2019 (8) TMI 141 - AT - Customs

Benefit of confessional rate of duty - Import of parts / components of Agricultural Machinery - N/N. serial No. 399(A) of the Notification No. 12 dated 17.03.2012 - Whether the appellant Company/ importer is entitled for the benefit of the Notification No. 12/2012 for the products imported by him being agricultural machinery as named in Serial No. 399(A) of the said Notification? HELD THAT - Apparently and admittedly, the appellant is importing the parts and the components. However, the case of appellant is that the parts and components i.e. laser level transmitter, laser receivers, control boxes connecting cables and rechargeable battery packs constitute a complete kit of the machine to be called as laser land leveller and it is only that cable connections between these parts as are required for them to be used as agricultural machine. The cabling is impressed upon to not to be a manufacturing activity. Apparently and admittedly, the appellant is importing different parts in a kit form/disassembled condition for which mere cable connection is required for said kit to constitute one single machine called as laser levelling machines. Those parts need simple cabling at the site, to be levelled, to function as a complete machine of laser land leveller. The said activity of cabling is already held to not to be called as manufacture. Those observations take the impugned imported products out of the ambit of serial No. 399(B) of Notification No. 12/2012. The allegation that these parts are not always in the term of kit are also not opined to be sustainable as is apparent from the invoices. The extra parts imported are for previously so imported machines, in addition to complete kit. There seems no reason to repeat the contention of the appellant that along with the kit the extra parts were imported for the other machines which were already in use. The parts and components as have been imported by the appellants since do not require any activity which can be called as manufacture, but when cabled at the site they can be used as a laser land levelling, an agricultural machine, the product qualifies to fall under serial No. 399(A) of the Notification No. 12/2012 dated 17.03.2012 to which a concessional/exceptional duty @ 2.5% is applicable - the Department has failed to discharge its onus to prove the activity of the appellant as manufacture while putting the imported parts/components into the agricultural machine called laser land leveller. Penalty upon the Director of the importer - HELD THAT - It is very much apparent from the statement of the Director recorded on 10.07.2015 that since they were using the parts and components hence were under bonafide impression to classify them under Chapter 90153 but after the Notification and exemption thereof came to their notice, and that they are not registered with Central Excise for manufacture, that they rightly classified their product under CTH 8432. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Entitlement to the benefit of Notification No. 12/2012 for the imported products as agricultural machinery.
2. Classification of the imported goods under the appropriate Customs Tariff Heading (CTH).
3. Determination of whether the assembly of imported parts constitutes "manufacture."
4. Imposition of penalty on the Director of the importing company.

Issue-wise Detailed Analysis:

1. Entitlement to the Benefit of Notification No. 12/2012:
The main issue is whether the appellant is entitled to the benefit of Notification No. 12/2012 for the imported parts of Laser Land Leveller. The Notification provides a concessional duty rate of 2.5% for agricultural machinery listed under Serial No. 399(A) and for parts under Serial No. 399(B), subject to compliance with Condition No. 5 of the Customs Rules, 1996. The Tribunal found that the appellant imported parts that, when connected via cables, function as a complete Laser Land Leveller. The Tribunal concluded that the simple cabling required does not amount to manufacturing, thus qualifying the imports under Serial No. 399(A) for the concessional duty rate.

2. Classification of the Imported Goods:
The appellant initially classified the goods under CTH 90153090 but later reclassified them under CTH 84328090 to avail the exemption. The Tribunal applied Rule 2(a) of the General Rules of Interpretation of the Customs Tariff Act, which states that incomplete or unassembled articles should be classified as the complete article if they have the essential character of the finished product. The Tribunal concluded that the imported parts, when assembled, function as a complete Laser Land Leveller, thus justifying the classification under CTH 84328090.

3. Determination of Whether Assembly Constitutes "Manufacture":
The Tribunal examined whether the process of connecting the imported parts via cables constitutes "manufacture" as defined under Section 2F of the Central Excise Act, 1944. Citing various judicial precedents, the Tribunal concluded that the simple cabling required does not result in a new commercial product with a distinct name, character, and use. Therefore, the assembly does not constitute manufacturing, and the imported parts qualify under Serial No. 399(A) of the Notification.

4. Imposition of Penalty on the Director:
The Tribunal addressed the penalty imposed on the Director of the importing company. It found that the Director acted under a bonafide belief regarding the classification of the parts and there was no evidence of malafide intent to evade duty. Citing the case of Hindustan Steel Ltd. Vs. State of Orissa, the Tribunal held that penalties should not be imposed for technical or venial breaches or when the breach flows from a bonafide belief. Consequently, the penalty proceedings against the Director were dropped.

Conclusion:
The Tribunal set aside the impugned Order, allowing both Appeals. The imported parts were classified under CTH 84328090, qualifying for the concessional duty rate under Serial No. 399(A) of Notification No. 12/2012. The assembly of parts did not constitute "manufacture," and the penalty on the Director was deemed unjustified. The Order was pronounced in open Court on 01.08.2019.