Full Judgment
4695-98(NM) of 1990 which was filed by the appellants M/s Dynamatic Hydraulics Ltd. against an Order Nos. 198 to 201/90-A dated 12th March, 1990. A succinct factual background as well as the terms of remand to the Tribunal set out in the order of the Hon'ble Supreme Court runs as follows : "On November 28,1981, the appellant company applied for a licence to import, inter alia, components of plain paper copiers, the manufacture of which was to be started by them shortly under an agreement of technical collaboration with the Nashua Corporation, U.S.A. The C.I.F. value of the licence applied for was as follows :Item Value Value(i) Components 28.800 2.8800(ii) Accessories 1.007 0.1007(iii) Consumables 14.172 1.4172 ----------- ----------- The details of the components to be imported were set out in an annexure to the application divided into 12 groups. The one item around which the controversy mainly centres is K Serial No. 12. The component was described as "copier frame" in the group "Main motor Assembly, Magnetic Clutch Assembly, Control Unit, Power Source Section". 1500 numbers of this component valued at Rs. 1,27,42,368/- (1.27 crores) were sought to be imported. The Government granted a licence on 30-9-1992 for import of items valued at Rs. 3.73 crores, the annexure to which classified the item described above thus :S.No. Component Group19 Power Board Section24 Control Unit The value of these and other components to be imported as given by the appellant was left undisturbed. In other words, the appellant was allowed to import components of the above description valued at Rs. 1.27 crores out of a total licence value of Rs. 3.73 crores (roughly 34%).The appellant made a revalidation application on 27-7-1984, seeking to import components, accessories and spares, of the value of Rs. 1.58 crores. Of these, 900 numbers were to be of the component "Copier Frame" falling under the above groups and valued at Rs. 71,14,534 roughly 53% of the total value of the imports applied for. However, the value of the licence granted was restricted to Rs. 80 lakhs which included 589 numbers of "copier frame" of the value of Rs. 28,22,870 (roughly 34%). In short, the value of the item "copier frame" permitted to be imported by the appellant, constituted about 34% of the total value of either licence.
When the goods were eventually imported, the Collector of Customs came to the conclusion that there were various violations of the terms of the licence. He passed four adjudication orders in respect of four items of import by which he imposed the following heavy penalties and fines in lieu of confiscation:S.No. Amount of Fine Amount of Penalty Rs. Rs. [N.B. : The figures in brackets represent the amounts of fine and penalty as reduced on appeal by the Tribunal.] (i) that the appellant had imported a number of items (as per the list in the licence) in complete assembly with the main frame; (ii) that they had imported a number of "mounted PCB assemblies (including main control unit), lens system, halogen lamps, auto-transformer units, power supply unit, exit rollers, drum shafts, blowers, motors, gears, capacitators relays" and many other innumerable small parts which cannot be arranged and identified straightaway, which are not shown in the list attached with the licence and which cannot be considered to be part of the main frame itself as claimed by the appellant; and (iii) that they had imported 100% of the parts of the photocopying machine out of which 70% are assembled together with the main frame and the balance of 30% can be assembled very quickly without any serious effort.
In short, the charge was that the appellant had virtually imported complete photocopier machines whereas they were permitted to bring only 52 specific non-electronic parts. He pointed out that this was contrary to the phased development programme (PDF) under which the goods were imported. He concluded that the licence was not valid to cover all the items imported. He also pointed out that the values as shown in the invoices could not be accepted because there was the interception of a "related person". In the result, he imposed fines and penalties as detailed above.
The appellants preferred appeals to the Central Excise, Customs and Gold (Control) Appellate Tribunal. The Tribunal dismissed the appeals in so ' far as the validity of the licence was concerned but they allowed them on the question of valuation. In regard to one item viz. cover glass, which was admittedly imported "over and above" the order, they directed a fresh appraisal of its value.
Keeping in mind the relief given in respect of valuation, the Tribunal reduced the amounts of fine and penalty to the amounts set out in brackets earlier. On the first issue, the Tribunal disposed of the contentions in the following terms: "21. The list attached to the licence also shows that these parts cannot make a photocopier. The statement of 7-11-1986 given by Shri A.V. Athley, Chief Executive of appellants clearly owned that the components imported in these consignments constitute complete photocopying machines "more or less". According to this statement only some electrical parts were required and plugs, cables, voltage stabilizers could be some of them.
22. We examined the list of imported goods in the light of the list attached to the licence. The elaborate argument that the main frame includes several other components, that the selerium drums include selerium drum assembly have to be rejected for the reason that the items as listed in the list attached to the licence do not cover them. There is no question of elaborate interpretation of these words in the list. If the list says main frame, it should be main frame only and nothing else. Similarly, the list simply mentions drums and we do not agree that this should be interpreted to mean drum assembly and to include several other items. The licence is clearly for non-electric items. The items are clearly mentioned.
