1984 (5) TMI 242 - AT - Customs

Summary

Issues Involved:
1. Correctness of demand of duty and imposition of penalty.
2. Whether the imported goods were complete watch movements or wrist watch parts in CKD/SKD condition.
3. Compliance with the approved phased production programme.
4. Time-bar on the demand of differential duty.
5. Entitlement to concessional rate of duty under Notification No. 240-Cus., dated 30-12-1978.

Detailed Analysis:

1. Correctness of Demand of Duty and Imposition of Penalty:
The primary issue is the correctness of the demand of duty and imposition of penalty by the Collector of Central Excise, Jaipur. The appellants, a small-scale industrial unit, imported components of wrist watches under the concessional rate of duty per Notification No. 240-Cus., dated 30-12-1978. The Collector issued a Show Cause Notice alleging that the appellants imported and cleared banned watch movements instead of wrist watch parts and components by mis-declaring the contents. The Collector concluded that the appellants imported watch movements, which were not covered by the import licenses, and imposed a penalty of Rs. 1,00,000 under Section 112 of the Customs Act, 1962, along with a demand for differential duty amounting to Rs. 5,17,104.16.

2. Whether the Imported Goods Were Complete Watch Movements or Wrist Watch Parts in CKD/SKD Condition:
The appellants challenged the Collector's findings that the imported goods were complete watch movements and not wrist watch parts in CKD/SKD condition. The invoices described the goods as components of watch parts or watch cases or watch dials, and the Examination Reports by Customs supported this description. The Tribunal noted that clearances were made by Customs after physical verification of the contents, and there was no evidence of collusion between the Customs Examining Officers and the appellants. The absence of a clear note on the Examination Reports stating that the goods were in CKD/SKD condition did not necessarily imply that the goods were complete watch movements.

3. Compliance with the Approved Phased Production Programme:
The Collector held that the appellants did not adhere to the approved phased production programme, which was a material condition for the concessional rate of duty. The appellants submitted a communication from the Development Commissioner clarifying that the term 'phase' referred to the completion of the approved quantity and not necessarily the twelve months of the calendar/financial year. The Tribunal found that the Collector's interpretation relying on the General Clauses Act was not applicable, and it was not shown that the appellants had not fulfilled the approved production programme.

4. Time-Bar on the Demand of Differential Duty:
The appellants argued that the demand for differential duty and imposition of penalty were time-barred. Under Section 28(1)(b) of the Customs Act, 1962, a show cause notice demanding duty could be served within six months from the relevant date unless there was collusion or wilful mis-statement or suppression of facts, in which case the period could be extended to five years. The Tribunal found no evidence of suppression, collusion, or mis-statement by the appellants. Therefore, the period of six months was applicable, and the Show Cause Notice dated 19-4-1982 was barred by limitation as all clearances were made by the end of 1980.

5. Entitlement to Concessional Rate of Duty under Notification No. 240-Cus., dated 30-12-1978:
The Tribunal noted that the concessional rate of duty was available when the proper officer was satisfied that the wrist watch parts were imported for the manufacture of wrist watches in accordance with the approved production programme. The appellants claimed that they used the imported parts for manufacturing watches. The Collector did not conclusively hold that the appellants had not used the goods for manufacturing watches but focused on the non-compliance with the approved phased programme. The Tribunal concluded that it was unnecessary to determine whether the appellants fulfilled the conditions of the Notification for claiming the concessional rate of duty due to the time-bar issue.

Separate Judgment by Member (T):
Order-in-Dissent by A.J.F. D'Souza, Member (T):
While agreeing with the majority on setting aside the penalty, Member (T) differed on the question of time-bar and demand for duty. He opined that the concessional assessment was contingent on post-importation conditions, and the assessment could not be final until the actual use for the prescribed purpose was established. The error in not making a provisional assessment was procedural, and the demand was not time-barred. He suggested that the Collector should provide the appellants with an opportunity to adduce satisfactory proof of compliance with the conditions of Notification No. 240/78 and pass a fresh order regarding the demand for differential duty. He also highlighted the need to address the issue of 10,250 watch hand sets and 3000 pieces of part No. 136 mentioned in the show cause notice.

Conclusion:
The majority view set aside the penalty and held that the claim for differential duty was barred by limitation, allowing the appeal. The dissenting member agreed on setting aside the penalty but suggested a fresh opportunity for the appellants to prove compliance with the notification conditions regarding the demand for differential duty.