the efficiency of the hydro
      transport process. Pipelines fall into the following two
E     categories.”
      11. From the above description of the Cutter Suction Dredger
      also, we find that Pipelines attached with the Suction Dredger
      forms an indispensable part of the main mother craft. The
      cutter head, which may be electrically or hydraulically driven,
      encloses the suction intake of a centrifugal dredge pump.
F
      The cutterhead is mounted at the extremity of a fabricated
      steel structure, termed the “ladder”, which also supports the
      suction pipe. The technical and practical requirement of
      disposal of the dredged material makes the Pipelines a part
      of the main Dredger. We find that the evidence relied upon by
G     the appellant firm in the shape of the British Standard
      Specification, strongly favour their case. Accordingly, we hold
      that the various types of Pipelines are a part of the Dredger
      itself, qualifying for their classification under Chapter
      8905.00 as Dredgers and therefore, they are entitled to the
      exemption Notification No. 133/87-Cus., dated 19.3.87. As
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 M/S DHARTI DREDGING AND INFRASTRUCTURE LTD. v. COMM’R OF                    745
 CUSTOMS AND CENTRAL EXCISE, GUNTUR [S. RAVINDRA BHAT, J.]


      we have held Pipelines as a part of the Dredger enjoying               A
      exemption under Notification No. 133/87, the appellants
      further claim of exemption under Notification No. 106/92
      dated 1.3.92, in the alternative, does not required any
      consideration. The appeal is thus allowed.”
       9. The Bill of Entry in the present case, describes the goods as      B
“Cutter Suction Dredgers and Ta Hsing along with Standard Spares,
Accessories, Pipes etc., including Multicats (2 Nos.) & Anchor Boat (1
No.); Dredging Pumping unit to be used with cutter suction dredger (2
Nos.) Engine (2 Nos.) along with Standard Spares & Accessories.” In
the order and appeal, the relevant portion of the inspection report of the
Chartered Engineer was taken note of.                                        C
      It is extracted below:
            “The main function of the dredger is to remove the sand,
      slurry etc., from the sea bed to increase the depth. There are
      various types of dredgers like cutter suction (without
                                                                             D
      propulsion), trailer suction with self propulsion, back hoe
      dredger etc. The selection of dredger and allied accessories
      like anchor boat and other dredge spread depends upon the
      area of operation.
            Since the dredger under import is a cutter suction
      dredger without propulsion the anchor handling Multi cat               E
      boats and other boats to carry out survey, to take sounding
      at the dredged area and for transporting men and material
      from the shore to the dredger.
            The dredger requires continuous maintenance which
      invoices flushing the pipe lines, filters with compressed air          F
      and welding, gas cutting of various parts and also machining
      of some vital components for the day to day operation is
      essential.
            Since most of the project site will not have a permanent
      power connection, hence the generators are deployed for                G
      providing power to the shore support work shop wherein
      welding, machining and illumination of the site and etc.,
             The pumping stations are basically engine, driven
      centrifugal pumps which are used as a booster pumps to pump
      the slurries/sludge to a place away from the site.                     H
746            SUPREME COURT REPORTS                          [2023] 4 S.C.R.


A                 Hence, the complete dredge spread which involves
            various boats, and other machineries and equipments has to
            be decided based on the location and type of the job
            involved.”
             10. The Appellate Commissioner then considered the previous
B     order in Boskalis Dredging India Pvt. Ltd. (Supra) and dealt with
      each item separately. It was noticed that the dredger pumping units are
      essential for the cutter suction dredgers unlike in the case of hopper
      dredgers. Furthermore, the use of air compressors is also necessary to
      ensure a continuous supply of air to the booster pumps. The Appellate
      Commissioner took care to exclude some of the claims made by the
C     appellant towards generators, consumables lathe etc. Likewise, the
      Appellate Commissioner allowed the claim for exemption in respect of
      steel angle plates, pipes, and wire mesh which was held to be useful for
      the erection of booster pump stations.
            11. Note 2 of the Section XVII which has been relied upon in the
D     present case by the revenue and the tribunal, is to the following effect:
            “The expression “parts” and “parts and accessories” do not
            apply to the following articles, whether or not they are
            identifiable as far the goods of this Section: -

E           (a) to (d)……
            (e) machines or apparatus of headings 8401 to 8479, or parts
            thereof; articles of heading 8481 to 8482, or, provided they
            constitute integral parts of engines or motors, articles of
            heading 8483.”
F            12. A plain reading of the note extracted above shows that parts
      and parts of accessories cannot apply to specified articles, including
      items classifiable under 8401-79, 8481-82, and to some extent, 8483. In
      the present case, in this Court’s view, the error committed by the CESTAT
      is that each of the excluded items has been treated as a separate part
      and not integral to the functioning of a Cutter Dredger. Without the
G
      compressors and the pipes necessary to pump the dredged material, the
      cutter dredger would cease to function as such. The other items, likewise,
      are integral parts of the Cutter Dredger, even though they might
      independently be utilized, for other purposes. The test is not whether
      multiple uses are possible but whether these parts are essential for the
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 M/S DHARTI DREDGING AND INFRASTRUCTURE LTD. v. COMM’R OF                           747
 CUSTOMS AND CENTRAL EXCISE, GUNTUR [S. RAVINDRA BHAT, J.]


purpose of dredging in a Cutter Dredger. So viewed, the revenue’s                   A
reliance on Note 2 in the present case is insubstantial.
       13. As far as the reliance upon the judgement in Steel Authority
of India Ltd. (Supra) is concerned, the Court undoubtedly held that the
Guide Cars could not be treated as part of the Coke Oven Plant. Apart
from making general observations with respect to Guide Cars being not               B
essential for the functioning of the Coke Oven Battery, what are the
other essential functions of the coke oven battery and whether the guide
car is an integral part of that, was an aspect which the Court went into.
In the opinion of this Court, that decision cannot provide guidance in
resolving the classification dispute posed in this case i.e., whether the
items excluded and denied the benefit of exemption notification are                 C
integral parts of a Cutter Dredger. As held earlier, each of the units
which the CESTAT excluded (to which benefit had been granted by the
Appellate Commissioner) are integral for the functioning of a Cutter
Dredger. For this reason, it is held that the ratio of the judgement in Steel
Authority of India Ltd. (Supra) could not be applicable in the present              D
case.
      14. As far as the exclusion of generators is concerned, this Court
notices that concurrently the order in appeal, as well as the order of the
CESTAT, have excluded it from the benefit of the exemption notification.
The Court finds no reason to interfere with those findings.                         E
      15. For the above reasons, the impugned order is hereby set aside.
The order of the Appellate Commissioner is accordingly restored. The
appeal is allowed in these terms without order on costs.
      16. Hence, the Civil Appeal is allowed in part. Pending
application(s), if any, is/are disposed of.                                         F


Divya Pandey                                               Appeal partly allowed.
(Assisted by : Anirudh Agarwal and Shevali Monga, LCRAs)


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