Commnr. of Customs,
New Delhi Vs. M/S. Sony India Ltd. [2008] INSC 1617 (23 September 2008)
Judgment
"REPORTABLE"
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 8236 OF 2002
Commissioner of Customs, New Delhi .... Appellant Versus Sony India Ltd. ....
Respondent
V.S. SIRPURKAR, J.
1.
An
Order by Customs, Excise & Gold (Control) Appellate Tribunal (hereinafter
called "the Tribunal" for short), allowing the appeal filed by M/s
Sony India Ltd. (the respondent herein), is in challenge at the instance of the
appellant herein. The said appeal was filed challenging the order-in- original
dated 30.1.1999, passed by Commissioner of Customs, Inland Container Depot,
Tughlakabad, New Delhi, wherein the said Authority had confirmed the said
differential duty demand of Rs.42,89,75,196/- under the Proviso to Section
28(1) of the Customs Act, 1962 (hereinafter referred to as "the
Act"). The penalty was also imposed amounting to Rs.30,19,92,183/- under
Section 112(a) read with Section 114(a) with interest under Section 28 AB of
the Act. By the order of the Commissioner, 2 the import of several parts of
Colour Television (hereinafter called "CTV" for short) made by the
appellant for the period from April 1995 to 1997 were treated as import of
complete CTV Sets for the purpose of assessment by the Commissioner.
2.
Initially,
there was difference of opinion amongst the two Learned Members of the Tribunal
on the application of Rule 2(a) of the General Rules for Interpretation under
First Schedule of Import Tariff, on the basis of which the order-in-original
was passed. Accordingly, the following questions were referred to the larger
Bench of the Tribunal:- "Whether the goods in question are components and
cannot be treated as complete colour Television sets and hence the duty demand,
confiscation of penalty are unsustainable as held by Ld. Member (J.)? OR
Whether the issue as to the circumstances under which Rule 2 (a) of the
Interpretative Rules can be applied, as to whether the benefit of Notification
exempting components only will be available, if the product is considered as
complete or finished article by virtue of deemed provision of Rule 2(a), and
whether the change effected in Explanatory Notes of HSN will give only
prospective application or it will be applicable for the earlier period also,
requires to be referred to a Larger Bench, as held by Ld. Member (T.)?"
Ultimately, the
larger Bench seems to have agreed with the view expressed by the Ld. Member
(Judicial) to the effect that components imported by the appellant could not be
treated as complete CTV Sets. The larger Bench also held that the duty demand,
direction for confiscation and imposition of penalty were unsustainable in law.
Accordingly, the order-in-original 3 passed by the Commissioner was set aside,
allowing the appeal. It is this order of the larger Bench of the Tribunal,
which is in challenge before us.
3.
Shri
Vikas Singh, Ld. Additional Solicitor General (ASG) of India, painstakingly
took us through the impugned order of the Tribunal, as also to the records
including the Show Cause Notice dated 4.3.1997. The main plank of the argument
is based on that Notice, whereunder the Revenue asserted the evasion of duty on
the part of the respondent on the CKD components and also proposed their
confiscation under Section 111(m) of the Act. In addition, the Revenue also
asserted that the respondents had contravened the provisions of the Exim Policy
1992-97 by importing CKD liable for confiscation under Section 111(d) of the
Act.
4.
The
Show Cause Notice further refers to an exhaustive list of components imported
by the respondents which go into the manufacture of reliance is placed on the
First Purchase Order No. IN-31PI-10 dt.
