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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 ..... 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.)? OR Whether the issue as to the circumstances under which Rule 2 (a) of the Interpretative Rules can be applied, as to whether the benefit of Notification exempting components only will be available, if the product is considered as complete or finished article by virtue of deemed provision of Rule 2(a), and whether the change effected in Explanatory Notes of HSN will give only prospective application or it will be applicable for the earlier period also, requires to be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that any reference in a heading to an article should be taken to include a reference to that article in complete or unfinished, if the incomplete or unfinished article has the essential character of the complete or finished article. It was on this basis that the respondent was accused of misdeclaration of imported goods, as also breach of the Exim Policy. A reference in the said Show Cause Notice was made to the reply dated 20.9.1996. However, relying fully on Rule 2(a), it was as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion 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. ("PIND" for short) in the same container. It was the claim of the Revenue that they could be considered as the import of the shoe in SKD (Semi knocked down) condition. However, the importer had declared them only to be the components. It was on that basis that the matters proceeded. The Court first came to the conclusion that a synthetic shoe consists of the vital parts, namely, the synthetic shoe uppers, outer soles, insoles and sock liners. M/s Phoenix International Ltd. ("PIL" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... free loan during the year ending 31.3.1995 and a loan of Rs. 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, since it was the case of duty-evasion on imports. The Court came to the conclusion that it was clear that the entire device of bifurcation was arranged in order to bypass the restrictions imposed vide Para 156(A) of the Exim Policy and the importer had found out the device for evading the import duty. The Court further wondered as to why the three units of PIL did not import all the four items when it was in complete charge of manufacturing the said shoes. The Court, therefore, came to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 manufactured on the basis of the imports. On the backdrop of all this, we would have to conclude that the Phoenix International Ltd. Case (cited supra) must be restricted to the facts involved therein, which cannot be matched with the facts in the present case. In the Phoenix International Ltd. Case (cited supra), it was clear that the imports of the components perfectly matched with the number of shoes, which could be prepared from those imported components. There is a finding to that effect in the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 assembly line for the manufacture of CTVs. It is the case of the respondent that they manufactured CTVs at their Plant and they were cleared for home consumption on payment of excise duty and a percentage of them were also exported under bond. There is also no complaint about the indigenization and it is the case of the respondent that they cleared 52,640 and 1,26,009 units of CTVs and paid an excise duty of more than Rs. 49 crores. As promised, the respondent also made the exports and the entries to that eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ented, 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 also to be taken to new reference............." He says that every component whether it is complete or finished and which is presented in unassembled or dis-assembled condition, would have to be taken as the finished article, like CTVs in this case. In our opinion, this argument is completely illogical and again that is not the import of the language of the Rule. If the argument of the Ld. ASG has to be accepted, then we would have to concentrate only on the later part of the Rule, ignoring the first part of the Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 apply subject ofcourse to the applicability of the Rule. We have already held that the Rule is not applicable. Similar view was taken in Dunlop India and Madras Rubber Factory Ltd. v. UOI [1982 (13) ELT 1566 (SC). 12. Shri Lakshmikumaran argues on the basis of a German Court decision on which the Tribunal also relied upon. According to the learned counsel in that decision Rule 2(a) was considered and the Court took the view that the article is to be considered to be imported in unassembled or disassembled where the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 condition....." Relying on this case and referring further to the case of Girdhari Lal Bhansidhar v. Union of India [(1964) 7 SCR 62] which was distinguished in Tara Chand's case, the learned counsel also drew our attention to the judgment in Sharp Business Machines v . CCE, Bangalore [(1991) 1 SCC 154] as also the judgment of the Division Bench of the Calcutta High Court in the case of Union of India v. HCL Ltd. (unreported order). On this basis the learned counsel says that the imports made in 94 consignments could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding 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, the complexity of the assembly method would have to be taken into consideration atleast in case of the present goods since the concerned period is pre 1997 period. The Tribunal has correctly held that the HSN Explanatory Notes to Rule 2 (a) had to be applied while considering the relevant Tariff Entry. It has also correctly held after considering the whole process that the process involved in the user of the components is the complex manufacturing process during which many components are subjected to working operation requiring s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. Lastly, we must take stock of the argument of Shri Lakshmikumaran that Section Interpretative Rule 2(a) would not be applicable at all in this case. For this he invited our attention to Rule 1 of Interpretative Rules as also to the decision in Simplex Mills v. Union of India [2005 (181) ELT 345 (SC)] wherein this Court had held in para 11 as under: "11. The rules for the interpretation of the Schedule to the Central Excise Tariff Act, 1985 have been framed pursuant to the powers under Section 2 of that Act. According to Rule 1 titles of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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