9911796707
TMI Blog2015 (2) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... quoting Microland's purchase orders. In the invoices so issued, M/s Compaq, Singapore described the goods supplied as computer parts and peripherals with specific reference to respective model nos. and complete assembly nos. of the computers ordered by M/s Microland Ltd. From the statements of the various officials of the appellant firm, it is clear that M/s. EPL and other Tandon Group of Companies imported complete computer systems without having any licence for the same thereby violation the EXIM policy. They did not have any manufacturing facility for manufacture of computers from the parts and components and the oly activity undertaken by them was insertion of FDD and HDD into the system and conducting certain tests to ensure that the computer systems work properly. From the evidence unearthed by the investigation, it is clear that, as against the requirement of value addition of 20% the value addition actually achieved was only 10.8%, 6.8%, 10.25% and 6.30% during 1990-91, 1991-92, 1992-93 and 1993-94 and these figures have not been disputed at all by the appellant. It is also on record that the value addition norms were required to be fulfilled not only in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority. Since the Revenue has not come in appeal against the said order of the adjudicating authority nor agitated the matter before us, we do not go into this issue. However, the balance of duty demanded is clearly sustainable in law inasmuch as the goods have been imported by mis-declaring them as parts/components and the goods needed a licence for importation which the appellant did not have. Thus the goods are liable to confiscation under Sections 111 (d). For non-achievement of the value addition norms and selling the goods in DTA under foreign brand names, the goods become liable to confiscation under 111 (o) of the Customs Act, 1962 and we hold accordingly. Consequently the appellants are liable to penalty. As regards the penalties imposed on the various officials of the appellant-company, their role is clearly evident and they have undertaken all these activities fully knowing that they are contravening the provisions of the EXIM Policy and the Customs Notifications and, therefore, imposition of penalty on the officials of the appellants except Shri Raghavendran, who passed away during the proceedings, deserve to be upheld and we do so. Similarly, the penalty imposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Domestic Tariff Area under its DTA sale entitlement claimed against its exports made during 1989-90 1990-91 respectively. The investigation revealed that the terms conditions of the Industrial Licence as also the DTA sale entitlement were grossly violated. Foreign brand computers were imported under the guise of components and parts and sold under DTA sale entitlement. A show cause notice dated 04/10/1996 was issued in respect of the said clearances effected upto 31/03/1992 demanding customs duty and proposing confiscation of the goods. However, the said notice is not the subject matter of the present proceedings. The present proceedings relate to the subsequent clearances effected after 31/03/1992 against the DTA sale permission. 2.3 Upon scrutiny and verification of export documents, the following picture emerged. S.No. Period Exports Import of raw materials (Rs.) Interunit purchase of raw materials (Rs.) Inter unit sales (Rs.) Value addition achieved Quantity (Nos.) Value (Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealers by M/s. EPL against its DTA entitlement, detailed verification was done of the DTA related records maintained by the Tandon Group of Companies. It was found that such foreign brand computers were exclusively meant for domestic sale under DTA sale entitlement to certain select dealers, namely, M/s.Microland Ltd., M/s CMS Computes, M/s. Mini Comp Ltd., M/s. Unicorp Industries Ltd., etc. In view of this, the officers carried out simultaneous searches of the office premises of these dealers, namely, (1) M.s Unicorp Industries Ltd. on 02/12/1994, (2), M/s. Mircoland Ltd. at Fort, Bombay and its corporate office at Bangalore on 02/12/1994 and several files containing documents were taken over in the presence of Shri Anand Sudarshan, Vice President and Shri Pradeep Kar, M.D. of M/s. Microland. 2.8 Scrutiny of the seized records from the corporate office of M/s. Microland Bangalore, revealed that the said company was the delaer/distributor of M/s. Compaq Computer Asia Pte. Ltd., Singapore for selling their computer systems in India. It was also revealed that the Compaq brand computers marketed/sold by them were found to have been imported by EPZ units, mostly by M/s. EPL, who in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Ashok Radhakrishnan of M/s. Microland and sometime by Shri Anand Sudarshan with M/s. Compaq, Singapore and also with M/s EPL particularly with Shri Raghavendran and Shri Navin Kulkarni. 2.10 On scrutiny of the bills of entry with the respective invoices, it was found that the computer systems covered by the bills of entry and invoices were by and large described in the common configuration of mother Board, Casing, Power Supply, etc. The rest of the items namely, Key Board, Monitors, Mouse etc., were declared in the invoice and bills of entry as components of computer systems. 