Viewed in this light, we do not find any infirmity in the Collector's order. Therefore, we reject the arguments in this regard and hold that the Collector correctly held that the licence did not cover the goods. Consequently, the confiscation under Section 111(d) is upheld." After hearing both counsel we have come to the conclusion that the matter must be sent back to the Tribunal for being considered afresh. From the facts stated earlier, it will be seen that the amounts of fine and penalty are very substantial even after the reductions granted by the Tribunal. While the Collector has passed very detailed orders, the Tribunal has disposed of the matter more briefly, in examining the correctness of the order of the Tribunal, two aspects have to be kept in mind : (i) the nature or extent of violation of the terms of the licence by the appellants and (ii) the quantum of the redemption fines and penalties. So far as the former is concerned, the Tribunal has been somewhat cryptic. It has no doubt observed that several items imported by the assessee are not covered by the terms of the licence. As has been mentioned earlier, each of the licences contained a large number of items of components which are permitted to be imported. The Collector has set out in his orders, the extent of items which, according to him, are, and which are not, covered by the licence though the value of the items which have been imported without a licence is not quite clear. The Tribunal, however, has concentrated on only one of these items, namely, "main frame", perhaps by way of illustration. They have indicated that this expression means only the bare frame and that a large number of components which do not form part of the main frame have been sought to be imported as parts of the main frame. This is also the item we have earlier referred to. We confess we have not been above to fully understand the nature of the claim made by the assessee or the interpretation given by the Tribunal in the absence of a proper picture regarding the nature of the machine and components involved. As pointed out earlier, the application for licence refers to "copier frame" and mentions this as a component of a certain "group". The first licence mentions the four independent groups but does not talk about "copier frame" while the second refers to "main frame". A draft sketch of the "copier frame" was supplied to us which shows a number of components but this does not indicate any component item called "main frame" nor does it clearly specify the groups referred to in the licence. We are, therefore, unable to identify the exact nature of the component indicated and what it comprises of so as to be able to say whether the Tribunal's inference that the "main frame" does not include any components other than a frame was justified. Secondly, we think some indication about the components mentioned in the licence could have been gathered from the values set out in the licences. We have mentioned earlier that the value of 1500 numbers of copier frames as shown in the first licence was of the tune of Rs. 1.27 crores and that of 589 numbers specified in the second licence was Rs. 28.23 lakhs. We have no idea whether the value of each main frame, if understood in the manner in which the Tribunal has explained it, would be so high as to comprehend this item in the licence. In the absence of the individual values of the main frame and other components, it is very, difficult to say whether the Tribunal was justified in restricting the item "copier frame" only to "main frame". Thirdly, the concepts involved are quite technical. As pointed out on behalf of the assessees, in such circumstances, the customs authorities are required to take the assistance of the import trade control authorities (vide, e.g., para 325 of the Handbook of Import-Export Procedures for the year 1984-85). Though the opinion of the latter is not building on the customs authorities such a course would have been helpful where, as here, there is doubt regarding the technical nomenclature of the components mentioned in the licence. It is also of some relevance that no action has been taken by the import trade control authorities against the assessee in relation to its imports which one would have expected had there been such large scale violation of the terms of the licence as has been made to appear.
While, therefore, it does appear that some of the components (such as cover glass, and some of the components imported by the assessee were not covered by the licence, it is not quite clear to what extent the components claimed by the assessee to form part of the main frame or drum assembly are not covered by the licence.
So far as the second aspect is concerned, there are certain circumstances that need to be taken into account. It is clear, as pointed out on behalf of the appellant, that the consideration that the component parts imported could be assembled to constitute substantially the whole of the photocopier machine is irrelevant; the question is, to what extent there was import of unlicensed component parts. The Tribunal has agreed with the assessee that, "in interpreting the terms of the licence and judging its suitability (sic), extraneous considerations like the requirements of the phased manufacturing programme" should not be taken into account. They have also accepted the assessee's plea that no mutuality of interest had been established between the importers and the suppliers calling for a rejection of the wholesale price shown by the assessee and holding that valuation was not possible under Section 14(1)(a) of the Customs Act. They have remanded the case to the Collector for valuation by excluding the concept of 'related person' and also for valuation of the 'cover glass'. It cannot be denied that, in assessing the amount of fine or penalty, it is not only relevant but crucial to have regard to the value of the goods which have been imported without a proper licence. A proper determination of fines and penalties is not possible without a proper assessment of the values of the infringing items of import.
