M/S Dharti Dredging and Infrastructure Ltd. v. Comm’R of

739 [2023] 4 S.C.R. 739 M/S DHARTI DREDGING AND INFRASTRUCTURE LTD. v. COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE, GUNTUR (Civil Appeal No. 3005 of 2010) 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 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 s pares and accessories classified under the Chapter Heading 89 05 10 00 of the 1975 Act – Claimed benefit of nil rate of duty under the notification – Assistant Commissioner held that the multicat s, pipes, imported dredging pumping units and other goods were classi fiable under different tariff headings and thus, were not entitled to exemption under the notification as Dredgers – Appe llate Commissioner dealt with each item separately and hel d that nine items were entitled to exemption – CESTAT restored the orde r of the Assistant Commissioner – On appeal, held: As per No te 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 C ESTAT is that each of the excluded items was treated as a separate part and not integral to the functioning of a Cutter Dredger – Each of the units excluded by CESTAT are integral for the functi oning of a Cutter Dredger – Without the compressors and the pipes nece ssary to pump the dredged material, the cutter dredger wo uld cease to function as such – Other items are also integral parts of the Cutter Dredger, even though independently utilized for other purposes – The test is not whether multiple uses are possible but whethe r these parts are essential for the purpose of dredging in a Cutter Dredger – Thus, the revenue’s reliance on Note 2 of the Sec tion XVII is insubstantial – Impugned order set aside – Order of Appellate Commissioner restored. 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 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. Case Law Reference [2011] 13 SCR 579 referred to Para 6 CIVIL APPELLATE JURISDICTION : Civil Appeal No.3005 of 2010. 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, Ab hay Chattopadhyay, Praveen Kumar, Advs. for the Appellant. N. Venkataraman, A.S.G., Mukesh Kumar Maroria, V. C . Bharathi, S. A. Haseeb, Ms. Alka Agarwal, Ms. Ruchi Gour Nar ula, Syed Abdul Haseeb, Advs. for the Respondent. The Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

¶1The 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 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, b ased 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 dredging pumping units and other goods were classifiable under different tariff headings and were not entitled toexemption under the notification as “DREDGERS”.

¶2Feeling aggrieved, the assessee appellant preferred an appea l to the Commissioner of Customs (Appeals), Guntur (herein after “the Appellate Commissioner”). The Appellate Commissioner, by an order dated 30.06.2008, after elaborately analysing the functions of each individual part, granted relief and held that nine items were entit led to exemption. These were set out in paragraph 25 of th e Appellate Commissioner’s order, which is extracted for easy reference:

¶3The 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. Ltd”).

¶4The 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 identifiable, as far as the goods of that section were c oncerned. Note 2(e) was interpreted to held that the parts – which the Appellate Commissioner held were essential to a Cutter Dredger, wer e separate articles. CESTAT upset the findings of the Appellate Commissioner and restored the order of the Assistant Commissioner.

¶5The 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 exempt ion, 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 Court affirmed the CEGAT’s order in Boskalis Dredging India Pvt. Ltd. (Supra) .

¶6Learned 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 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 Central Excise, (2014) 15 SCC 625). In Saraswati Sugar Mills (supra), the Court had the occasion to deal with what constitut es the word “COMPONENT”.

¶7This Court after relying upon Saraswati Sugar Mills (Supra) and taking aid from the dictionaries held that the Guide Car could not be 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 o f which were granted the benefit of exemption notification, cannot be considered ‘components’. It was besides urged that the Appellate Comm issioner had disregarded Note 2 to Section XVII of the Act which had clea rly excluded the articles in question; they had to be classifie d separately under the relevant heads.