2.11 In his statement dated 05/05/1995, Shri Anand Sudarshan, Vice President of M/s. Microland had, inter alia, admitted that in 1992 M/s Microland was appointed dealers for Compaq Asia Pte. Ltd., Singapore and that their procurement of Compaq computers commenced around September/October, 1992. On a query as to why the complete computer systems for which orders were placed on M/s Compaq were needed to be SKDies and Proforma Invoices raised, he admitted that this was being done in view of the agreement between M/s. Compaq and M/s. Tandon so that DTA benefits would enable Compaq to exploit the market on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity test. Shri M.L. tendon, Chairman of tendon group of Companies, SEEPZ, in his statements dated 29/11/1994 and 05/12/1994, while corroborating the statement of Sri. Raghavendran, averred that earlier they had purchased computer kits of the following brands, namely, Compaq, ACER and a few unknown brands. 3. After completion of necessary investigation, a show cause notice dated 27/03/1997 was issued to M/s. EPL and others under Section 124 read with Section 28 of the Customs Act, 1962 by the Commissioner of Customs (Preventive), Mumbai answerable to the Commissioner of Customs, Sahar Airport, Mumbai, alleging contravention of the terms conditions of LOP/LOL, contravention of various provisions of the Export-Import Policy as also the various conditions of the exemption notifications. The said notice sought to confiscate foreign brand complete computer systems, peripherals of an aggregate CIF value of ₹ 9,68,81,852/- and of an aggregate FOB ex-SEEPZ value of ₹ 11,60,74,628/- sold under DTA and 21 nos of foreign brand computer systems of a value of ₹ 13,25,197/- which were laying in the SEEPZ premises under Section 111 (d), 111(o) 111 (m) of the Customs Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was exempted from duty at the time of import and not on the value at which the goods were sold to DTA; (2) the foreign brand computer systems of an aggregate value of ₹ 9,68,81,852/- at the time of import and subsequently sold in DTA and local/Tandon brand computer systems of an aggregate CIF Value of ₹ 1,19,02,183/- at the time of import and subsequently sold in DTA were liable to confiscation under Section 111(d) (o) of the Customs Act, 1962. (3) confiscated 21 nos. of foreign brand computer systems valued at ₹ 13,25,197/- seized from the SEEPZ premises under Section 111(d) (o) of the Customs Act with an option to redeem the same on payment of a fine of ₹ 50,000/- (4) confirmed the duty demand of ₹ 11,48,66,320/- payable on the goods of CIF Value of ₹ 10,87,84,034/- (as against the demand of ₹ 13,62,09,753/- proposed inthe notice) in terms of Section 28 read with the provisions of the Bonds executed in terms of Notification No. 227/79-Cus dated 30/11/1979 and 134/94-Cus dated 22/06/1994. However, the Commissioner gave setoff of ₹ 6,40,75,434/- paid as central excise duty by EPL on account of sale in the DTA against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of imported inputs can be raised to the extent used in DTA production and sales. If at all, customs duty can be demanded on imported capital goods and imported inputs used in export production sales. If at all, excise duty on finished product at full rate can be demanded under Notification NO. 97/91-CE dated 07/10/1991. 5(b) Prior to 1982, the FTZ Scheme formulated by the Ministry of Commerce required the units to export 100% of its production. The scheme did not permit any DTA sales at all. There was amendment in Export-Import Policy in 1982-83 which permitted units in FTZ to self 25% of their total production in DTA subject to the sale being made to persons holding valid import licence and subject to obtaining the requisite permission from the Development Commissioner. Consequential amendments were made was to Section 3(1) of the Central Excises and Salt Act, 1944 providing for levy and collection of excise duty on any excisable goods produced or manufactured in a free trade zone and brought to any other place in India at a rate equal to the aggregate of the duties of customs which would be leviable under Section 12 of the Customs Act, 1962 on like goods produced or manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not leviable on the goods produced in a free trade zone and cleared to the domestic tariff area. The basic excise duty leviable under Section 3 on the goods produced in a free trade zone and brought to any place outside the zone in India will be equal to the duties of customs (i.e. basic customs duty, auxiliary customs duty, cess, additional (customs) duty and any other customs duty as and when imposed) leviable on like goods produced or manufactured outside India if imported into India. The valuation of such goods will also be done with reference to the valuation provisions under the Customs law and not under Section 4 of the Central Excises and Salt Act, 1944. Having collected Customs duties on the finished goods in the garb and name of excise duties, it would be inequitable and unfair to levy Customs duty on imported inputs. Levy of Customs duty on imported goods used for DTA production sale would amount to double taxation. 