27.11.1994 placed by
Sony India Pvt. Ltd. on Sony International (Singapore) Ltd. It was on the basis
of this order, which was treated to be Show Cause Notice also gives not only
the quantity actually imported, but 100 such components and it was the
assertion on the part of the Revenue 4 order was placed on 27.11.1994. There
are some other assertions regarding some other items, which were once used, but
discontinued to be used, probably with an idea to show that the components
mentioned in the at S.Nos. 93, 94, 95, 97 and 98 could not be considered to be
the therefore, is that though the respondent was importing the CKD Kits of said
imports were being shown as the imports of the components of the liable to pay
not only the differential duty, but also the penalties on account of the
clandestine imports. A reference was also made in paragraph 8 of the Show Cause
Notice to Rule 2(a) of the General Rules for the Interpretation of the First
Schedule to the Customs Tariff Act, 1975 and it was conveyed that any reference
in a heading to an article should be taken to include a reference to that
article in complete or unfinished, if the incomplete or unfinished article has
the essential character of the complete or finished article. It was on this
basis that the respondent was accused of misdeclaration of imported goods, as also
breach of the Exim Policy. A reference in the said Show Cause Notice was made
to the reply dated 20.9.1996. However, relying fully on Rule 2(a), it was
asserted that the respondent was guilty of misdeclaration and confiscation of
the imported CKD Kits. In short, the assertion was that though the respondent
had 5 imported the CKD Kits and had placed order therefor, numbering 1500 in
all, in that order, it had paid a lesser duty, showing it as import of
components, on which there was lesser duty, and as such, the respondent had
breached the provisions of the Act and had made itself liable for the
confiscation and imposition of differential duties and also the penalties.
Shri Vikas Singh, Ld.
ASG heavily relied on Rule 2(a), which was referred to by us in the earlier
part of the judgment. In addition to this, the assertion of Shri Singh was that
the question was considered by this Court and decided in favour of Revenue in a
decision reported in (2007) 10 SCC 114 & Anr.
5.
Shri
V. Lakshmi Kumaran, learned counsel appearing on behalf of the respondent,
however, pointed out that the Tribunal had correctly deduced that the
components imported by the respondent could not amount to the CKD Kits.
According to him, there was no evidence available to suggest that the
respondent had used these very components Revenue that these components could
and did form the complete CKD Kits complicated manufacturing process involved,
according to which the components which were imported, had to be treated and
processed before 6 not only the customs duty was paid on these components,
treating them as components, but the respondent had also paid substantial
excise duty on Revenue that these were not merely the components, but amounted
to the disputed the interpretation, put forward by the Revenue on Rule 2(a) and
asserted that Rule 2(a) was not even applicable in the present case. We were
taken through number of entries and the notes by the learned counsel. He also
relied on number of decisions of this Court, as also the High Courts and
finally submitted that the decision in Phoenix International Ltd. Case (cited
supra) was not applicable to the facts of the present case, as the said
decision turned on its own facts, peculiar to that case. It is on this backdrop
that we have to consider the questions involved.
6.
The
Learned ASG opened up his arguments by a proposition that the issue involved in
the present Appeal is covered fully by the judgment of this court in Phoenix
International Ltd. Case (cited supra). We would first consider as to whether
all the issues are closed in favour of the Revenue in that judgment. This was
the case, where various parts of the shoes, namely shoe uppers, outer soles,
insoles and sock liners were imported by M/s. Phoenix Industries Ltd.
("PIND" for short) in the same container. It was the claim of the
Revenue that they could be considered as the import of the shoe in SKD (Semi
knocked down) condition. However, the importer 7 had declared them only to be
the components. It was on that basis that the matters proceeded. The Court
first came to the conclusion that a synthetic shoe consists of the vital parts,
namely, the synthetic shoe uppers, outer soles, insoles and sock liners. M/s
Phoenix International Ltd. ("PIL" for short) had the license under which
it was entitled to import synthetic shoes uppers, PVC compounds and natural
rubber. However, the importer PIL had imported 5215 pairs on 16.1.1996 on a
declared value, while on the same day, PIND imported soles and insoles
numbering 5151 pairs. The Court noted that while PIL had imported synthetic
uppers under DEEC Scheme, the PIND had imported the soles under Exim Policy,
1992-97.
