Judgment:
1. Dina International, the appellant in appeal 1300/02 imported in February 2001 goods stated in the bill of entry filed for their clearance to be components of 20 "artificial lung ventilator with integrated Anaesthetic unit type 'Julian'." The importer claimed the benefit of the exemption from duty of Customs contained in notification 51/00. The advance import licence was also submitted. The notification exempts from duty goods imported under advance licence and subject to inter alia the conditions to be utilised in the manufacture of the goods to be exporled. The examination of the imported goods led the departmental officers to believe that what was imported were not components of the machine as stated but a fully assembled machine.
After conducting investigation, notice was issued to the importer, Harish Kotlia, its President, the Rajnish Varma, its General Manager proposing confiscation of the goods under Clauses (d) and (m) of Section 111 of the Act, demanding duty on five such machines imported earlier and permitted to be cleared without payment of duty, penalty on the importer under Sections 112 and 114 of the Act. The Commissioner passed orders in October 2001 confiscating the goods but permitting them to be redeemed on payment of fine, imposing penalties on the company and its two employees, demanding duty on past clearances and demanding interest.
2. Each of these appealed the order of the Commissioner. A bench of this Tribunal at Delhi which heard these appeals passed orders in March 2002 disposing of these appeals. The Tribunal noted that the point in issue was whether the imported goods were complete machines or components to be assembled by the importer into a complete machine which was to be exported. It said that the question was one of fad which could be verified on physical examination by the adjudicating authority as to whether the processes undertaken by the importer amounted to manufacture, or assembly of a complete machine and whether, after the process undertaken by the importer the product can be exported as such or it is to be separated into the components before export. It therefore remanded the matter for adjudication afresh. The Commissioner passed orders accordingly. He has again held that what was imported was a complete machine and not components and hence the import licence would not cover the goods. He once again passed orders ordering confiscation of the goods permitting them to be redeemed on payment of fine, proposing to recover duty on the earlier machines imported, ordering assessment of the goods without the benefit of the exemption notification and imposing penalties on the importer and on its employees. Hence these appeals.
3. The sole question that falls for determination therefore is whether what was imported was components of the artificial lung ventilator with integrated Anaesthetic unit type 'Julian' or whether a complete machine of this kind had been imported. After receipt of the Tribunal's order, the Commissioner set up a panel of experts to examine the goods and to furnish a report in the light of the Tribunal's direction. The panel consisting of three appraising officers of the Customs department and Mr J.V. Vaidya, Joint General Manager and Head Medical Equipments and Systems of Larsen & Toubro Ltd. After examination of the goods, the departmental experts and Mr Vaidya submitted separate reports which differed significantly on the question as to complexities and nature of process is involved in assembling. The Commissioner has relied upon the opinion of the experts to say that there is in reality no manufacture.
It is therefore necessary to consider this report in detail.
4. The departmental officers found that the goods as they arrived comprised one package consisting of the main machine, the other comprised of 15 connector pipes. Each machine requires three pipes for supply of oxygen, nitrogen oxide and compressed air. There were also certain other parts such as ventilator breathing system, suction jar, and some plastic goods which are not attached to the machine. "The Importer brought two engineers who fitted the loose parts in the machine and operated in our presence... The importer also produced catalogue giving details of this machine. As per the catalogue, the machine is described as "Anaesthetic machine." However, it is also fitted with ventilator and breathing system forming the complete detachable unit. This is the unit which is separately packed and is not found attached with the machine. As per the catalogue and has been seen practically ventilator and breathing unit can be striped in seconds and is easy to clean, it is made of plastic. All the electrical and pneumatic connections to the compact breathing system such as fresh gas supply, driving gas, anaesthetic gas scavenging, sample gas return flow, flow sensor and pressure sensor are routed via a single interface. This means that the breathing system can be connected in one single operation, just insert it and it is ready for operation." The report of the officers goes on to say "In our opinion the machine is complete, anaesthetic works station with ventilator and breathing system. By any stretch of imagination the goods cannot be considered as components of Artificial Lung Ventilatar with Integrated Anaesthesia Unit. The parts which are not found attached with the machine and packed separately, are detachable and can be attached any time before making the machine operational. The catalogue which has been supplied by the importer at the time of examination, is also attached with this report and this is the correct catalogue for this machine. The flow chart pfovided by the importer showing heading as Julian Assembling Procedure is irrelevant and in our view does not cany any meaning. This is also attached with the examination report as enclosure.
"The mode of packing does not change the character of the machine.
The machine can be packed in ready to use form or certain parts which can be easily detached can be packed separately. Therefore, it depends on the importer what type of packing they choose at the time of these machines." 5. Mr Vaidya in his dissenting report has said that "when the packing cases were opened, the equipment was found in semi knocked down (SKD) condition, with its major and minor subassemblies/components/accessories were individually packed separately. In that condition, the equipment was not functional.
"These were assembled in our presence and tested. The tests comprised: electrical, electronic and anaesthetic gases/pneumatic circuits and verification/validation of software for satisfactory compliance with the design and performance parameters. These also included checking of mechanical assemblies to ensure proper filling.
Pre-commissioning checks were also carried out and the system demonstrated in working condition, without filling in the anaesthetic gases for trying out on a patient.
"The product was thus made available in finished condition, ready for repacking without dismantling or disconnecting any parts (except for removing the power cord and external compressed air connection temporarily to demonstrate the working of the equipment). With this, it was ready for export in duly assembled condition." 6. The Annexure I to Mr Vaidya's report indicates 24 steps detailing the processes that were required for assembling.