¶8The 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 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 excavat ion. But there is definitely a need for continuous lifti ng of the dredged material and dumping the same at some other place. 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 1 99) we find that there are various types of Dredgers like Stat ionary Suction Hopper Dredger, Trailing Suction Hopper Dre dger, Cutter Suction Dredger etc. The Dredger in the instant case is a Cutter Suction Dredger in contrast to the Hopper Dredge r 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 Dred gers, neither the Suction Pipe nor the discharge Pipe may be essential. In the case of Cutter Suction Dredger, the pr ocedure for carrying out the dredging work is different. Th e Cutter-Head is fitted with the Dredger with a Suction Pipe ben eath it. The said Cutter cuts the earth, rock etc. under the water when the dredged material accumulates. As these dre dged material has to be taken form the Dredger for the continuo us uninterrupted dredging work, Suction Pipe sucks the dredge d 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 a t the designated area which may be at a distant place. It is this function of the Cutter Suction Dredger which involv es the dredging as well as the discharging, which makes the Pipel ines an essential part of the Dredger inasmuch as without t hese Pipelines the Dredger of the type in question will not be able to work properly, Para 4.4.1 of the British Standar d Specification is being reproduced below for better appreciation;- “4.4.1 General” ….. ….. ….. A Cutter Suction Dredger may be self-propel led but is more commonly dumb (non-self-propelled). Dre dging only takes place with the dredger moored in some way and it involves an initial powerful cutting action with suc tion and pumped discharge to barges or more commonly, via a pipeline to a remote onshore area for disposal of land reclamation. 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 drivi ng horsepower, which may range from 20 to 5000, or in the cas e of very large dredgers by the total installed horsepowe r……. The main pontoon structure contains the dredge pump s(s), the main engines and all ancillary engines, drives and equipment…… The discharge from the dredge pumps(s) passes over the st ern (or opposite end the cutter) of the pontoon to a he avy hose or flexible coupling, to which is connected a floating pipeli ne (see A. 4.5.3) which in turn is connected to an ons hore 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. “4.4.2. Pipelines Pipelines affect both the performance and operation al efficiency of the Cutter Suction Dredger. The diameter of the pipeline has a direct bearing on the efficiency of th e hydro transport process. Pipelines fall into the followin g two categories.”

¶11From the above description of the Cutter Suction Dredger also, we find that Pipelines attached with the Suction Dred ger forms an indispensable part of the main mother craf t. The cutter head, which may be electrically or hydraulically dri ven, encloses the suction intake of a centrifugal dredge pump. The cutterhead is mounted at the extremity of a fab ricated steel structure, termed the “ladder”, which also supports t he suction pipe. The technical and practical requireme nt of disposal of the dredged material makes the Pipelines a part of the main Dredger. We find that the evidence relied upon b y the appellant firm in the shape of the British Stan dard Specification, strongly favour their case. Accordingly, we ho ld that the various types of Pipelines are a part of the Dred ger itself, qualifying for their classification under C hapter 8905.00 as Dredgers and therefore, they are entitle d to the exemption Notification No. 133/87-Cus., dated 19.3. 87. As we have held Pipelines as a part of the Dredger enj oying exemption under Notification No. 133/87, the appell ants further claim of exemption under Notification No. 1 06/92 dated 1.3.92, in the alternative, does not required any consideration. The appeal is thus allowed.”

¶9The Bill of Entry in the present case, describes the goods as “Cutter Suction Dredgers and Ta Hsing along with Standard Spa res, 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. 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 a re various types of dredgers like cutter suction (with out propulsion), trailer suction with self propulsion, back hoe dredger etc. The selection of dredger and allied access ories like anchor boat and other dredge spread depends upon t he area of operation. Since the dredger under import is a cutter suction dredger without propulsion the anchor handling Mult i cat boats and other boats to carry out survey, to take soun ding at the dredged area and for transporting men and mater ial from the shore to the dredger. The dredger requires continuous maintenance which invoices flushing the pipe lines, filters with compr essed air and welding, gas cutting of various parts and also machining of some vital components for the day to day operati on is essential. Since most of the project site will not have a permanent power connection, hence the generators are deployed for providing power to the shore support work shop wher ein 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. 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 jo b involved.”

¶10The Appellate Commissioner then considered the previo us 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 nece ssary to ensure a continuous supply of air to the booster pumps. The Appella te Commissioner took care to exclude some of the claims made by the appellant towards generators, consumables lathe etc. L ikewise, 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.

¶11Note 2 of the Section XVII which has been relied upon in the 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 the y are identifiable as far the goods of this Section: -

(a) to (d)……

(e) machines or apparatus of headings 8401 to 8479, or parts thereof; articles of heading 8481 to 8482, or, prov ided they constitute integral parts of engines or motors, art icles of heading 8483.”

¶12A plain reading of the note extracted above shows that parts and parts of accessories cannot apply to specified articl es, 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 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 thou gh they might independently be utilized, for other purposes. The test is n ot whether multiple uses are possible but whether these parts are e ssential for the purpose of dredging in a Cutter Dredger. So viewed, the revenu e’s reliance on Note 2 in the present case is insubstantial.

¶13As 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 Pla nt. Apart from making general observations with respect to Guide Cars being not essential for the functioning of the Coke Oven Battery, what a re 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 notificatio n are integral parts of a Cutter Dredger. As held earlier, eac h 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 case.

¶14As 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.

¶15For 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.

¶16Hence, the Civil Appeal is allowed in part. Pend ing application(s), if any, is/are disposed of. Divya Pandey Appeal partly allowed. (Assisted by : Anirudh Agarwal and Shevali Monga, L CRAs)