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TMI Blog1995 (2) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... plied for was as follows : Item Value Rs (in millions) . Value Rs. (in crores) (i) Components 28.800 2.8800 (ii) Accessories 1.007 0.1007 (iii) Consumables 14.172 1.4172 Rs. 43.972 Rs. 4.3972 The details of the components to be imported were set out in an annexure to the application divided into 12 groups. The one item around which the controversy mainly centres is K Serial No. 12. The component was described as copier frame in the group Main motor Assembly, Magnetic Clutch Assembly, Control Unit, Power Source Section . 1500 numbers of this component valued at Rs. 1,27,42,368/- (1.27 crores) were sought to be imported. The Government granted a licence on 30-9-1992 for import of items valued at Rs. 3.73 crores, the annexure to which classified the item described above thus : S.No. Component Group 17 Main Motor 18 Magnetic Clutch 19 Power Board Section 24 Control Unit The value of these and other components to be imported as given by the appellant was left undisturbed. In o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e balance of 30% can be assembled very quickly without any serious effort. In short, the charge was that the appellant had virtually imported complete photocopier machines whereas they were permitted to bring only 52 specific non-electronic parts. He pointed out that this was contrary to the phased development programme (PDP) under which the goods were imported. He concluded that the licence was not valid to cover all the items imported. He also pointed out that the values as shown in the invoices could not be accepted because there was the interception of a related person . In the result, he imposed fines and penalties as detailed above. The appellants preferred appeals to the Central Excise, Customs and Gold (Control) Appellate Tribunal. The Tribunal dismissed the appeals in so far as the validity of the licence was concerned but they allowed them on the question of valuation. In regard to one item viz. cover glass, which was admittedly imported over and above the order, they directed a fresh appraisal of its value. Keeping in mind the relief given in respect of valuation, the Tribunal reduced the amounts of fine and penalty to the amounts set out in brackets earlier. On t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has been mentioned earlier, each of the licences contained a large number of items of components which are permitted to be imported. The Collector has set out in his orders, the extent of items which, according to him, are, and which are not, covered by the licence though the value of the items which have been imported without a licence is not quite clear. The Tribunal, however, has concentrated on only one of these items, namely, main frame , perhaps by way of illustration. They have indicated that this expression means only the bare frame and that a large number of components which do not form part of the main frame have been sought to be imported as parts of the main frame. This is also the item we have earlier referred to. We confess we have not been above to fully understand the nature of the claim made by the assessee or the interpretation given by the Tribunal in the absence of a proper picture regarding the nature of the machine and components involved. As pointed out earlier, the application for licence refers to copier frame and mentions this as a component of a certain group . The first licence mentions the four independent groups but does not talk about copier fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. So far as the second aspect is concerned, there are certain circumstances that need to be taken into account. It is clear, as pointed out on behalf of the appellant, that the consideration that the component parts imported could be assembled to constitute substantially the whole of the photocopier machine is irrelevant; the question is, to what extent there was import of unlicensed component parts. The Tribunal has agreed with the assessee that, in interpreting the terms of the licence and judging its suitability (sic), extraneous considerations like the requirements of the phased manufacturing programme should not be taken into account. They have also accepted the assessee s plea that no mutuality of interest had been established between the importers and the suppliers calling for a rejection of the wholesale price shown by the assessee and holding that valuation was not possible under Section 14(1)(a) of the Customs Act. They have remanded the case to the Collector for valuation by excluding the concept of related person and also for valuation of the cover glass . It cannot be denied that, in assessing the amount of fine or penalty, it is not only relevant but crucial t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e main motor assembly magnet clutch assembly controlling unit and power source section. The learned Consultant pleaded that the list of goods attached to the licence itself would show the copier frame is not merely a frame but is a sub-assembly. It is a component as defined in the Import Policy 1984-85. In the first application for licence also under the group, the appellant had included main motor assembly, magnet clutch assembly controlled unit and power source section under the component copier frame. In that case the Import licence was issued with a name of the group forming the component whereas in second licence, it is the component which was included in their list attached to the licence. It was further submitted that the definition of part in the Import Policy, is that, it is a part of a sub-assembly or a assembly, not useful by itself and not a capable of being further disassembled for replacement. The part is a component of a sub-assembly, the sub-assembly itself being component of a machine. Similarly the component drum and drum drive section constitutes one group comprising the components drum guide, roller bracket, drum, front end disc, panel and drum stay. In the firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the High Court noted the Supreme Court decision in the present appellants case reported in 1992 (58) E.L.T. 553 (S.C.) in the case of Dynamatic Hydraulics Ltd. v. Collector of Customs. The Calcutta High Court held that the import of a photocopier complete except for selenium drum does not constitute the import of the whole machine though substantially all the parts are imported. The learned Consultant drew attention to the observation of the High Court that it is the violation of the letter of the law which is punishable and not violation of the spirit of the law. As regards the exposure glass, the learned Consultant submitted that its value cannot be more than Rs. 20/- at the time of import and submitted that after such a long lapse of time from the date of import, the appellants do not even want to enter into any controversy about the exposure glass. He further pointed out that the valuation of this material was not more than Rs. 10/-. CIF as noted at the time of examination and the Collector has not given reasons for the basis of enhancing its value. 