MODI RUBBER LIMITEDversusUNION OF INDIA AND ANR.

                     MODI RUBBER LIMITED                                     A
                               v.
                    UNION OF INDIA AND ANR.

                           AUGUST 26, 1997
                                                                             B
              (SUHAS C. SEN AND K.T. THOMAS, JJ.)

      Customs Act 1962-/CT Items 53, 72(3)-Poly Propylene Liner
Fabric-Imported as a liner fabric-{]sed not only in tyre production but also
in other similar machines-Held, Levy of duty as an accessory under ICT C
Item 53, and not as a component part-Valid.

      The Appellant imported Poly 'Propylene Liner Fabric (PPLF) from
their foreign collaborators for use as Liner components to various
machinery units of their tyre & tube manufacturing plants. The liner
fabric is fed into various machinery units and at each stage, it is rolled   D
With a layer of the Liner fabric component in between.

      The appellant challenged the inclusion of PPLF under ICT Item 53
whereby duty at the rate of 305 percent was charged. The appellant
contended that the PPLF was supplied by the foreign collaborators for use    E
as Liner components to various machinery units, that PPLF is basically a
liner Fabric which protects the rubber coated tyre fabric from atmos-
pheric moisture and dust, that the Liner Fabric was an essential part of
the working of the machineries, that the necessary manufacturing process
could not be carried out unless it was used in the various machinery units
and that it is not a consumable raw material nor does ifform part of the     F
fmished products like automobile "tubes and tyres.

      The appellant further contended that the plant & machineries im-
ported by it included PPLF as a part thereof and formed part of "Project
Import", that their import licence was likewise endorsed and that the PPLF G
has been included in another import. licence as a raw material, that the
Customs Department bas levied duty at the rate of nearly 305% under Item
53 ICT on the ground that PPLF has been imported under a separate and
subsequent licence and not under the Project Import Ucence, and that in
the facts of the case duty should have been levied under Item 72(3) ICT as
component part of the machinery imported by it.                            H
                                    519
    520                  SUPREME COURT REPORTS [1997] SUPP. 3S.C.R.

A       The Appellant described the goods as accessory and not a raw
  material which goes into the finished product and relied on certain af-
  fidavits of experts. The Assistant Collector did not agree with the appellant
  and the appellant approached the Government of India on revision. The
  Government of India held that the term component part as defined under
B Item 72(3) ICT referred to such parts only as were essential for the
  working of the machines or the apparatus and had been given for that
  purpose some shape or quality which would not be essential for their use
  for any other purpose. The Government of India found that it was more
  properly in the nature of an accessory, running in different sizes and
  lengths and that in the form in which they were imported, these fabrics
C could not be considered as component parts of any machine. The Govern-
  ment further held that PPLF imported by the Appellant ·could not be
  treated as component of the machinery installed by the appellant.

          Dismissing the Appeal, the Court

D         HELD : l. There is no error of law in the revisional order passed by
    the union Government. As per the experts' affidavits, PPLF was not a
    component part of the machine itself. It was not a constituent part. It was
    used as a Liner Fabric not only in tyre production but also in similar other
    industrial process. It could be used not only in the machines imported by
E   the appellant but also in other similar machines. [523-D]

           CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1845-51
     of 1981.

           From the Judgment and Order dated 25.7.79 of the Government of
F India, Ministry of Finance, Department of Revenue, New Delhi in Customs
     Revision Applications Passed Order Nos. 61B to 67B of 1979.

           Joseph Vellapally, Ms. Amrita Mifra and Amit Bansal for Mis. JBD
     & Co. for the Appellant.

G         R. Mohan, R.S. Rana, V.K. Verma and P. Parmeswaran for the
     Respondents.

           The Judgment of the Court was delivered by

           SEN, J. Modi Rubber Limited, the appellant herein, set up a tyre·
H and tube manufacturing plant in 1974. It had a collaboration agreement
                      MODI RUBBER LTD. v. U.O.I. [SEN, J.)                  521

    with a West German Company (hereinafter referred to as "foreign A
    collaborators") who agreed to supply the latest technical knowhow and also
    to guide the appellant in the manufacture of high quality tyres. Some
    machineries and its components were also supplied by the foreign
    collaborators. The dispute in this case relates to Polypropylene Liner
    Fabric (PPLF). According to the appellant, PPLF was supplied by the B
    foreign collaborators for use as Liner components to various machinery
    units. PPLF is basically a Liner Fabric which protects the rubber coated
    tyre fabric from atmospheric moisture and dust. The Liner Fabric is fed
    into various machinery units and at each stage, it is rolled with a layer of
    the Liner Fabric component in between. This has the effect of protecting C
    and preserving the thickness, surface and elongation etc. during the
    manufacturing process. The Liner Fabric was an essential part of the
'
    working of the machineries. The necessary manufacturing process could
    not be carried out unless it was used in the various machinery units. It is
    not a consumable raw material nor does it form part of the finished
    products like automobile tubes and tyres.                                    D

