Titan Watches Vs. Collector of Customs - Court Judgment

Excerpt:
1. after hearing both sides, we allow the application for condonation of delay in respect of supplementary appeals and take up the appeals for consideration.2. all these appeals involving common question of facts and law were heard together and are being disposed of through this common order.3. the appellants manufacture inter alia quartz analog watches. for this purpose they imported several consignments of what were claimed to be watch movements. these goods were assessed to duty under tariff item 9110.11. however, a demand notice was issued to them on the ground that step motors are classifiable under chapter 8501 and therefore, exemption to these step motors was not available to the appellants under notification no. 43/85, dated 28-2-1985 as amended. the demand was confirmed by the lower authorities. collector (appeals) upheld the order. hence this appeal.4. arguing for the appellants, ld. advocate submits that the department has erred in holding against them that for the purpose of exemption components also should fall under customs tariff heading 91.10. the qualification relating to goods liable to be classified under heading 91 of customs heading applies only to final products i.e. quartz analog wrist watches. in any case what they imported were not step motors as such but only rotor, stator and coil alongwith the other parts which together constitute a complete watch movement. these were imported in unassembled condition and according to interpretative rule 2(a) would certainly qualify as watch movements under heading 9110.11. therefore, even assuming that notification requires a component parts to be classifiable under chapter 91, they are covered having imported complete watch movements in ckd condition. chapter heading 8501 refers only to electric motors and the three items which are in dispute are not manufactured as an electric motor but are assembled in the process of manufacturing watch movements.5. arguing for the revenue, ld. dr while reiterating the departmental arguments, submits that the subsequent change in the notification by incorporating chapter heading 85 also would make it clear that the intention was to allow exemption only to such components as were classifiable under chapter 91. drawing attention to explanatory notes, he submits that such electric motors specifically attract classification under chapter heading 85.01 and these motors therefore, would get classified under chapter heading 98.06. he further submits that chapter note 91 clearly excludes such type of movement from purview of chapter 91 in terms of note 1(g) of chapter 91.6. we have heard both sides. we have also perused diagrams of the various components claimed to constitute watch movements in unassembled condition as these were imported. ld. advocate also presented in the court the actual specimens of all the components which together would qualify as watch movements.we first take up the question relating to scope of notification in relation to components. notification 43/85, dated 28-2-1985 as amended exempts: "components of mechanical wrist watches and quartz analog wrist watches (excluding semi-knocked down packs, completely knocked down packs, and those specified in the table annexed hereto), falling under sub-heading no. (2) of heading no. 91.01/11 of the first schedule to the customs tariff act, 1975 when imported into india for the manufacture of the wrist watches." the notification lays down certain conditions like goods being covered by lists certified by the industrial adviser in the directorate general of technical development, that the goods have been imported under a programme duly approved by the industrial adviser and the evidence that such imported components have been used in the manufacture of wrist watches etc. there is no dispute about these conditions. the question that falls for our determination is very limited one; whether exemption is available only to such components as are classifiable under chapter 91, and whether the components as claimed by the department do not merit classification under chapter 91 but have to be classified under chapter 85.the reading of notification would make it clear that what notification exempts are components of mechanical watches and quartz analog wrist watches as fall under chapter 91 of first schedule of the customs tariff act. the requirement of notification for classification under chapter heading 91 would in our view be attracted in case of finished products. in other words, the notification requires that component parts are exempted if these are parts of the analog watches falling under chapter 91.7. ld. dr forcibly tried to argue that step motors are electric motors within the meaning of chapter 85 as amplified by exemption. in fact we note that 8501 refers to electric motors and generators of various output and department claims that these motors fall under chapter 8501.10 as motors of an output not exceeding 37 kva. we note that department has not led any evidence to prove that the goods which have been alleged to be electric motors have a voltage not exceeding 375 kva for classification under 8501.10. moreover, we find considerable force in the argument of ld. advocate that the impugned goods i.e. rotor, stator and coil do not come into existence during the process of assembly of watch movements as an electric motor. in view of this, we are of the view that these three parts imported separately alongwith other watch movement parts and cleared on a common bill of entry would not attract classification under 8501. therefore, even if the argument is accepted that these goods assessed along with other parts of watch movement would attract in items of interpretative rule 2(a) classification under heading 9110.11, these would be eligible to exemption. we would, however, prefer to adopt the view that exemption notification in mentioning requirement of classification under chapter 91 restricts this condition relating to classification only to finished products i.e. quartz analog watches, and not to components. we have perused tribunal's order in the case of. bharat earth movers ltd., madras v. collector of customs, madras - 1987 (31) e.l.t. 112a. the tribunal held that the parts of any article falling under headings 'refer to the article and not its parts to fall under specified headings for the parts to qualify for exemption'.ld. dr also argued that if these are considered as watch movements in ckd conditions then the import under appendix 2(b) is not permissible.we find that this was not a ground raised in the proceedings and proceedings for short levy under section 28 of customs act were in respect of three impugned items i.e. rotor, stator and coil.8. in the result, for the reasons mentioned herein before, we allow the appeals and set aside the impugned order with consequential relief to the appellants, if any, in accordance with law.

Judgment:
1. After hearing both sides, we allow the application for condonation of delay in respect of supplementary appeals and take up the appeals for consideration.