5(c) Notification No. 227/79-Cus was amended on 21/06/1983 by Notification NO. 183/83-Cus permitting clearance of the goods in the DTA by inserting para 1A which reads as follows 1A. Notwithstanding anything contained in this notification, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act, 1982, 5(d) The expression under and in accordance with the Export-Import Policy 1983-84 used in Para 1A does not refer to achieving any value addition. It refers to obtaining of licence by the DTA customer, obtaining of DTA permission by the FTZ unit, tendering the same for debit by Development Commissioner for payment of excise duty as assessed by the proper officer. This is clear from para 2 3 of the Circular dated 17/02/1983 and Rule 100D Rule 100E of the erstwhile Central Excise Rules, 1944. In April, 1982, when amendments were made to permit DTA sales, full custom duties was payable on finished goods sold to DTA albeit in the name of the excise duty. If value addition is not achieved and if customs duty in demanded on imported inputs used for DTA sales, there would be an anomaly. Maybe, customs duty can be demanded on imported capital goods and imported inputs/components used for export production sales, but never on inputs used for DTA production sales. At that time, there were notifications like Notification No.97/91-CE dated 2507/1991 or 2/95-CE saying that DTA sales will pay excise duty at 50% of customs duty. It is therefore clear that under an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85 - March 1988, notified by the Government of India in the Ministry of Commerce Public Notice No. 1-ITC(PN)/85-88, dated 12 th April, 1985 (hereinafter in this notification referred to as the said import Export Policy), as amended from time to time. Thus condition (4) requires the importer to execute a bond and execution of bond is fulfilment of condition 4. So long as the appellants execute the bond, the condition is fulfilled. Subsequent, alleged non-achieving of export obligation etc. is not non-fulfillment or breach of condition 4. 5(f) In Union of India vs. Rai Bahadur Shreeram Durga Prasad - 1969 (1) SCC 91, the Supreme Court held that furnishing of a declaration is compliance with Section 12(1) of the Foreign Exchange Regulation Act, 1947 and incorrectness of the declaration does not amount non-fulfillment or breach of Section 12(1) of FERA. Same view was taken in Becker Gray vs. UOI - 1970 (1) SCC 352. The decision of Supreme Court in Rai Bahadur (supra) was followed by MP high Court in the case of Universal Cables - 1977 (1) ELT J 92 (MP). IN that case, Revenue contended that price mentioned in the Price List filed by the assessee under Rule 173C was false inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xported out of India, are allowed to be cleared outside the Zone under and in accordance with the Export-Import Policy and subject to such other limitations and conditions as may be specified in this behalf by the Development Commissioner of the Zone, on payment of duty of excise leviable thereon under section 3 of the Central Excises and Salt Act, 1944 (1 of 1944) or where such articles (including rejects, waste and scrap material) are not excisable, on payment of customs duty on the said goods used for the purpose of production, manufacture, processing or packaging of such articles in an amount equal to the customs duty leviable on such articles as if imported as such : After the aforesaid amendment to condition (3), it has been provided that the FTZ unit is required to execute a bond binding to fulfil the conditions stipulated in this Notification and in Export Import Policy and on failure to pay duty an amount equal to duty leviable on the goods along with interest. Condition 3 (iv) of amended Notification reads as under: (iv) in the case of raw materials, components, spares and consumables (other than capital goods) imported or produced duty free, the unit fails to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D WHEREAS a condition of the licence granted to the Unit, the Government has stipulated that the Unit must earn foreign exchange by exporting 100% of the production of the export product, namely, ______________ for a period of ______________ years beginning from the first day after completion of gestation period allowed by the Government (hereinafter referred to as the prescribed date) after allowing rejects upto __________ percentage The format of LUT executed under FTP remained same till March 1995. Relevant portion of Form of LUT reads as: AND WHEREAS a condition of the licence granted to the Unit, the Government has stipulated that the Unit must earn Foreign Exchange by exporting 100% of the production of the export product, namely, ______________ for a period of ______________ years beginning from the first day after completion of gestation period allowed by the Government (hereinafter referred to as the prescribed date) after allowing rejects upto __________ percentage . Post March 1995, the format of LUT to be executed by EOU units mentions that the unit must earn minimum foreign exchange by exporting the entire production (including the sales in the DTA as may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Development Commissioner. The Tribunal held that the permission given by the Development Commissioner to clear the goods in DTA was final and the same was binding. The departmental filed before the Supreme Court was dismissed as reported in 2007 (215) ELT A 102 (SC). 5(j) The impugned Order-in-Original has confirmed the differential duty demand by invoking bond executed by the Appellants. The show cause notice, however, proposed to demand differential duty by denying the exemption under Notification No. 227/79-Cus dated 13/11/1979 133/94-Cus dated 22/06/1994 in terms of the proviso to Section 28 of the Customs Act, 1962. The Show Cause Notice does not invoke the bond executed by the Appellants for demanding the duty. Therefore, the Commissioner of Customs in his impugned Order-in-Original has travelled beyond the show cause notice. It is settled that the adjudicating authority cannot travel beyond the show cause notice. Reliance is placed on the following decisions: (i) CC Vs. Toyo Engineering India - 2006 (201) ELT 513 (SC) (ii) CCE Vs. Ballarpur Industries - 2007 (215) 489 (SC). In view of above, the impugned order, to the extent it purports to confirm the demand of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raw material required for the manufacture of the resultant product. In that case, the department sought to sustain the demand in terms of B-17 Bond executed by the assessee-EOU. This decision has been affirmed by the Supreme Court in CC Vs. Indian Metals Ferro Alloys - 2002 (144) ELT A 105 (SC). 