Therefore, the
Department was satisfied that there was an attempt to mislead by importing the
above items separately through two different companies, but in fact, it
amounted to the import of the complete synthetic shoes in SKD form. The Court
also noted that all the cartoons were placed in one container with the marking
of "Phoenix" without specifying whether the container was meant for
PIL or PIND. The Court also noted that in the Show Cause Notice, it was claimed
that the import orders had been placed by the above two companies with the same
supplier in Bangkok and that both the import orders were signed by Mr.
Bhupinder Nagpal, General Manager of PIL. It was also alleged in the Show Cause
Notice that import invoices filed by the two companies referred to the same
proforma invoice dt. 2.11.1995, which was placed by Mr. Bhupinder Nagpal on
behalf of both the companies. The Court also further noted that in the Show
Cause Notice, it was specifically pointed out that the consumer items were
placed 8 in the negative list vide Para 156(A) of Exim Policy, 1992-97 and
under the said Para, the consumer goods in SKD form or ready-to-assemble condition
were required to be imported under specific import license and that the
synthetic shoe amounted to a consumer item and as such, had required specific
import license and, therefore, it was further alleged in the Show Cause Notice
that the importer had imported the goods in SKD form or ready-to-assemble
condition without specific import license. The Court further noted that in the
Show Cause Notice, it was further alleged that the PIL had resorted to the
above subterfuge by importing the uppers of "Reebok" shoes in their
own name and the remaining three components in the name of PIND in order to
bypass restriction imposed by Para 156(A) of Exim Policy. The Court also noted
that the Department had alleged in the Show Cause Notice that a loan of Rs.11.7
crores was advanced by PIL to PIND which was interest free loan during the year
ending 31.3.1995 and a loan of Rs.7.7 crores was also advanced to the same
company, which was also interest free during the financial year ending
31.3.1994. The Court noted that it was under these circumstances it was alleged
that the good imported were not parts or the components, but, were SKD goods,
liable to be assessed as complete finished goods under Tariff Sub-heading
6404.19 of the First Schedule of the Customs Tariff Act, 1975 and was liable to
the higher duty ad valorem and countervailing duty at 15% ad valorem. The Court
further referred to the replies sent by PIND and PIL and came to the conclusion
that in that case, the intention would play important role, since it was the
case of duty-evasion on imports. The Court came to the 9 conclusion that it
was clear that the entire device of bifurcation was arranged in order to bypass
the restrictions imposed vide Para 156(A) of the Exim Policy and the importer
had found out the device for evading the import duty. The Court further
wondered as to why the three units of PIL did not import all the four items
when it was in complete charge of manufacturing the said shoes. The Court,
therefore, came to the conclusion that the bifurcation was unnatural and it was
cleared that if the imports of two companies, namely, PIND and PIL were
clubbed, it was nothing, but the import of the shoes, which was in the negative
list. The Court wrote the finding that:
"Therefore, it
is clear that the above device of importation of one item by PIL and three
items by PIND was a subterfuge/fictitious arrangement intended to deceive the
Department and fraud on Para 156(A) of Exim Policy, 1992- 97."
It was under these
circumstances that the Court came to the conclusion that the imports made by
the two companies were fraudulent and with the sole objective to deceive the
Department.
7.
Though,
the Ld. ASG heavily relied on this case to draw a parallel with the present
case, we are of the clear opinion that the principles emerging out of the
decision of Phoenix International Ltd. Case (cited supra) would have to be
restricted to the facts in that case. Unlike in Phoenix International Ltd. Case
(cited supra), there is no allegation of fraud against the present assessee.
There is a complete absence of any such device or "subterfuge" in the
present case, nor is there any allegation 10 of the sort. Again the further
point of differentiation is that in that case, the Court was dealing with the
consumer goods like shoes and that was included in the negative list, whereas,
the CKD in the present case (if at all it is to be CKD which was imported), was
not in the negative list, it was in the restricted list. In our opinion, the
other differentiating feature and the most important one, in our opinion, is
that while the parts imported by the assessee in this case could be
independently used as the spare parts or sold in the market, that was not the
case in Phoenix International Ltd.
