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TMI Blog2003 (1) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... uipments relating to the ventilators. They also placed purchase orders on M/s. Erkadi International in Bangalore for the supply of items like graphic monitors, cart/trolley, LCD displays etc. 2. Pursuant to an agreement entered into with Ministry of Defence, Govt. of Russia, the Appellants filed an application to the DGFT for the grant of an Advance Licence for the import of certain components. In the application, the Appellants indicated, that the export was not in freely convertible currency. They further provided a flowchart giving different processes that would be undertaken by them on the components supplied before export. They also provided catalogues of the equipments. M/s. Arden Mechatronics were shown as the supporting manufacturer. 3. A licence was issued to M/s. LEND with an export obligation of Rs. 55 crores and restricting imports to the extent of CIF value of 16.29 crores as against 32.59 crores made in the application, with the condition that the technical specification of the components imported should conform to those utilized in the manufacture of the resultant product and should be reflected in the export documents. 4. The first consignment was imported and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal that the subject firm was declared as a supporting manufacturer by the partner of M/s. LEND with a view to obtain the Advance Licence under DEEC Scheme and to import Ventilators without payment of duty. Intentionally facts were misrepresented with untrue declaration in an application to JDGFT; as a result of the same advance licence was got issued for the special imports. Shri H.R. Gopinath, partner of M/s. Ardent Mechatronics willingly and knowingly lent the name of his firm and thereafter it was considered that he lent his name to M/s. LEND to wrongly avail the benefit under Advance Licence (DEEC Scheme) which rendered him liable for penalty under Section 112A of the Customs Act. (b) An examination of the import document reports proved beyond doubt that the goods imported were of USA/New Zealand origin manufactured by an UK firm and M/s. NOVO LLC USA were authorized agents for this UK firm in the manufacture of Puritan Bennet NPB 760 Ventilators . (c) Therefore, the Commissioner found that the point for consideration was whether the Complete Electronic Ventilator System had been manufactured by M/s. LEND or not in the facts of this case and examining the EXIM Polic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f credit was established well after the deadline fixed. That the imported goods have not undergone any manufacture or process by the supporting manufacturer and as admitted by the partners of M/s. LEND the supporting manufacturer had no role whatsoever to play in the manufacture of export products and therefore it was established that the goods imported were subsequently exported without any intrinsic value addition and merely FOB value of goods were jacked up to meet the EXIM Policy requirements. (d) He also found as follows......... Further, I find that the Noticees have misrepresented the fact about the quantum of value addition by including the highly inflated value of software loaded to the EPROMS. This is clearly evident from the fact that the total value of the contract with M/s. Erkadi International/M/s. Moola Technologies is about Rs. 1.75 crores, towards the supply of accessories which included the graphic display monitor, in which the software was loaded. However, the value of such software in the declaration made to JDGFT, at the time of obtaining licence was shown at Rs. 1.66 crores for software alone. For the said reason, the value addition of 68.71% declared to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne sl. no. indicated on it and that one of these boxes contains the main base unit, which has the machine sl. no indicated on it and that all the assemblies would have a sticker affixed on it which indicate the machine sl. no. indicated on it. This is because each of the PCB will work only when fitted to the particular machine sl. no. This arrangement of packing as admitted was arranged by himself with the manufacturer M/s. Mallinckrodt (U.K.) Ltd., and he also admitted that PCB of the ventilator machine comes with inbuilt software in Russian language and that he had placed orders with the foreign supplier M/s. Novo LLC USA (dealer of M/s. Mallinkrodt (U.K.) Ltd., for supply of Complete Ventilators . This amply proves that they are not eligible for the benefit of Notification 51/2000-Cus., dtd. 27-4-2000. In view of the above, they are liable to pay duty under section 28 (1) of the Customs Act, 1962 for the goods imported under Bill of Entry No. 52731 dtd. 6-12-2000 and the duty demandable works out to Rs. 1,40,84,474/- and the interest thereon and for the goods imported under Bill of Entry 03581 dtd. 30-1-2001, the duty demandable works out to Rs. 1,75,55,383/- and interest there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture of excisable commodity. A.3 That the definition of Manufacture in the case of Exports is wide in its application is evident for instance from Rules 12 13 of the Central Excise Rules, 1944 as they existed prior to 1-7-2001, which defined a process of manufacture for the purpose of export, as including the process of blending of any goods or making alterations or any other operation thereon. A.4 This position of a liberal interpretation of Manufacture in the case of exports is also evident from the Circular 314/30/97-CE dated 6-5-97 issued by the Central Board of Excise Customs while interpreting the benefit of Notification No. 1/95-C.E. dated 4-1-95 applicable in the case of 100% EOUs. (Pg. 452-453) A.5 In this Circular, the Board clarified that a broader view is called for in interpreting the provisions of the said Notification 1/95-C.E. dated 4-1-95 and that the term manufacture for the purpose of export is wider in meaning than that used in the Central Excise Act, 1944; that while the process of galvanizing per se would not amount to manufacture under the Central Excise law, it would amount to manufacture for the purpose of