5 (l) It is submitted that Rule 2(a) applies for determination of classification. It does not apply for deciding the applicability of an exemption Notification. Therefore, denial of exemption by impugned order is by applicability of Rule 2(a) incorrect. These notifications apply to raw materials, components etc., falling under any chapter of the Customs tariff. Even if the imported goods are classified as computer system for the purpose of tariff, what was imported in fact was heap of components, these are duly covered by the exemption notifications. Reliance is also placed on the following decision Circular: (a) Modi Xerox Ltd Vs. CC - 1998 (103) ELT 619 (Tri) Affirmed at 2001 (133) ELT A91 (SC) 17. ..It is noticed that Rule 1 of the general rules is of general application providing that for legal purposes classification shall be determined according to the terms of the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Conference. Accordingly, it is clarified that the goods have to be classified in the form as presented and rule 2 (a) of the GIR cannot be applied for the sake of allowing/disallowing the benefit of a notification, unless the exemption notification is based on classification of the item under a particular heading of the Customs Tariff. For the purpose of classification, Rule 2(a) of the General Rules of Interpretation could be applied. Assembly of Computer from parts / sub-assembling amounts to manufacture even if parts /sub-assembling are treated as complete goods by virtue of Rule 2(a). The goods imported since goods imported in SKD condition are complete computer system in itself, is incorrect. The SCN as well as impugned Order alleges that the Appellants have imported complete computer system by virtue of Rule 2(a). According to the department, therefore, the imported goods are classifiable as computer and not as parts components of a computer in terms of Rule 2(a) of General Rules of Interpretation. Therefore, a conclusion has been drawn that no manufacturing activity can be undertaken on computer system imported in SKD condition as it is complete computer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of FTZ. In view of above, during the period under consideration, Collector Customs (Preventive) was not appointed as Collector or Commissioner or any Central Excise Officer under Central Excise Act. Therefore, the Order is without jurisdiction bad in law. 5(o) Decisions relied upon by the Revenue at time of hearing is not applicable to the facts of the present case. In those decisions, demand of customs for non-achievement of value additions where on imported inputs used for export and not on inputs used for DTA production Sales. However, in the instant case, demand is on imported inputs used in DTA production sales. 5(p) On behalf of Microland and its officials, the following submissions were made. During the period of dispute, Microland Ltd. was acting as an authorized distributor of Compaq brand computers in India. The others are officials/employees of Microland Ltd. In the impugned order, the Commissioner has held that the appellants were knowingly concerned in import of Compaq brand computer systems through EPZ Unit thereby rendering the goods imported by M/s Eastern Peripherals Ltd liable to confiscation under Section 111(d) 111 (o) of the Customs Act, 1962 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for mis-declaration of description or value of the imported goods. None of the appellants are concerned with the import and cannot comment upon the so called mis-declaration. The appellants further submit that the provisions of Section 111 (o) are not attracted in this case as the imported goods have been taken into the EPZ unit and cleared thereafter, only after subjecting the goods to certain processes. As far as the appellants are concerned, it is not their business to know whether the goods in question were correctly imported by the EPZ Units, as long as the appellants can show that they have received the goods under the cover of valid duty documents from the EPZ units. The department has also not shown as to how the provisions of Section 111(o) have been contravened by the appellants. No specific allegations have been made against the appellants for contravention of Section 111(o). Further, no documentary evidence is brought on record to show that the appellants have acquired any goods which were subjected to any post importation condition or prohibition. If the allegation against the appellant is that they have acquired goods, which were subjected to any post importation co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Z Units for manufacture of finished goods for export. This notification was also subject to various other conditions to be fulfilled by the importer after importation. However, M/s. EPL had failed to fulfil the conditions of the notifications. 6(4) In the present case, undisputedly M/s. EPL had imported full Computer Systems in the guise of parts components after detaching or dismantling of floppy disk drive and hard disk drive from the Systems and in this endeavour, M/s. EPL was duly assisted by M/s. Microland and M/s. Compaq Asia Pte. Ltd., Singapore. Therefore, at the threshold, M/s. EPL was not eligible for duty free import under the notifications. 