M/S DHARTI DREDGING AND INFRASTRUCTURE LTD. versus COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE, GUNTUR on 1 March 2023

1. The appellant had imported a “Cutter Suction Dredger” alongwith other accessories and equipments including Pipes, Anchor Boats,Multicats, Dredging pumping units, Engines and other spares andaccessories. These were classified under the Chapter Heading 8905 10G00 of the Customs Tariff Act, 1975 (hereinafter “the Act”). The appellantclaimed the benefit of Nil rate of duty, in terms of Notification No. 21/2002- CUS dated 01.03.2002. The appellant had relied upon a certificatedated 27.02.2008 issued by the Chartered Engineer, based on theinspection of the goods. After verification of the Bill of Entry, the AssistantCommissioner was of the opinion that the multicats, M.S. pipes, importedH

dredging pumping units and other goods were classifiable under differenttariff headings and were not entitled toexemption under the notificationas “DREDGERS”.

2. Feeling aggrieved, the assessee appellant preferred an appealto the Commissioner of Customs (Appeals), Guntur (hereinafter “theAppellate Commissioner”). The Appellate Commissioner, by an orderdated 30.06.2008, after elaborately analysing the functions of eachindividual part, granted relief and held that nine items were entitled toexemption. These were set out in paragraph 25 of the AppellateCommissioner’s order, which is extracted for easy reference:

3. The Appellate Commissioner had while granting relief, reliedupon the previous order of the CESTAT reported as Boskalis DredgingIndia Pvt. Ltd. Vs Commissioner of Customs, Bhubaneshwar, [2001(135) E.L.T. 1396] (“hereinafter as “Boskalis Dredging India Pvt.Ltd”).

4. The revenue appealed to the CESTAT. The CESTAT reliedupon other previous decisions and took into consideration Chapter Noteto Section XVII of the Act which states that ‘parts’ and ‘parts ofaccessories’, could not apply to certain articles, whether or not they areidentifiable, as far as the goods of that section were concerned. Note2(e) was interpreted to held that the parts – which the AppellateCommissioner held were essential to a Cutter Dredger, were separatearticles. CESTAT upset the findings of the Appellate Commissioner andrestored the order of the Assistant Commissioner.

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A5. The appellant urges that the impugned order wrongly interferedwith the Appellate Commissioner’s determination. It was submitted thateach article, that were denied the benefit of exemption, performedfunctions integrally connected with a Cutter Dredger. Learned counselrelied upon the decision in Commissioner of Customs Vs. BoskalisDredging India Pvt. Ltd. [2002 (139) ELT A 313 (SC)] by which thisBCourt affirmed the CEGAT’s order in Boskalis Dredging India Pvt.Ltd. (Supra).

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6. Learned counsel for the revenue relied upon the decision ofthis Court in Steel Authority of India Ltd. vs. Commissioner, CentralExcise & Customs, Bhubaneshwar [2022 SCC Online (SC) 1232]. InCthat decision, this Court had to deal with the question as to whethertransportation of hot coke from a coke oven battery with the aid of aguide car resulted in transport vehicle i.e., the guide car being an integralpart of the coke oven battery. The Court on that occasion had reliedupon previous rulings in Saraswati Sugar Mills vs. Commissioner ofDCentral Excise, (2014) 15 SCC 625). In Saraswati Sugar Mills (supra),the Court had the occasion to deal with what constitutes the word“COMPONENT”.

7. This Court after relying upon Saraswati Sugar Mills (Supra)and taking aid from the dictionaries held that the Guide Car could not beEsaid to be a component of the Coke Oven Battery. It was submitted thatby the same analogy, the pumping units, air compressors, pumps, pipes,wire mesh, steel angle plates and outward engine boat, all of whichwere granted the benefit of exemption notification, cannot be considered‘components’. It was besides urged that the Appellate Commissionerhad disregarded Note 2 to Section XVII of the Act which had clearlyFexcluded the articles in question; they had to be classified separatelyunder the relevant heads.

