1995 (3) TMI 292 - AT - Customs

Summary

Issues Involved:
1. Misrepresentation to the Ministry of Industry and licensing authority.
2. Compliance with Import Policy (AM 91) and Notification No. 116/88-Cus.
3. Actual manufacturing activity and substantial manufacture.
4. Validity of duty exemption under Notification 116/88.
5. Penalty imposition and quantum.
6. Limitation and extended period under Section 28 of the Customs Act, 1962.

Detailed Analysis:

1. Misrepresentation to the Ministry of Industry and Licensing Authority:
M/s. Nicolian Brothers and M/s. Titan Medical Systems were alleged to have misrepresented facts to the Ministry of Industry and the licensing authority. It was found that Titan Medical Systems did not have any factory at NOIDA in April 1989 and no manufacturing activity took place. Nicolian Brothers also misrepresented the value of indigenous parts and other expenses to the licensing authority.

2. Compliance with Import Policy (AM 91) and Notification No. 116/88-Cus:
The show cause notices alleged non-compliance with Para 221(1) of the Import Policy (AM 91) due to lack of substantial manufacture. The duty exemption under Notification No. 116/88-Cus was also questioned as no manufacturing had taken place. The Collector concluded that Nicolian Brothers was not a genuine manufacturer and mere value addition could not be equated with substantial manufacture as required by the Import Policy.

3. Actual Manufacturing Activity and Substantial Manufacture:
The appellants argued that substantial manufacturing activity was not defined in the Import Policy or Customs Notification 116/88. They claimed that certain parts were added to the imported components, and the scanners were calibrated and tested in India. However, evidence revealed that no substantial manufacturing took place, and the value addition was minimal (around Rs. 1.5 lakhs). The Collector found that the manufacturing activity was not significant enough to qualify as substantial manufacture.

4. Validity of Duty Exemption under Notification 116/88:
One of the conditions for duty exemption was that the exempted material should be used in the manufacture of resultant products specified in Part-E of the duty exemption entitlement certificate. The imported components were to be converted into complete ultrasound scanners. The Collector concluded that no substantial conversion took place, and thus the duty exemption was not valid.

5. Penalty Imposition and Quantum:
The Collector imposed a penalty of Rs. 20 lakhs on each unit. The Tribunal upheld the imposition of penalty but reduced the penalty on Nicolian Brothers to Rs. 5 lakhs and on Titan Medical Systems to Rs. 2 lakhs, considering the circumstances and the responsibility of the license holder to comply with the conditions.

6. Limitation and Extended Period under Section 28 of the Customs Act, 1962:
The appellants argued that the demand was barred by limitation as it was issued after six months. However, the Tribunal noted that misstatement to the licensing authority fell within the terms of the proviso to Section 28, allowing for the extended period. The Tribunal found that there was wilful misstatement before the customs authorities as well, justifying the extended period for the demand of duty.

Conclusion:
The Tribunal confirmed the Collector's order with a reduction in the penalties imposed. The findings highlighted the lack of substantial manufacturing activity, misrepresentation of facts, and the invalidity of duty exemption, leading to the imposition of penalties and the demand for duty under the extended period provision.