3. Shri B.K. Singh, the learned Senior Departmental Representative appearing for the Collector contended that the terms of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants in the manufacture of photocopier. The learned Senior Departmental Representative relied upon the Tribunal decision in the case of Ratan Exports Ltd., Delhi v. Collector of Customs, Calcutta, reported in 1987 (29) E.L.T. 102 (Tribunal) which was upheld by the Supreme Court 1987 (31) E.L.T. 66 (S.C.) - Ratan Exports Ltd. v. Collector of Customs, Calcutta to say that the import of the goods which is not as per description in the licence is not permissible. He also cited the case of Mangalore Flour Mills Pvt. Ltd. v. Collector of Customs, reported in 1990 (46) E.L.T. 160 (Tribunal) to say that complete roller mills in split consignments is not permissible. What has been imported is not merely the main frame but something much more than that and as imported goods are not covered by the description of the components given in the list attached to the licence, the whole import is unauthorised. Making a submission on the Department s appeal against the Collector s order, the learned Senior Departmental Representative emphasised the grounds of appeal and contended that having regard to the gravity of the offence, the Department s case is that the Collector ought to have imposed a much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv)Auto transformer unit (v)Power supply unit (vi)Exit Roller (vii)Drum Shaft (viii)In feed rollers (ix)Blowers (x)Motors, gears, capacitors, relays, etc. The parts shown at (b) above are not listed in the licence list, but they are nevertheless present in the main assembly which they brought. To this, Shri Arun Athalye argued that PCB s, Transformers, gear and pulley etc. are parts of the main frame. He also maintained that lense system and halogen lamp are mirror assembly. I find that the main frame has been assembled with a large number of parts. This was obviously not the intention of the licence. In the licence, the parts have been written separately. The identity of each part cannot be found out now unless one tries to find out each and every item separately from the complete assembly. With considerable difficulty only one can identify such parts which have become part of the assembly. If the intention was to allow an assembled machine, then the licence description would have been totally different. In that case the licence description would have been something like assembly of parts in SKD condition . The licence description is not like that. The licence descr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parts like print switch, exposure control knob which are not shown in licence list. Para-15. - (a) At the time of examination it was also observed that the main machine is fitted with a number plate which contains the following markings : INFOTEC 8030 CS Sr. No. 289099 140 - 230 v AMP 50 HZ 1600 W Made in Japan KALLE NEIDERIASSUNG DER HOECHST AG D 6200 WIESBADER (Sr. Nos. found to be different for each machine) (b) There is a Sr. No. mentioned on the cartons which contain the main machine. This number matches with the number mentioned on the main machine. The marking of production S. No. at import stage confirms the fact that the fully manufactured machine has been partly disassembled and exported by the foreign suppliers. In fact such product number should be assigned after manufacturing process in India is over. (c) The main machine is equipped with electric cable and plug. Only exterior parts are required to be fitted with the machine and the machine can start functioning. For ITC as well as valuation purposes, it will be taken as import of photocopying machines. Para-16. - (a) the following parts which are not shown in the purchase order/invoice but sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KVA 3.Name Plate with the Serial number 4.Model number sticker 5.Lock Assembly 6.Contact glass 7.Machine cover The following stages of inspection are carried out on the copier : 1.Quality Assurance of all incoming components : All the incoming components are thoroughly checked for physical damages. Electrical items like motors, transformers, lamp indicator bulbs, solenoids, power pack etc. are checked for their proper operation. Mechanical operations of chain drive systems, mechanical movement of solenoids, motors dutches etc. are examined. The physical condition of corona units, drum, exteriors, halogen lamp are checked for any cracks, peeling etc. 2.Testing of all Incoming Sub-assemblies : Routine testing is carried out for each sub-assembly. A control chart is used for checking the various assembly operations to enable the proper functioning of each sub-assembly and care is taken to see that no function is missed out. For example, the pick off section sub-assembly is checked for proper action of the pick off blade and pressure wire when the transfer corona is inserted in the main frame and taken out. 3.Free Run check for Drives and Transport systems : Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier file is maintained which contains the test sheets taken for different settings and from both the cassettes. The file also contains the documents pertaining to assembly, testing, installation and after sales-service. It is clear that what is added to the imported assembled goods are only power plug, voltage stabiliser, name plate, model number sticker, lock assembly, contact glass and machine cover. But the Collector has also found that even the production serial number of the machine is already available on the assembled goods imported. All this clearly shows that the production programme of the appellants was for import of practically the whole photo-copier in assembled condition and it was not for importing the various components in unattached unassembled form. The description given by them of the components in their licence application, however, clearly gives the impression of the import of the