We are, therefore, of opinion that the facts of the case require a second and a closer look, if not with a view to give complete relief to the assessee, at least to determine a reasonable quantum for the redemption fines as well as the penalty. We, therefore, set aside the orders of the Tribunal and direct it to consider the issues in the light of our observations and dispose of the appeals before it afresh." 2. Shri K. Srinivasan, the learned Consultant appeared for the appellants. He submitted that the Paragraphs 8 & 9 of the Supreme Court judgment lay down the focus of the remand. The learned Consultant urged that the question essentially boils down to one of determining the nature and extent of the violation in terms of the import licence namely as to the nature and extent of the unauthorised import and secondly, on that basis of the extent of unauthorised import to determine what would be the appropriate fine and penalty. Taking up the question of the licence description of the goods "copier frame", the learned Consultant submitted that the first import licence issued in 1981 mentioned four independent groups of materials but did not mention copier frame. But the second import licence issued in 1985 contained the description main frame. The learned Consultant pleaded that the Supreme Court has observed that the value of the main frame has also to be considered in determining whether the description would cover only the bare frame. The learned Consultant pointed out that the value of the copier frame is about 34% of the total value of the licence which would itself show that it is not a bare frame but in fact it is a sub-assembly being a component of the photocopier. In 1985, Import Licence was issued as per decision of the Headquarters Licensing Committee in its 13th Meeting held on 1-12-1984. The Committee had before them a copy of the licence application. The list of goods to be imported is an Annexure to the application which is exhaustive, wherein the appellant had indicated the numbers of each components in each group with its C.I.F. value. The appellants had asked for 900 numbers of copier frame, each consisting of the main motor assembly magnet clutch assembly controlling unit and power source section. The learned Consultant pleaded that the list of goods attached to the licence itself would show the copier frame is not merely a frame but is a sub-assembly. It is a component as defined in the Import Policy 1984-85. In the first application for licence also under the group, the appellant had included main motor assembly, magnet clutch assembly controlled unit and power source section under the component copier frame. In that case the Import licence was issued with a name of the group forming the component whereas in second licence, it is the component which was included in their list attached to the licence. It was further submitted that the definition of part in the Import Policy, is that, it is a part of a sub-assembly or a assembly, not useful by itself and not a capable of being further disassembled for replacement.
The part is a component of a sub-assembly, the sub-assembly itself being component of a machine. Similarly the component drum and drum drive section constitutes one group comprising the components drum guide, roller bracket, drum, front end disc, panel and drum stay. In the first licence these were described in the list under the group drum, drum drive section. In the second licence these were described separately and the group nomenclature given in the first licence was not included. The learned Consultant further argued that the PCB assembly forms a part of the control unit and the power source section.
Both these groups are included in the component main frame. The lense is part of the optics and is covered by the mirrors assembly which is a specific component in the list. The learned Consultant further submitted that the Collector erred interpreting Serial No. 451 in Appendix 3 Part 'A' in 1984-85 Policy. This Serial number reads : "Components of photocopying machine excluding electronic components".
Electronic component would mean a PCB simplicitor as a populated or mounted PCB is only a part of a machine or an instrument. The expression operation panel in the licence list clearly shows according to the appellants that it has to function as a operational panel and it cannot so function without the PCB. It was further argued that the Collector had referred to the developer tanker and has held that the item has been imported containing 14 items. But the item alongwith their hardware as a whole have to be considered as components.
Similarly, the learned Consultant pointed out that the term container in the licence list is the same as paper cassettes. The learned Consultant reiterated that a photocopying machine does not have a component known merely as a frame but description is copier frame are main frame. The expression according to the appellants would refer to something more than a frame and would include components which are considered by the manufacturer as constituting the part of the component copier frame or main frame. This is also evidenced from the value of the component as a percentage of the total value of the licence which in both the licences comes to 35% for the single item. As the Supreme Court has already observed, it is immaterial whether all the components when put up together would constitute complete photocopier. It is only a question of determining whether the component imported by the appellants were covered by the import licence produced.
The learned Consultant cited and relied upon the Calcutta High Court decision in the case of H.C.L. Ltd. v. Union of India, reported in 1992 (59) E.L.T. 507 (Cal.) where the High Court noted the Supreme Court decision in the present appellants' case reported in 1992 (58) E.L.T.553 (S.C.) in the case of Dynamatic Hydraulics Ltd. v. Collector of Customs. The Calcutta High Court held that the import of a photocopier complete except for selenium drum does not constitute the import of the whole machine though substantially all the parts are imported. The learned Consultant drew attention to the observation of the High Court that it is the violation of the letter of the law which is punishable and not violation of the spirit of the law. As regards the exposure glass, the learned Consultant submitted that its value cannot be more than Rs. 20/- at the time of import and submitted that after such a long lapse of time from the date of import, the appellants do not even want to enter into any controversy about the exposure glass. He further pointed out that the valuation of this material was not more than Rs. 10/-. CIF as noted at the time of examination and the Collector has not given reasons for the basis of enhancing its value.
