Messrs MORO TEXTILE MILLS LIMITED through Chairman VS CENTRAL BOARD OF REVENUE through Chairman, Islamabad and 2 others, 2007 PTD-KARACHI-HIGH-COURT-SINDH 60 (2006)

(a) Customs Act (IV of 1969)---

----S.19---Sales Tax Act (VII of 1990), S.13(1)---S.R.O. 484(I)/92, dated 14-5-1992---Import of Fibre Cans and Roving Bobbins during period specified in S.R.O. 484(I)/92 for setting up of new textile unit in designated area---Issuance of installation certificate by competent authority---Denial of exemption from duty and tax claimed on such items for having been imported separately from a different country after one year of import of main plant---Validity---Industrialist might delay import of any part of plant on account of financial constraints or he might choose to import a particular item required for his plant from a different manufacturer located in a different country as he might find same cheaper or of a better or different quality---Said S.R.O. did not impose any such restrictions on import of such items---Definition of "machinery" as used in the S.R.O. included apparatus, appliance and component parts thereof---Fibre Cans and Roving Bobbins being component parts of machinery would fall within extended definition of "machinery" entitling exemption under the S.R.O.---Benefit of exemption on such items imported during subsistence of exemption was wrongly denied.

(b) Words and phrases---

----"Machine" and "Machinery"---Meaning and distinction.

Webster's International Dictionary; Stroud's Judicial Dictionary; Blankenship v. Cox; Buchanan v. Exchange Fire Insurance Company; Seavey v. Central Mut. and Fire Insurance Company and General Parts Corporation v. First Trust and Savings Bank ref.

(c) Words and phrases---

----"Appliance" and "Apparatus"---Meaning and distinction.

Faisal Siddiqui for Appellant.

Syed Tariq Ali, Federal Counsel for Respondent.

Date of hearing: 29th August, 2006.

JUDGMENT

FAISAL ARAB, J.---Under S.R.O. No.484(I)/92 notified by the Federal Government on 14-5-1992, such plant and machinery which was imported during the period 1-12-1990 and 30-6-1995 for setting up new units or for expansion, balancing, modernization and replacement of the existing units in designated areas was exempted from the payment of whole of the customs duty and sales tax subject to the condition that imported machinery is not being manufactured locally. In the said notification "machinery" was given extended meaning so as to include (i) machinery operated by power and used in any industrial process; (ii) apparatus and appliances specially adapted for use in conjunction with the machinery; (iii) mechanical and electrical control and transmission gear adapted for use with the machinery; and (iv) component parts of a machinery for use in or with such machinery.

The petitioner in order to setup a new unit in the designated area, imported plant and machinery during the period specified in the notification and claimed exemption from customs duties and sales tax. Exemption was granted to the petitioner on all items of machinery which it imported for its plant except Ring Spinning Frames, Bobbins and Fibre Cans. Exemption on Ring Spinning Frames was denied for the reason that the same were being manufactured locally. Its controversy is subject-matter of separate proceedings. The controversy with regard to exemption on Fibre Cans and Bobbins is subject-matter of the present and the connected petition, which controversy is being disposed of through this common judgment.

The petitioner's claim for exemption on Fibre Cans and Bobbins was refused for the reason that both these items were not imported along with the main plant but were imported separately from a different country after one year of the import of the main plant. The respondent No.1 then assessed the Custom Duty and Sales Tax on the Bill of Entry at the prescribed rates.

It is the case of the petitioner that it was pointed out to respondent No.2 that Fibre Cans and Bobbins are an integral part of the plant and machinery. It was explained by the petitioner that in a textile mill before cotton is actually converted into yarn or thread, it undergoes a process. At the very initial stage raw cotton is taken to the blow-room where it is opened from the bales and blown in order to cleanse it of the impurities and dirt. This blown cotton after being processed through a number of machines is then conveyed through a feeding chute to the carding machine where it is further cleaned through the carding process. Here the cotton floss is opened up and slivered into pieces. This sliver is then gathered through a coiling process in Fibre cans. These Fibre cans with 'sliver are. then transferred to the drawing section and the sliver is drawn to its desired length and is then again coiled and collected in the Fibre cans. This drawn sliver in Fibre cans is then transported to the roving section where it is roved at very high speeds and given its first twist. The twisted sliver is then transported by an automatic process to the ring spinning section through the roving bobbins. Thus before reaching spinning stage the cotton has to be processed through intermediate phases and Fibre cans and Bobbins become vital at these phases and are thus integral part of the entire manufacturing process of a textile mill.