7. The Commissioner has found that the processes at serial 1 to 10 in the annexure to Mr Vaidya's report "are neither recommended by the supplier, nor do they appear to be entirely necessary, so far as the importer is concerned. He cites the example of checking of the battery pack and checking of the P.C. plates and says that this is the normal steps preparatory to the use of an electronic appliance for the first time and it can scarcely be equated with manufacturing activity. He says, "It is difficult to resist the impression that the activity listed by the importer in the flow chart which are more or less in the Vaidya's report are mentioned in great detail mainly with a view to project that many tests/activities are required to be done.." He says that point 11 to 16 relate to assembling of patient breathing system, vaporisation module, table unit, drawer assembly and various tubings." He goes on to say that "the process involving connecting the power cord, switching on the system and switching off the system (refer to in points 18 to 22) cannot be considered to be manufacturing." He relies on the fact that many of the processes said to be shown to be manufacturing processes figure in the catalogue of the machine particularly in the instructions for their care. "The catalogue indicates that for purposes of maintenance disinfection etc all the parts mentioned above are required to be dismantled and then reassembled after disinfecting/cleaning/sterilizing etc. If these processes are to be regarded as manufacturing processes, it would lead to the absurd conclusion that every time maintenance is conducted the machine will be regarded as undergoing a manufacturing process. All the above said processes are, at best, can be considered as steps for initial set up or installation of the machine." The certifications and packing is "more an after thought to show that the goods undergo the process of manufacture." 8. Among the processes that Mr Vaidya lists as having been carried out by the engineers who assembled the machine, are the following: The back portion of the main control panel which was supplied as a separate component, was removed; the gas analyser pipe was installed on the block of the panel; indicator fuse installed and the plate replaced, continuity of various circuits of the required voltage was checked by removing the three blades and replaced them. Pack was removed, checked for voltage, terminals cleaned by removing deposits. The patient breathing system comprising several parts, which were supplied separately was taken out, its flow sensor checked for free flow of air and the censor assembled over the patient breathing system component.
The patient breathing system component was assembled on the removable panel, detached from the main equipment, the panel was then reassembled into the main control unit. Various tubings to the equipment and to the patient mask was connected properly by sealing the required end which were assembled to the patient breathing component. Vaporization module, supplied as a component, was assembled in a fixation unit, enabling it to be integrated into the main control unit. The table assembly unit, supplied as a component, was assembled to the main control unit at three places with the help of clamps. Drawer assembly supplied separately was fixed to the main control unit. The entire assembly unit was thereafter tested.
9. These processes appear to us to clearly indicate assembly of various components into one machine. The Commissioner does not deny that such assembly took place, but disposes of it in the following manner. "Many of these processes figure in the catalogue of the machine as required to be carried out for the purpose of maintenance, disinfection etc. The machine in effect is to be dismantled for these purposes and reassembled." "Hence it is evident thai the said processes, which are claimed as manufacture, are nothing but processes involved in maintenance or initial set up... If these processes, whether singularly or collectively are to be regarded as manufacturing processes or even as processes incidental or ancillary thereto, it would lead to the absurd conclusion that every time, the maintenance activities are conducted, the machine would have to be regarded as having undergone a manufacturing process." We do not find anything absurd in the claim that the assembly of parts or components into one machine can be considered to be manufacture. It is evident from the terminology that the Commissioner uses that he has applied the test of manufacture contained in Section 2 (f) of the Central Excises Act, 1944. Even applying the test that has been evolved to determine whether there is a manufacture in terms of that section, it will be difficult to say that assembling of components of a machine into a complete machine is not manufacture. Manufacture is in fact defined in paragraph 3.31 of the relevant Import Policy to mean "to make, produce, fabricate, assemble, process, or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes, such as refrigeration, repacking, polishing, labelling and segregation." The definition goes on to say that, manufacture shall include "agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture." It is not possible for us to conclude that the processes that are undertaken, and which the Commissioner accepts undertaken are not manufacture falling within the scope of this extremely wide definition which includes such simple acts as refrigeration and harvesting fruit and flowers.
10. The Commissioner seems to have influenced to a considerable extent to come to his conclusion by what he finds an attyempt on the part of the importer to get around the restriction of paragraph 11.7 of the policy. According to him, the importer took resort to the DEEC Scheme to circumvent the prohibition against import on advance licences had currency on payment to be exported against anything other than hard currency. In other words, since the machine was imported from Germany on payment of hard currency, it could not be exported to Russia against rupees payment. Para 11.7 in fact, does not say any such thing. It says that while the export of goods imported against payment of freely importable currency is permitted against payment in such currency, export could also be permitted against payment in Indian rupees if there is a value addition of 33% or more provided the item to be exported or imported are not restricted for import or export.
11. The departmental representative sought to rely on various statements and other evidence which according to him establishes a conspiracy to import finished goods in the guise of components. The appeals are against the order of the Commissioner which is passed in terms of the order of a bench of this Tribunal, remanding the matler to him for decision in accordance with the criteria that it expressed in the order. That bench of the Tribunal no doubt has considered all the evidence in this case before coming to its conclusion. In that situation, it was not open to the Commissioner, and it is not open to us to go beyond those specific points which it prescribed. We therefore have not considered such evidence.
12. A consideration of the facts therefore impels us to conclude that what was imported was in fact components which were assembled into a machine which was to be exported. The importer was therefore entitled to clear the goods in terms of the licence produced and to exemption in terms of the notification. There was therefore no justification for penalty on the importer or its employees.