3. Shri B.K. Singh, the learned Senior Departmental Representative appearing for the Collector contended that the terms of the list attached to the licence covering the goods has been seen and whether the imported goods are covered by licence description. The materials in the list to the licence are all issued against Serial No. 451 Appendix 3 Part A of the Import Policy 1984-85 and the wording of the serial number is already extracted above. It allows components of photocopying machine excluding electronic components. The electronic principle is on the basis of movements of electronics. The learned Senior Departmental Representative contended that all populated PCB's i.e. PCB's in which transistor resistors are fixed would form electronic components. The goods imported herein the main frame is having PCB which are clearly components which are electronic in nature. Such components are not permitted to be imported under Serial No. 451 Appendix 3 Part A of the Import Policy 1984-85. PCB by itself will not be a electronic components but populated PCB will be such a component. The appellants had brought the main frame to the Tribunal also and the learned Senior Departmental Representative submitted that the examination showed that the main frame is fitted with populated PCB. The learned Senior Departmental Representative further argued that if the main frame is a sub-assembly and a component of the photocopier fitted with PCB, then there was no necessity to list the component other than the main frame in the list attached to the licence. The learned Senior Departmental Representative contended that once the component part is specifically listed in the licence it should be imported as such and should not be imported in assembled form. The Examination Report of the goods shows that the main machine is fitted with the parts and Shri Shahtri of the appellants had stated that all the parts put together will go to make a complete copier. It has also been found by the Collector that at the relevant time, import of the photocopier machine was prohibited as a consumer goods covered by Appendix 2 Part B Serial No. 104 of the Import Policy. Therefore, according to the Department at the relevant time complete photocopier was prohibited for import. In such a context, the case differs from that of H.C.L. Ltd. (supra) relied upon by the appellants. The import of the complete photocopier except for minor parts in this case is also contrary to the phased manufacturing programme approved for the appellants in the manufacture of photocopier. The learned Senior Departmental Representative relied upon the Tribunal decision in the case of Ratan Exports Ltd., Delhi v.Collector of Customs, Calcutta, reported in 1987 (29) E.L.T. 102 (Tribunal) which was upheld by the Supreme Court 1987 (31) E.L.T. 66 (S.C.) - Ratan Exports Ltd. v. Collector of Customs, Calcutta to say that the import of the goods which is not as per description in the licence is not permissible. He also cited the case of Mangalore Flour Mills Pvt. Ltd. v. Collector of Customs, reported in 1990 (46) E.L.T.160 (Tribunal) to say that complete roller mills in split consignments is not permissible. What has been imported is not merely the main frame but something much more than that and as imported goods are not covered by the description of the components given in the list attached to the licence, the whole import is unauthorised. Making a submission on the Department's appeal against the Collector's order, the learned Senior Departmental Representative emphasised the grounds of appeal and contended that having regard to the gravity of the offence, the Department's case is that the Collector ought to have imposed a much higher penalty on the appellants because what has been attempted is a fraud on the Import Policy.
4. In his reply the learned Consultant submitted that the photocopier is not a consumer goods for which the learned Consultant relied upon the decision of the Tribunal reported in 1986 (7) E.T.R. 347 in the case of Colour Chem Limited v. Collector of Customs, Bombay. Consumer goods, it has been held, are only those which satisfy human needs directly without further processing. The case law reported in 1986 (25) E.L.T. 549 in the case of Colour Chem Ltd. v. Collector of Customs, Bombay was also cited to say that a photocopier is not consumer goods being generally in use in offices. Further, to say that the import of the complete photocopier is prohibited as a consumer goods is according to the appellants is unsustainable. This question also does not now survive after the Supreme Court observation in its remand order that this aspect is irrelevant. As regards the Department's appeals for enhancement of the penalty on the importer, the learned Consultant submitted that the goods imported according to the appellants are covered by the list attached to the import licence produced by them and the offence, if any, of a few excess items, is not such as to warrant any penalty much less enhancement thereof, especially, in view of the Supreme Court observation regarding the import in its order remanding the case to the Tribunal.
5. The submissions made by both the sides have been carefully considered. The questions to be considered as per Supreme Court direction are the nature or extent of the violation of the terms of the licence by the appellants and the quantum of redemption fine and penalties. In the Collector's adjudication order, the Collector has found as follows in paras 12 to 16 of the order :- Para-12. - As evident from the examination report pasted with the Bill of Entry, goods were examined in presence of the importers representative and it was found that the main frame has come with the following parts assembled together.
(i) A number of mounted PCB assemblies including one which form main control unit.
The parts shown at (b) above are not listed in the licence list, but they are nevertheless present in the main assembly which they brought. To this, Shri Arun Athalye argued that PCB's, Transformers, gear and pulley etc. are parts of the main frame. He also maintained that lense system and halogen lamp are mirror assembly. I find that the main frame has been assembled with a large number of parts. This was obviously not the intention of the licence. In the licence, the parts have been written separately. The identity of each part cannot be found out now unless one tries to find out each and every item separately from the complete assembly. With considerable difficulty only one can identify such parts which have become part of the assembly. If the intention was to allow an assembled machine, then the licence description would have been totally different. In that case the licence description would have been something like "assembly of parts in SKD condition". The licence description is not like that. The licence description consists of complete enumeration of all the parts separately. Therefore, when the goods have been brought in an assembled condition with the main frame, it is obviously not covered by the licence description. Although, it is not a completely assembled machine, few parts which are outside are rather of less importance and the whole job of assembling can be finished within a very short time.
Para-13. - I also find that there are other parts which are not in the licence list such as mounted PCB assemblies, lense system, auto transformer unit, power supply unit, halogen lamp, rollers, blowers, motors, gears, capacitors etc. which have been imported in assembled condition. These have been claimed as part of the main frame. This cannot be accepted, Mounted PCB assemblies, Halogen lamp, lense system, auto transformer unit, power supply unit, rollers, blowers, motors etc. have separate functions which are very important and identifiable. They cannot be considered as part of the main frame itself. One of the PCB assembly form the main control unit of machine. Obviously, it is common knowledge that the mounted PCB assemblies are of significant value to the whole machine. Their value is normally within the range of about 25 to 30% of the whole machine. Apart from the above mentioned items like mounted PCB assemblies, lense system, auto transformer unit, power supply unit, roller, blower, gears, motors etc., there are hundreds of other parts that have been brought alongwith the main frame which cannot be identified unless the machine is completely dismantled which has not been done because it is neither practicable nor desirable at this stage.