Upon such explanation given by the petitioner, the respondent No.2 allowed conditional clearance of a consignment i.e. the petitioner was required to tender post dated cheque and the matter was referred to C.B.R. for its final decision. The petitioner submitted post dated cheque with the Customs authorities and got the consignment released to avoid continuous accrual of demurrage.

The petitioner, then installed Fibre Cans and Bobbins at its plant ' and obtained certificate of Installation from the Competent Authority. Finally, respondent No.3, vide his letter dated 20-11-1994 informed the petitioner that C.B.R. has denied exemption on Fibre Cans and Bobbins and demanded payment which was coupled with the threat of placing embargo on all future imports and exports of the petitioner in case payment is not made. The petitioner then filed two separate petitions i.e. the present and the connected petition, with regard to disputed items of Fibre Cans and Bobbins, challenging the denial of exemption to it under the S.R.O. in question.

In their para-wise comments, the respondents maintained that the disputed consignment was not imported as part and parcel of a complete unit of plant and machinery and therefore did not qualify to be defined as plant and machinery. It was for this reason that C.B.R. vide its directives contained in letter dated 17-7-1994 refused to extend the benefit of S.R.O. on the disputed consignment.

It was also pleaded by the respondents that Fibre cans and Bobbins were imported separately after a period of one year from France from the date of the clearance of the consignment of main plant of textile Machines which was imported from Switzerland and thus there is sufficient evidence to establish that the disputed items were not part and parcel of the main plant but a separate consignment of Fiber Cans and Bobbins which are chargeable to duties, taxes and charges at the standard tariff rates under the respective PCT headings. It was however, conceded that had the Fibre Cans or Bobbins were imported along with the main unit they would have been considered as parts of the Machinery.

The fact that Fibre Cans and Bobbins were imported for the petitioner's unit set up in the designated area and that Competent Authority also issued installation certificate in this regard is not in dispute. Therefore, in our view the benefit of exemption under S.R.O. No.484(I)/92 dated 14-5-1992 cannot be denied on the ground that Fibre Cans and Bobbins were imported separately from a different supplier located in another country and not from the supplier who supplied the machinery for the main plant. A person may delay import of any part of a plant on account of financial constraints or he may choose to import a particular item required for his plant from a different manufacturer located in a different country as he may find it more cheaper or of a better or different quality. The S.R.O. in question does not impose any such restrictions on such imports. Therefore, the fact that any item was imported one year after the import of main plant and machinery or was imported from a different supplier located in different country is of no consequence, so long as the imported item is imported during the subsistence of exemption and falls within the definition of machinery as provided in the S.R.O. in question.

Now in order to find out whether Fibre Cans and Bobbins fall within the definition of machinery as provide in S.R.O. No.484(I)/92 dated 14-5-1992, we shall examine the definition of machinery as provided therein. The relevant provisions of S.R.O. No.484(I)/92, dated 14-5-1992 for the purposes of examining the definition of machinery are reproduced as follows:---

S.R.O. 484(I)/92.---In exercise of the powers conferred by section 19 of the Customs Act, 1969 (IV of 1969), and subsection (1) of section 13 of the Sales Tax Act, 1990, and in supersession of this Ministry No.S.R.O. 50(I)/92, dated the 28th January, 1992, the Federal Government is pleased to exempt such plant and machinery as is not manufactured locally and is imported during the period commencing on the 1st December, 1990 and ending on the 30th June, 1995, for setting up new units and for expansion or balancing, modernization and replacement of existing units.

(a) --------

(b) --------

1. -------------------

2. -------------------

3. -------------------

4. -------------------

For the purpose of this notification machinery shall mean--

(i) machinery operated by power of any description, such as is- used in any industrial process including mining and extraction of timber.

(ii) apparatus and appliances, including metering and testing apparatus and appliances specially adapted for use in conjunction with machinery specified in item (i) above;

(iii) power generating plant for operating item (i) above;

(iv) mechanical and electrical control and transmission gear adopted for use in item (i) above; and

(v) component parts of machinery as specified in items (i) and (ii), identifiable as for use in or with such machinery.

