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TMI Blog2008 (9) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi, wherein the said Authority had confirmed the said differential duty demand of ₹ 42,89,75,196/- under the Proviso to Section 28(1) of the Customs Act, 1962 (hereinafter referred to as the Act ). The penalty was also imposed amounting to ₹ 30,19,92,183/- under Section 112(a) read with Section 114(a) with interest under Section 28 AB of the Act. By the order of the Commissioner, the import of several parts of Colour Television (hereinafter called CTV for short) made by the appellant for the period from April 1995 to 1997 were treated as import of complete CTV Sets for the purpose of assessment by the Commissioner. 2. Initially, there was difference of opinion amongst the two Learned Members of the Tribunal on the application of Rule 2(a) of the General Rules for Interpretation under First Schedule of Import Tariff, on the basis of which the order-in-original was passed. Accordingly, the following questions were referred to the larger Bench of the Tribunal:- Whether the goods in question are components and cannot be treated as complete colour Television sets and hence the duty demand, confiscation of penalty are unsustainable as held by Ld. Member (J.)? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required for 1500 CTVs. The list consists of 100 such components and it was the assertion on the part of the Revenue that all these components were nothing, but 1500 CTVs, for which the order was placed on 27.11.1994. There are some other assertions regarding some other items, which were once used, but discontinued to be used, probably with an idea to show that the components mentioned in the list were nothing, but 1500 CTVs. It was, however, clarified that the items at S.Nos. 93, 94, 95, 97 and 98 could not be considered to be the components or parts of CTVs. The assertion in the Show Cause Notice, therefore, is that though the respondent was importing the CKD Kits of CTVs for their assembly in India, which attracted higher customs duty, the said imports were being shown as the imports of the components of the CTVs, attracting lesser customs duty and as such, the respondent was liable to pay not only the differential duty, but also the penalties on account of the clandestine imports. A reference was also made in paragraph 8 of the Show Cause Notice to Rule 2(a) of the General Rules for the Interpretation of the First Schedule to the Customs Tariff Act, 1975 and it was conveyed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of the Revenue that these were not merely the components, but amounted to the import of CKD Kits of CTVs. Shri Lakshmi Kumaran also seriously disputed the interpretation, put forward by the Revenue on Rule 2(a) and asserted that Rule 2(a) was not even applicable in the present case. We were taken through number of entries and the notes by the learned counsel. He also relied on number of decisions of this Court, as also the High Courts and finally submitted that the decision in Phoenix International Ltd. Case (cited supra) was not applicable to the facts of the present case, as the said decision turned on its own facts, peculiar to that case. It is on this backdrop that we have to consider the questions involved. 6. The Learned ASG opened up his arguments by a proposition that the issue involved in the present Appeal is covered fully by the judgment of this court in Phoenix International Ltd. Case (cited supra). We would first consider as to whether all the issues are closed in favour of the Revenue in that judgment. This was the case, where various parts of the shoes, namely shoe uppers, outer soles, insoles and sock liners were imported by M/s. Phoenix Industries Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c import license. The Court further noted that in the Show Cause Notice, it was further alleged that the PIL had resorted to the above subterfuge by importing the uppers of Reebok shoes in their own name and the remaining three components in the name of PIND in order to bypass restriction imposed by Para 156(A) of Exim Policy. The Court also noted that the Department had alleged in the Show Cause Notice that a loan of ₹ 11.7 crores was advanced by PIL to PIND which was interest free loan during the year ending 31.3.1995 and a loan of ₹ 7.7 crores was also advanced to the same company, which was also interest free during the financial year ending 31.3.1994. The Court noted that it was under these circumstances it was alleged that the good imported were not parts or the components, but, were SKD goods, liable to be assessed as complete finished goods under Tariff Sub-heading 6404.19 of the First Schedule of the Customs Tariff Act, 1975 and was liable to the higher duty ad valorem and countervailing duty at 15% ad valorem. The Court further referred to the replies sent by PIND and PIL and came to the conclusion that in that case, the intention would play important role, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry fairly admitted by the Ld. ASG that the parts imported could be independently utilized or sold in the open market, which was not the case with the parts involved in Phoenix International Ltd. Case (cited supra). The Ld. ASG also very fairly admitted that there was a specific fraud alleged and proved on the basis of which the Court came to the conclusion that this was nothing, but a device to deceive the Revenue. We cannot also ignore the factual panorama in Phoenix International Ltd. Case (cited supra) where all the parts imported both by PIL and PIND came in one and the same container on one and the same day, which was not the case here, as the parts in the present case came during 22 months on different dates in 94 consignments. A feeble attempt was tried to be made by the Ld. ASG to suggest that all these imports were based on a single order dated 27.11.1994, in which the figure of 1500 is found to be ordered. However, it was pointed out by Mr. V. Lakshmi Kumaran that in the present case, there is no specific finding that all the parts imported could manufacture 1500 CTVs. It was also pointed out by the Ld. Counsel for the respondent that much more number of CTVs were manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... freely importable in India. The respondent obviously used Sony Singapore as their indenting agent because Sony Singapore had a close proximity with the approved vendors of Sony Corporation situated in countries like Japan, Taiwan, Thailand, Indonesia, Malaysia, China etc. All these vendors supplied the components on the basis of Minimum Order Quantity (MOQ) for the optimum utilization of containers, as also for the reduction in the transport costs, standardizing the manufacture and dispatch procedures. The advanced licenses were issued by the Director General of Foreign Trade (DGFT) for import of components duty free by availing the benefit of notification 79/65-Cus dt. 31.3.1995. A Duty Entitlement Exemption Certificate (DEEC) passbook was also maintained and it was on this basis that over a period of 22 months, 94 Bills of entry were filed for importing the various components, concerning the present case. 8B. The components were assessed under different tariff headings by applying Section Note 2 to Section XVI. It is an admitted position that the PCBs which were in the restricted list, were further processed to convert them into Motherboard, which was to be used in the assembl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mported were sourced from different countries and the imported components were not in CKD form, at least prior to 25.3.1996. 