intertrade Electronics Pvt. Ltd. Vs. Collector of Customs

1. The appellants imported a consignment of 325 cartons containing Polyester Film coated with Ferric Oxide measuring 12 mm. x 325 mm. x 14500 ft. approximately. The goods were described in the invoice as above in 325 pieces. They sought clearance of the goods under OGL vide Appendix 6, List 8, part I, Item 565(48) of the Import Policy for April, 1985 - March, 1988 (in short AM 85-88). The Customs Authorities considered the goods to be Audio Magnetic Tapes in Jumbo Roll which appeared in Appendix 3, Part A, Sri. 607(4), which is a list of limited permissible items for raw-materials, components, consumables, tools and spares. According to the customs authorities, the goods also fell under Sri. No. 106A of Appendix 2, Part B under the heading "Engineering Items", import of which required import licence. In the impugned order, the Collector has, therefore, held that the import of the goods was not permissible under OGL vide Appendix 6 of AM 85-88 (Supra). As the appellants did not produce an import licence for clearing the goods, show cause notice was issued to them for confiscation of the goods and imposition of penalty. The Collector of Customs, who adjudicated the case, held that the polyester film coated with ferric oxide was nothing but audio magnetic tapes in jumbo roll covered by Sri. No. 607(4), Part A, Appendix 3 of AM 85-88 and Sri. No. 106A of Appendix 2, Part B of the said import policy. He, therefore, held the importation as unauthorised and confiscated the goods under Section 111(d) and (m) for contravention of Section 3(2) of the Imports and Exports (Control) Act, 1947, as amended, read with Section 11 of the Customs Act, 1962. The Collector, however, imposed a fine of Rs. 2 lakhs in lieu of confiscation. He also imposed a penalty of Rs. 50,000/- under Section 112 of the Customs Act by the impugned order. The order has been challenged before this Tribunal in the present appeal.

2. Appearing for the appellants Shri Bagaria has narrated the above facts. He has argued that the polyester film imported by the appellants have a width of 325 mm and there can be no machine to record the tapes of such a width. The appellants imported this film for the manufacture of audio magnetic tapes. This is confirmed by the certificate of Supdt.

of Central Excise. The appellants filed classification list, price list and RT-12 return in respect of the audio magnetic tapes manufactured by them. He has drawn our attention to the SSI registration certificate (page 20 of the paper-book) and invoice (page 21 of the paper-book). He has also drawn our attention to letter dated 13-7-1984 from the Small Industries Service Institute to the appellants, which says that "for sound recording, i.e. for commercial application, the audio tape of 3.81 mm is used. However, for professional grade application e.g. by AIR tape of approximately quarter inch in width is used. As per our knowledge audio tape of more than 2 inch in width are not used for sound recording". He has also drawn our attention to the ISI specification at pages 58 & 59 of the paper-book. He has argued that paragraph 59(3) of AM 85-88 says that there is co-relation between Import Trade Control classification and Import Customs Tariff classification. According to Chapter Note 3(d) of Chapter 39 of the Customs Tariff such films are covered by Chapter 39 of the Customs Tariff whereas Customs Tariff Heading 85.23 covers "prepared un-recorded media for sound recording or similar recording or other phenomena, other than products of Chapter 37 - Magnetic tapes." Tariff Heading 92.01/13 covers inter alia "prepared media for sound or similar recording; sound-recorded or similar media." He has also cited explanatory notes under Heading No. 85.23 of the Harmonized Commodity Description and Coding System which says that "this heading excludes 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); sensitised film for photo-electric recording Heading 37.02." Shri Bagaria has further aruged that if the goods are classified as polyester film under Chapter 39, the same would be exempted from basic customs duty in excess of 15% ad valorem and whole of additional duty of customs under Section 3 of the Customs Tariff Act, 1975 subject to the condition mentioned therein. He has stated that these polyester films were imported by them for the manufacture of audio magnetic tapes and the same was actually used for manufacturing such tapes as is evident from the certificate produced from the Supdt. of Central Excise. In this connection, he has cited the; exemption Notification No. 230/Cus dated 18-8-1983 as amended under Notification No.344/86-Cus. dated 16-6-1986 as amended. Polyester films of thickness not exceeding 36 microns falling under Chapter 39 of the Customs Tariff imported for the manufacture of magnetic tapes were exempted from basic customs duty in excess of 30% ad valorem and whole of additional duty of customs leviable under Section 3 of the Customs Tariff Act, 1975.