Case (cited supra),
at least there is no finding to that effect in Phoenix International Ltd. Case
(cited supra). It was very fairly admitted by the Ld. ASG that the parts
imported could be independently utilized or sold in the open market, which was
not the case with the parts involved in Phoenix International Ltd. Case (cited
supra). The Ld. ASG also very fairly admitted that there was a specific fraud
alleged and proved on the basis of which the Court came to the conclusion that
this was nothing, but a device to deceive the Revenue. We cannot also ignore
the factual panorama in Phoenix International Ltd. Case (cited supra) where all
the parts imported both by PIL and PIND came in one and the same container on
one and the same day, which was not the case here, as the parts in the present
case came during 22 months on different dates in 94 consignments. A feeble
attempt was tried to be made by the Ld. ASG to suggest that all these imports
were based on a single order dated 27.11.1994, in which the figure of 1500 is
found to be ordered. However, it 11 was pointed out by Mr. V. Lakshmi Kumaran
that in the present case, there is no specific finding that all the parts
imported could manufacture 1500 imports. On the backdrop of all this, we would
have to conclude that the Phoenix International Ltd. Case (cited supra) must be
restricted to the facts involved therein, which cannot be matched with the
facts in the present case. In the Phoenix International Ltd. Case (cited
supra), it was clear that the imports of the components perfectly matched with
the number of shoes, which could be prepared from those imported components.
There is a finding to that effect in the decision of Phoenix International Ltd.
Case (cited supra). However, on that backdrop, when we see the list of
components as mentioned in the Show Cause Notice, it is clear that out of the
100 imported components, the number does not match least 21 items. This is
another distinguishing feature. In our opinion, therefore, the arguments of the
Ld. ASG that the Phoenix International Ltd. Case (cited supra) decides the
question involved here in favour of Revenue, must be rejected.
8.
Ld.
ASG drew our attention to the order passed by the Commissioner, who had held
that there was a violation of Exim Policy for period after 25.3.1996. It was
pointed out that the Commissioner had relied on Rule 2(a) and on that basis, he
held that the said violation was 12 after 25.3.1996. As per Rule 2(a), the
components imported had to be the duty was paid only on the basis of the fact
that it was a duty on components only.
8A. It must be better
to see some facts. It must be remembered here that the respondent had clarified
that in the first year of operation with the respondent Sony India Ltd., a
wholly owned subsidiary of Sony Corporation, Japan, after liberalization in
1991 wanted to set up a large They had clarified in their application before
the Foreign Investment Promotion Board ("FIPB" in short) that in the
first year of operation, there will be no indigenization and there will be a
gradual increase in indigenization. It was on that basis that the respondent
obtained industrial license from the Secretariat of Industrial Approval
("SIA" for short) and applied for import license for CRT and PCB,
since the same were in the restricted list. All the other components were
freely importable in India.
The respondent
obviously used Sony Singapore as their indenting agent because Sony Singapore
had a close proximity with the approved vendors of Sony Corporation situated in
countries like Japan, Taiwan, Thailand, Indonesia, Malaysia, China etc. All
these vendors supplied the components on the basis of Minimum Order Quantity
(MOQ) for the optimum utilization of containers, as also for the reduction in
the transport costs, standardizing the manufacture and dispatch procedures. The
13 advanced licenses were issued by the Director General of Foreign Trade
(DGFT) for import of components duty free by availing the benefit of
notification 79/65-Cus dt. 31.3.1995. A Duty Entitlement Exemption Certificate
(DEEC) passbook was also maintained and it was on this basis that over a period
of 22 months, 94 Bills of entry were filed for importing the various
components, concerning the present case.
8B. The components
were assessed under different tariff headings by applying Section Note 2 to Section
XVI. It is an admitted position that the PCBs which were in the restricted
list, were further processed to convert them into Motherboard, which was to be
used in the assembly line for the consumption on payment of excise duty and a
percentage of them were also exported under bond. There is also no complaint
about the indigenization and it is the case of the respondent that they cleared
52,640 crores. As promised, the respondent also made the exports and the
entries to that effect were made in the DEEC Pass book.
