Judgment:
1. This is an appeal against the order of Collector of Customs & Central Excise, Rajkot dated 24-4-1986.
2. Learned Counsel stated that the appellants are a private limited company and are inter alia importers of various items including Polyester Films. These polyester films fall under Item 39 of the ICT as it stood during the relevant time.
3. He stated that the appellants sought clearance of a consignment of 244 packages of Polyester Films imported at the Port of Kandla against an additional licence. The said licence was endorsed under Para 186 of the relevant Import Policy viz. AM-85. The appellants filed a bill of entry through their clearing agents claiming assessment of the goods under item 39.01/06 ICT and simultaneously claimed lower assessment in terms of Government of India, Ministry of Finance, Notification No.230/83-Cus., dated 18-3-1983.
4. The Customs Authorities had a sample drawn from the consignment tested by the Chemical Examiner of the Kandla Custom House. He opined that "the sample is polyester film coated on one side with ferric oxide". On being asked, the Chemical Examiner further opined that "as already mentioned the sample is polyester film coated on one side with Iron Oxide. The Iron Oxide (Ferric Oxide or ferrite) used is Magnetic in nature and hence the sample can be considered as the prepared media for sound recording. The Department, therefore, felt that in view of this, the goods cannot be considered as falling under Item 290 Appendix 4A of AM-85 as contended by the appellants.
5. Learned Counsel stated that as has been said earlier, the licence bears the Para 186 endorsement. In terms of sub-para 4 of Para 186 the Additional Licences are valid for the import of items appearing in Appendix 4 but excluding items appearing in Appendix 13. The Department allowed release of the goods after provisional assessment. The appellants paid duty in terms of Notification No. 230/83-Cus. of 18-3-1983 and cleared the goods. The licence was accepted by the Assistant Collector, Kandla after verification and he did not feel the necessity of insisting on an ITC Bond. However, he passed the bill of entry provisionally in accordance with the practice prevailing at the Port of Kandla. At this port, all consignments involving evidence of end use are to the knowledge of the appellants released provisionally.
Later, customs authorities at Kandla issued a show cause notice on 18-9-1985 alleging therein that (1) the goods were not covered by the licence and that (2) the goods are classifiable under item 92.01/13 read with item 68 CET. This was based on the plea that the goods are prepared for media for sound recording (audio magnetic tapes in Jumbo rolls). The provisional assessment was also to be finalised as aforesaid. This also contained a demand for duty of Rs. 7,74,113.60.
The appellants filed a reply dated 1-11-1985 and contended that the Chemical Examiner did not reveal that the goods could not fall under Item 39.01/06. Further, the goods were of 12 Microns. Thus, assessment under Item 39.01/06 read with Notification No. 230/83 was in order. In their further letter dated 7-11-1985, the appellants quoted certain judgments and pleaded that since the goods have been cleared, a show cause notice ought not to have been issued.
6. The learned Collector did not admit any pleas put forth by the appellants. He considered that the goods were correctly assessable to duty under Item 92.01/03 without the benefit of Notification No.230/83, as prepared media for sound recording. Further, being in the nature of Jumbo Rolls, these cannot be imported against an additional licence.
7. Learned Counsel further stated that the goods in question are 12 Micron Polyester Films coated on one side with ferric oxide and in big rolls. In the condition in which they are imported they are plain plastic films albeit coated. To get these coverted into prepared media for sound or similar recordings, these have to be converted into either cassettes or spools of a size capable of being mounted on any recording gadget. For this purpose, these rolls have to undergo the following processes : (2) Slitting it widthwise. This would make a number of strands of desired width.
(5) De gauzing of the film to clear magnetic impulses or erratic magnetic signals acquired during the earlier processes.
It, therefore, follows that unless the goods are slit and wound on spool capable of being mounted on a recording gadget, they do not conform to the known description of the term prepared media for sound recording. In the condition in which the goods are imported, the goods cannot be considered as prepared media. Prepared media for sound recording when made of plastic was being assessed to duty under Item 30.01 /06 of the ICT. prior to the introduction of Finance Bill for 1984. In this Finance Bill, the text of Item 92.01/13 was amended so as to include the prepared media. The Heading 92.01 /13 covers all finished products. The relevant new addition to this item viz., prepared media for sound or similar recording also denotes that the items covered thereby are finished products fit for direct use for recording. It, therefore, follows that the imported materials was a raw-material for prepared media for sound recording and was, therefore, being assessed to duty under Item 39.01 /06 and should continue to be so assessed, the amendment to Item 92 not withstanding.
