1. M/s. Verma Sports Industries, Jullundur (hereinafter referred to as "the appellants") imported certain consignments of corkwood at the port of Bombay. They were charged to additional duty of Customs under Section 3 of the Customs Tariff Act, 1975, at 8% ad valorem corresponding to the duty of excise leviable on goods falling under Item No. 68 of the First Schedule ("CET", for short) to the Central Excises and Salt Act, 1944. After clearance of the goods on payment of duty, the appellants claimed refund of the additional duty on the ground that the goods were produced from the bark of the oak tree, that they were only cut by means of axes and knives and that no power was used in their production. The claim was based on Notification No.179/77, dated 18-6-1977 issued under Rule 8(1) of the Central Excise Rules, 1944, which exempted all goods falling under Item No. 68, CET, in or in relation to the manufacture of which, no process was ordinarily carried on with the aid of power. The Assistant Collector found from the evidence produced that "the bark imported is a non-power product". However, he held that since, according to the Explanation to Section 3(1) of the Customs Tariff Act, where excise duty was leviable at different rates, imported goods would be leviable to additional duty of Customs at the highest rate, the benefit of the said notification was not admissible in the instant case. Therefore, he rejected the claim. In appeal, the Appellate Collector observed that from the documents produced, it was not possible to verify whether any power had been used in cutting corkwood. The invoice and the Bill of Entry did not bear this out and the appellants' declaration that it was a 'non-power product' was not acceptable. On this basis, he dismissed the appeal. It is this order that is challenged in the present appeal (Appeal No. 598/82 with Supplementary A. No. 3733/88) which had been filed as a revision application before the Central Government and has come to this Tribunal as a transferred proceeding in terms of Section 131B of the Customs Act, 1962. The other appeal bearing No. C.1486/84-D has been directly filed in this Tribunal and the facts are similar.
2. We have heard Shri V. Lakshmi Kumaran, Advocate, for the appellants and Shri L.C. Chakraborty, DR, for the respondent-Collector.
3. At the outset, after hearing both sides, the delay in filing the supplementary Appeal No. 3733/88-D, was condoned since the need to file it arose only out of the procedure and practice of this Tribunal.
4. The learned counsel for the appellants drew our attention to the decision of a 5-Member Bench of this Tribunal in the case of C.C., Madras v. Carborandum Universal - 1988 (34) E.L.T. 300 in which it was held that notifications issued under Rule 8(1) of the Central Excise Rules were applicable in the matter of liability to additional duty of Customs on imported goods. The Assistant Collector had clearly found in favour of the appellants that the subject goods had been produced without use of power. And, the Appellate Collector was in error in negating this finding in the absence of an appeal by the Revenue. The Counsel then referred to extracts from certain literature and contended that it was clear that no power had been used in the production of the subject goods.
5. In reply, the learned DR, submitted that Revenue could not have filed an appeal against the Assistant Collector's aforesaid finding since the order was in favour of the Revenue. The Appellate Collector being a higher authority, was within his rights in ruling on the Assistant Collector's finding, though it had not been challenged in appeal. According to the DR, the documents produced were not sufficient to establish the appellants' claim. He also submitted that the Tribunal's decision in the Carborandum Universal case (supra) was not relevant to the present case.
6. In a brief rejoinder, the Counsel for the appellants submitted that the executive Collector could have, if he wanted, reviewed the Assistant Collector's finding under Section 130(2) of the Customs Act.
But he did not choose to do so. The Appellate Collector could not overrule the Assistant Collector's finding which had not been agitated before him. He could not place the appellants at a more disadvantageous position than before the appeal.
7. We have considered the submissions of both sides and perused the record. Before we consider the rival contentions, it is expedient to set out Section 3(1) of the Customs Tariff Act, 1975 and the Explanation thereto:- (1) Any article which is imported into India shall, in addition, be liable to a duty (hereafter in this section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article.
Explanation. - In this section, the expression "the excise duty for the time being leviable on a like article if produced or manufactured in India" means the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India or, if a like article is not so produced or manufactured which would be leviable on the class or description of articles to which the imported article belongs, and where such duty is leviable at different rates, the highest duty." The Revenue had been contending that exemption notifications issued under Central Excise Rule 8(1) had no application in the matter of levy of additional duty of Customs on similar imported goods and that only exemption notifications issued under Section 25(1) of the Customs Act were relevant and applicable. In view of the divergent decisions on the issue of this Tribunal, and the High Courts, a special 5-Member Bench of this Tribunal, constituted by the President, went into the question in the Carborandum Universal case (supra). It was held that excise exemption notifications had application in the matter of levy of additional duty of Customs on imported goods. The DR's contention in this regard is thus not acceptable.
