Set Telecommunications Private Vs. Collector of Cus. - Court Judgment

Excerpt:
1. this appeal is directed against the order-in-original dated 7-3-1988, passed by the collector of customs, bombay, who has held that the imported goods described in the bill of entry 'telephone instruments in skd form both becadic and dtmp type" is classifiable as 'parts' under customs tariff heading 9806. however, he has held that the item cables are excluded from the heading 9806.00 by virtue of note 7 to chapter 98 read with notification no. 132-cus., dated 19-3-87 and be assessed under the respective headings. the claim of the importer for assessment of the item under heading 8517.10 as a complete telephone and for benefit of notification no. 172/77 was rejected by the collector. the collector has taken a view that the classification of the commodity has to be determined in accordance with the form in which the item is imported. in the instant case, the importer had imported 19 skd parts of telephone with individual valve and the same was subject-matter of assessment. the importers assemble these items and manufacture a complete item as 'telephone'. it was contended by them that the items are 'parts'. the collector noting the submissions applied note 1 to chapter 98, which reads "this chapter is to be taken to apply to all goods which satisfy the conditions, even though they may be covered by a more specified heading elsewhere in this schedule".he held that the only condition for inclusion under 9806.00 is that items should be parts of machinery, equipments, appliances, instruments, and articles of chapters 84, 85, 86, 89 and 90 and the exclusion clause vide note 7 to chapter 98. the collector has held that the item do not figure in the exclusion clause other than cables falling under heading 8544, excluded vide notification no. 132/87-cus.the collector has observed that the interpretative rule 2(a) is applied only for the purpose of classification of goods in respect of un-complete or non-finished articles. in the instant case the import has taken place in the form of sub-assemblies in line with the list of items attached to the import licence, as in accordance with the phased manufacturing programme duly authorised by dgtd. therefore, he has held that interpretative rule 2(a) is not applicable. he has further observed that it can be applicable, at the most (as per the explanatory notes to the interpretative rules), to articles, the components of which are to be assembled either by means of simple fixing devices (screws, nuts, bolts, etc.) or by rivetting or welding, for example provided only simple assembly operations are involved. he has held that in respect of present import of 19 separate sub-assemblies it requires not only a process requiring technical know-how and design but also as may require essentially a process of manufacturing to be undertaken and therefore, cannot be categorised as a process of simple assembly. he has held that there is certainly a difference between a simple assembly and a phased manufacturing programme. hence he has rejected the applicability of rule 2(a) of the interpretative rules in the present case. on this premise, he has passed the final order.2. the appellants are aggrieved with this finding and they have contended that the collector has incorrectly held that the assembly of the imported sub-assembly is done by a simple process and is not done by a phase manufacturing process covering more assembly. it is contended that the item being in the semi knock down condition is easy to assemble into telephones with the help of screw driver only. it is contended that rule 2(a) cannot be ignored and by such application, the parts which are in skd condition are required to be assessed as full instruments only. on the premise of these contentions, it is stated that the goods are to be classified under chapter 8517.10 as "telephone sets", with the benefit of notification no. 172/77, dated 8-8-1977. the appellants have not raised any grounds with regard to classification of cables adopted by the collector in the impugned order.3. we have heard shri l.p. asthana, the learned advocate, for the appellants and shri k.k. jha, the learned dr, for the revenue.4. the learned advocate arguing for the appellants contended that for the purpose of classification rule 2(a) is required to be applied and on such application, the imported items being in the nature of sub-assemblies would be classifiable under chapter heading 8517.10 as "telephone sets". he submits that the process require only screw driver technology and hence there is no question of ignoring rule 2(a) for the purpose of classification. he submits that the goods being classified under heading 8517.10 automatically notification no. 172/77, dated 8-8-77 (as amended) would be attracted which grants benefit for items falling under 85.17 although those are excluded in column 4 of the notification. it is his contention even though the parts would fall under column 4, yet the benefit of this notification cannot be rejected, by application of rule 2(a) of general rules for interpretation of tariff. he submits that in the case of sipani automobiles ltd. v. collector of customs, as reported in 1996 (16) rlt 646, the tribunal has approved and followed the earlier judgment by applying rule 2(a) for the purpose of classification in respect of sub-assemblies and it did reject it for the grant of benefit of notification. however, he further points out that in the case of winter misra diamond tools ltd. v. collector of central excise, as reported in 1996 (83) e.l.t. 670 the tribunal took into consideration the judgment, on this issue for the purpose of granting benefit of notification by applying the interpretative rule 2 (a) and has come to the conclusion that where the tariff entry is extracted in the notification, then in that case, the