The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that components and accessories imported for modernization and expansion of manufacturing facilities qualify as “capital goods” under the Status Holder Incentive Scrip (SHIS) Scheme, setting aside a customs duty demand of over ₹1.30 crore raised against a manufacturer.
The Tribunal held that the department had wrongly treated the imported goods as mere parts and spares to deny the benefit of Notification No. 104/2009-Cus.
The appeal arose from an Order-in-Original by which the Commissioner of Customs (Port), Kolkata had confirmed a customs duty demand of ₹1,30,06,857 under Section 28(4) of the Customs Act, along with interest under Section 28AA and an equivalent penalty under Section 114A. The demand was based on allegations that the importer had wrongly availed exemption under Notification No. 104/2009-Cus. by using SHIS licences for importing goods allegedly falling outside the permissible scope of the notification.
Buy Now: 70+ Judgements Indirect Tax – July 2026 | E-Magazine
The appellant/assessee is a manufacturer of iron and steel products including steel wire ropes and steel wires, had exported goods worth more than ₹1,315 crore during the relevant financial years and was issued SHIS scrips under Chapter 3 of the Foreign Trade Policy (FTP) 2009-14. The company subsequently utilized these scrips to import equipment and components required for the modernization and expansion of its manufacturing facilities, including a Coke Oven Plant, Pellet Plant, Arc Furnace, Steel Melting Shop and Captive Power Plant.
The imports under dispute covered goods such as Whims Bottom Parts, Driving Wheels, Gaskets, Bearings, Gear Reducers, Bushings, Shock Absorbers, Hydraulic Cylinders and other equipment used in these projects. The tables contained on pages 3 to 6 of the Tribunal’s order identify each imported item, its tariff classification, the plant where it was installed and the amount of SHIS duty credit utilized.
According to the Directorate of Revenue Intelligence (DRI), the imported goods constituted parts, spares or components of capital goods rather than capital goods themselves. It alleged that the imports exceeded the permissible ceiling of 10% of the value of the SHIS scrips prescribed under Notification No. 104/2009-Cus. and Paragraph 3.16.3 of the Foreign Trade Policy 2009-14. On this basis, the department sought recovery of customs duty with interest and penalty.
The appellant argued that the disputed goods were capital goods or accessories used directly for modernization, technological upgradation and expansion of its manufacturing plants. It contended that the definition of “capital goods” under both the Foreign Trade Policy and Notification No. 104/2009-Cus. is intentionally broad and specifically includes accessories required directly or indirectly for manufacture, including those used for replacement, modernization and expansion.
The appellant further argued that the 10% restriction applied only where components or spares were imported for capital goods that had already been imported earlier. Since the disputed goods were fresh imports of capital goods and accessories for new projects, the restriction had no application. It also relied upon Chartered Engineer’s certificates and several judicial precedents to establish that the imported items qualified as capital goods.
Apart from contesting the merits, the appellant also challenged the invocation of the extended limitation period, contending that all imports had been fully disclosed before Customs and there was neither suppression nor misstatement. It additionally argued that the demand was unsustainable because the self-assessed Bills of Entry had never been challenged by the department.
The CESTAT identified the central issue as whether goods such as gaskets, bushings, bearings, gear reducers, Whims Bottom Parts and similar items imported under the SHIS scheme qualified as “capital goods” under Notification No. 104/2009-Cus.
Examining the notification, the Tribunal observed that the statutory definition of “capital goods” is comprehensive and includes plant, machinery, equipment and accessories required directly or indirectly for manufacture, including those required for modernization, technological upgradation and expansion. It found that the disputed imports clearly satisfied this definition because they were used for modernization of the appellant’s manufacturing facilities.
The Bench also rejected the department’s argument that the goods should merely be regarded as spares or parts attracting the 10% restriction. It emphasized that the restriction applies only to components, spares or parts of capital goods imported earlier. Fresh imports of capital goods, including their accessories, do not fall within that restriction.
In reaching this conclusion, the Tribunal relied upon its earlier decisions in Ratnamani Metal and Tubes Ltd., Cosmic Ferro Alloys Ltd., Jindal Stainless Ltd. and La Opala RG Ltd., all of which recognized the expansive meaning of “capital goods” under the Foreign Trade Policy and Notification No. 104/2009-Cus.
The Tribunal held that all the disputed items were capital goods covered by Notification No. 104/2009-Cus. Consequently, the appellant had correctly availed the SHIS exemption and no customs duty demand could survive. Since the duty demand itself was unsustainable, the interest and penalty also automatically failed.
The CESTAT set aside the impugned order confirming the demand, interest and penalty and allowed the appeal with consequential reliefs.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