8. The appellants also submit that none of the technical literature referred to by the learned Collector indicates anywhere that goods of the type imported could be considered audio magnetic tapes or prepared media for sound recording. Plain polyester films which are admittedly covered by Item 39.01/06 have to undergo the same process of manufacture as the magnetised polyester tapes except that the former have to undergo a process of coating. Thus, as the imported goods being plain polyester film magnetized and having not undergone any further process as indicated above would all the same continue to be covered by Chapter 39. This is amply supported by Note 4 to Chapter 51 according to which strips when of a width exceeding 5 mm. will fall under Chapter 39. The appellants, therefore, submit that their goods fall under Chapter 39 and as a corollary are covered by Notification 230/83-Cus., dated 18-3-1983.
9. Learned Counsel, further stated that since the goods are required to be assessed to customs duty under Chapter 39 as articles of plastic, it follows as a corollary that even for levy of CVD, these should be considered as articles meriting classification under Item 15A which covers plastics and not under Item 68 which being a residuary item covers all articles discarded for assessment under the 1st 67 items.
Learned Collector has held that the said goods clearly fall under Sr.
No. 573 sub-item 3 of Appendix 3A of AM-85 Policy which, inter alia, covers audio magnetic tapes in rolls, jumbo rolls etc. It was his submission that the imported goods are magnetized polyester films and not audio magnetic tapes as in the form in which these are imported the same cannot be used as audio magnetic tapes. The Collector has considered the term Jumbo Rolls with reference to S. No. 573, out of context and has failed to consider the fact that the goods are not audio magnetic tapes. Just because they are in length and of considerable width the Rolls cannot be called Jumbo Rolls of audio magnetic tapes as envisaged in this entry. All the items mentioned in the S. No. 573 sub-item (3) are such as are covered by Chapter 92ICT.As has been made clear earlier, the imported goods fall under Chapter 39 and not under Chapter 92. Therefore, these are not affected by the mischief of this S. No. Thus, this entry does not in any way interfere with the release of the goods against the licence which was produced and rightly accepted by the learned Assistant Collector without insisting on any ITC Bond. Since the imported goods are not classifiable under Chapter 92 therefore, obviously, they are not covered by this specific entry No. 573.
10. Learned DR drew attention towards the order-in-original and particularly to the findings recorded therein; And stated that he would like to emphasise that the main issue is whether the imported item could be considered as a 'prepared media for sound recording.' 11. The imported polyester film is coated with ferric oxide on one side and is therefore, magnetic in nature. It can only be considered as a prepared media for sound recording which would not fall under Appendix 4, Part A at SI. No. 290 of the relevant ITC.12. Learned Collector has rightly relied in this respect on "Materials Hand Book" by Brady and Clauser which shows that magnetic tape for recorders is made by coating strong durable plastic tape such as polyester with a magnetic ferrite powder and Encyclopaedia of Chemical Technology by Kirk Othmer, Volume 8, page 881 also shows that ferrites have magnetic properties and are used in a variety of electronic equipment. The Chemical formula of ferrite is Fe3O4 & Fe2O3.
13. This shows that audio magnetic tape is polyester film coated with ferrite; and ferric oxide is one of the compounds termed as ferrite in the electronics industry.
14. Furthermore, the rolls are nothing but audio magnetic tapes in jumbo rolls, considering the size of polyester film.
15. The importers had been licenced for products of audio magnetic tapes by slitting jumbo rolls. The audio magnetic tapes imported in jumbo rolls would be covered under sub-item 3 of Sr. No. 573 of Appendix 3, Part A of Import Policy AM-85. Hence, being of a limited permissible type, they are required to be imported under specific import licence.
16. Para 186(4) of Import Policy AM-85 specifies that only those goods can be imported against additional licences which fall under Appendix 4 of Import Policy AM-85. Since the imported item does not fall under Appendix 4, therefore, it cannot be imported under additional licence in question.
