Full Judgment
Briefly stated the facts of the case are that the appellants are a joint venture company between Bharat Electronics Ltd., a public undertaking and M/s. Delft Instruments of Netherland. They obtained the approval of the concerned Board for setting up a 100% Export Oriented Unit (E.O.U). They were also issued an industrial licence for setting up a 100% Export Oriented Unit for the manufacture of 'Image Intensifier Tubes' and Tower Supply Units' in pursuance of the approval granted to them for setting up 100% E.O.U. for the manufacture of the said goods. They imported 150 Nos. (Bare Intensifier Tubes) against Bill of Entry No. 2024, dated 7-4-1992 from Netherland and claimed clearance of the goods free of duty in terms of Notification No.13/81-Cus., dated 9-2-1981. On examination of the goods the Customs authorities formed an opinion that the imported 'Image Intensifier Tubes' were finished products not covered by any item mentioned in the table annexed to the Notification No. 13/81-Cus., dated 9-2-1981. The appellants were, therefore, served with a show cause notice dated 27-5-1992 requiring them to show cause as to why the benefit of Notification No. 13/81-Cus., dated 9-2-1981 as claimed by them should not be denied and why the goods should not be confiscated under Section 111(d) of the Customs Act and penal action not be taken under Section 112 of the Customs Act, 1962. After going through the submissions made by the appellants the Collector passed an order dated 27-6-1992 in which he held that the goods being finished 'Image Intensifier Tubes' not requiring any further manufacture. He held that they were not eligible for exemption under Notification No. 13/81-Cus., dated 9-2-1981. He therefore, ordered the confiscation of the goods under Section 111(m) of the Customs Act, 1962 read with Section 3 of Import and Export (Control) Act, 1947. However, he gave an option for the redemption of the goods on payment of fine of Rs. 10 lakhs in lieu of confiscation.
2. Being aggrieved by the order passed by the Collector, the appellants preferred an appeal before the Tribunal. The Tribunal vide its final Order No. C/63/93-B2 and Misc. Order No. C/20/93-B2 held that the Collector was in error in holding that the imported Bare Image Intensifier Tubes were finished products and the process to which they were to be subjected to at the hands of the appellants was not a process of manufacture. On these grounds the Tribunal held that the Collector's order confiscating the goods under Section 111(m) of the Customs Act, 1962 was not sustainable. The Tribunal, therefore, set aside the order of confiscation of the goods and the fine of Rs. 10 lakhs imposed in lieu of confiscation. The Collector's finding that the condition No. 2 of the Notification No. 13/81 requiring that the importer carries out the manufacturing operation in custom bond was not satisfied, was erroneous since the appellants had been granted permission to set up a 100% E.O.U. and they had also obtained permission for in-bond manufacture of goods. The Tribunal remanded the matter to the Collector for de novo examination of the question whether in respect of the goods in question the other conditions of Notification No. 13/81-Cus., dated 9-2-1981 were satisfied or alternatively whether the goods were covered by Notification No.206/76-Cus.
3. Appearing on behalf of the appellants Shri V. Sridharan, learned advocate submitted that the Collector had held that the conditions of Notification No. 13/81-Cus., dated 9-2-1981 were not satisfied. He added that the Collector had denied the benefit under the said notification on the ground that a permission by the Development Commissioner, SEEPZ, Bombay vide his letter dated 21-7-1992 on the basis of the letter dated 5-4-1989 by the Under Secretary, Ministry of Commerce to Development Commissioner of various free trade zones to sell Image Intensifier Tubes to Indian Defence Organisation subject to global tender condition could not have the effect of amending the Notification No. 13/81-Cus. He stated that in this regard the Collector has observed that any amendment to the said notification exempting sales to Government Departments and Government Undertakings must be in a form of notification issued under Sub-section (1) of Section 25 of the Customs Act, 1962. The learned counsel for the appellants argued that the Collector had erred in arriving at his finding since in terms of Condition No. 7 the exemption under the notification also applies to goods which are used for manufacture of articles by a 100% EOU Undertaking and which are allowed to be sold in India in accordance with relevant Import & Export Policy as amended from time to time or subject to other limitations and conditions as may be specified in his behalf by the Chief Controller of Imports & Exports. He referred to the letter of intent dated 4th December, 1992 issued by the Ministry of Industry at page 21 of the paper book and the amendment thereto dated 30th June, 1992 at page 19 of the paper book in terms of which the appellants were required to export the entire (100 %) production and which also stipulated that the unit would also be entitled to deemed export benefit as would be admissible to export oriented units as per Impex Policy 1992-97. He, thereafter, referred to para 103(a) of the Import Export Policy 1992-97 which provides that the supply effected to DTA under global tender condition would be counted towards fulfilment of export obligation by 100% EOU. He referred to the letter dated 29-7-1992 from the Indian Ordinance Factory at page 102 of the paper book stating that two orders for the supply of Image Intensifier Tubes had been placed on the appellants after enquiries in this regard from