2007 (9) TMI 275 - SC - Customs

EXIM - Import - Whether shoe uppers, outer soles, insoles and sock liners imported by M/s. Phoenix Industries Ltd. (PIND) in the same container could be clubbed so that it could be considered as import of the shoe itself in semi-knocked down (SKD) condition? Whether the importer was guilty of mis-declaration when the importer declared SKD goods as components?

Summary

Issues Involved:
1. Clubbing of imported components to constitute synthetic shoes in SKD condition.
2. Allegation of mis-declaration by the importer.
3. Applicability of para 156(A) of the EXIM Policy 1992-97.
4. Eligibility for concessional rate of duty under Notification No. 45/94-Cus. dated 1-3-94.
5. Invocation of Rule 8 of the Customs Valuation Rules.

Issue-wise Detailed Analysis:

1. Clubbing of Imported Components to Constitute Synthetic Shoes in SKD Condition:
The primary issue was whether the shoe uppers, outer soles, insoles, and sock liners imported by two companies could be clubbed to consider them as synthetic shoes in SKD condition. The Department argued that the importers used a subterfuge by importing these components separately through two different companies to bypass para 156(A) of the EXIM Policy 1992-97, which restricts the import of consumer goods in SKD condition without a specific import license. The Supreme Court found that the entire manufacturing activity was carried out by one company (M/s. PIL), and the bifurcation of imports was a deliberate attempt to evade customs duty. The Court held that the components imported were indeed synthetic shoes in SKD condition and liable to be assessed as complete finished goods under tariff Heading 6404.19.

2. Allegation of Mis-declaration by the Importer:
The Department alleged that the importer mis-declared the goods as components to avoid higher customs duty. The Supreme Court agreed with the Department, stating that the importer used a fictitious arrangement to show that two independent companies had imported separate parts of the footwear. The Court found that the importer was aware of the restrictions and intentionally arranged the bifurcation to bypass para 156(A) of the EXIM Policy. The Court concluded that the importer was guilty of mis-declaration.

3. Applicability of Para 156(A) of the EXIM Policy 1992-97:
Para 156(A) of the EXIM Policy 1992-97 restricts the import of consumer goods in SKD condition without a specific import license. The Supreme Court found that the importers' arrangement was a subterfuge to bypass this restriction. The Court held that the synthetic shoes imported in SKD condition fell under this restriction and required a specific import license. The Court rejected the importers' argument that the components did not constitute synthetic shoes in SKD condition.

4. Eligibility for Concessional Rate of Duty under Notification No. 45/94-Cus. dated 1-3-94:
The importers claimed eligibility for a concessional rate of duty under Notification No. 45/94-Cus. dated 1-3-94, which provides exemption for parts used in the leather industry. The Supreme Court held that the notification was not applicable as the imported components were synthetic shoes in SKD condition and not merely parts. The Court found that the importers' arrangement was intended to deceive the Department and evade customs duty. Therefore, the importers were not entitled to the benefit of the concessional rate of duty.

5. Invocation of Rule 8 of the Customs Valuation Rules:
The Department invoked Rule 8 of the Customs Valuation Rules, arguing that the transaction value of the imported components did not represent the correct transaction value due to the subterfuge arrangement. The Supreme Court agreed with the Department, stating that the entire transaction was completed by one company (M/s. PIL) and the bifurcation was a fictitious arrangement. The Court held that the Department was right in invoking Rule 8 of the Customs Valuation Rules to determine the correct transaction value.

Conclusion:
The Supreme Court set aside the Tribunal's judgment and held that the importers were guilty of violating para 156(A) of the EXIM Policy 1992-97. The Court ruled that the importers were liable to be assessed under tariff Heading 64.04 and required to pay customs duty at 50% + CVD at 15% ad valorem. The importers were not entitled to the benefit of the concessional rate of duty under Notification No. 45/94-Cus. dated 1-3-94. The Court remitted the question of re-quantification of differential duty, redemption fine, and penalties to the Commissioner of Customs for determination in accordance with the law. The civil appeals filed by the Department were allowed with no order as to costs.