17. Since a specific licence of the required type has not been produced, therefore, importation was also unauthorised.
18. Furthermore, the audio magnetic tapes in jumbo rolls cannot be classified under Heading 39.01/06 in view of Note No. 3(d) of Chapter 19. This note applies to the material in the form of plates, sheets, films etc. whether or not printed or otherwise surface worked uncut or cut into rectangles but not further worked. In the present case, the polyester film has been further worked because it is coated with ferric oxide on one side. As such, the benefit of Notification No.230/83-Cus., dated 18-3-1983 cannot be extended to it. Hence, it can be correctly classified only under Customs Heading 92.03/13 of Customs Tariff Act and Heading 68 of C.E.T. for the purposes of countervailing duty.
20. In support of his contention that import of such an item required a specific licence, he would also like to draw attention to the decision of the Tribunal in the case of Collector of Customs & C. Ex. v.Northern Plastics Ltd. reported in 1990 (45) E.L.T. 263 (Tribunal) in which it has been held that the importer who was engaged in slitting/ confectioning of jumbo rolls required an industrial licence under IDR Act to become actual user and an import or industrial licence was necessary for claiming benefit of OGL for import of jumbo rolls.
21. As regards customs classification, he would like to cite explanatory notes under Heading 92.12 of CCCN & 85.23 of HSN.22. We have considered the above submissions. We observe that the item imported is undisputably a polyester film coated with ferric oxide (ferrite on one side).
23. Chapter 39 covers polyester films but Chapter Note 3(d) and Heading 39.05 of CCCN excludes such strips which are surface worked but not further worked as evident from the following words used in this Note :- "(d) plates, sheets, films, foil and strip (other than that classified in Heading No. 51.01/03 by the application of Note 4 to Chapter 51), whether or not printed or otherwise surface-worked uncut or cut into rectangles but not further worked (even if, when so cut, they become articles ready for use);" A question, therefore,, arises whether the imported film is hit by this exclusion clause and if so, whether it could be considered as a prepared media for sound recording and has assumed the characteristics of an audio magnetic tape.
24. We find that the above Chapter Note is based on CCCN Chapter Note 3(d) and HSN Chapter Note 10. Therefore, the explanatory notes become relevant for our purposes. Again, we find that Heading 39.01/06 of the Customs Tariff is based on Heading 39.20 of the HSN which, in turn, refers to the above Note 10. These explanatory notes do not define the meaning of the phrase "surface-worked" but illustrate the same by giving examples of plates, sheets, films etc. polished, embossed, coloured etc. A question, therefore, arises whether a polyester film coated with a chemical like ferric oxide would be covered. Again, we find that CCCN Heading 92.12 covers inter alia, prepared media for sound or similar recording and Explanatory Notes (A) (3) & (4) read as follows :- (3) Strips or films for mechanical sound-recording, made of artificial plastic material (usually polyvinyl acetate or chloride), coated with a special wax.
(4) Media for magnetic recording, e.g., wire, discs or cards (of artificial plastic material or paper), tapes, strips or films (of artificial plastic material or metal), either capable of being magnetized or so rendered by coating with a lacquer containing dispersions of various powders or by electrolytic deposit of a ferro-magnetic coating (e.g., for magnetic wire).
These media may also be used for recording phenomena other than sound, previously converted into electric impulses, such as the light intensity of an image (television signals, fascimile transmission), data furnished by measuring apparatus such as recording thermometers or pyrometers (variations of temperature), by electro-diagnosis instruments (heartbeats, encephalographs, etc.), by radar, by spectral analysis apparatus, by apparatus for testing metals or other materials or by meteorological instruments. The media may also be used for recording machine tool work programmes, data for opening magnetic locks, data for electronic calculating machines, railway signal systems, mock enemy attack devices, etc." "(a) Articles intended for use as media for recording sound or other phenomena but not yet prepared as such, these are classified in their respective headings (for example, in Chapter 39 or 48, or Section XV)." 25. In the case of HSN, Chapter 92 covers only Musical Instruments; Parts and Accessories of such articles and not prepared media for sound recording. The prepared media for sound recording or similar recording of other phenomena fall under Chapter 85 and magnetic tapes fall under 85.23. Explanatory Notes (3) & (4) read as follows : "85.23. PREPARED UNRECORDED MEDIA FOR SOUND RECORDING OR SIMILAR RECORDING OF OTHER PHENOMENA, OTHER THAN PRODUCTS OF CHAPTER 37.
(3) Strips or films for mechanical sound recording, made of plastics (usually polyvinyl acetate or chloride), coated with a special wax.