Para-14. - (a) There is a third point that has to be noted that there are a few parts which do not occur in the licence description.
One of them is operation panel. The description in the licence is operation panel as per Appendix 3(a) ST. No. 451 of Import Policy 1985. This particular item excludes the electronic components but what they have brought with this, is a PCB assembly fitted with it.
PCB's being electronic components cannot be treated as covered by the licence description. Another item is developer tank. The licence description is developer tank but what they have brought, is a developer unit. There are 14 items in the unit of which the tank is one.
(b) It was found that the operation panel is fitted with parts like print switch, exposure control knob which are not shown in licence list.
Para-15. - (a) At the time of examination it was also observed that the main machine is fitted with a number plate which contains the following markings : (b) There is a Sr. No. mentioned on the cartons which contain the main machine. This number matches with the number mentioned on the main machine. The marking of production S. No. at import stage confirms the fact that the fully manufactured machine has been partly disassembled and exported by the foreign suppliers. In fact such product number should be assigned after manufacturing process in India is over.
(c) The main machine is equipped with electric cable and plug. Only exterior parts are required to be fitted with the machine and the machine can start functioning. For FTC as well as valuation purposes, it will be taken as import of photocopying machines.
Para-16. - (a) the following parts which are not shown in the purchase order/invoice but shown in packing list were also found : (iii) 146 cassettes are received and only 73 are covered against entry paper containers in licence).
(b) In addition to above, 73 numbers of exposure glasses which are neither shown in purchase order/invoice nor in packing list were also found. 3 Selenium drums were also found in excess to the declared quantity.
These findings essentially bring out the nature of violation of the terms of the licence by the appellants. Determination of the precise extent thereof presents practical difficulties as expressed by the Collector and as also found by us when a sample of the goods said to be main frame as imported was shown to us which were found in an assembled condition. The Collector has found that 70% of the components were found in assembled condition and it would present considerable difficulty to identify each component from such an assembled machinery.
In such a situation even the oral explanation given by a local technician (produced by the appellants and said to be familiar with the machine imported) about the various parts that are already assembled is not of much help. We find ourselves unable in the circumstances to identify the exact nature of the component and what it comprises of.
And it is also not denied by the appellants that most of the parts have been imported in assembled condition. Not only that, the assembled machinery has also been tested at the supplier's end abroad before being packed for export to India. The appellants have stated in their appeal, "These components were all tested before despatch as the components for this model of the plain paper copier were being imported for first time. After testing the small components were not disassembled." In such a context, the operations that the appellants carry out on the goods as they are imported will also be relevant. It has been stated as follows in the technical write up given to Collector on their operations on the goods in India :- The various components imported are thoroughly tested for their functional effectiveness prior and at various stages of assembly in order to achieve the desired copy quality and consistent reliability.
The following components are locally procured and added on to the copier during various stages of assembly: All the incoming components are thoroughly checked for physical damages. Electrical items like motors, transformers, lamp indicator bulbs, solenoids, power pack etc. are checked for their proper operation. Mechanical operations of chain drive systems, mechanical movement of solenoids, motors dutches etc. are examined. The physical condition of corona units, drum, exteriors, halogen lamp are checked for any cracks, peeling etc.
Routine testing is carried out for each sub-assembly. A control chart is used for checking the various assembly operations to enable the proper functioning of each sub-assembly and care is taken to see that no function is missed out. For example, the pick off section sub-assembly is checked for proper action of the pick off blade and pressure wire when the transfer corona is inserted in the main frame and taken out.
After the assembly is completed, the copier is checked for 'free run' during which the free-movement of the scanner, noiseless running of various chain drives and rollers are observed. The proper operation of Registration solenoid and Exposure lamp is also done during this cycle. During the free run mode, the indicators on control panel, operation of key paid, Buzzer working, counter indication etc. are checked.
The Developer tank pump motors are checked for free movement so as to ensure noiseless running. The various vinyl connecting tubes in the developer tank are checked for proper positioning as they are transporting the developer during copy cycle. The Float switch is adjusted for actuation when the required quantity of developer is in the tank. The various voltages such as bias voltage and anti-deposition voltage which are coming on the Electroe and Sensor are also checked which control the background on the copier. The Straightness of the scraper blade is ensured which controls the deposition of the toner particles on the paper. The gap between the sensor lamp and Cds cell is adjusted so as to draw the toner only when the toner concentration falls below the pre-deter-mined value.
The copy quality is adjusted by using the accu-set concentration developer i.e. a pre-determined volume of toner is added to a known volume of dispersant. The 1ST test sheet is used for quality check.
The focus of the lense is adjusted for resolution. The side to side exposure is set by adjusting the main corona wire height and also positioning the shielding plate on the reflector aid assembly. The overall darkness of the copy is achieved by adjusting the height of shutter plate. The side to side adjustment in reduction mode is done by adjusting the height of the fourth mirror. The cleaning blade, cleaning roller and cleaning station solenoid pressure are adjusted for proper cleaning of the drum.
