EPCG Benefit Allowed: “Premises” Amendment Held Retrospective by HC

The appellant, an EPCG licence holder, imported machinery in 1995 under Notification No. 110/95-Cus and claimed partial duty exemption. The machinery was installed at a testing laboratory situated on its registered premises, instead of the factory. This installation was certified by the competent authority. Subsequently, the department issued a show cause notice alleging violation of Condition No. 6 of the notification, which required installation in the “factory”. Duty demand was confirmed by the adjudicating authority, upheld by the CIT (Appeals), and later by the CESTAT, on the ground that installation at a laboratory did not satisfy the original condition.

Meanwhile, Notification No. 42/98-Cus amended Condition No. 6 by substituting the word “factory” with “factory or premises”. The appellant contended that this amendment should apply retrospectively and cover its case, especially since the installation was within its registered premises. The Revenue, however, argued that the amendment was prospective and could not apply to imports made in 1995.

Main Issue: Whether the substitution of Condition No. 6 in Notification No. 110/95-Cus by Notification No. 42/98-Cus (adding the words “or premises”) has a retrospective effect, thereby entitling the assessee to an exemption.

HC’s Decision: The High Court allowed the appeal and held that the amendment made by Notification No. 42/98-Cus is retrospective in nature. The Court observed that the use of the term “substitution” indicates legislative intent to replace the earlier provision entirely, thereby curing an omission in the original notification. It held that the amendment was introduced to extend the benefit to cases where installation was made on the importer’s premises and not strictly confined to the factory. Since the appellant had installed the machinery at its registered premises, it fulfilled the condition as clarified by the amendment.

The Court further noted that exemption notifications must be interpreted beneficially once eligibility is established. It also found fault with the department for ignoring the amended notification while issuing the show-cause notice, despite it being in force at that time. Accordingly, the orders of the CESTAT and CIT (Appeals) were quashed, and the Revenue was directed to grant the exemption and consequential benefits to the appellant within 12 weeks.

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