          On behalf of the appellant, it has further been contended that the
    plant and machineries imported by it included PPLF as a part thereof and
    formed part of "Project Import". The appellant's import Ecence was
    likewise endorsed. However, the appellant thought that the capital goods· E
    import licence might not be adequate to cover all the requirements of
    PPLF for setting up of the said factory and applied to the Director
    General, Trade a;id Development, for inclusion of PPLF in another import
    licence for Raw Material which was duly aliowed.
                                                                                  F
          The grievance of the appellant is that the Customs Department has
    levied duty at the rate of namely 305 per cent under Item 53 JCT.. The only
    reason for classifying the goods imported by the appellant under Item 53
    JCT was that PPLF had been imported under a separate and subsequent
    licence and not under the Project Import licence. The appellant is G
    aggrieved by the levy of duty under Item 53 JCT on PPLF imported by it.
    The contention of the appellant is that in the facts of this case, duty should
    have been levied under Item 72(3) ICT as component part of the machinery
    imported by it and not under Item 53 JCT as "Textile manufactures not
    otherwise specified". The relevant entires arc as under :                      H
    522                  SUPREME COURT REPORTS [1997] SUPP. 3 S.C.R.

A                   "MACHINERIES AND APPARATUS;
                        ELECTRICAL MATERIAL

            "72(3). Component parts of machinery as defined in item 72, 72(1)
            and 72(2) and not otherwise specified, namely, such parts only as
            are ess~ntial for the working of the machine or apparatus and have
B           been given for that purpose some special shape or quality which
            would not be essential for their use for any other purpose but
            excluding small tools like twist drills and reamers, dies and taps,
            gear cutters and hacksaw blades :

c           Provided that articles which do not satisfy this condition shall also
            be deemed to be component parts of the machine to which they
            belong if they are essential to its operation and are imported with
            it in such quantities as may appear to the Collector of Customs to
            be reasonable".

D         xxx           xxx              xxx               xxx

            53. "Textile manufactures, not otherwise specified."

          In the revisional order passed by the Government of India which is
E   now under challenge in this Court, it was held that the term "component
    part" as defined under Item 72(3) ICT referred to such parts only as were
    essential for the working of the machine or the apparatus and had been
    given for that purpose some shape or quality which would not be essential
    for their use for any other purpose. The appellant in its letter to the
    Assistant Collector of Customs had itself described the goods as "acces-
F   sory" and had stated that :

            "Polypropylene liner fabric is however not a raw material which
            goes into the finished product, namely, tyres and tubes."

        The Government was of the view that ordinarily "component part"
G should go into the assembly of a machinery itself. The Government of
  India, thereafter, had elaborately discussed the functions of PPLF and
  came to the conclusion that it was more properly in the nature of an
  accessory to the equipment. It was further noticed that proforma invoice
  and the list of machineries supplied, forwarded by the appellant to DGTD
H and CCI and E did ncit indicate that the Liner Fabric was a 'component'.
                      MODI RUBBER LTD. v. U.0.1. [SEN, J.]                   523

    It was also noted that the fabric imported by the appellant was in running      A
    lengths of different sizes and width. In the form in which they were
    imported, these fabrics could not be considered as "component parts" of
    any machine.

        On behalf of the appellant, affidavits of some experts were given. Mr.
    Ram Mohan Rai and Mr. Waldemar Lange filed affidavits to establish that         B
    PPLF imported by the appellant was "component of machine".

          After taking into consideration the facts of this case as well as the
    affidavits, it was ultimately held that PPLF imported by the appellant could
    not be treated as component of the machinery installed by the petitioner.       C

            Having regard to the facts of the case, we are of the view that no
    error of law has been committed in the revisional order. The appellant had
    imported plants and machineries. While using the plants and machineries,
    PPLF was used as a device to protect the rubber coated tyre fabric from
    atmospheric moisture and dust. PPLF was not a component of the machine          D
    itself. It was not a constituent part. It was used as a Liner Fabric not only
    in tyre production but also in similar other industrial processes. For this
    finding of fact reliance was placed on the affidavits of Shri Ram Mohan
    Rai and Shri Waldemar Lange where it was stated that PPLF was used as
    Liner component of tyre manufacturing machines and in similar other             E
    industrial uses.

          In Item 72(3), it has been categorically stated that the components
    imported must have some "special shape or quality which would not be
    essential for their use for any other purpose". The finding of the Tribunal
    is that PPLF came in various sizes and forms and not is any particular          F
    shape suitable for any particular machine, Moreover, it could be used not
    only in the machines imported by the appellant but also in other similar
    machines.

          Having regard to the facts of this case, we are of the view that the G
.   order under appeal does not suffer from any infirmity in law. The appeals
    are dismissed. No. order as to costs.

    V.M.                                                     Appeals dismissed.