8C The concerned Show
Cause Notice dated 4.3.1997 was restricted respondent and it was proposed to
club all these 94 consignments. A detailed reply was filed and it was asserted
by the respondent that there was no violation of Exim Policy, since the goods
were not in CKD/SKD 14 condition. It was then asserted by the respondent that
Rule 2(a) could not have been invoked, as it was tried to be done, since the
import took place over a period of 22 months in 94 lots in containers
containing different parts sourced from different countries. As has already
been stated earlier, the Commissioner applied Rule 2(a) for the period
subsequent to 25.3.1996.
There is a clear
finding given by the Commissioner that before 25.3.1996, there was no breach of
Exim Policy by the respondent. Therefore, it is clear that everything depended
upon the applicability of Rule 2(a) and it was solely on that basis that the
breach of Exim Policy also was alleged for the period prior to 25.3.1996 when
the said Rule came to the anvil. It must be noted here that against the finding
of the Commissioner that there was no breach of Exim Policy by the respondent
prior to 25.3.1996, there is no appeal filed by the Revenue and that finding
had become final. Therefore, all the difference, which was made, was owing to
Rule 2(a). We have already clarified that it is for this sole purpose that Rule
2(a) was relied upon by the Department, because such reliance alone could
justify the and as such, it would attract more duty. There is no difficulty in
holding that the imports were perfectly in order and under the proper import
license. At this juncture, we must also appreciate the finding of the
Commissioner that the goods imported were sourced from different countries and
the imported components were not in CKD form, at least prior to 25.3.1996.
9.
It
is then only due to Rule 2(a) that these components are being Singh, Ld. ASG.
We would, therefore, consider the implication of Rule 2 (a). Rule 2(a) is as
under:- "Any reference in a heading to an article shall be taken to
include a reference to that article incomplete or unfinished, provide that, as
presented, the incomplete or unfinished article has the essential character of
the complete or finished article.
It shall also be
taken to include a reference to that article complete or finished (or falling
to be classified as complete or finished by virtue of this rule), presented
unassembled or dis- assembled."
The Ld. ASG,
therefore, suggests that the articles though were not the every such component,
would have to be taken as an import of CTV. The Ld. ASG heavily relied on the
second part of the Rule, starting from words "It was also to be taken to
new reference............." He says that every component whether it is
complete or finished and which is presented in unassembled or dis-assembled
condition, would have to be taken as the completely illogical and again that is
not the import of the language of the Rule. If the argument of the Ld. ASG has
to be accepted, then we would have to concentrate only on the later part of the
Rule, ignoring the first part of the Rule and such dissection, in our opinion,
is not possible. The sine qua non for the application of this Rule is that any
imported article, which is 16 "as presented", must have the essential
character of the complete or finished article." This condition cannot be
ignored and we cannot allow the reading only of the second part beginning with
words "It was also to be taken to new reference..........." for
application of the Rule. The Rule must apply as a whole. Ld. ASG was not able
to point out as to how the first condition can be satisfied in the present
case. A mere PCB or a CRT, in our opinion, under any circumstances, cannot be
held to have essential character of the CTV. It is only when this first
condition is satisfied that the remaining clause would have to be read and
thereby, the words "that article" used in the later part would have
to pass the test of the opening words of the clause "as presented, the
incomplete or unfinished article has the essential character of the complete or
finished article". Once this condition is satisfied then the further
clause is activated, suggesting that even when such article is in disassembled
or unassembled condition, it would still be taken to be a complete article.
Therefore, essentially the second part would come into play provided the
component parts intended to make up the finished product are all presented for
customs clearance at the same time which is not the case here.
10.
In
Phoenix International Ltd. & Anr. (supra) these conditions in Rule 2(a)
were fully satisfied inasmuch as the spare parts of the shoes could formulate
into a full pair of shoes. Though the learned Judges did not refer to that
specifically in their judgment, the facts clearly suggest that Rule 2(a) was
fully applicable in that case. This is one more reason why 17 the decision in
Phoenix International Ltd. & Anr. is different on facts from the present
case.