interpretative rule 2(a) is required to be taken as an aid for its application.5. the learned dr submits that the goods are in the nature of parts and therefore, note 1 to chapter 98 makes it clear that it has precedence over all the other headings even though those headings are specific.therefore, he submits that the parts of chapter 85 being mentioned in the note 7 of chapter 98, therefore, the interpretative rule 2(a) cannot be pressed in the present case. it is his contention that the collector has rightly followed the terms of note 1 to chapter 98 to hold that the items as parts of telephone for classification under chapter 98 and as a consequence has rejected the applicability of the notification, which is only for telephone set. it is his contention that the tribunal has concluded in winter misra's case in the light of several judgments that the interpretative rules cannot be applied for interpreting a notification. he also points out from the judgment of winter misra diamond tools ltd. the following portion of the ruling :- "at the same time, the doctrine of harmonious construction is also to be kept in view and wherever wordings used in the notification are the same as the ones used in the rules or the notes or the headings or sub-headings, or the scope is similar, it is open to call in aid, or take the assistance of the interpretative rules and/or the section notes or chapter notes and the notification(s) has to be read in the same sease and the wordings have to be assigned the same meaning unless the context indicates otherwise or some items are expressly excluded. in the present case, the wordings used in the notification nos. 108/88 and 207/88 are exactly the same as in the heading 82.02. therefore, the chapter note 2 could be called in aid in order to interpret and ascertain the meaning and scope of the wordings used in the notification, although, these notifications have been issued under rule 8(1) of the central excise rules and not under the tariff act".6. the learned dr points out that the situation in the present case is not the same and also relied on judgment of the tribunal which clarified the issue in the case of khoday brewing & distilling industries ltd. v. collector of customs, as reported in 1997 (90) e.l.t. 336 (t) = 1997 (18) rlt 448.7. we have considered the submissions made by both the sides. the short question that arises for consideration is as to whether interpretative rule 2(a) will proceed the applicability of note 1 to chapter 98 for the purpose of considering the goods as having essential character of complete or finished article to be classified in the heading of a finished article in terms of interpretative rule 2(a) of the general rules for interpretation of the first schedule of the customs act. note 1 to chapter 98 reads as :- "this chapter is to be taken to apply to all goods which satisfy the conditions prescribed therein, even though they may be covered by a more specified heading elsewhere in this schedule." 8. from the above reading, it is clear that chapter 98 will have a precedence over the applicability of any other specific heading. it is true that by applying interpretative rule 2(a), the goods which are in sub-assemblies and in the nature of uncomplete or unfinished article having essential character of the complete or finished article is required to be classified as complete or finished article. but this rule 2(a) is subject to rule 1 for the purpose of classification of notes. rule 1 states : "1. the titles of sections, chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require." 9. thus, the classification has to be determined in terms of section notes or chapter notes. therefore, note 1 to chapter 98 has precedence over interpretative rule 2(a) in the present case [see voltas limited v. collector of customs 10. admittedly, the items are not telephone sets in the assembled sets.they are sub-assemblies in the nature of parts and such parts of chapter 85 are clearly included in chapter 98 and hence the classification adopted by the learned collector is justified and is in accordance with law.11. as regards the applicability of the rule 2(a) to the terms of notification, the matter is no longer res integra. in the case of sipani automobiles ltd., it has been made very clear that interpretative rules cannot be relied for the purpose of interpreting an exemption notification and that an exemption notification is required to be strictly construed according to the plain reading of words used therein. the tribunal has examined all the case law on the subject while holding this view.12. in the case of winter misra diamond tools ltd. (supra) also the tribunal observed in para 40 of the order that in that particular case words have been literally lifted from tariff and incorporated in the notification and hence in that context expressed an opinion that rule 2(a) can be pressed as an aid for interpreting a notification. in the present case, such a circumstance does not arise, as the notification merely refers to goods falling under chapter 85.17. admittedly the parts of goods falling under chapter 85.17 are excluded from the ambit of the notification in question, as they are shown in s. no. 4 of the notification, which excludes the items in question from the ambit of the notification. by applying the legal fiction of interpretative rules, the imported items which are in the nature of sub-assemblies i.e. parts cannot be held to be goods falling under chapter 85.17 as contended by the learned advocate, in the light of the judgments noted above. therefore, applying the ratio of the judgments cited by the learned dr, the conclusion arrived at by the collector for denying the benefit of notification is required to be upheld. there is no other ground urged for consideration. therefore, there is no merit in this appeal and hence the same is rejected.