9. It is then only due to Rule 2(a) that these components are being treated as the CTVs and that is the main plank of the argument of Mr. kas Singh, Ld. ASG. We would, therefore, consider the implication of Rule 2 (a). Rule 2(a) is as under:- Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provide that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or dis- assembled. The Ld. ASG, therefore, suggests that the articles though were not the CTVs in CKD form and were incomplete or unfinished ones, they had the essential character of complete or finished CTVs and applying this Rule, every such component, would have to be taken as an import of CTV. The Ld. ASG heavily relied on the second part of the Rule, starting from words It was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the present case. 11. Again the meaning of terms as presented in Rule 2(a) would clearly imply that the same refers to presentation of the incomplete or unfinished or unassembled or dis-assambled articles to the customs for assessment and classification purpose. It is also a settled position in law that the goods would have to be assessed in the form in which they are imported and presented to the customs and not on the basis of the finished goods manufactured after subjecting them to some process after the import is made. In the reported decision in Vareli Weaves Pvt. Ltd. v. Union of India [1996 (83) ELT 255 (SC)] the question was as to whether the countervailing duty was liable to be left on the imports made by the assessee at a stage they would reach subsequent to their import after undergoing a process. It was contended that such goods could be subjected to duty only in the State in which they were imported. It was held that the countervailing duty must be levied on goods in the State in which they are when they are imported. This was on the basis of Section 3 of the Customs Tariff Act. Though there is no reference to Rule 2(a), in our opinion, the same Rule should a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the mere fact that the goods imported by them were so complete that when put together would make them motor-cycles and scooters in CKD condition, would not amount to a breach of the licence or of Entry 295. Were that to be so, the position would be anomalous as aptly described by the High Court. Suppose that an importer were to import equal number of various parts from different countries under different indents and at different times, and the goods were to reach here in different consignments and on different dates instead of two consignments from the same country as in the present case. If the contention urged before us were to be correct, the Collector can treat them together and say that they would constitute motor-cycles and scooters in CKD condition. Such an approach would mean that there is in Entry 295 a limitation against importation of all parts and accessories of motor-cycles and scooters. Under that contention, even if the importer had sold away the first consignment or part of it, it would still b e possible for the Collector to say that had the importer desired it was possible for him to assemble all the parts and make motor-cycles and scooters in CKD co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that HSN Explanatory Notes should be referred to for understanding the true scope and meaning of expressions used in the Customs Tariff. He further points out that the Revenue did not dispute the fact that complicated processing of imported parts had to be done before they could be fit in the assembly of CTVs. Shri Vikas Singh, learned ASG also did not dispute this fact during the debate before us that a complicated process had to be exercised before these components could be brought in use for CTVs. There is also a specific finding by the Tribunal on this issue. In that view since the concerned Explanatory Note was applicable, there would be no question of treating these notes to be in unassembled or disassembled condition since a complicated process had to be exercised and then before it could be used for the assembly of the CTVs. Ofcourse this Explanatory Note was further amended by adding the words no account is to be taken in that regard of the complexity of the assembly method. However, the components would not be subjected to any further working operation for completion into the finished stage . It is an admitted position that this amendment was not there and therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable on the components was more. The Tribunal came to the conclusion that in view of Section Note 2 to Section XVI Rule 2(a) would not apply and confirmed the import of goods as components. While interpreting Explanatory Note to Rule 2(a), the Tribunal had held that this Rule would apply only when the imported articles presented in unassembled or disassembled can be put together by means of simple fixing device or riveting or welding. It came to the conclusion that fax machines were not the type of goods which were normally traded or transported in knocked down condition and therefore, the imports were that of the components and not of fax machines. Shri Lakshmikumaran also invites our attention to the fact that Chapter 64 dealing with footwear does not have a note similar to Note 2 in Section XVI. Thus this position would render support to the proposition that Rule 2(a) would apply only when the imported articles presented unassembled or disassembled can be put together by means of simple fixing device or by riveting or welding. We have already pointed out in the earlier part of our judgment that the complicated process would be required for the user of those parts. 17. 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