11.
Again
the meaning of terms "as presented" in Rule 2(a) would clearly imply
that the same refers to presentation of the incomplete or unfinished or
unassembled or dis-assambled articles to the customs for assessment and
classification purpose. It is also a settled position in law that the goods
would have to be assessed in the form in which they are imported and presented
to the customs and not on the basis of the finished goods manufactured after
subjecting them to some process after the import is made. In the reported
decision in Vareli Weaves Pvt. Ltd. v. Union of India [1996 (83) ELT 255 (SC)]
the question was as to whether the countervailing duty was liable to be left on
the imports made by the assessee at a stage they would reach subsequent to
their import after undergoing a process. It was contended that such goods could
be subjected to duty only in the State in which they were imported. It was held
that the countervailing duty must be levied on goods in the State in which they
are when they are imported. This was on the basis of Section 3 of the Customs
Tariff Act. Though there is no reference to Rule 2(a), in our opinion, the same
Rule should apply subject ofcourse to the applicability of the Rule. We have
already held that the Rule is not 18 applicable. Similar view was taken in
Dunlop India and Madras Rubber Factory Ltd. v. UOI [1982 (13) ELT 1566 (SC).
12.
Shri
Lakshmikumaran argues on the basis of a German Court decision on which the
Tribunal also relied upon. According to the learned counsel in that decision
Rule 2(a) was considered and the Court took the view that the article is to be
considered to be imported in unassembled or disassembled where the component
parts, that is the parts which may be identified as components intended to make
up the finished product are all presented for customs clearance at the same
time. The interpretation that we have given to Rule 2(a) would mean that Rule
2(a) would be applicable only and only if all the components which are intended
to make a final product would have to be presented at the same time for customs
clearance. Such is not the case in the present situation where the goods have
been brought in 94 different consignments.
13.
In
Union of India v. Tarachand Gupta & Sons [(1971) 1 SCC 487] the question
was whether in respect of the goods covered by Entries 294 and 295 of Schedule
I, the import could have been treated under Entry 294. The Court held that when
the Collector examines the goods imported under a licence in respect of goods
covered by Entry 295, he has to ascertain as to whether the goods 19 are parts
and accessories and not whether the goods though parts and accessories are so
comprehensive that if put together would constitute motocycle and scooters in
CKD condition. The court further held that it cannot be said that if the goods
were so covered by Entry 295 that when lumped together they would constitute
other articles, namely, motor-cycles and scooters in CKD condition. Such a
process, if adopted by the Collector, would mean that he was inserting in Entry
295, a restriction which was not there and that would tantamount to making a
new entry in place of Entry 295. The Court explained the term "CKD"
in para 11 and observed in para 12 that merely because the goods imported, if
assembled, would make motor-cycles and scooters in CKD condition, it would not
mean that there was breach of Entry 294 if the imports under Entry 295 was a
valid import. What is important for the present case are the observation in
para 13 to the following effect:
"Therefore, the
mere fact that the goods imported by them were so complete that when put together
would make them motor-cycles and scooters in CKD condition, would not amount to
a breach of the licence or of Entry 295.
Were that to be so,
the position would be anomalous as aptly described by the High Court. Suppose
that an importer were to import equal number of various parts from different
countries under different indents and at different times, and the goods were to
reach here in different consignments and on different dates instead of two
consignments from the same country as in the present case. If the contention
urged before us were to 20 be correct, the Collector can treat them together
and say that they would constitute motor-cycles and scooters in CKD condition.
Such an approach would mean that there is in Entry 295 a limitation against
importation of all parts and accessories of motor-cycles and scooters. Under
that contention, even if the importer had sold away the first consignment or
part of it, it would still b e possible for the Collector to say that had the
importer desired it was possible for him to assemble all the parts and make
motor-cycles and scooters in CKD condition....."