(4) Media for magnetic recording, e.g., discs or cards (of plastics or paper), tapes, strips or films (of plastics or metal) or metal wire, either capable of being magnetised or so rendered by coating with a lacquer containing dispersions of magnetic powder or by electrolytic deposit of a ferro-magnetic coating (e.g., for magnetic wire).
"(a) Articles intended for use as media for recording sound or other phenomena but not yet prepared as such; these are classified in their respective headings (for example, in Chapter 39 or 48, or Section XV)." 26. Learned Departmental Representative has laid great emphasis on these Explanatory Notes and it is clear from the above reproduction that media for magnetic recording includes tapes, strips or films of artificial plastic material which had been magnetised by a ferro-magnetic coating. Therefore, the imported item was undoubtedly a medium for magnetic recording of sound but what strikes us most is the Exclusion Clause. In this Clause, the emphasis is on two words "intention " and "preparation " i.e. an article intended for use as a media for recording sound but "but not yet prepared as such " stands excluded. From the undisputed facts of the case, it emerges that the item imported is a polyethylene film coated with ferrite which was intended for use as media for recording sound but was not yet prepared as such according to the learned Counsel but identifiable as a magnetic tape as per the learned DR. Therefore, the crucial point for determination is what does the word "prepared" means in this context.
In our opinion, the word "prepared" could be considered as "'ready' or 'made ready for use'".
27. A comparison between Heading 85.23 and 85.24 of HSN shows that Heading 85.23 includes unrecorded magnetic tapes whereas Heading 85.24 includes recorded tapes and other recorded media for sound. The word "prepared" occurs only in Heading 85.23. Therefore, magnetic tapes which were fully ready for use but not yet utilised for recording would be covered by 85.23 of HSN. In the case of CCCN, both types are covered by Heading 92.12 but the unrecorded ones have been indicated under Clause (A) and the recorded ones under the Clause (B). It is significant that whereas in the case of the later, the heading covers tapes etc. at whatever stage of manufacture at which they are presented, in the case of the former, there is no such indication.
28. Significantly, media for magnetic recording upto the stage of coating has been first shown under inclusions and then excluded if intended for use for recording but not yet prepared as such and in the later case, it is further indicated that these are classified in their respective headings for example, in Chapter 39 etc.
29. In view of this exclusion clause, we consider that the learned Counsel's arguments that these could not be considered as magnetic tapes as known to the market in the form or at the stage at which they are imported, gains significance.
30. Even otherwise, we have been told that they hold permission for slitting jumbo rolls for producing magnetic tapes out of polyester films coated with ferric oxide.
31. We, therefore, consider that for the purpose of customs classification, the item is required to be classified under Chapter 39 and not under Chapter 92 and would fall under Heading 39.01/06 and would also, therefore, be liable to the benefit of Notification No.230/83 which exempts polyester films falling within Chapter 39 used for the manufacture of magnetic tapes, subject to the fulfilment of other conditions mentioned in the notification.
32. As far as import licence is concerned, the one produced before us merely refers to Para 186 of AM-85 Policy and therefore, the question is whether this is sufficient for the purpose of import of such goods.
33. In this respect, learned DR's contention that such an additional licence is only valid for Appendix (4) items is correct and we find that Entry 290 covers polyester film, plain/metallised.
34. The word 'metallised' is significant because it shows that even a polyester film coated with a metallic compound like ferric oxide is covered by this entry.
35. Insofar as Entry 573 of Appendix 3 Part A is concerned, it admitted-ly covers only audio magnetic tapes and includes jumbo rolls etc. and since we have held that the imported item has not yet reached a stage where it could be considered as an audio magnetic tape, this entry would not be applicable.
36. Hence, we need not go into the question as to whether the imported item is in jumbo rolls or not.
37. In view of the above position, we observe that the Assistant Collector was justified in accepting the licence.
38. In view of the above discussion and findings, we hold that the imported item is a metallised polyester film (coated with ferrite) which was not hit by Chapter Note 3(d) and was classifiable under 39.01/06 in view of the exclusion clause mentioned in both CCCN and HSN. It was a media for sound recording which had not yet reached the fully prepared stage and was only intended for use in preparation of magnetic tapes as known to the market and therefore, hit by the exclusion clause under Chapter 92 of CCCN and Chapter 85 of HSN. It would also be covered by SI. No.,(l). of the Table annexed to the Notification No. 230/83 as it stood during the relevant period, subject to fulfilment of the conditions mentioned therein. It would also be covered by the licence produced which had been rightly accepted by the Assistant Collector.