8. We have now to see whether the conditions laid down in Central Excise Notification No. 179/77, dated 18-6-1977 have been satisfied in the case of the imported corkwood in the present case. As already noted, the Assistant Collector found that no power had been used in the production of the corkwood. The Collector (Appeals), of course, found to the contrary. We are inclined to agree with the counsel for the appellants that since this fact found by the Assistant Collector was not agitated in appeal by the appellants (they had no reason to do so) he could not have ruled on it. However, without saying more on the subject, we proceed to examine the evidence on record. The extracts filed from "SNC - SOCIETADE NATIONAL CORTICEIRA, LDA, PORTUGAL" state that cork refers to the outer bark of quercus-suber of cork oak which grows in the Western Mediterranean area. The bark is removed from the tree during the hot dry summer months, when the cork separates from the Cambium layer during June/July and August. The bark is cut off with an axe, which opens a vertical cut along the trunk and by banging with the butt of the axe and wedging with the staff of the axe, it is released from the tree. From the photograph of the stripping operation, it would appear that the operation is done manually. According to pages 49-51, Issue No. 36 of June 198.. of "REVUE DES OENOLOGUES" - a magazine of professional information when the stripping is finished and the cork is piled up in the forest, it is generally sold, either by auction or else directly to purchasers, from industrial units, to which it is sent to be worked on at a later date. In the face of all this, and in the absence of any contrary evidence, it is not clear how the Appellate Collector concluded that the appellants' declaration was not acceptable.
9. Shri Chakraborty has drawn our attention to the literature (page 14 of the papers submitted with the appeal memorandum in Appeal No.1466/84-D) on corkwood produced by AMORIM & IRMAOS, IDA, Portugal, the suppliers of the subject goods. He points out that though the stripping of the bark of the corkwood tree is done by axe, the bark is thereafter transported to various plants where it is subjected to industrial processing. Therefore, there must be use of power. We are unable to accept this contention. The same literature states that the cork is first soaked in boiling water for approximately an hour, the purpose being to eliminate mineral salts, tannins, fungi and parasites and thus, increase its elasticity and malleability. After boiling, the cork is piled up and left to rest for three weeks before being submitted to a selective quality grading based on thickness. This process requires a skill based on years of daily experience, since it depends exclusively on the worker's visual criterion. Part of this selected cork is used in Portuguese manufacture but the majority is exported in pressed bales to various world markets. From this narration, it would be evident that no power is employed in the production of cork.
10. The fact that cork is extracted manually from cork oak with an axe is also certified by the "INSTITUTO DOS PRODUTOS FLORESTAIS" which, as seen from a certificate issued by the Portuguese Embassy in New Delhi, is the Institute of Forestry Products, an agency of the Portuguese Ministry of Commerce and Tourism. These documents reinforce the conclusion arrived at earlier.
11. Shri Chakraborty has contended that the question whether there has been "manufacture" is irrelevant in regard to the levy of additional duty of customs on imported goods. For this, he relies on the Supreme Court's judgment in Khandelwal Metal & Engineering Works v. Union of India & Others - 1985 (20) E.L.T. 222 (S.C.). The Court has held therein that for the levy of additional duty of customs the taxable event is the import of goods into India and not their manufacture and so such duty is leviable even if the goods are not capable of being manufactured in India or are not in fact manufactured in India. The goods in that case were brass scrap. The contention for the importers was that scrap was not a manufactured product and could not be levied to excise duty and, therefore, to additional duty of customs. The present case has proceeded before the lower authorities not on the basis of whether or not there has been "manufacture" but whether Notification No. 179/77 was applicable or not. The question whether there has been "manufacture" is irrelevant, as the Surpeme Court has held, but even on the basis there has been "manufacture" - that is apparently the basis on which Notification No. 179/77 was brought into play and its benefit denied by the Revenue - the question before us is the applicability of Notification No. 179/77. The cited judgment is, therefore, of no assistance to Revenue.