6(5) Even otherwise, M/s. EPL was not eligible for duty free import under the notifications inasmuch as it had neither fulfilled its export obligation nor it had achieved the minimum value addition in respect of export of the Computer Systems in terms of provisions of paras 97 and 119 read with the provisions of para 102 of the Export-Import Policy, 1992-97. Even the Systems exported by it were not in the nature of complete Computer Systems. Majority of the Systems were in the nature of Top Assemblies only. Not only this, eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the DTA sale facility by paying concessional rate of duty as per Notification No. 97/91-CE dated 07/10/1991 and Notification No. 101/93-CE dated 27/12/1993. The notification 101/93-CE exempts excisable goods produced or manufactured in EPZ from so much of duty of excise leviable thereon under Section 3 of the Central Excise Act, 1944 as in excess of the amount calculated at 50% of each of the duties of Customs which would be leviable under Section12 of the Customs Act, 1962. Thus the exemption under Notification 101/93-CE is applicable only if the goods are manufactured in the SEEPZ. Since these complete Computer Systems were not manufactured in SEEPZ, this notification will not be applicable. Since the goods were cleared without fulfilling the value addition norms as laid down in the Import Policy, normal Customs duty would be leviable n these goods as if they had been imported outside the SEEPZ. 6(9) It was contended on behalf of M/s. EPL that while Show cause notice has demanded duty under Section 28 of the Customs Act, 1962, in the impugned order, the Commissioner has confirmed the same under Section 28 read with the bonds executed by M/s. EPL at the time of import. Hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and in the Import-Export Policy. Admittedly, the appellant M/s. EPL failed to do so. Consequently, the benefit of exemptions under the notifications was not available to it. 6(12) At the relevant time, Computer System was a restricted item of import which required an Import Licence. Since the full Computer Systems, though in dismantled condition, were imported in violation of the licensing restrictions, the same became liable for confiscation under Section 111(d) of the Customs Act, 1962. This apart, M/s. EPL failed to fulfill the post importation conditions, namely, to achieve the minimum value addition in export and failed to fulfil its export obligation, thereby attracting the provisions of Section 111 (o) of the said Act. Further, full Computer Systems were improted in dismantled condition by mis-declaring the same as parts and components of Computer Systems. Consequently, the goods became also liable for confiscation under Section 111 (m) of the said Act. Therefore, the impugned order holding the goods liable to confiscation under Section 111 (d), (m) (o) of the Customs Act, 1962 is correct in law. 6(13) In respect of 21 Nos. of foreign brand Computer systems seized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Customs (Prev.), amongst others, are retrospectively recognized as proper officers for the purpose of Sections 17 28 of the Customs Act, 1962. This has also been clarified by the Board vide its Circular No. 44/2011-Cus dated 23/9/2011. 6(19) In view of the foregoing, the appeals filed by the appellants have no merit. The same deserve to be dismissed and it is prayed accordingly. 7. We have carefully considered the rival submissions. Our findings and conclusions are discussed in the ensuing paragraphs. 7.1 One of the appellants, Sri. V. Raghavendran, passed away during the pendency of the proceedings. Therefore, the penal proceeding against him abates. 7.2 The ld. counsel for the appellant has raised a preliminary objection that since Collector of Customs (Preventive) has not been appointed as a Central Excise Officer, the impugned order is bad in law. We do not find any merit in this argument for the reason that the show cause notice and the impugned order seeks to demand customs duty in respect of the parts and components imported by the appellant under the provisions of Section 28 of the Customs Act. The said section was amended vide Customs Amendment and Valid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e obligations stipulated in the letter of approval/intent, it was liable to penalty in terms of the bond/legal undertaking or under any other law for the time being in force. (d) Para 102 governed DTA sales and sub-para (b) provided that 25% of the production in value terms may be sold in the DTA. DTA sale shall be subject to fulfilment of minimum value addition. (e) Para 119 governed value addition and the formula, prescribed for computing value addition was - VA = [(A-B)/A x 100 where VA is value addition, A is the fob value of exports realised by the unit, B is the sum total of the CIF value of all imported inputs, the value of all payments made in foreign exchange by way of commission, royalty, fees or any other charges and the value of all indigenous inputs purchased by the unit. Inputs mean raw materials, intermediates, components, consumables, parts and packing materials. (f) Para 94 governing importability permitted import of all types of goods by the EOU/EPZ unit provided they are not prohibited items in the negative list of imports. The negative list of imports (Chapter XV of the policy) consisted of two parts - Part I covering Prohibited Items and Part II cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4 From the policy