Copy run test is essential to ensure the proper functioning of all the components assembled and to check the copy quality over a period of time, as all the copiers are warranteed for a period of six months or 50,000 copies whichever is earlier. The copier is loaded with a pre-determined quantity of copies. Copies are taken for different modes of exposure i.e. normal, light and dark. A copier file is maintained which contains the test sheets taken for different settings and from both the cassettes. The file also contains the documents pertaining to assembly, testing, installation and after sales-service.
It is clear that what is added to the imported assembled goods are only power plug, voltage stabiliser, name plate, model number sticker, lock assembly, contact glass and machine cover. But the Collector has also found that even the production serial number of the machine is already available on the assembled goods imported. All this clearly shows that the production programme of the appellants was for import of practically the whole photocopier in assembled condition and it was not for importing the various components in unattached unassembled form.
The description given by them of the components in their licence application, however, clearly gives the impression of the import of the components in unattached condition by describing them separately in different headings and groups into 52 components. The licence to them has been granted on this basis. When this is so, the Collector's finding as follows on the nature of the contravention in Para-21, has to be seen. He found, "in this case the scope of licence is limited only upto importation of 52 non-electronic specified components of plain photo-copier subject to quantity and value restrictions. In case of importation of the same goods in the same manner there would not have been objection. The description of the goods and the manner in which they have arrived is not the same as allowed in the licence. A large number of components which are not covered in the list attached with the licence, are also found". Such a situation of the validity of import of most of the final product in assembled form against a licence for raw-material components finds a parallel in the case of Ratan Exports Ltd. v. Collector of Customs, Calcutta, reported in 1987 (29) E.L.T. 102 (Tribunal) decided by the Tribunal, which decision was upheld by the Supreme Court as reported in 1987 (31) E.L.T. 66 (S.C.).
It has been held that such imports will not be valid. Paras - 2 to 5 and 7 to 11 of the Tribunal decision as well as Paras 3 and 4 of the Supreme Court judgment endorsing it, are follows : Para - 2. We have heard that Shri N. Wattal, Sr. Advocate assisted by Shri Pradeep Agarwal, Advocate for the appellants and Shri K.C. Sachar for the Department.
Para - 3. In the letter dated 4.9.1984 to the Joint Chief Controller of Imports and Exports the appellants wrote as follows : "We are accordingly enclosing herewith the application in the prescribed form, for the Advance Licence for the import of Moulded Sheets of ABS Resins valued at Rs. 42,35,000/-. It may, however, be stated that these moulded sheets of ABS resins of the specific sizes will be be fixed together with the help of special dyes (SIC) and .tools in correct lineations. The locks and handles will be screwed to the bottom sheets to arrive at a complete attache case. The attache case will be tested for tensile strength and crushing strength in our works before despatch." It is in accordance with this request that the advance licence had been granted, the description of the goods to be imported being mentioned in the licence as "Moulded sheets of ABS resins together with handles and locks of different sizes of black, burgundy or brown colour." The invoices of Feb., 1985 also contained this description only. But in the meanwhile under letter dated 24-11-1984 the appellants had requested that the licence may be amended to read "Moulded sheets of ABS resins (with upper and lower lids or covers) together with handles and locks of different sizes of black, burgundy or brown colour". "The actual amendment granted under letter dated 1-2-1985 of the office of the JCCI & E was "Moulded sheets of ABS resins (with lower lids or covers) with handles and locks of different sizes of, black, burgundy or brown colour". There is no dispute that the goods actually imported were not the upper and lower part of the attache cases independently but that they had been hinged together, the inner lining as well as the aluminium lining having been already fixed to the sheets.
Para - 4. - What had been imported was, therefore, the hinged body, alongwith locks and handle. It was mentioned in the show cause notices that in the above circumstances the imported goods were attache cases (in different sizes) in fully manufactured condition with loose handles and locks, key sets and screws). It is for this reason that it was proposed under the show cause notices to hold that the imported goods were not in accordance with the description of the goods to be imported as mentioned in the advance licence and thus there had been a violation of the conditions of the licence. It had been further mentioned that as the description in the invoice and bill of entry was in accordance with the description as in the licence only there was thus a misdescription also as contemplated under Section 111(d) of the Customs Act. Apart from this, it had been mentioned that as all that was required after import was to fix the locks and the handle with the screws provided, there was no manufacture of attache cases as was required under the duty exemption scheme and therefore the entitlement to duty free exemption could not be granted. Thus the charge in the show cause notices consists of three parts : Para - 5 . - The description in the licence as it was issued and the description after amendment of the licence have been extracted supra. The description in both instances makes no reference to the upper and lower parts being supplied in a hinged condition or with inner and aluminium linings already fixed. The description of the goods as given in the application for licence (dated 4-9-1984) has also been extracted earlier. That letter reads as if what were to be imported were only moulded sheets of ABS resins (of specific sizes) which were to be later fixed together by the importer with the help of special dies and tools and thereafter fitted with locks and handles. Even in applying for the amendment the appellants had described the need therefor by mentioning "the slight modification is needed because the imported sheets would be upper and lower lids or covers of attache cases meant for export". Thus even in this application no indication had been given that the import was to be of the upper and lower parts hinged together. Since the amendment was in the light of this request dated 24-11-1984, the amendment in the licence naturally made no reference to the two parts being hinged already at the time of import.