12. There were some submissions with reference to Central Excise Notification No. 46/81, dated 1-3-1981 which exempts all goods, falling under Item No. 68, CET, other than goods manufactured in a factory, from the whole of the excise duty leviable thereon, factory being defined as in Section 2(m) of the Factories Act, 1948. Shri Chakraborty submitted that this concept of factory was not applicable to imported goods. Shri Lakshmi Kumaran's submission was that the subject goods were naturally produced goods, not factory made goods. We are inclined to agree with the DR on the issue because the definition of factory as in Section 2(m) of the Indian Factories Act can obviously have relevance only in the Indian context i.e. to indigenously manufactured goods. But it is not necessary to go further into this aspect because, in the view we have taken the subject goods were eligible for exemption from additional duty of customs by virtue of Central Excise Notification No. 179/77.
13. In Appeal No. 1466/84, there is another issue for determination.
The consignment of corkwood in this case covered by the supplier's Invoice No. 2728, dated 23-12-1981 was for US $ 9325/- on the basis of which duty was levied and collected. According to the appellants, the goods supplied were under-grade and, on the matter being taken up with the suppliers they agreed to reduce the price by US $ 1300/- for which they issued a Credit Note No. 206/82, dated 23-6-1982 which was enclosed with their letter of the same date. The Union Bank of India through which the documents were encashed, by their letter dated 2-7-1982 to the appellants, informed them that they received the amended draft for US $ 8025 and called upon them to make the payment to enable the bank to remit the proceeds to their foreign correspondent.
The appellants have also produced the foreign supplier's bill of exchange dated 23-12-1981 for US $ 8025 (the date 23-12-1981 appears to be a mistake in view of the fact that the defect was admittedly noticed by the appellants after clearance of the goods from the customs control and the correspondence in this behalf appears to have been initiated only in June 1982).
14. The Collector (Appeals) has accepted that the suppliers had allowed the discount since the goods were found to be defective. However, refund of duty to the extent of the abatement of value allowed was rejected by the Collector on the ground that the defect in the goods was noticed after the goods were cleared from Customs control.
15. While Shri Lakshmi Kumaran contends that once the fact of abatement of US $ 1300/- in value has been accepted by the Department, they should have granted the corresponding refund. Shri Chakraborty, on the other hand, contends that since no survey was held before the goods left Customs control, the evidence produced in this behalf was not acceptable.
16. Section 22 of the Customs Act deals with abatement of duty on damaged or deteriorated goods. Such abatement is permissible if the damage or deterioration had occurred at any time before or during the unloading of the goods in India or at any time after their unloading but before their customs examination on account of any accident not attributable to any wilful act, negligence or default of the importer, his employee or agent or, in the case of warehouse goods, the damage has occurred at any time before clearance for home consumption. In the present case the reduction in value [which fact has been accepted by the Collector (Appeals)] has been occasioned by the complaint made by the importer of the goods to the supplier that the goods were under-grade. In other words, the goods were sub-standard or off specification. This is not, therefore, a case of damage or deterioration as envisaged in Section 22. The appellants' letter dated 9-6-1982 to which the foreign supplier's letter dated 23-6-1982 is the reply has not been produced before us. The basis of computation of the reduction in value at US $ 1300/- has not been explained in the correspondence. The appellants admittedly found that the goods were "under-grade" only after clearance of the goods from Customs control.
The invoice for the goods shows two separate quantities of cargo whose unit prices are different. The only distinguishing feature between the two quantities, as far as we can see, is that one is described as 6th and the other as 5th. What these stand for has not been explained. The order placed by the appellants on the suppliers has also not been produced. In what respect or respects the goods imported did not comply with the specifications set out in the order has not been explained. In this background, though the fact of reduction in value has been accepted by the Collector (Appeals), we cannot say that the claim for refund of duty has been satisfactorily established. Mere reduction in value without a satisfactory explanation therefor cannot be the basis for reduction of duty which apparently was collected correctly on the basis of the declared value.
17. However, in view of our finding that the goods are eligible for exemption from payment of additional duty of customs, the appellants would get relief in this respect. Insofar as basic duty of customs is concerned, the appellants' claim on the ground of reduction in value is not acceptable.
18. In the result, Appeal No. 598/82 and Supplementary Appeal No.3733/88 are allowed. Appeal No. 1466/84 is allowed to the extent of relief in payment of additional duty of customs. It is dismissed in other respects.