various well known suppliers of similar goods in the world. He also referred to the letter dated 21-7-1992 at page 151 of the paper book from the Export Promotion Officers, Santa Cruze Export Processing Zone, permitting the appellants to supply 450 Nos. 18 mm and 255 Nos. 25 mm Image Intensifier Tubes to the Indian Defence Department subject to global tender condition as per para 103(a) of the Import and Export Policy, 1992-97. He submitted that in view of the clearance given by the Development Commissioner in terms of clarification issued by the Under Secretary, Ministry of Commerce vide his letter No. 6/2/89-EPZ, dated 5-4-1989 and in view of the provisions of para 103(a) of the Import & Export Policy for the period 1992-1997 the appellants were in a position to comply with the Condition No. 7 of the Notification No.13/81-Cus., dated 2-9-1981. On query from the Bench whether in respect of the proposed supplies to the Defence Department in terms of the orders specified in the letter of Indian Ordinance Factory dated 29-7-1992 at page 152 of the paper book, requirement of supplies being made under global tender condition would be satisfied, the learned counsel pointed out that the letter of the Indian Ordinance Factory clearly stated that the order was placed with the appellants after making enquiry from all the leading manufacturers of Image Intensifier Tube in the world and the item being of a very highly specialised nature was available with only few manufacturers in the world. He contended that under these circumstances in respect of the imported goods the global tender conditions have to be deemed as having been met. He argued that in any case condition No. 7 to the notification was in the nature of post-importation condition and the fulfilment or otherwise of the said condition and other conditions would have to be examined by the Customs or Zone authorities in terms of the bond stipulated in condition No. 6 of the notification, after clearance of the goods and after completion of the manufacture of the goods to be undertaken by the appellants. He contended that under these circumstances the Collector's finding that the appellants were not eligible for exemption under Notification No. 13/81-Cus., dated 9-2-1981 was erroneous and not sustainable. As regards the appellants' claim that the imported goods could also be deemed as eligible for exemption under Notification No. 206/76-Cus., dated 2-8-1976, the learned counsel conceded that the benefit under the said notification would not be available in respect of the imported goods since the goods were unfinished items required for the manufacture of goods in the appellants' factory and not capable of being supplied directly to the defence organisation.
4. On behalf of the respondents Shri K.K. Jha, learned SDR reiterated the finding of the Collector in the impugned order.
5. We have examined the record of the case and considered the submissions made on behalf of both sides. It is seen that the main question that arises for consideration in this case is whether the goods imported by the appellants are eligible for exemption in terms of Notification No. 13/81-Cus., dated 9-2-1981.
6. It is seen that the only allegation in the show cause notice was that the benefit of exemption under Notification No. 13/81-Cus. as claimed by the appellants was not admissible since the notification exempts the specified goods when imported for the production of goods for export or for use in 100% E.O.U. whereas the goods imported were completely finished Image Intensifier Tubes. The Collector of Customs upheld the charge that the Image Intensifier Tubes in question were completely finished products not requiring any finishing or further manufacturing. He, therefore, held that they were not eligible for exemption under Notification No. 13/81-Cus., dated 2-9-1981. He ordered the confiscation of the goods under Section 111(m) of the Customs Act, 1962 read with Import & Export (Control) Act, 1947. The Tribunal vide its final order No. C/63/93-B2 reversed the Collector's finding that the imported goods were fully finished products not requiring any further manufacturing and held that the disputed goods were not fully finished goods and the processing required to be undertaken by the importer would amount to manufacture. While setting aside the order of confiscation under Section 111(m) of the Customs Act, 1962 and also the fine in lieu of confiscation of Rs. 10 lakhs, the Tribunal remanded the matter to the Collector for de novo consideration of the question whether in view of the Bill of Entry filed in respect of goods imported for use in 100% E.O.U. and the proposed manufacture of goods in bond, the appellants could be deemed to be eligible for exemption in terms of other conditions in the Notification No. 13/81-Cus. or alternatively under Notification No. 206/76-Cus. While giving up the claim that the imported goods are eligible for exemption under Notification No.206/76-Cus. the learned counsel for the appellants has contended that the goods having been held by the Tribunal as items requiring further manufacture, they have to be deemed as eligible for exemption under Notification No. 13/81-Cus., dated 9-2-1981. It has been contended that the appellants being a 100% E.O.U. approved by the Board of Approval for 100% E.O.U. are required in terms of condition No. 3 of the Notification No. 13/81-Cus. either to export 100% of manufactured articles out of India or in terms of condition No. (7) of the notification the articles manufactured by them can be allowed to be sold in India in accordance with Import & Export Policy dated 12th April, 1994 as amended from time to time in such quantity and subject to such other limitations and conditions as