Bhagwati, J. - (1.) This appeal by special leave raises a short question as to what is the correct amount of import duty chargeable on pot motors when imported separately from Rayon Spinning frames:do they fall within Item 72 (3) or Item 73 (21) of the First Schedule to the Indian Customs Tariff The facts giving rise to the appeal are few and may be briefly stated as follows:
(2.) Sometime in 1956 a licence for setting up a plant for manufacture of Rayon was granted to one Kesoram Industries and Cotton Mill Ltd., under the Industries Development and Regulation Act, 1951. Since the machinery and equipment required for setting up the plant were not available in India, Kesoram Industries and Cotton Mills Ltd., applied for an import licence and on the basis of this application, import licence was granted to them for importing "complete continuous filament Rayon plant-with spares and accessories" of the C. I. F. value of Rs. 5.50 crores from general currency area excluding South Africa. It appears that Kesoram, Industries and Cotton Mills Ltd. imported, on the strength of this import licence, Rayon Spinning frames, excluding pot motors, from Japan, but so far as pot motors, were concerned, they authorised the appellants to import from Germany 4000 of these motors for initial installation of the Spinning frames. Pursuant to the authority so given, the appellants placed orders for 4000 pot motors with manufacturers in Germany and imported the same in seven different consignments under the Import licence of Kesoram Industries and Cotton Mills Ltd. These seven consignments arrived at Calcutta port between September and December 1961. The appellants claimed before the Customs authorities at the time of assessment of import duty on these seven consignments that pot motors imported by them fell within Item 72 (3) of the First Schedule to the Indian Customs Tariff and were chargeable to import duty under that item at the rate of 15 per cent of their accepted value. This claim was accepted by the Customs Authorities and these seven consignments were allowed to be cleared on payment of import duty under Item 72 (3). However, within a short time thereafter, the Assistant Collector of Customs issued seven separate notices of demand in respect of these seven consignments claiming that customs duty at the rate of 15 per cent, had been short levied, because pot motors were assessable at the rate of 20 percent, and requiring the appellants to pay up the difference within 15 days from the date of demand under Section 39 of the Sea Customs Act. 1878. The appellants sent representations against these notices pointing out that and we are quoting here from the representation dated 8th December, 1961, which is:- "These pot motors are vital component parts of the Rayon Spinning machines already imported and are not in excess of the quantity required for the first installation of the said plant. The pot motors are required for 24 Spinning frames having 2 sides each. On each side of these frames, 66 motors are connected. Hence total initial requirement of pot motors for running 24 frames is 3168. In view of general experience with this type of plant approximately 25% additional motors are required for trial runs and commissioning 4000 Nos. of pot motors should, therefore, be supplied for first installation of the Rayon plant. These pot motors are of very high speed and are specially designed for use in spinning frames for manufacturing rayon thread. They run at 7700 RPM and are designed for rated voltage of 130 V. at 130 cycles per second for use in circuits of less than 10 amps. As such, these motors can in no circumstances be used for any other purpose excepting as stated above. The accessories of these motors are specially designed to suit particular size of spinning pots well as spinning chambers. The smooth running of these motors is achieved after a great research by using flexible, elastic and hollow shaft, special rubber bushings for support as well as specially designed bearings, to take care of severs stresses, which are normally encountered by these motors during operation. Hence, it is inevitable that any deviation in the design of above component parts would mean defeating the purpose for which these motors are meant. In view of the above, these motors cannot be classified other than as integral part of the Rayon Spinning plant. We, therefore, claimed as assessment of duty under proviso 72 (3) at the time of clearing." The appellants did not receive any reply from the Assistant Collector in regard to these representations for a period of about three years and hence they thought that their representations had been accepted and the demand for differential duty had been dropped. This, however, turned out to be vain hope, for seven communications dated 19th January, 1965 were received by the appellants from the Assistant Collector stating that the demand for differential duty in respect of each of the seven consignments was confirmed and would be enforced in due course if the differential duty was not paid by the appellants. Each of these seven communications contained an intimation that "an appeal against this decision lies to the Appellate Collector within three months hereof". The appellants, however, did not prefer an appeal to the Collector and instead tried to persuade the Assistant Collector to change his opinion by pointing out the relevant facts. It appears that in the meantime the Assistant Collector recovered the aggregate amount of the differential duty from the deposit account of the appellants. The appellants once again made a representation to the Assistant Collector and requested him to refund the amount of differential duty collected by him but the representation did not meet with any favourable response from the Assistant Collector. The appellants ultimately filed a representation to the Collector on 15th July, 1965 setting out their case in regard to the assessment of customs duty and pointing out that the original assessment of customs duty made under Item 72 (3) was correct and that the differential duty had been wrongly recovered from them. This representation was treated by the Collector as a revision application against the orders of the Assistant Collector and on this application, the Collector made an order which was conveyed to the appellants by the Assistant Collector by his letter dated 23rd December, 1965. The Assistant Collector pointed out that the Collector had: "......examined the merits of the case in question and it is his consideration that the duty was correctly chargeable because the Spinning Machinery excluding the pot motors were being imported under one contract from Japan and the pot motors were being imported under another contract from Germany. Separate importation under a separate contract from a separate country would not justify treatment of the two consignments as one article, when the gods are not specified in the Tariff as one article. Therefore, he does not see any reason to revise the Assistant Collector's order concerning the demands." The appellants thereupon preferred a revision application to the Government of India, but by a short and pithy order dated 23rd September, 1967, the Government of India rejected the revision application stating that they had carefully considered the revision application but saw no reason to interfere with the order passed by the Collector. This led to the filing of the present appeal against the order of the Government of India with special leave obtained from this Court.
(3.) Though the appellants, initially, when the hearing of the appeal commenced raised two or three contentions against the validity of the order of the Government of India confirming the demand for differential duty, they ultimately pressed only one contention and that related to the category in which the pot motors imported by the appellants fell. The Assistant Collector originally assessed these pot motors to customs duty at the rate of 15 per cent. of their accepted value under Item 72 (3), but later, demanded differential duty from the appellants on the footing that these pot motors were really assessable at the rate of 20 per cent, of their accepted value under Item 73 (21) and this demand was confirmed by the Collector in revision and on further revision, by the Government of India. The appellant disputed the correctness of these orders and contended that the original assessment made by the Assistant Collector was proper and the demand for differential duty was unjustified, because the correct item under which these pot motors were assessable was Item 72 (3), and not Item 73 (21). Item 72 (3), as it stood at the material time, was in the following terms: "72 (3) Component parts of machinery as defined in Item Nos. 72, 72 (1) and 72 (2) and not otherwise specified, essential for the working of the machine or apparatus and have 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. 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 Collectors of Customs to be reasonable." While Item 73 (21) comprised "Electric motors, all sorts and parts thereof" The competition was between these two Items and the question is which of them covered pot motors imported by the appellant.;