Judgment:
1. This appeal is directed against the Order-in-Original dated 7-3-1988, passed by the Collector of Customs, Bombay, who has held that the imported goods described in the Bill of Entry 'Telephone Instruments in SKD form both Becadic and DTMP Type" is classifiable as 'parts' under Customs Tariff Heading 9806. However, he has held that the item cables are excluded from the Heading 9806.00 by virtue of Note 7 to Chapter 98 read with Notification No. 132-Cus., dated 19-3-87 and be assessed under the respective headings. The claim of the importer for assessment of the item under Heading 8517.10 as a complete telephone and for benefit of Notification No. 172/77 was rejected by the Collector. The Collector has taken a view that the classification of the commodity has to be determined in accordance with the form in which the item is imported. In the instant case, the importer had imported 19 SKD parts of telephone with individual valve and the same was subject-matter of assessment. The importers assemble these items and manufacture a complete item as 'telephone'. It was contended by them that the items are 'parts'. The Collector noting the submissions applied note 1 to Chapter 98, which reads "This chapter is to be taken to apply to all goods which satisfy the conditions, even though they may be covered by a more specified heading elsewhere in this Schedule".

He held that the only condition for inclusion under 9806.00 is that items should be Parts of Machinery, Equipments, Appliances, Instruments, and Articles of Chapters 84, 85, 86, 89 and 90 and the exclusion clause vide Note 7 to Chapter 98. The Collector has held that the item do not figure in the exclusion clause other than cables falling under Heading 8544, excluded vide Notification No. 132/87-Cus.

The Collector has observed that the Interpretative Rule 2(a) is applied only for the purpose of classification of goods in respect of un-complete or non-finished articles. In the instant case the import has taken place in the form of sub-assemblies in line with the list of items attached to the import licence, as in accordance with the Phased Manufacturing programme duly authorised by DGTD. Therefore, he has held that Interpretative Rule 2(a) is not applicable. He has further observed that it can be applicable, at the most (as per the Explanatory Notes to the Interpretative Rules), to articles, the components of which are to be assembled either by means of simple fixing devices (screws, nuts, bolts, etc.) or by rivetting or welding, for example provided only simple assembly operations are involved. He has held that in respect of present import of 19 separate sub-assemblies it requires not only a process requiring technical know-how and design but also as may require essentially a process of manufacturing to be undertaken and therefore, cannot be categorised as a process of simple assembly. He has held that there is certainly a difference between a simple assembly and a phased manufacturing programme. Hence he has rejected the applicability of Rule 2(a) of the Interpretative Rules in the present case. On this premise, he has passed the final order.

2. The appellants are aggrieved with this finding and they have contended that the Collector has incorrectly held that the assembly of the imported sub-assembly is done by a simple process and is not done by a phase manufacturing process covering more assembly. It is contended that the item being in the semi knock down condition is easy to assemble into telephones with the help of screw driver only. It is contended that Rule 2(a) cannot be ignored and by such application, the parts which are in SKD condition are required to be assessed as full instruments only. On the premise of these contentions, it is stated that the goods are to be classified under Chapter 8517.10 as "telephone sets", with the benefit of Notification No. 172/77, dated 8-8-1977. The appellants have not raised any grounds with regard to classification of cables adopted by the Collector in the impugned order.

3. We have heard Shri L.P. Asthana, the learned Advocate, for the appellants and Shri K.K. Jha, the learned DR, for the Revenue.