may be specified in this behalf by the C.C.I. & E. on payment of central excise duty or customs duty, as the case may be as specified in the said condition. He has referred to the Government of India, Ministry of Industry letter dated 30th June, 1992 at page 19 of the paper book wherein the letter of intent dated 22-1-1990 granted to the appellants was amended vide letter dated 25-3-1990 providing for the manufacture of Image Intensifier Tube and Power Supply Tube under 100% EOU scheme [which] was amended to provide that the appellants would either export 100% of the production or alternatively they could avail of deemed export benefit as admissible to 100% E.O.U. as per Impex Policy, 1992-97. The appellants have, therefore, contended that the Collector had erred in holding that in respect of the imported goods the conditions of exemption as laid down in Notification No. 13/81-Cus. were not satisfied since he has failed to take into account the fact that in terms of condition No. (7) of the said notification and the letter of intent issued to the appellants, they were also entitled to the deemed export benefit in terms of para 103 of the Import and Export Policy 1992-97 which provides for fulfilment of export obligation by such units through supplies effected in D.T.A. (Domestic Tariff Area) under global tender condition or supplies effected in D.T.A. against payment in foreign exchange. In this regard the appellants have also referred to the permission to them given by the Development Commissioner, SEEPZ on the basis of letter dated 5-4-1989 issued by the Under Secretary, Ministry of Commerce to the Development Commissioner to sell the manufactured goods to defence organisations and government departments.
7. On perusal of the letter of intent issued to the appellants and having regard to the provisions of para 103 of the Import & Export Policy for the period 1992-97, we are inclined to agree with the appellants that in terms of the condition No. (7) of the Notification No. 13/81-Cus. they would be eligible to fulfil the export obligation by effecting supplies to parties in D.T.A. under global tender conditions. The appellants have contended that the supplies of Image Intensifier Tubes to be made in terms of order No. L/91/21/PV, dated 20-4-1991 and order L/91/22/PV/OFD, dated 20-4-1991 referred to in the letter dated 29-7-1992 at page 152 of the paper book from the Indian Ordinance Factory, Dehradun has to be deemed as supplies against global tender condition since the order was placed on the appellants by the Indian Ordinance Factory after sending inquiries against these orders to all renowned manufacturers and suppliers of Image Intensifier Tube in the world. In this regard the appellants have also referred to the letter dated 21st July, 1992 from the Export Promotion Officer in the Office of the Development Commissioner, SEEPZ, Bombay which confirms that supply of 450 Nos. 19 mm. Image Intensifier Tubes and 255 Nos. 25 mm Image Intensifier Tubes to the Indian defence organisation, if made under global tender conditions, would be counted towards fulfilment of export obligation.
8. The appellants have also referred to the letter No. 6/2/92/EPZ, dated 5th April, 1989 from the Under Secretary, Ministry of Commerce addressed to the Development Commissioners of various Free Trade Zones which conveys the decision of the Ministry that sale not requiring import licence to defence organisations and government departments by the units set up in the Free Trade Zones would be treated as a G.C.A.export.
9. While arguing that in respect of the imported goods all the conditions of Notification No. 13/81-Cus., dated 9-2-1981 are satisfied and the goods are eligible for clearance free of duty in terms of the said notification, the appellants have contended that in any case, fulfilment of export obligation being a post-importation condition its fulfilment has to be examined and ensured by the concerned authority after clearance of the goods and completion of the manufacture thereof by the 100% E.O.U. in terms of bond which is required to be executed by the importer in terms of condition No. (6) of the said notification.
10. On a plain reading of the Notification No. 13/81-Cus. (as amended) we are of the view that as long as the goods imported by a 100% Export Oriented Undertaking approved by the Board of Approval for 100% Export Oriented Undertakings appointed by the Govt. of India are specified in the table annexed to the said notification and all other conditions of the notification including condition No. (6) relating to execution of a bond for fulfilment of export obligation in terms of the relevant Import and Export Policy are satis-filed, the goods will be eligible for exemption under the said notification and the fulfilment of export obligation in terms of the relevant condition of the notification will have to be examined by the concerned authority after clearance of the goods and on completion of manufacture by the 100% E.O.U. in terms of bond referred to in condition No. (6) of the notification.
11. In view of the above discussion and having regard to the fact that the Tribunal has held that the imported goods are not finished goods and are vital for the production of the end-product by the appellants, we hold that subject to the satisfaction of all other conditions of the Notification No. 13/81-Cus., dated 9-2-1981 the imported goods will be eligible for exemption in terms of the said notification and question of fulfilment of export obligation will have to be decided by the concerned authority after the clearance of the goods and on completion of manufacture by the appellants.
12. The impugned order is therefore, set aside and the appeal is allowed in above terms.