1995 (9) TMI 159 - AT - Customs

Summary

Issues Involved:
1. Jurisdiction of Customs Authorities vs. Development Commissioner
2. Eligibility for Duty Exemption under Notification No. 339/85-Cus.
3. Definition and Scope of "Processing" as Manufacturing
4. Entitlement to Duty Drawback under Section 74 of the Customs Act, 1962
5. Imposition and Quantum of Penalty

Detailed Analysis:

1. Jurisdiction of Customs Authorities vs. Development Commissioner:
The appellants argued that the Collector of Customs had no jurisdiction and that jurisdiction vested solely in the Development Commissioner as per Clause (iii) of the Exemption Notification No. 339/85-Cus. The Tribunal found that while the approval of the project was the sole function of the Development Commissioner, the levy and collection of customs duty was the responsibility of the Customs Authorities. The Customs Authorities had the jurisdiction to determine the eligibility for duty exemption under the notification, and the appellants' assumption that Customs had no role was incorrect.

2. Eligibility for Duty Exemption under Notification No. 339/85-Cus.:
The appellants claimed that the goods imported were parts and components of computer systems and were eligible for exemption under Notification No. 339/85-Cus. However, the Customs Authorities found that the goods imported were fully assembled computers, not discrete components as specified in the approved project proposal. The Tribunal upheld the Customs' view that the goods were not used in the production of export goods as required under the notification and thus were not eligible for the duty exemption.

3. Definition and Scope of "Processing" as Manufacturing:
The appellants argued that the testing and checking of the goods constituted "processing," which should qualify as manufacturing. They cited several legal precedents to support their claim. However, the Tribunal concluded that mere testing and checking did not amount to manufacturing as it did not bring into existence a new product with a distinct name, character, and use. The Tribunal relied on the Supreme Court's decision in Union of India v. Delhi Cloth and General Mills, which held that only processes that result in a new product qualify as manufacturing.

4. Entitlement to Duty Drawback under Section 74 of the Customs Act, 1962:
The appellants contended that they were entitled to duty drawback under Section 74 of the Customs Act, 1962. The Tribunal agreed that if the appellants' case for claim of drawback was admitted by the proper authority, they would be entitled to a particular amount of duty drawback. However, this issue was not the primary focus of the judgment.

5. Imposition and Quantum of Penalty:
The Additional Collector had imposed a penalty of Rs. 10,00,000 on the appellants. The Tribunal found that while there was a violation, the penalty was excessive given that the goods were re-exported and this was the appellants' first import in the export processing zone. The Tribunal reduced the penalty to Rs. 2,00,000, considering the circumstances and the fact that the goods were re-exported.

Conclusion:
The Tribunal upheld the Customs Authorities' jurisdiction and the denial of duty exemption under Notification No. 339/85-Cus. It also clarified that testing and checking did not constitute manufacturing. The penalty was reduced from Rs. 10,00,000 to Rs. 2,00,000, and the appellants were advised to pursue their claim for duty drawback under Section 74 of the Customs Act, 1962. The appeal was disposed of accordingly.