components in unattached condition by describing them separately in different headings and groups into 52 components. The licence to them has been granted on this basis. When this is so, the Collector s finding as follows on the nature of the contravention in Para-21, has to be seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to read Moulded sheets of ABS resins (with upper and lower lids or covers) together with handles and locks of different sizes of black, burgundy or brown colour . The actual amendment granted under letter dated 1-2-1985 of the office of the JCCI E was Moulded sheets of ABS resins (with lower lids or covers) with handles and locks of different sizes of, black, burgundy or brown colour". There is no dispute that the goods actually imported were not the upper and lower part of the attache cases independently but that they had been hinged together, the inner lining as well as the aluminium lining having been already fixed to the sheets. Para - 4. - What had been imported was, therefore, the hinged body, alongwith locks and handle. It was mentioned in the show cause notices that in the above circumstances the imported goods were attache cases (in different sizes) in fully manufactured condition with loose handles and locks, key sets and screws). It is for this reason that it was proposed under the show cause notices to hold that the imported goods were not in accordance with the description of the goods to be imported as mentioned in the advance licence and thus there had been a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be packed in another case of a bigger size, thus reducing the volume of the freight and, evidently, charges for the freight which would be based on volume as well as weight. The other reason suggested is that the supplier would himself ensure that the corresponding upper and lower parts are hinged, thus avoiding the possibility of the upper part of any box being attached to the lower part of another box, resulting in misalignment. Since thus the normal course of supply in trade was, according to the appellants themselves, in the manner above-said, they should certainly have been aware even from the inception that the goods to be imported would be hinged parts and not loose parts. But in spite of such knowledge the appellants had chosen to make their application dated 4-9-1984 as if the upper and lower parts were to be imported unattached to each other and as if it is they who will be attending to the hinging of the two lids as part of their process of manufacture of the attache cases. Again, even when applying for the amendment of the licence they had proceeded on the same basis and without disclosing the fact that the upper and lower parts would be imported in a hinged condition. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are clear that while the licence permitted import of ABS Moulded resins (upper and lower parts) with handles and locks separately the actual import was of the parts not merely hinged together but fixed with the inner lining as well as aluminium lining. If, as mentioned by the appellants themselves in their appeal, the normal practice in international trade was for supply of the upper and lower parts hinged together, and also lined in the manner abovesaid, it was necessary that the appellants should have described the goods in that manner not merely when applying for the licence, but also in their shipping documents. Admittedly they had failed to do so, either in applying for the licence or in seeking for amendment of the same or in describing the goods in their shipping documents. Thus, as against the description on the licence that the lids were to be supplied as separate pieces, they were imported in a lined and hinged condition. In the circumstances the case that there has been a misdescription of the goods as will attract the provisions of Section 111(d) of the Customs Act is fully established. Para - 11 . - Another reason on the basis of which the Collector had held against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shipping. In the circumstances it is not quite clear whether all the processes mentioned in the letter dated 4-9-1984 were in fact to be carried out, utilizing the dies and tools on the imported material. In any event, the processes described in the paper filed before us appear to be more in the nature of removal of blemishes as might have arisen due to the damage in transit except in the case of fixing of locks and handles. Therefore, the manufacturing processes mentioned in the letter dated 4-9-1984 (on the basis of which the licence had been obtained as also the duty exemption certificate) do not appear to be necessary to be carried out on the imported material in the condition in which they were imported. The fixing of handles and locks would not appear to be a manufacturing process leading to the manufacture of an attache case. It, therefore, appears to me that with reference to the actual condition in which the goods were imported the requirement of a manufacturing process being carried out on them (as mentioned in the letter dated 4-9-1984) does not appear to be necessary in order to entitle the appellants to the duty free import under the scheme therefor. In arriving at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r level of fine and penalty are, firstly, the absence so far of any evidence to show that the licensing authorities have initiated any proceedings against the importer-appellants; secondly the findings by the Tribunal in their favour on the question of valuation saying that the importer-appellants and the foreign suppliers cannot be held to be `related persons ; thirdly, that the appellants are the actual users of the imported goods and have not imported the goods as stock in trade; fourthly, it will also be relevant to have regard to the fact that about 8 years have rolled by since the imports were made and the large amount of demurrage incurred, which, according to the importer-appellants is of about Rs. 35 lakhs; and finally, the Hon ble Supreme Court s direction, which is that the facts of the case require a second and closer look, if not with a view to give complete relief to the assessee, at least to determine a reasonable quantum for the redemption fines as well as the penalty. And the reasonable quantum, in our view, for the redemption fines and penalty, on the facts and in the circumstances of the case, and for the reasons set out above, is as follows: S. No. wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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