Refractories Meant For Re-lining Of Furnaces Is Covered Under "Capital Goods": CESTAT Allows Customs Duty Exemption Under EPCG Scheme

The two-member bench of P.K. Chaudhary (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that refractories meant for re-lining of furnaces, i.e., for replacement, are covered by the "means" part of the definition of "capital goods". It is in any way restricted or controlled by the use of the expression "refractories for initial lining' used in the inclusive part of the definition of "capital goods".

The appellant is in the business of manufacturing iron and steel items, namely, pig iron, MS Billet, D I Pipe, Coke, TMT Bars, Sponge Iron, etc. The appellant has two manufacturing units, namely, Unit-III and Unit-IV, located in Banskopa, Durgapur, West Bengal, with their head office at Bentinck Street, Kolkata. The appellants use refractory bricks or materials for lining the furnaces. A refractory brick is designed mainly to withstand high heat but also has a low thermal conductivity to save energy.

The refractory materials were imported under the EPCG scheme covered by Chapter 5 of the Foreign Trade Policy (FTP) and notified with Notification No. 102/2009-Cus dated 11-09-2009 and 103/2009-Cus also dated 11-09-2009. Notification No. 102/09-Cus dated 11-09-2009 relates to imports at zero rate of duty under the EPCG scheme. The Notification No. 103/2009-Cus dated 11-09-2009 relates to imports at a 3% rate of duty under the EPCG scheme. Under the two notifications, capital goods were allowed to be imported at a concessional rate.

The department contended that the definition of "capital goods" included only those refractory bricks or materials which were required for the initial lining of the furnace. Hence, the refractory bricks used for re-lining or maintenance of the furnace were not covered by the definition of "Capital Goods" and, hence, not eligible for exemption from duty under the EPCG scheme.

The duty was demanded from the appellant as per the show cause notice. Under Section 111(o) of the Customs Act of 1962, the imported refractory bricks and materials were proposed to be confiscated, and a penalty was proposed under Section 112(a) of the Customs Act of 1962.

The importation of refractory bricks and materials was used to confiscate the imported refractory bricks and materials. A redemption fine of Rs. 80,00,000 has been imposed in lieu of confiscation.

The appellant contended that the refractories imported by the appellants are covered by the definition of "accessory" and, hence, included in the definition of "capital goods." Thus, the definition of "capital goods" not only includes refractories for the initial charge but also those imported as replacements for the purpose of relining or maintenance of the furnaces. The appellants have, therefore, correctly availed themselves of the benefit of the two exemption notifications.

The appellant submitted that since the imports were duly covered by the 2 notifications, the question of confiscating the goods does not arise. Hence, no fine was called for.

The CESTAT noted that the first part of the definition of capital goods uses the term "means". The term "means" is exhaustive in nature and is meant to cover all the items mentioned therein, namely, plant, machinery, equipment, or accessories, as ordinarily understood, required for the manufacture or production, either directly or indirectly, of goods. Refractory bricks are clearly accessories required for the lining of the furnace and hence indirectly used for the manufacture of finished goods by the appellants. The use of the expression "refractories for initial lining" in the inclusive part of the definition of capital goods does not in any way restrict the meaning of the terms used in the "means" part of the definition.

"Because of wear and tear, the refractory bricks and materials lining the furnaces are replaced periodically and in most cases within six months. Therefore, at the time of issue of the show cause notice, in October 2016, none of the refractory bricks imported during the period 2009 to 2013 were physically available on the premises of the Appellants. When the goods are not physically available, the law is well settled that neither can they be confiscated nor can any fine be imposed in lieu of their confiscation." the CESTAT noted.

The tribunal held that the local central excise officer had visited the factory premises of the appellants and had certified that the imported refractory bricks had been rightly used and installed.

Case Title: M/s. Jai Balaji Industries Limited Versus Commissioner of Customs (Port), Kolkata

Citation: Customs Appeal No.76284 of 2018

Dated: 10.08.2022

Counsel For Appellant: Advocate A.K.Prasad

Counsel For Respondent: Additional Commissioner (Authorized Representative) Manish Mohan

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