Para - 7. - The above passage makes it clear that, as the appellants understood it, the normal commercial practice in international trade was to supply these attache cases of different sizes in nest packing so that each case of a particular size may be packed in another case of a bigger size, thus reducing the volume of the freight and, evidently, charges for the freight which would be based on volume as well as weight. The other reason suggested is that the supplier would himself ensure that the corresponding upper and lower parts are hinged, thus avoiding the possibility of the upper part of any box being attached to the lower part of another box, resulting in misalignment. Since thus the normal course of supply in trade was, according to the appellants themselves, in the manner above-said, they should certainly have been aware even from the inception that the goods to be imported would be hinged parts and not loose parts.
But in spite of such knowledge the appellants had chosen to make their application dated 4-9-1984 as if the upper and lower parts were to be imported unattached to each other and as if it is they who will be attending to the hinging of the two lids as part of their process of manufacture of the attache cases. Again, even when applying for the amendment of the licence they had proceeded on the same basis and without disclosing the fact that the upper and lower parts would be imported in a hinged condition.
Para - 8. - Shri Wattal contends that no sinister motive need be spelt out of such a fact since the JCCI & E had, later, at the request of the appellants, issued letter dated 10-5-1985 that if the appellants had applied for a further amendment sufficiently early the JCCI & E would have granted the amendment in the description of the licence. Shri Wattal therefore contends that this would establish that there was no prohibition against the import of the two parts hinged together and that the failure to indicate this fact in applying for the licence need not be viewed with suspicion.
Para - 9. - The letter of the JCCI & E would itself be an indication that the actual import (of the upper and lower parts in a hinged condition) was not in accordance with the description in the licence. A decision on the question whether there had been a violation of clause 3 of the Import (Control) Order read with Section 3(2) of the Imports and Exports (Control) Act read with Section 11 of the Customs Act, 1962 would not depend on the question whether the goods actually imported were permissible to be imported if they had been properly described in the licence but whether the goods actually imported were in accordance with the description in the licence. Nor would it be correct to say that because the JCCI & E had expressed, in a recommendatory letter, that if the amendment had been applied for in time it would have been granted, that would suffice to establish that the Customs Authorities should also accept the recommendation in the said letter and hold that there was no violation of the provisions cited supra. The jurisdiction of the licensing authority would be to see whether the licence ought to be granted, either with conditions or otherwise, as and when the importer applies for a licence. But once a licence had been granted it would be for the Customs Authorities to determine whether the goods actually imported were in accordance with the description in the licence. Once it is established that the goods imported were not in accordance with the description in the licence, the fact that if the licensing authority had been approached in time he may have amended the licence, would not, for that reason, take away the jurisdiction of the Customs Authorities to hold that the actual, import was not in accordance with the licence.
Para -10. - As earlier mentioned, the facts are clear that while the licence permitted import of ABS Moulded resins (upper and lower parts) with handles and locks separately the actual import was of the parts not merely hinged together but fixed with the inner lining as well as aluminium lining. If, as mentioned by the appellants themselves in their appeal, the normal practice in international trade was for supply of the upper and lower parts hinged together, and also lined in the manner abovesaid, it was necessary that the appellants should have described the goods in that manner not merely when applying for the licence, but also in their shipping documents.
Admittedly they had failed to do so, either in applying for the licence or in seeking for amendment of the same or in describing the goods in their shipping documents. Thus, as against the description on the licence that the lids were to be supplied as separate pieces, they were imported in a lined and hinged condition. In the circumstances the case that there has been a misdescription of the goods as will attract the provisions of Section 111(d) of the Customs Act is fully established.
Para - 11. - Another reason on the basis of which the Collector had held against the appellants is that in order to become entitled to the duty free import the appellants will have to establish that, utilising the material imported, a product for export would be manufactured but that the said condition was not satisfied in the case of the appellants. The finding of the Collector was that what was imported was an attache case and that what remained to be done by the appellants was only to fit up the handle and locks utilising the screws provided and that this process of screwing in the handle and the locks would not amount to a process of manufacture of attache cases. The contention for the appellants is that such a conclusion on the part of the Collector was not correct since various processes, apart from screwing in the handle and the locks, were to be carried on the material imported and that such complicated processes were processes of manufacture leading to the emergence of a fully manufactured attache case utilizing the components or raw-material imported. Details of such processes, said to consist of 13 different steps, have been indicated in the papers filed before us during the hearing. But no such details had been given in the reply to the show cause notices. Nor do such details appear to have been given at the hearing before the Collector since we find no reference to such details in the orders of the Collector.