provisions enumerated above, the following picture emerges. A unit in EPZ could undertake manufacturing activity in respect of permitted products subject to 100% export of the goods manufactured subject to achieving a minimum value addition of 20% in terms of para 97 of the Exim policy 1992-97. The said EPZ unit could also undertake DTA sales upto 25% of its production in value terms subject to fulfilment of minimum value addition (of 20%) in terms of para 102(b) of the said EXIM policy. Para 162 and 163 of the Handbook of Procedures also provided that the LOP/LOI shall specify the items of manufacture, annual capacity, percentage of value addition to be achieved, limitation regarding sale of finished goods etc and also subject to such conditions as may be required. In terms of para 98, the unit was required to execute bond/undertaking with the Development Commissioner concerned for fulfilment of the export obligation, failing which the unit will be liable to penalty under the bond/undertaking so executed. The bond/undertaking so executed also provided for payment of customs duty on the imported capital goods and equipment, raw materials, components and consumabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d annexure to foreign collaboration, it was stipulated in para 4 that for undertaking the export obligation specified in the approval letter, the requisite guarantee, i.e., legal undertaking/bank guarantee should be furnished as may be required. In para 12 of the said annexure, it was further stipulated that foreign brand names will not be allowed for use on the products for internal sales although there is no objection to their use on products to be exported. 7.6. The appellant EPL applied for DTA sales permission vide letter No. YBS:EPL:368:91 dated 1991 for April, 1990 to March 1991, based on their production and exports during 01/04/1990 to 31/03/1991 and vide letter No. DTA:Sale: 20:85/7864 dated 10/12-9-91, permission was inter alia granted for DTA sale of 7237 nos. of computer systems for a value of ₹ 8,28,20,228/- by the office of the Development Commissioner. There was a condition stipulated in the said permission letter that Actual sale will be permitted if the acceptable level of value addition has been achieved . Vide letter dated 03/04/1992, the appellant sought for extension of the said permission for the period April, 1992 to March, 93 also and vide lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 30-11-79 as amended for the period prior to 22-6-94 and 133/94-Cus dated 22-6-94 as amended with effect from 22-694. Both these notifications provided exemption to goods specified in the annexure thereto and the coverage is more or less identical except that 133/94 - Cus included captive power plants also within the scope of exemption. Otherwise, as far as the present appeals are concerned, the goods exempted included, machinery, raw materials, components, spare parts of machinery and consumables. The exemption under notification 227/79-cus was subject to the condition that the importer had been authorised to establish a manufacturing unit in the EPZ, had the necessary licence for the import of the goods and the goods imported will be used in connection with the manufacture or packaging of electronic goods for export out of India or with the promotion of such exports of electronic goods. The notification also stipulated an additional condition which read as follows:- 4. The importer agrees to execute a bond in such form and for such sum as has been prescribed by the Development Commissioner of the Zone binding himself to fulfil the export obligations, and to fulfil, interal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m as parts and components of computers so as to avail ineligible duty exemption under notification 227/79-cus and 133/94-Cus. This was also done to circumvent ITC restrictions as import of computer systems required an import licence. This charge is based on the evidence that M/s Microland Ltd., Bnagalore were dealers/distributors of M/s Compaq Computer Asia Pte. Ltd., Singapore and Compaq brand computers marketed by them were found to have been imported by EPZ units, mostly by M/s EPL, who in turn sold these computer systems under its DTA sales entitlement. Evidences available on record revealed that M/s Microland Ltd. had placed orders directly on Compaq Asia, Singapore for complete computer systems of various Compaq brand models with instructions to bill and ship the said goods to M/s EPL, SEEPZ; Mumbai. Against the purchase orders of Microland, M/s Compaq, Singapore issued invoices to EPZ units quoting Microland's purchase orders. In the invoices so issued, M/s Compaq, Singapore described the goods supplied as computer parts and peripherals with specific reference to respective model nos. and complete assembly nos. of the computers ordered by M/s Microland Ltd. The above mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... By who By when 1 Tandon's meeting with Compaq Went off well To confirm details of SKDs, commercial and legal details of MOU. (Tandon's personnel may have to go to Singapore for finalisation) Compaq 12-Jun-92 3 Training for Tandon Required for assembly and quality control. Tandon willing to sign non-disclosure agreement Tandon's technical personnel will need to go to Compaq for technical certification training, preferable along with Microland team Compaq 02 Jun 92 4 Conversion of assembled systems to SKDs Tandon has indicated likely companies in Singapore. These companies are likely to charge 10% for their services. To tie up with one company To ensure that certificate of origin can be obtained from the Chamber of Commerce, Singapore Compaq 12-Jun-92 12-Jun-92 5 Costing Premium will be 50% for all co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the instructions in Annexure No.2. 