Judgment:
1. These are applications for waiver of pre deposit of duty demand amounting to Rs. 28,00,65,375/-, and penalty of Rs. 1.00 crore, imposed on M/s ICOMM Tele Ltd, and a penalty of Rs. 2.00 lakhs imposed on Brig Krishna Nandan, Managing Director of the applicant firm and a penalty of Rs. 1.00 lakhs imposed on Sumanth Paturu, Director of the applicant firm by the Commissioner in the impugned order.
2. The brief facts of the case are that the applicants had secured a tender for supply of 32 Channel Dense Wavelength Division Multiplexing (PWDM for short) equipment for supply to M/s BSNL for a value of Rs. 82.32 crores. The applicants were to source the equipment from one M/s ZTE Corporation, China and an agreement to this effect was signed during May 2001 under which the whole DWDM equipment was to be imported and supplied to M/s BSNL. Subsequently, on account budgetary changes, concessional rate of duty was prescribed @ 5% in respect of parts of DWDM system. The applicants thereafter re-negotiated the contract with ZTE Corporation through their various subsidiaries and changed the description of the goods from DWDM equipment to parts of DWDM Equipments. Certain items which were to be imported originally were deleted and were procured locally. The initial contract entered into with M/s ZTE Corporation was both in respect of hardware and software components required by BSNL and the break up of the value in respect of the two was in the ratio of 99.60% hardware component and .40% software component. This was subsequently changed by an addendum dated 22.11.2002 in the ratio of 99.58% hardware component and .42% software component. However, since the software component was totally exempted from duty, the applicants are alleged to have enhanced the value of software component drastically from .42% to 67.65% and reduced that of the hardware component from 99.58% to 32.35%. They were consequently issued a Show Cause Notice alleging that they have imported DWDM Equipment in the guise of parts of DWDM Equipment and misdeclared the description of the goods as parts of the DWDM Equipment. Further it was alleged that M/s ICOMM Tele Ltd have under declared the value of the hardware component and over valued the software component with an intent to evade payment of import duties at appropriate rates and on appropriate value. Accordingly, Show Cause Notice sought to redetermine the value of the hardware component at Rs. 88,26,73,308/- as against the declared value of Rs. 28,36,94,998/- and decreased the value of software component to Rs. 37,22,864/- as against the declared value of Rs. 60,27,01,174/-. The overall value of the contract remained the same and it was only the distribution of the contract value between the hardware and software components that was sought to be changed by the Revenue. Since the value of the hardware component was enhanced, which was dutiable, the Show Cause Notice sought to demand duty amounting to Rs. 28,00,65,375/-. Further, Show Cause Notice also sought to deny concessional rate of duty applicable to parts under Notification No.21/02-Cus dated 1.3.2002 and the duty now demanded amounting to Rs. 28,00,65,375/- was the one applicable to DWDM Equipment, as a whole, and not that applicable to parts of DWDM under the said notification.
Penalties were also proposed under Section 112(a) of the Customs Act, 1962 on the two offices of the Applicant company.
3. The Show Cause Notice was adjudicated by the Commissioner, who confirmed the duty demand and imposed penalties of Rs. 1.00 crore on M/s ICOMM Tele Ltd and Rs. 2.00 lakhs on Brig Krishna Nandan, Managing Director and Rs. 1.00 lakh on Sumanth Paturu, Director, besides confiscation of the goods etc.
5. The Ld Advocate Shri B.V. Kumar, for the applicants, submits that in this case, the assessments were provisional and therefore the Show Cause Notice could not have been issued demanding duty and imposing penalties before finalization of the provisional assessments, as has been held by the Larger Bench of this Tribunal in the case of ITC Ltd v. CCE, Mumbai , which was followed in the case ofTata Consultancy Services v. CC, Airport, Mumbai 2006 (196) ELT 198 (T). Since the assessments were provisional, penalty also cannot be imposed under Section 112(a) of the Customs Act, 1962, as held by the Tribunal in the case of Mangalore Refinery and Petrochemicals Ltd v.CC, Mangalore 2002 (50) RLT 420. As regards the contention that what was imported was complete equipment, and not parts, it was submitted that the goods when imported were parts only and the assembly of the same was not a mere screw driver technology but requires an elaborate facility and processes of assembly, alignment and testing by highly trained engineers, which process amounts to manufacture and in fact their manufacturing unit was registered with Central Excise and duty was being paid on the final product. Reliance in this regard was placed on the Supreme Court's decision in the case of BPL India Ltd v. CCE, Cochin and Wipro GE Medical Systems Ltd v. CC, components are imported at different points of time, through different modes, it cannot be said that a complete instrument is imported and in such cases Rule 2(a) of Interpretative Rules to Customs Tariff Act, 1975 is not applicable and the imported goods are required to be classified as parts. Reliance in this regard was placed on the Larger Bench of this Tribunal's decision in the case of Sony India Ltd v. CC, ICD, New Delhi . Since in their case, the goods came in different consignments for which number of Bills of Entry were filed and the import was spread over for a period of six months, the ratio laid down in the case of Sony India Ltd v. CC was squarely applicable to their case. It was further submitted that the goods imported by them cannot be considered as parts in terms of Rule 2(a) of the Interpretative Rules of the First Schedule of Customs Tariff Act, as has been held by the Commissioner, as components imported by them were subjected to further working operations in the manufacturing unit.