8. The order of the Tribunal in Boskalis Dredging India Pvt.Ltd. (Supra) dealt with a similar aspect; the article imported which wasin question in that case was a cutter suction dredger, much like the sameGone in the present case. The Tribunal had after considering the variouscomponents and the relative functions, described their utility in the overallunit in the following terms:

“From the definitions of various Dredgers as extractedabove, we find that Dredging, no doubt, means excavation.HBut there is definitely a need for continuous lifting of the

dredged material and dumping the same at some other place.This can be done by a separate disposal system of dischargesystem can be a part of the Dredger by itself. Referring to theBritish Standard Specification (BS 6349, Part- 5 L 199) wefind that there are various types of Dredgers like StationarySuction Hopper Dredger, Trailing Suction Hopper Dredger,Cutter Suction Dredger etc. The Dredger in the instant caseis a Cutter Suction Dredger in contrast to the Hopper Dredgerwhich keeps the dredged material in its hold (hopper). Whenthe hold is filled up, the said Hopper Dredger moves to thedesignated area of discharging dredged materials without theassistance of any pipelines. In such type of Hopper Dredgers,neither the Suction Pipe nor the discharge Pipe may beessential. In the case of Cutter Suction Dredger, the procedurefor carrying out the dredging work is different. The Cutter-Head is fitted with the Dredger with a Suction Pipe beneathit. The said Cutter cuts the earth, rock etc. under the waterwhen the dredged material accumulates. As these dredgedmaterial has to be taken form the Dredger for the continuousuninterrupted dredging work, Suction Pipe sucks the dredgedmaterial. The Suction Pipes are connected with the dischargepipe with the aid of flanges/belts, nuts and bolts etc. Thedischarge pipes then throw these dredged material at thedesignated area which may be at a distant place. It is thisfunction of the Cutter Suction Dredger which involves thedredging as well as the discharging, which makes the Pipelinesan essential part of the Dredger inasmuch as without thesePipelines the Dredger of the type in question will not be ableto work properly, Para 4.4.1 of the British StandardSpecification is being reproduced below for betterappreciation;- “4.4.1 General”

….. ….. ….. A Cutter Suction Dredger may be self-propelledbut is more commonly dumb (non-self-propelled). Dredgingonly takes place with the dredger moored in some way and itinvolves an initial powerful cutting action with suction andpumped discharge to barges or more commonly, via a pipelineto a remote onshore area for disposal of land reclamation.

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SUPREME COURT REPORTS

The Cutter Suction Dredger is normally rated accordingto either the diameter of the discharge pipe, which may rangefrom 150 mm to 1100 mm, or by the cutter head drivinghorsepower, which may range from 20 to 5000, or in the caseof very large dredgers by the total installed horsepower…….

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The main pontoon structure contains the dredge pumps(s),the main engines and all ancillary engines, drives andequipment……

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The discharge from the dredge pumps(s) passes over the stern(or opposite end the cutter) of the pontoon to a heavy hoseor flexible coupling, to which is connected a floating pipeline(see A. 4.5.3) which in turn is connected to an onshorepipeline. Sometime an intermediate sea bed pipeline may beused.” Para 4.4.2 of the British Standard Specification is alsobeing reproduced below for better appreciation.

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D“4.4.2. Pipelines

Pipelines affect both the performance and operationalefficiency of the Cutter Suction Dredger. The diameter of thepipeline has a direct bearing on the efficiency of the hydrotransport process. Pipelines fall into the following twocategories.”

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11. From the above description of the Cutter Suction Dredgeralso, we find that Pipelines attached with the Suction Dredgerforms an indispensable part of the main mother craft. Thecutter head, which may be electrically or hydraulically driven,

encloses the suction intake of a centrifugal dredge pump.The cutterhead is mounted at the extremity of a fabricatedsteel structure, termed the “ladder”, which also supports thesuction pipe. The technical and practical requirement ofdisposal of the dredged material makes the Pipelines a partof the main Dredger. We find that the evidence relied upon bythe appellant firm in the shape of the British StandardSpecification, strongly favour their case. Accordingly, we holdthat the various types of Pipelines are a part of the Dredgeritself, qualifying for their classification under Chapter8905.00 as Dredgers and therefore, they are entitled to theexemption Notification No. 133/87-Cus., dated 19.3.87. As F

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we have held Pipelines as a part of the Dredger enjoyingexemption under Notification No. 133/87, the appellantsfurther claim of exemption under Notification No. 106/92dated 1.3.92, in the alternative, does not required anyconsideration. The appeal is thus allowed.”

9. The Bill of Entry in the present case, describes the goods as“Cutter Suction Dredgers and Ta Hsing along with Standard Spares,Accessories, Pipes etc., including Multicats (2 Nos.) & Anchor Boat (1No.); Dredging Pumping unit to be used with cutter suction dredger (2Nos.) Engine (2 Nos.) along with Standard Spares & Accessories.” Inthe order and appeal, the relevant portion of the inspection report of theChartered Engineer was taken note of.