3) Part No. (Spare no.) has to be mentioned on the wrapper bag of the materials/parts by way of sticker. No mis-match in the Part Number or description is acceptable to the Customs (India) at the time of clearance. 4) Documentation has to be prepared as per the instructions in Annexure No.1. 5)....... 6) ....... 7) For all the future shipments the same procedure has to followed by the exporter. ....... Annexure No.2 Packing Procedure A) After breaking down the systems in SKD, all the parts/asslys. are to be packed individually in an anti-static bag, by putting a sticker of the description and the P/No. on it. B) Pack up all the packed parts in one corrugated box. ....... (D) The next document is RUD 67 (iii) which is a letter dated 16 th July, 1992 from N.B. Durka of M/s EPL to M/s Microland, Bangalore. The relevant portion from the said letter are extracted below:- Sub:- Your purchase order for Compaq Systems Thank you for your above mentioned letter for your requirement of Compaq systems and spared by Mid August ....... We would like to have the following information from you. 1) The numbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of fax message dated 22 nd August, 92 from M/s Microland and after final discussions with M/s Srikant Rao and K.P. Nair on 10 th September, 92 at our office. 2) You are hereby requested to refer the said fax dated 22 nd August, 92 for model Deskpro 486/33M-M340. ....... 4) Further we would like to mention here that the orders are placed by us, are properly discussed and mutually agreed by M/s Eastern Peripherals Ltd. and M/s Microland. (H) RUD 69(1) is fax message dated 10-2-1993 from Navin S. Kulkarni of EPL to P.S. Raju of Compaq Asia, Singapore regarding proforma invoices for lot No. VII pointing out certain discrepancies. The portion which is relevant to the facts of the case before us is extracted below:- Also, understand from Srikant that the Prolinea prices indicated do not take into consideration the discounts agreed to between Compaq and Microland (8.5%) Request you to kindly resend proforma invoices taking into account the above points (including the 8.5% discount for Prolinea Systems). We await your fax today in order to enable us to send you the purchase orders. Please note that in order to meet Microland's delivery requirements, we would need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Eastern Peripherals Ltd. (EPL), it is seen that the said company had no facility for manufacture of computers as they had no plant and machinery and other infrastructure and only certain testing equipments were available. He has further admitted that he was assembling Compaq and Acer and other models of computers from parts imported in SKD condition and it took only 30 minutes to check assemblies such as FDD, HDD, motherboard for physical damage and actual insertions of these cards and components took only about 10-15 minutes. (d) Shri Navin S. Kulkarni, who was working as Executive Manager of Tandon Group of Companies, in his statement recorded under Section 108 of the Customs Act, has admitted that they have been procuring computers from Compaq Computers Asia Pvt. Ltd., Singapore; M/s Acer Sales and Distribution, Taiwan; M/s Golden Systems Inc., USA; and other computer manufacturers and what they were getting was full computers and their documents. These were shown as parts and peripherals and in the invoices/purchase orders raised for computers they were described as parts as instructed by his boss, Mr. Raghavendran. He has also admitted that the description of the compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve systems and thereafter, systems were subjected to reliability and operational capability tests. He has also admitted to the fact that EPL and UTD were not authorised or appointed as manufacturers/distributors for Compaq brand computers in India. (g) Shri M.L. Tandon, Chairman of the Tandon Group of Companies has also corroborated the above position and has stated that they had imported computer systems where they were required to do the assembly of only Winchester Drive/Floppy Drives into the respective systems which would be subjected to certain minor processes and on such systems they added the required valued addition and paid duty as per the Policy. 7.10 From the statements of the various officials of the appellant firm, it is clear that M/s. EPL and other Tandon Group of Companies imported complete computer systems without having any licence for the same thereby violation the EXIM policy. They did not have any manufacturing facility for manufacture of computers from the parts and components and the oly activity undertaken by them was insertion of FDD and HDD into the system and conducting certain tests to ensure that the computer systems work properly. 