The details furnished before us are roughly to the effect that utilizing a press machine the top and bottom frames are aligned and thereafter the corners are properly rounded utilizing a nylon hammer and round steel jigs and then proper holes are punched thereon and enlarged for fitting locks properly and thereafter the name plates and handles are fitted up, a special torque control electric screw driver being utilized for the said purpose. Thereafter cracks and scratches are removed by applying hot steam and the aluminium bits are cleaned i and thereafter check for pressure test and strength is carried out. Photographs have also been filed as to how these processes are carried out. If we look into the letter dated 4-9-1984 under which the licence was applied for, we see from the passage extracted earlier that the dies and tools are mentioned for fixing together the moulded sheets in correct lineation. As seen earlier, the fixing together of the upper or lower parts had been carried out by the supplier himself before the shipping. In the circumstances it is not quite clear whether all the processes mentioned in the letter dated 4-9-1984 were in fact to be carried out, utilizing the dies and tools on the imported material. In any event, the processes described in the paper filed before us appear to be more in the nature of removal of blemishes as might have arisen due to the damage in transit except in the case of fixing of locks and handles.
Therefore, the manufacturing processes mentioned in the letter dated 4-9-1984 (on the basis of which the licence had been obtained as also the duty exemption certificate) do not appear to be necessary to be carried out on the imported material in the condition in which they were imported. The fixing of handles and locks would not appear to be a manufacturing process leading to the manufacture of an attache case. It, therefore, appears to me that with reference to the actual condition in which the goods were imported the requirement of a manufacturing process being carried out on them (as mentioned in the letter dated 4-9-1984) does not appear to be necessary in order to entitle the appellants to the duty free import under the scheme therefor. In arriving at this conclusion I have taken note of the condition in which the material had been imported as disclosed by an authenticated sample of two such attache cases produced before us during the hearing. In the circumstances I am satisfied that the view taken by the Collector in his orders on this question is correct.
Para - 3. - The Customs Authorities found that to obtain the benefit of the concessions under the Scheme, the materials required to be imported for the purpose of manufacture of goods or replacement of the materials used in the manufacture of the goods or both were to be raw materials and what the appellant had been imported were indeed finished goods and therefore the benefit of the Scheme was not available. The import was not entitled to exemption from duty and the infraction called for action under Sections 111 and 112 of the Customs Act.
Para - 4. - At the hearing, one of the imported 'attache cases' was produced to demonstrate the condition in which the alleged raw material was being imported. We found that excepting the locks and the handle all the other fittings were complete. There is hardly scope to argue for acceptance of view different from what has been taken by the departmental authorities or the Tribunal. The finding that there has been a violation cannot be interfered with.
The present appellants case is weaker still as in their case the licensing authority has not made any recommendation nor has any post importation clarification from CCIE been obtained. It is to be noted that in the above case decision was based on a perusal of the sample of the imported goods by CEGAT and by the Supreme Court. From the above discussion it is possible to arrive at a reasonable conclusion that while the precise extent of violation of the terms of the licence by the appellants presents practical difficulties because of the 70% assembled form in which the goods are imported, the nature of such violation as found by the Collector in the impugned order is well-founded. Further even according to the appellants the exposure glasses were not at all covered by the licence and 3 selenium drums were in excess.
6. The next issue is of the quantum of fine and penalty on the appellants. While examining this aspect the guidelines discernible in the remand order of the Supreme Court have to be borne in mind. The factors which would support a lower level of fine and penalty are, firstly, the absence so far of any evidence to show that the licensing authorities have initiated any proceedings against the importer-appellants; secondly the findings by the Tribunal in their favour on the question of valuation saying that the importer-appellants and the foreign suppliers cannot be held to be 'related persons'; thirdly, that the appellants are the actual users of the imported goods and have not imported the goods as stock in trade; fourthly, it will also be relevant to have regard to the fact that about 8 years have rolled by since the imports were made and the large amount of demurrage incurred, which, according to the importer-appellants is of about Rs. 35 lakhs; and finally, the Hon'ble Supreme Court's direction, which is that "the facts of the case require a second and closer look, if not with a view to give complete relief to the assessee, at least to determine a reasonable quantum for the redemption fines as well as the penalty." And the reasonable quantum, in our view, for the redemption fines and penalty, on the facts and in the circumstances of the case, and for the reasons set out above, is as follows:--------------------------------------------------------------------------------S. No. with CEGAT Existing Fine as per Existing Penalty asAppeal No. fine as per the present penalty as per the pre- earlier order per earlier sent order CEGAT4.
C/624/87-A 11,25,000 5 lakh 1,50,000 75,000-------------------------------------------------------------------------------- Further, and as a consequence of the orders as above, and, in the light of the Supreme Court direction as regards the quantum of fines and penalty quoted above, the very raison de etre for the present appeals by the Department against the Collector's order for enhancing penalty, disappears. The appeals filed by the Department are, therefore, dismissed.
7. As regards valuation of the cover glass, the fact remains that the valuation fixed by the Collector has been found by the Tribunal to be disproportionate and not based on evidence. We find that the importer appellants have now stated before the Tribunal that the value cannot be more than Rs. 20 at the time of import, and they have further submitted that seven years after the import, they do not even want to enter into any controversy about the exposure glass. The importer-appellants have submitted that they are even prepared to have the exposure glass detained and disposed of by the Customs authorities. In these circumstances, considering that the Custom House has also not been able to arrive at the assessable value of the goods in question during the long intervening period since the Tribunal's direction on the subject, we order that the assessable value for the exposure glass at Rs. 20 as suggested by the importer-appellants be accepted.