Shri Bagaria has argued that the appellants' imported polyester film was entitled to the benefit of the notifications as it fulfilled all the conditions laid down therein.

3. Shri Chandrasekaran, for the Revenue has reiterated the reasons given by Collector. He has also drawn our attention to para (V) of the Appeal Memo in which it is stated that as per definition given in the McGraw-Hill Encyclopedia of Engineering and Scientific Terms, the expression magnetic tape means "plastic, paper or metal tape that is coated or impregnated with magnetisable iron oxide particles used in magnetic recording." This definition covers the imported goods.

4. We have gone through the records and have considered the arguments.

The appellants' claim is that the imported films are permissible to be imported under OGL, Appendix 6, List 8, Part I, Serial 565(48) of AM 85-88. This serial No. mentions "Polypropylene/Polyester film (plain/metallised)." The imported polyester films are not metallised.

These are coated with Ferric Oxide. Ferric Oxide gives the films magnetic character. After coating with Ferric Oxide, the polyester films cease to be ordinary polyester films. Note 10 to Chapter 39 of the Customs Tariff says that "In the Heading Nos. 39.20 and 39.21, the expression "plates, sheets, film, foil and strip" applies only to plates, sheets, film, foil and strip (other than those of Chapter 54) and to blocks of regular geometric shape, whether or not printed or otherwise surface-worked, uncut or cut into rectangles (including squares) but not further worked (even if when so cut, they become articles ready for use)." Explanatory Notes below Headings 39.20 and 39.21 in the Harmonized Commodity Description and Coding System (in short HSN) explains the scope of these headings in the following terms: "According to Note 10 to this Chapter, the expression "plates, sheets, film, foil and strip" applies only to plates, sheets, film, foil and strip and to blocks of regular geometric surface-worked (for example, polished, embossed, coloured, merely curved or corrugated), uncut or cut into rectangles (including squares) but not further worked (even if when so cut, they become articles ready for use, for example, tablecloths)." This explanation has given a few examples of the expression "otherwise surface-worked". These examples are polished, embossed, coloured, merely curved or corrugated. This means that the expression "Otherwise surface-worked" covers processes similar to these examples. Coating with Ferric Oxide is not a process given in the examples in the said Explanatory Notes or a similar process. The process of coating with Ferric Oxide is a completely different process which changes the characteristic of the polyester film. After this coating, the polyester film does not remain a plain polyester film. As a result, the polyester film coated with Ferric Oxide, falls outside the purview of Serial No. 565(48) of Appendix 6, List 8, Part I of AM 85-88. In the circumstances, the appellants' goods could not be imported without an import licence under OGL against this serial No. of Appendix-6 of the Import Policy.

5. The next point to be considered by us is whether the imported goods are audio magnetic tapes, requiring a licence under Sri. No. 607(4), Part A, Appendix-3 and Sri. No. 106A of Appendix-2, Part B of A.M.85-88. Serial No. 607(4) of Part A, Appendix-3 reads as follows: (4) Audio magnetic tape in reels, cassettes, jumbo rolls, hubs, cartridges and pancakes, and in any other form excluding 35 mm and 16 mm sporcketed tapes." Serial No. 106A of Part B of Appendix-2 is also similarly worded. These two serial numbers cover audio magnetic tapes in jumbo rolls. The imported polyester films coated with Ferric Oxide are fully processed magnetic tapes. These have acquired the characteristics of audio magnetic tapes. After import, the appellants did not apply any process of manufacture to these films except slitting and winding in small reels. The slitting of these films into narrower width was for the purpose of fitting in the recording machines. The import of these magnetic tapes in jumbo rolls facilitated bulk packing and carrying.

The Collector has, therefore, correctly held that the imported goods were nothing but audio magnetic tapes in jumbo rolls covered by these two serials of Appendix-2 and Ap-pendix-3 respectively, requiring an import licence for their import. The learned advocate for the appellants has relied on the Explanatory Notes below Heading 85.23 in the HSN in support of his argument that the imported films are not prepared media for recording sound or other phenomena and hence these are covered by Chapter 39 of the Customs Tariff. In our view, these are prepared media for recording sound as already discussed by us.

6. In the light of the above discussions, we hold that in the absence of an import licence, the importation of the impugned goods was unauthorised as held by the Collector. There is no merit in the appeal.

We, therefore, uphold the impugned order and dismiss the appeal.