It is extracted below:

“The main function of the dredger is to remove the sand,slurry etc., from the sea bed to increase the depth. There arevarious types of dredgers like cutter suction (withoutpropulsion), trailer suction with self propulsion, back hoedredger etc. The selection of dredger and allied accessorieslike anchor boat and other dredge spread depends upon thearea of operation.

Since the dredger under import is a cutter suctiondredger without propulsion the anchor handling Multi catboats and other boats to carry out survey, to take soundingat the dredged area and for transporting men and materialfrom the shore to the dredger.

The dredger requires continuous maintenance whichinvoices flushing the pipe lines, filters with compressed airand welding, gas cutting of various parts and also machiningof some vital components for the day to day operation isessential.

Since most of the project site will not have a permanentpower connection, hence the generators are deployed forproviding power to the shore support work shop whereinwelding, machining and illumination of the site and etc., The pumping stations are basically engine, drivencentrifugal pumps which are used as a booster pumps to pumpthe slurries/sludge to a place away from the site.

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746SUPREME COURT REPORTS

[2023] 4 S.C.R.

AHence, the complete dredge spread which involvesvarious boats, and other machineries and equipments has tobe decided based on the location and type of the jobinvolved.”

10. The Appellate Commissioner then considered the previousBorder in Boskalis Dredging India Pvt. Ltd. (Supra) and dealt witheach item separately. It was noticed that the dredger pumping units areessential for the cutter suction dredgers unlike in the case of hopperdredgers. Furthermore, the use of air compressors is also necessary toensure a continuous supply of air to the booster pumps. The AppellateCommissioner took care to exclude some of the claims made by theCappellant towards generators, consumables lathe etc. Likewise, theAppellate Commissioner allowed the claim for exemption in respect ofsteel angle plates, pipes, and wire mesh which was held to be useful forthe erection of booster pump stations.

11. Note 2 of the Section XVII which has been relied upon in theDpresent case by the revenue and the tribunal, is to the following effect:

“The expression “parts” and “parts and accessories” do notapply to the following articles, whether or not they areidentifiable as far the goods of this Section: - E(a) to (d)……(e) machines or apparatus of headings 8401 to 8479, or partsthereof; articles of heading 8481 to 8482, or, provided theyconstitute integral parts of engines or motors, articles ofheading 8483.”F12. A plain reading of the note extracted above shows that partsand parts of accessories cannot apply to specified articles, includingitems classifiable under 8401-79, 8481-82, and to some extent, 8483. Inthe present case, in this Court’s view, the error committed by the CESTATis that each of the excluded items has been treated as a separate partand not integral to the functioning of a Cutter Dredger. Without theGcompressors and the pipes necessary to pump the dredged material, thecutter dredger would cease to function as such. The other items, likewise,are integral parts of the Cutter Dredger, even though they mightindependently be utilized, for other purposes. The test is not whethermultiple uses are possible but whether these parts are essential for theH

purpose of dredging in a Cutter Dredger. So viewed, the revenue’sreliance on Note 2 in the present case is insubstantial.

13. As far as the reliance upon the judgement in Steel Authorityof India Ltd. (Supra) is concerned, the Court undoubtedly held that theGuide Cars could not be treated as part of the Coke Oven Plant. Apartfrom making general observations with respect to Guide Cars being notessential for the functioning of the Coke Oven Battery, what are theother essential functions of the coke oven battery and whether the guidecar is an integral part of that, was an aspect which the Court went into.In the opinion of this Court, that decision cannot provide guidance inresolving the classification dispute posed in this case i.e., whether theitems excluded and denied the benefit of exemption notification areintegral parts of a Cutter Dredger. As held earlier, each of the unitswhich the CESTAT excluded (to which benefit had been granted by theAppellate Commissioner) are integral for the functioning of a CutterDredger. For this reason, it is held that the ratio of the judgement in SteelAuthority of India Ltd. (Supra) could not be applicable in the presentcase.

14. As far as the exclusion of generators is concerned, this Courtnotices that concurrently the order in appeal, as well as the order of theCESTAT, have excluded it from the benefit of the exemption notification.The Court finds no reason to interfere with those findings.

15. For the above reasons, the impugned order is hereby set aside.The order of the Appellate Commissioner is accordingly restored. Theappeal is allowed in these terms without order on costs.

16. Hence, the Civil Appeal is allowed in part. Pendingapplication(s), if any, is/are disposed of.

Divya Pandey

Appeal partly allowed.

(Assisted by : Anirudh Agarwal and Shevali Monga, LCRAs)

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