1997 (4) TMI 223 - AT - Central Excise

Issues Involved:
1. Confiscation under Section 111(d) and 111(m) of the Customs Act.
2. Classification of imported goods under Customs Tariff Heading No. 63.09 or 63.10.
3. Compliance with mutilation norms as per Public Notices.
4. Eligibility for import under Open General License (OGL).
5. Allegations of misdeclaration and fraudulent intention.

Detailed Analysis:

1. Confiscation under Section 111(d) and 111(m) of the Customs Act:
The Collector of Central Excise directed the confiscation of imported garments under Section 111(d) and 111(m) of the Customs Act, citing improper mutilation. However, the Tribunal found that the importers had complied with the mutilation norms as per the amended Public Notice and subsequent directions from the High Court. Consequently, the Tribunal held that the department did not prove the charges under Section 111(d) and 111(m), rendering the confiscation order unsustainable.

2. Classification of imported goods under Customs Tariff Heading No. 63.09 or 63.10:
The Collector classified the goods under Heading 63.09, which pertains to "worn clothing or other worn articles," and imposed additional duty. The Tribunal, however, concluded that the goods were woollen rags in a mutilated condition, intended for the manufacture of shoddy woollen yarn, not for sale as garments. Therefore, the goods did not fit the description under Heading 63.09 and should be classified under Heading 63.10, which is appropriate for rags.

3. Compliance with mutilation norms as per Public Notices:
The importers argued that they had adhered to the mutilation norms specified in Public Notice No. 173 (1985) and its amendment, which required hosiery rags to be cut into two pieces. The Tribunal noted that the goods were further mutilated as per the High Court's direction and found no violation of the mutilation requirements. Thus, the Tribunal accepted the importers' compliance with the norms.

4. Eligibility for import under Open General License (OGL):
The importers contended that the woollen rags were imported under OGL as per the ITC Policy for 1985-88 and 1988-91. The Tribunal observed that the importers had a specific license and no evidence of mala fide intentions. Given that the goods were mutilated rags and not garments, the Tribunal found them eligible for import under OGL.

5. Allegations of misdeclaration and fraudulent intention:
The department alleged misdeclaration and fraudulent intention, claiming the goods were improperly mutilated garments. The Tribunal referenced several judgments, including those of the Supreme Court and High Courts, which supported the importers' stance. The Tribunal emphasized that the goods were intended for manufacturing shoddy woollen yarn, not for sale as garments, and thus, there was no fraudulent intention. Consequently, the Tribunal set aside the allegations of misdeclaration.

Conclusion:
The Tribunal concluded that the goods were correctly mutilated woollen rags, eligible for import under OGL, and not subject to confiscation under Section 111(d) and 111(m) of the Customs Act. The classification under Heading 63.09 was incorrect, and the goods should be classified under Heading 63.10. The Tribunal allowed the appeal, setting aside the impugned order and exonerating the importers from all charges.

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