7.11 From th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay to the Government the amount of duty foregone on the plant and machinery, raw materials, components and consumables allowed to be imported in terms of the licence granted under the EXIM Policy. Further, the bond also mandated payment of interest @ 18% on the duty payable and provided that recovery of duty along with interest has to be made in terms of Section 142 of the Customs Act, 1962 or Section 11 of the Central Excise Act. Therefore, to equate the bond executed with the declaration is an assault on the common sense and amounts to absurdity. It would also imply that execution of bond was a mere formality and the same is not binding on the importer. Such an interpretation of law would be a mockery of the EXIM policy provisions and the provisions of the Customs Notifications. The law cannot be interpreted in such a way so as to defeat the objects and purposes of the policy and the terms and conditions of exemption. Therefore, the contentions in this regard made by the appellants in this regard have to be rejected in toto. 7.14 It has also been argued that the show cause notice does not invoke the provisions of the bond executed by the appellants for the demand of duty, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time has been rightly invoked for confirmation of demand of duty. In fact, from the evidence available, it is absolutely clear that the appellant hatched a conspiracy with the foreign suppliers as well as the domestic purchasers of the goods to import restricted items without having any licence and, therefore, sold the same in the DTA, the sale of which was prohibited, inasmuch as the goods sold bore the brand names of the foreign manufacturers. It is also evident that fully built computer systems were purchased which were dismantled before export of India and brought to India under the guise of parts and components. The action of the appellant is a fraud played on the exchequer. 7.15 In Commissioner of Customs vs. Candid Enterprises [2001 (130) E.L.T. 404 (S.C.)] a three Judges bench of the hon'ble apex Court held that fraud nullifies everything and when a fraud is committed, statutory benefits cannot be extended. The same position was reiterated in the case of Commissioner of Customs, Kandla vs. Essar Oil Limited [2004 (132) ELT (SC)] wherein the Apex Court was considering a situation where goods were sought to be cleared on payment of duty through cheques despite non-ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants did not have the requisite licence for import of the same. These are all admitted positions and there are no disputes whatsoever about these facts. If that be so, the appellant was certainly not entitled to claim the benefit of the exemptions under these notifications. Both the customs notifications and the EXIM policy form an integrated code and violation of the exim policy is also a violation of the condition of customs exemption and we hold accordingly. 7.17. A similar issue was considered by this Tribunal in the case of Mysore Minerals Ltd. vs. Commissioner of Central Excise, Mysore (supra) wherein the appellant therein, a 100% EoU, imported capital goods and raw materials and consumables by availing customs duty exemption. Since the appellant could not achieve the export obligation and the required value addition, duty demands were raised. In that case also, the importer therein had executed a bond binding itself to fulfil the export obligations and the condition of value addition stipulated in the EXIM policy and the customs notification. This Tribunal held that on account of failure to fulfil the export obligations, provisions of Section 111(o) of the Customs Act wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 111 and 112 of the Customs Act. The hon'ble apex court noted that the goods imported were finished goods except for certain minor items such locks, handle and other fittings and upheld the action taken by the department in denying the benefit of duty exemption and holding the goods liable to confiscation and imposing penalties. 7.20. From the aforesaid decisions, the ratio of which, in our view, apply to the facts of the present case, for violation of the terms and conditions of the EXIM Policy and for failure to fulfil the export obligations, which envisages certain value addition norms not only in respect of the goods exported but also in respect of the goods sold in DTA, the Customs authorities can initiate action both in terms of the provisions of the Notification and the Customs Act, 1962 and also under the provisions of the bond executed by the appellant at the time of the importation of the goods. In the present case, the adjudicating authority has sought to demand duty only in respect of the SKD assemblies/functional units of the computer systems sold in the DTA without achieving the necessary value addition and also for violating the provisions relating to the bran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant, the question for consideration was whether parts of fax machine could be extended the benefit of duty exemption available to complete fax machine and it was held that parts are different from complete machine and hence exemption could not be extended. In the facts of the case before us, what has been imported are not parts but complete computer systems in SKD condition and the appellants themselves have admitted that what they have ordered for and imported are complete computer systems. Thus the facts are completely different and distinguishable and hence the ratio of the said decision have no relevance to the case before us. It is a settled position in law that the ratio of a decision is applicable only if the facts are identical and if the facts are different and distinguishable, the ratio cannot be applied. There are a few other decisions relied upon by the appellant and we do not propose to specifically refer to each one of them and rebut the same for the reason that in our considered view these decisions are not relevant to the facts of the case before us and are distinguishable. On the other hand, the decisions which we have referred to and relied upon in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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