Lastly, it was submitted that even if it is presumed, but not admitted, that they were required to be classified as complete equipment, for the purpose of Customs Tariff Act, the Interpretative Rules, cannot be made applicable, while extending the benefit of notification, as has been held by this Tribunal in the case of SAB Electronics Ltd v. CC, New Delhi 2001 (44) RLT 137 (CEGAT). As regards valuation, it was submitted that enhancement of value of the hardware component done by the department is without any basis and evidence and as transaction value has been arrived at after protracted negotiation and no evidence on record has been brought out that the software component imported by them was not essential for the functioning of the DWDM Equipment, the Commissioner has invoked Rule 8 of the Customs Valuation Rules, without going sequentially from Rule 4 to Rule 8 on the ground that Rules 5 and 6 cannot be invoked for want of contemporaneous imports from the same country of origin at the same commercial level and Rules 7 and 7A cannot be invoked for want of sale of like goods in India. The fact however is that other suppliers like ITI Bangalore, have imported identical goods from Korea and China for being supplied to BSNL against the same tender or other tenders floated by BSNL on or around that time. There is no evidence of any flow back and none of the situation mentioned in Rule 4 of the Customs Valuation Rules, are present in their case. In view of the same, the transaction value could not have been rejected.
6. The Ld D.R., on the other hand, supports the findings of the Commissioner and submits that what was imported was a complete DWDM Equipment and the assembly of the lame did not require any further processing etc and therefore as per Interpretative Rules 2(a) they were classifiable as a complete equipment and not as parts. The entire system manufactured has been supplied by ZTE Corporation and the equipments were deliberately misdeclared as parts. In this regard, he refers to the statement of Prakash Chandra Shrivastav, General Manager, who clearly admitted that the second Addendum dated 22.11.02 was altered to amend the term 'Equipment' as 'parts of DWDM Equipment' to get benefit of Notification 21/2002 which was available only to parts of DWDM Equipment. As regards the value, it was submitted that Shri Veerraju, General Manager(Finance) has admitted in his statement recorded on 26.8.03 that 'software and hardware components of DWDM is wrongly declared in the ratio of 67.65:32.35 instead of 0.4:99.60 by the management of ICOMM. This is further corroborated by the statement of Prakash Chandra Shrivastava, General Manager (Material Management), who stated that the actual percentage of software component is only .40% of the total order value of DWDM Equipment. He further stated that since software is exempted from Customs duty, therefore, their management has decided to enhance the value of software by reducing the value of hardware component. NIC Japan has issued the invoices on their request and that such invoices were submitted to the Customs Department at the time of clearance of the first two lots of DWDM Equipment and Bank Guarantees were furnished due to the objections raised by Customs authorities. He finally concluded staring that the decision of the apportionment of software and hardware components in the above ratio was taken by their management comprising of Brig K. Nandan and P.Sumanth and K. Ch. Veerraju. In view of this, it was submitted that the order passed by the Commissioner is well founded and the applicants should be required to deposit the entire duty.
7. We have considered the submissions. We find prima facie force in the applicants argument that Rule 2(a) of the Interpretative Rules is not required to be applied for claiming exemption which has to be extended to the goods in the form in which they are cleared as held by the Tribunal in the case of SAB Electronics cited supra. However, as regards valuation, we find that the applicants have not been able to make out a prima facie case in their favour so as to call for complete waiver of pre deposit, inasmuch as the Commissioner's findings are based upon the statements of the two officers of the company, who have clearly stated that the apportionment of the contract value between the hardware and software components was done, as the software was exempt from Customs duty and only the hardware component was chargeable to duty. Both sides could not state the amount of duty involved on account of enhancement in the value of software and reduction in the value of hardware components. Taking into account the totality of the circumstances, we direct the applicant company to deposit a sum of Rs. 6.00 crores (Rupees Six crores), in addition to the duty already paid by them within 12 weeks and on such a deposit, there shall be waiver of pre deposit of the balance of amount of duty and penalties imposed on various applicants and recovery thereof stayed till disposal of the appeals. Compliance to be reported on 26.12.06. Failure to comply with the aforesaid direction shall result in vacation of stay and dismissal of the appeals, without further notice.