Relying on this case
and referring further to the case of Girdhari Lal Bhansidhar v. Union of India
[(1964) 7 SCR 62] which was distinguished in Tara Chand's case, the learned
counsel also drew our attention to the judgment in Sharp Business Machines v .
CCE, Bangalore [(1991) 1 SCC 154] as also the judgment of the Division Bench of
the Calcutta High Court in the case of Union of India v.
HCL Ltd. (unreported
order). On this basis the learned counsel says that the imports made in 94
consignments could not have been clubbed together for the purposes of holding
that there was a breach by the importer of the Exim Policy. The complaint of
the learned ASG was that all these judgments do not refer to Rule 2(a) as Rule
2 (a) was not on the anvil when these judgments were delivered. That may be
true but the principles of law emerging would still apply.
Therefore, the
clubbing of all 94 consignments of different dates was not permissible.
14.
We
have already held that in this case the goods brought were to take a view that
the goods were in unassembled or dis-assembled particularly when there is no
finding recorded anywhere on facts that argument that the goods brought in
different consignments separately on the basis of valid import licences would
not attract the import duty as if they were the finished goods. We have already
referred to this aspect vis-`-vis the facts in Phoenix International's case
where the goods were brought in one and the single congignment and they were
all brought together though they were imported by two companies, i.e., PIND and
PIL fraudulently.
15.
Shri
Lakshmikumaran, learned counsel for the respondent also drew our attention to
the HSN Explanatory Notes as it stood prior to 1997 which is as under:
"(VII) For the
purpose of this Rule, `articles presented unassembled or disassembled means
articles the components of which are to be assembled either by means of simple
fixing devices (screws, nuts, bolt, etc.) or by riveting or welding, for
example, provided only simple assembly operations are involved."
22 Learned counsel
further points out that in a decision in CCE v. Woodcraft [(1995) 3 SCC 454]
this Court took the view that HSN Explanatory Notes should be referred to for
understanding the true scope and meaning of expressions used in the Customs
Tariff. He further points out that the Revenue did not dispute the fact that
complicated processing of imported Shri Vikas Singh, learned ASG also did not
dispute this fact during the debate before us that a complicated process had to
be exercised before specific finding by the Tribunal on this issue. In that
view since the concerned Explanatory Note was applicable, there would be no
question of treating these notes to be in unassembled or disassembled condition
since a complicated process had to be exercised and then before it could be
further amended by adding the words "no account is to be taken in that
regard of the complexity of the assembly method. However, the components would
not be subjected to any further working operation for completion into the
finished stage". It is an admitted position that this amendment was not
there and therefore, the complexity of the assembly method would have to be taken
into consideration atleast in case of the present goods since the concerned
period is pre 1997 period. The Tribunal has correctly held that the HSN
Explanatory Notes to Rule 2 (a) had to be applied while considering the
relevant Tariff Entry. It 23 has also correctly held after considering the
whole process that the process involved in the user of the components is the
complex manufacturing process during which many components are subjected to
working operation requiring sophisticated machinery and skilled operators.
Further it has correctly assessed the effect of the amendment of HSN
Explanatory Notes which came on 14.3.1997. We approve of the finding given by
the Tribunal in para 25 of its order which takes into account the fact that
there was no amendment to Clause (v) while this is amended to the effect that
complexity of the assembly method was made irrelevant. However, it was made
clear that the components would not be subjected to any further working
operation for completion in the finished state. The Tribunal has referred in
details to the manufacturing process to show that some of the components
require further working operation for completing the manufacturing process and
further that CTV is not a machine which is presented in assembly for the sake
of convenience of packing, handling or transport. We are, therefore, in
agreement with the finding that even applying the amended HSN Explanatory Notes
the position would be no different.
16.