As there is difference even between machine and machinery, we shall first proceed to examine the meaning of the words machine and machinery.

According to Webster's International Dictionary a "machine" is any mechanical contrivance, while "machinery" is the means and appliances by which anything is kept in action or a desired result is obtained. Thus tools and implements used with machines for the manufacture of a product are also machinery.

According to Stroud's Judicial Dictionary a "machine" includes the engine that works it; "Machinery" implies the application of mechanical means to the attainment of some particular end by the help of natural forces'; `operative machinery' means machinery with the potentiality of operating doing work".

In many cases of foreign jurisdiction, the words "machine" and "machinery" have been defined. These are Blankenship v. Cox; Buchanan v. Exchange Fire Insurance Company; Seavey v. Central Mut., Fire Insurance Company and General Parts Corporation v. First Trust & Savings Bank to name a few. The meaning of words "machine" and "machinery" discussed in the said cases is summarized as under.

The term "machinery" is not synonymous with "machine". The word "machinery" also includes the appurtenances necessary for the working of a machine.

A "machine" is a device consisting of two or more resistant, relatively constrained parts, which, by certain predetermined inter-motion, may serve to transmit and modify force and motion so as to produce some given effect or to do some desired kind of work. Popularly and in the wider mechanical sense, a machine is a more or less complex combination of mechanical parts, as levers, gears, sprocket wheels, pulleys, shafts and spindles, ropes, chains, bands, cams and other turning and sliding pieces, springs, etc., together with the frame work and fastenings supporting and connecting them, designed to operate upon material to change it in some preconceived and definite manner, lift or transport loads etc.

On the other hand any instrument which in any way is necessary to carry on the work on a machine or that the work could not be done as good without such instrument is machinery. Thus machinery is not synonymous with "machine," but is of much broader application, and includes not only the machine but also the appurtenances necessary for working of a machine.

The definition of machinery as provided in S.R.O. No.484(I)/92 dated 14-5-1992 includes apparatus and appliance as well. Apparatus means collection or set of materials, implements or utensils used for operating a given work. Apparatus is outfit of tools, utensils, or instruments adapted to accomplish any branch of work. In other words, it is equipment of things adapted as means to some end. Apparatus means tools, utensils or material intended, adapted, and necessary for accomplishment of some purpose such as mechanical work etc.

Appliance refers to machinery and all the instruments used in operating machinery and includes everything applied or used or adapted as a means to accomplish a purpose.

Thus when the word machinery is read in conjunction with the words apparatus, appliance and component parts as used in the S.R.O., it gives quite an extended meaning to the word machinery. It is inclusive of machines, tools, instruments and any other thing which is used with or in conjunction with the machinery, mechanical and electrical controls and transmission gear adapted for use with the machinery and all such component parts for use in or with such machinery in order to accomplish a purpose such as some mechanical work etc.

Learned Federal Counsel, Syed Tariq Ali when confronted with the definition of machinery stated in paragraph (4)(v) of the S.R.O. No.484(I)/92 wherein component parts of a machinery have also been brought within the ambit of machinery, very candidly conceded that Fibre Cans and Roving Bobbins being component parts of machinery fall within the extended definition of machinery and entitled to exemption under S.R.O. 484(1)/92. The fact that Fibre Cans are part of plant and machinery is also acknowledged by respondents Nos.2 and 3 in their para wise comments.

We are, therefore, of the opinion that Fibre Cans and Roving Bobbins both not only fall within the definition of machinery but are also covered under the definition of component parts of machinery as defined in paragraph (4)(v) of the S.R.O. No.484(I)/92 and therefore the benefit of exemption was wrongly denied to the petitioner on such items.

In view of the above discussion we set aside the assessment orders whereby the petitioner was denied the exemption under S.R.O. No.484(I)/92 on the imports of Fibre Cans and Roving Bobbins. We further direct the Customs Authorities to return the cheques, which they obtained from the petitioner as security. The present petition bearing No. D-154 of 1995 and connected petition bearing No. D-737 of 1995 were disposed of vide short order dated 29-8-2006. The above are the reasons for the same.

S.A.K./M-138/KPetitions accepted.