Refractories for Re-lining of Furnaces is Capital Goods: CESTAT allows Customs Duty Exemption under EPCG Scheme [Read Order]

The Customs Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata allowed customs duty exemption under EPCG Scheme and held refractories for re-lining of furnaces is Capital Goods.

M/s. Jai Balaji Industries Ltd, assessee (appellant) is engaged in the manufacture of iron and steel items, namely, Pig Iron, MS Billet, D I Pipe, Coke, TMT Bars Sponge Iron, etc. They have their two manufacturing units, namely, Unit-III and Unit-IV, located in West Bengal.

The Appellant use refractory bricks/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 is related 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.

A.K Prasad, the Advocate for the Appellant submitted that the above documents were very relevant for deciding the issue at hand. He also stated that all the installation certificates were available even before the show cause notice dated 27.10.2016 was issued. Since these are department’s own documents the adjudicating authority should have at least considered these before deciding the matter.

The Department was of the view that since Furnace Oil could be procured duty free only if it was required for boilers in textile units, M/s Jayant Agro Organics Ltd could not procure the Furnace Oil duty free since they were not a textile unit. The Mumbai Bench of this Tribunal held that since Furnace Oil is covered under the category of ‘consumable’ listed at Sl No 7 of Annexure-1 to Notification No. 1/95- CE dated 04.01.1995, the benefit could not be denied in respect of Furnace Oil procured by the party.

The division bench consisting of PK Chaudhary, Judicial Member and P Anjani Kumar, Technical Member held that “refractories meant for re-lining of furnaces, i.e., for replacement, are covered by the "means" part of the definition of "capital goods". The Tribunal said “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.
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