Our
attention was invited to a very interesting decision reported in Modi Xerox
Ltd. v. CCE, New Delhi (1998 (103) ELT 109] which 24 was confirmed by this
Court in 2001 (ELT) A 91 (it must be noted that the decisions in Woodcraft
Products is specifically confirmed in this decision). In this case, the
Tribunal had relied on Tara Chand's case as also the CC v. Mitsuny Electronics
Works [1987 (13) ELT 345 (Cal. HC)] which we have made reference in the earlier
part of this judgment. The Tribunal had held that the fax machine in completely
knocked down condition imported by the appellant being not a fax machine but
part thereof, the benefit of exemption under notification No.59/88/Cus. Dated
1.3.1988 would not be available.
Very interestingly,
it was claimed by the importer that it had imported the fax machine and not the
components obviously because the duty payable on the components was more. The
Tribunal came to the conclusion that in view of Section Note 2 to Section XVI
Rule 2(a) would not apply and confirmed the import of goods as components.
While interpreting
Explanatory Note to Rule 2(a), the Tribunal had held that this Rule would apply
only when the imported articles presented in unassembled or disassembled can be
put together by means of simple fixing device or riveting or welding. It came
to the conclusion that fax machines were not the type of goods which were
normally traded or transported in knocked down condition and therefore, the
imports were that of the components and not of fax 25 machines. Shri
Lakshmikumaran also invites our attention to the fact that Chapter 64 dealing
with footwear does not have a note similar to Note 2 in Section XVI. Thus this
position would render support to the proposition that Rule 2(a) would apply
only when the imported articles presented unassembled or disassembled can be
put together by means of simple fixing device or by riveting or welding. We
have already pointed out in the earlier part of our judgment that the
complicated process would be required for the user of those parts.
17.
Lastly,
we must take stock of the argument of Shri Lakshmikumaran that Section
Interpretative Rule 2(a) would not be applicable at all in this case. For this
he invited our attention to Rule 1 of Interpretative Rules as also to the
decision in Simplex Mills v.
Union of India [2005
(181) ELT 345 (SC)] wherein this Court had held in para 11 as under:
"11. The rules
for the interpretation of the Schedule to the Central Excise Tariff Act, 1985
have been framed pursuant to the powers under Section 2 of that Act.
According to Rule 1
titles of sections and chapters in the Schedule are provided for ease of
reference only. But for legal purposes, classification "shall be
determined according to the terms of the headings and any relevant sector or
chapter Notes". If neither the heading nor the notes suffice to clarify
the scope of a heading, then it must be construed according to the other
following provisions contained in the Rules. Rule-I gives primacy to the
Section and Chapter Notes along with terms of the headings. They should be
first applied. If no clear picture 26 emerges then only can one resort to the
subsequent rules."
Relying on this the
further contention of the counsel is that Section Note 2 of Section XVI
provides mandate for classification of the parts of machines falling under
Section XVI. In terms of Rule 1 of Interpretative Rules, invocation of Rule
2(a) for certain categories of For this the learned counsel relied on the
decision in Modi Xerox (supra). In that view the learned counsel says that Rule
2(a) would not be applicable at all. This question needs no consideration here
particularly in view of the interpretation that we have given to Rule 2 (a). On
facts, we have already found that Rule 2(a) would not be applicable to the
present case since there is no question of the goods applicability of Section
2(a) on this account need not be gone into in this judgment.
18.
We
also approve of the reliance by the Tribunal on the reported decision in Susha
Electronics Industries v. CC [1989 (39) ELT 585], Trident Television Pvt. Ltd.
v. CC [(1990) 45 ELT 24], Vishal Electronics Pvt. Ltd. v. CC, Bombay [1998 (102
ELT 188], Sharp 27 Business Machines (supra) and the judgment of the Calcutta
High Court in HCL Ltd. (supra).
19.
Accordingly,
we are of the clear opinion that the Tribunal's judgment needs no interference.
We accordingly confirm the same and dismiss the present appeal. In view of the
important question of interpretation involved in the matter, we do not propose
to inflict any costs.
.......................................J.
(Ashok Bhan)
....................................J.
(V.S. Sirpurkar)
New
Delhi;
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