2. All these appeals involving common question of facts and law were heard together and are being disposed of through this common order.

3. The appellants manufacture inter alia quartz analog watches. For this purpose they imported several consignments of what were claimed to be watch movements. These goods were assessed to duty under Tariff Item 9110.11. However, a demand notice was issued to them on the ground that step motors are classifiable under Chapter 8501 and therefore, exemption to these step motors was not available to the appellants under Notification No. 43/85, dated 28-2-1985 as amended. The demand was confirmed by the lower authorities. Collector (Appeals) upheld the order. Hence this appeal.

4. Arguing for the appellants, ld. Advocate submits that the department has erred in holding against them that for the purpose of exemption components also should fall under Customs Tariff Heading 91.10. The qualification relating to goods liable to be classified under Heading 91 of Customs heading applies only to final products i.e. quartz analog wrist watches. In any case what they imported were not step motors as such but only Rotor, Stator and Coil alongwith the other parts which together constitute a complete watch movement. These were imported in unassembled condition and according to Interpretative Rule 2(a) would certainly qualify as watch movements under heading 9110.11. Therefore, even assuming that notification requires a component parts to be classifiable under Chapter 91, they are covered having imported complete watch movements in CKD condition. Chapter Heading 8501 refers only to Electric Motors and the three items which are in dispute are not manufactured as an electric motor but are assembled in the process of manufacturing watch movements.

5. Arguing for the Revenue, ld. DR while reiterating the departmental arguments, submits that the subsequent change in the notification by incorporating Chapter Heading 85 also would make it clear that the intention was to allow exemption only to such components as were classifiable under Chapter 91. Drawing attention to Explanatory Notes, he submits that such electric motors specifically attract classification under Chapter Heading 85.01 and these motors therefore, would get classified under Chapter Heading 98.06. He further submits that Chapter Note 91 clearly excludes such type of movement from purview of Chapter 91 in terms of Note 1(G) of Chapter 91.

6. We have heard both sides. We have also perused diagrams of the various components claimed to constitute watch movements in unassembled condition as these were imported. Ld. Advocate also presented in the Court the actual specimens of all the components which together would qualify as watch movements.

We first take up the question relating to scope of notification in relation to components. Notification 43/85, dated 28-2-1985 as amended exempts: "Components of mechanical wrist watches and quartz analog wrist watches (excluding semi-knocked down packs, completely knocked down packs, and those specified in the Table annexed hereto), falling under sub-heading No. (2) of Heading No. 91.01/11 of the First Schedule to the Customs Tariff Act, 1975 when imported into India for the manufacture of the wrist watches." The notification lays down certain conditions like goods being covered by lists certified by the Industrial Adviser in the Directorate General of Technical Development, that the goods have been imported under a programme duly approved by the Industrial Adviser and the evidence that such imported components have been used in the manufacture of wrist watches etc. There is no dispute about these conditions. The question that falls for our determination is very limited one; whether exemption is available only to such components as are classifiable under Chapter 91, and whether the components as claimed by the department do not merit classification under Chapter 91 but have to be classified under Chapter 85.

The reading of Notification would make it clear that what notification exempts are components of mechanical watches and quartz analog wrist watches as fall under Chapter 91 of First Schedule of the Customs Tariff Act. The requirement of notification for classification under Chapter Heading 91 would in our view be attracted in case of finished products. In other words, the notification requires that component parts are exempted if these are parts of the analog watches falling under Chapter 91.

7. Ld. DR forcibly tried to argue that step motors are electric motors within the meaning of Chapter 85 as amplified by exemption. In fact we note that 8501 refers to electric motors and generators of various output and department claims that these motors fall under Chapter 8501.10 as motors of an output not exceeding 37 KVA. We note that department has not led any evidence to prove that the goods which have been alleged to be electric motors have a voltage not exceeding 375 KVA for classification under 8501.10. Moreover, we find considerable force in the argument of ld. Advocate that the impugned goods i.e. Rotor, Stator and Coil do not come into existence during the process of assembly of watch movements as an electric motor. In view of this, we are of the view that these three parts imported separately alongwith other watch movement parts and cleared on a common bill of entry would not attract classification under 8501. Therefore, even if the argument is accepted that these goods assessed along with other parts of watch movement would attract in items of interpretative Rule 2(a) classification under Heading 9110.11, these would be eligible to exemption. We would, however, prefer to adopt the view that exemption notification in mentioning requirement of classification under Chapter 91 restricts this condition relating to classification only to finished products i.e. quartz analog watches, and not to components. We have perused Tribunal's order in the case of. Bharat Earth Movers Ltd., Madras v. Collector of Customs, Madras - 1987 (31) E.L.T. 112A. The Tribunal held that the parts of any article falling under headings 'refer to the article and not its parts to fall under specified headings for the parts to qualify for exemption'.

Ld. DR also argued that if these are considered as watch movements in CKD conditions then the import under Appendix 2(B) is not permissible.

We find that this was not a ground raised in the proceedings and proceedings for short levy Under Section 28 of Customs Act were in respect of three impugned items i.e. Rotor, Stator and Coil.

8. In the result, for the reasons mentioned herein before, we allow the appeals and set aside the impugned order with consequential relief to the appellants, if any, in accordance with law.