export. A.6 The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted and replacement with the EPROMs that were loaded with the English language version of the software in the Controller PCB. B.5 The next process involved the testing of the electrical and pneumatic parameters as per the system specifications in which the consumables like oxygen gas, purified air etc., were used as also a system testing which consisted of verification of the modes of ventilation, Set Alarm conditions, pressure volume etc. These tests were carried out using general purpose, and custom-built test equipment like digital multimeter, oscilloscope etc. B.6 In the next process, (the assembly of locally procured material was done in which the communication panel of the Base Unit was removed from the Base Unit and connector, cutouts were made using drilling machines. The cutouts were then connected with the cables to transmit the analog signals from the controller PCB of the Base Unit to the display monitor. After testing the signals, the display monitor was assembled to the Base Unit. Thereafter, the Base Machine, the display monitor and the humidifier unit was fitted on to the trolley and various tests were then carried out to check the display functions like w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rasad and Mr. I. David for the said work of assembly and testing carried out at No. 5, Anjanadri Complex, I Floor, I Phase, Girinagar, Bangalore-85. I have also visited the said premises when my people were working there to oversee the arrangements and I have witnessed the entire process involved. To your specific question I state that the imported items consisted of 22, comprising Base Unit Assembly, Assemblies for Oxygen Regulator, Oxygen Regulator Pressure Transducer, Oxygen Solenoid and Populated PCB sub-assemblies for controller, pressure solenoid, battery backup and UI Display. The rest of the items were in the nature of accessories. The activity involved was to assemble the assemblies and sub-assemblies together by employing a simple screwdriver technology. A major component of the work involved for us was in calibrating and testing the ventilator and its communication with the display unit. B.14 In his further statement dated 27-2-2001, Shri Ashok Murthy has stated as follows :- Further, I wish to add that the display unit accesses the analog and digital data outputs from 760 ventilator. The Philips processor (8051) on the Motherboard of the Display Unit supplied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturer, and declared a value addition of 68.717 per cent. The largest component of the value addition claimed was software valued at over a crore and a half in rupees (page 35 of the paper book). The appellant M/s. Lucky Exports imported medical equipment (ventilators) from USA under advance licence claiming the benefits of customs notification 54/2000. The goods were described in the bill of entry as components of ventilating system. They declared to the DGFT that they were using the imported goods in the manufacture of ventilating systems in India, and named Ardent Mechatronics, Bangalore, as their supporting manufacturer who would do this work for them. They declared a value addition of 68.71 per cent. Subsequently they exported complete ventilating systems to Russia and received payment for the same under the rupee-rouble agreement. Goods under one bill of entry were actually imported under exemption and exported from Bangalore under the DEEC scheme. In respect of the second consignment, the customs officers examined the goods and found them to be complete ventilators. The benefits of the exemption Notification 54/2000 were denied to them. The goods were provisionally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible processing of manufacturing process as stipulated by the DGFT s Circular No. 50 (RE-99) was carried out on the goods. The activity that was admittedly carried out was a trial installation on locally procured trolley, and test run, under the supervision of Ashok Murthy. (The calibration that is claimed by the appellants as a manufacturing activity is something that must be done each time a precision instrument is used.) The second consignment is said to have been taken to Delhi for manufacture. The second consignment arrived after investigations into the first had begun. The fact that it was taken away to Delhi though Ardent Mechatronics, declared as the supporting manufacturer, was in Bangalore, shows that Ardent Mechatronics was in fact not capable of carrying out any manufacturing, much less under the scrutiny of the investigating officers. The party named as having carried out the manufacture of complete ventilating systems in Delhi was not declared to the DGFT. Value Addition ? To qualify for an advance licence, the imported goods must be used in manufacture of Indian goods, and the value addition should be over 33 per cent. This is confirmed by Circular No. 50 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods to Russia. ] An argument is being taken that the goods were anyway in the exempted category. However the exemption is not applicable if the goods are only routed through the country, as clarified by the Supreme Court in the case of MJ Exports reported in 2001 (132) E.L.T. 514 (S.C.), which is relied upon by the Commissioner in para 156 of his order. The role of Shri Ashok Murthy Shri Ashok Murthy was partner in Moola Technologies, the dealer for Mallinkrodt in India. He was also Partner in Erkadi International, from which firm he supplied display monitors to Lucky Exports. He arranged the association of Shri Gopinath with the import-export activities of Lucky Exports. He sent persons from Moola Technologies to unpack and inspect the goods at premises arranged by Shri Gopinath, who had no personnel of his own. He thus actively assisted Lucky Exports in presenting Ardent Technologies as a supporting manufacturer to the DGFT. 9. Thereafter the matter was heard and closed for decision. After the matter was reserved, it transpired that the Hon ble Apex Court in the case of Titan Medical Systems v. CC in Civil Appeal No. 4693/1995 [2003 (151) E.L.T. 254 (S.C.)] had in simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions specified in the exemption, which has to be fulfilled on import of raw materials are as under - (i) The Notification enables importing of raw materials, components, intermediates, consumables, catalyst, computer software and parts required for manufacture of resultant product. It is therefore clear that the raw materials/parts should be used in the manufacture of a specified resultant product and if this is not done it amounts to contravention of the conditions in the exemption Notification. (ii) Part (a) of the exemption Notification requires that the importer should specify the name and address of the factories where resultant products of export are manufactured. If the manufacturing activity does not take place in these factories, it would result in contravention of the conditions in the exemption Notification. (iii) Part (c) and (d) of the Notification enumerates the particulars of the materials imported. The word materials is defined under Clause 2(iv) of the exemption Notification. In other words, it refers to the raw material, which is imported for being used in the manufacture of the final product. If the raw material do not correspond to the declaration, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Diwakar Mishra are hereby called upon to show-cause to the Commissioner of Customs, CR Bldg., Queen s Road, Bangalore, within 30 days of the receipt of this notice as to why, (a) the goods imported under Bills of Entry No. 52731 dt. 6-12-2000 and 03581 dt. 30-1-2001, totally valued at Rs. 5,87,92,657/- should not be held liable for confiscation u/s 111(m)/Sec. 111(o) of the Customs Act, 1962. It is therefore clear that the importer has been called upon to show-cause for contravention of the Customs Act, Rules and Notification and no action has been initiated under the provisions of the Foreign Trade (Development and Regulation) Act, 1992. The action that is initiated is relatable only to the provisions of the Customs Act, and as such the same cannot be objected to by the importer. Sec. 2(33) defines the word Prohibited goods to mean any goods, the import or export of which is subject to any prohibition under the Customs Act or any other law for the time being in force. Similarly Sec. 3(3) of the Foreign Trade (Development and Regulation) Act, 1992 states that all goods in respect of which the Central Government has prohibited or restricted the import or export under Sec. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper officer. If such a plea is not taken the Department is entitled to confiscate the goods where it is a condition imposed under the Customs Act or any other law in force. This provision has been relied upon in the case of Madan Lal Anand v. UOI [1990 (45) E.L.T. 204 (S.C.) = AIR 1990 SC 176] wherein it is stated as under- In view of Clause (o) of Sec. 111, if any goods exempted from payment of duty is imported without observing the conditions subject to which the exemption has been made, it will be a case of smuggling within the meaning of Sec. 2(e) of the COFEPOSA Act That being so, non-compliance of a condition subject to which exemption is granted, would convert the act of importing goods into smuggling. The Hon ble Supreme Court has again examined this issue in the case of Jacsons Thevara v. CCE - 1992 (61) E.L.T. 343 (S.C.) = AIR 1991 SC 647 wherein it is stated as under - These contentions, in our view, are misconceived because here the customs authorities have not taken action against the Appellant for breach of any condition of the import licence dated February 14, 1979. Action has been taken against the Appellant under the provisions of the Act for obtainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contravention is of much more serious in nature. The importer has not carried out any manufacturing activity at all. The importer is importing finished goods and exporting the same without carrying out any manufacturing activity in India. This judgment clearly establishes that the facts involved in the present case would amount to contravention of the conditions specified in the exemption Notification. In this matter, the importer is relying upon the judgment of the Hon ble Supreme Court in the case of Titan Medical Systems Pvt. Ltd. In the said case the Supreme Court has observed as under : To be noted that the licensing authority having taken no steps to cancel the licence. The licensing authority have not claimed that there was any misrepresentation This observation was made with reference to the contention raised before the Supreme Court which is as under : As regards the contention that the Appellants were not entitled to the benefit of the exemption Notification as they had misrepresented to the licensing authority, it was fairly admitted that there was no requirement, for issuance of a licence, that an applicant set out the quantity or value of the indigenous c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible to import medical equipments. One such certificate is issued, Customs Department allows import of the medical equipment giving exemption from payment of customs duty. After the import of medical equipments, the importer is required to fulfil the conditions mentioned in the exemption Notification. In such a case the Supreme Court has held that the Customs Department can monitor the compliance of these conditions and demand customs duty in case there is contravention of the conditions specified in the exemption Notification. This is so notwithstanding the fact that the Director General of Health Family Welfare is also competent to initiate the action to cancel the certificate earlier granted. The Supreme Court has held that the Customs Department on its own is competent to verify the compliance of the conditions in the exemption Notification and can take action to demand customs duty even though the certificate granted by the DGHS is not revoked. The facts of the present case is in pari materia with the case of Jagadish Cancer Research Center s case. The facts involved in the case of Titan Medical Systems Pvt. Ltd. has no relevance to the facts of the present case. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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