4. The Learned Advocate arguing for the appellants contended that for the purpose of classification Rule 2(a) is required to be applied and on such application, the imported items being in the nature of sub-assemblies would be classifiable under Chapter Heading 8517.10 as "telephone sets". He submits that the process require only screw driver technology and hence there is no question of ignoring Rule 2(a) for the purpose of classification. He submits that the goods being classified under Heading 8517.10 automatically Notification No. 172/77, dated 8-8-77 (as amended) would be attracted which grants benefit for items falling under 85.17 although those are excluded in column 4 of the Notification. It is his contention even though the parts would fall under column 4, yet the benefit of this Notification cannot be rejected, by application of Rule 2(a) of General Rules for Interpretation of Tariff. He submits that in the case of Sipani Automobiles Ltd. v. Collector of Customs, as reported in 1996 (16) RLT 646, the Tribunal has approved and followed the earlier judgment by applying Rule 2(a) for the purpose of classification in respect of sub-assemblies and it did reject it for the grant of benefit of Notification. However, he further points out that in the case of Winter Misra Diamond Tools Ltd. v. Collector of Central Excise, as reported in 1996 (83) E.L.T. 670 the Tribunal took into consideration the judgment, on this issue for the purpose of granting benefit of Notification by applying the Interpretative Rule 2 (a) and has come to the conclusion that where the Tariff Entry is extracted in the Notification, then in that case, the Interpretative Rule 2(a) is required to be taken as an aid for its application.

5. The learned DR submits that the goods are in the nature of parts and therefore, Note 1 to Chapter 98 makes it clear that it has precedence over all the other headings even though those headings are specific.

Therefore, he submits that the parts of Chapter 85 being mentioned in the Note 7 of Chapter 98, therefore, the Interpretative Rule 2(a) cannot be pressed in the present case. It is his contention that the Collector has rightly followed the terms of note 1 to Chapter 98 to hold that the items as parts of telephone for classification under Chapter 98 and as a consequence has rejected the applicability of the notification, which is only for telephone set. It is his contention that the Tribunal has concluded in Winter Misra's case in the light of several judgments that the Interpretative Rules cannot be applied for interpreting a notification. He also points out from the judgment of Winter Misra Diamond Tools Ltd. the following portion of the ruling :- "At the same time, the doctrine of harmonious construction is also to be kept in view and wherever wordings used in the Notification are the same as the ones used in the Rules or the Notes or the Headings or sub-headings, or the scope is similar, it is open to call in aid, or take the assistance of the Interpretative Rules and/or the Section Notes or Chapter Notes and the Notification(s) has to be read in the same sease and the wordings have to be assigned the same meaning unless the context indicates otherwise or some items are expressly excluded. In the present case, the wordings used in the Notification Nos. 108/88 and 207/88 are exactly the same as in the Heading 82.02. Therefore, the Chapter Note 2 could be called in aid in order to interpret and ascertain the meaning and scope of the wordings used in the notification, although, these notifications have been issued under Rule 8(1) of the Central Excise Rules and not under the Tariff Act".

6. The learned DR points out that the situation in the present case is not the same and also relied on judgment of the Tribunal which clarified the issue in the case of Khoday Brewing & Distilling Industries Ltd. v. Collector of Customs, as reported in 1997 (90) E.L.T. 336 (T) = 1997 (18) RLT 448.

7. We have considered the submissions made by both the sides. The short question that arises for consideration is as to whether Interpretative Rule 2(a) will proceed the applicability of Note 1 to Chapter 98 for the purpose of considering the goods as having essential character of complete or finished article to be classified in the heading of a finished article in terms of Interpretative Rule 2(a) of the General Rules for Interpretation of the First Schedule of the Customs Act. Note 1 to Chapter 98 reads as :- "This chapter is to be taken to apply to all goods which satisfy the conditions prescribed therein, even though they may be covered by a more specified heading elsewhere in this Schedule." 8. From the above reading, it is clear that Chapter 98 will have a precedence over the applicability of any other specific heading. It is true that by applying Interpretative Rule 2(a), the goods which are in sub-assemblies and in the nature of uncomplete or unfinished article having essential character of the complete or finished article is required to be classified as complete or finished article. But this Rule 2(a) is subject to Rule 1 for the purpose of classification of notes. Rule 1 states : "1. The titles of Sections, Chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require." 9. Thus, the classification has to be determined in terms of Section notes or Chapter notes. Therefore, Note 1 to Chapter 98 has precedence over Interpretative Rule 2(a) in the present case [See Voltas Limited v. Collector of Customs 10. Admittedly, the items are not telephone sets in the assembled sets.

They are sub-assemblies in the nature of parts and such parts of Chapter 85 are clearly included in Chapter 98 and hence the classification adopted by the learned Collector is justified and is in accordance with law.

11. As regards the applicability of the Rule 2(a) to the terms of notification, the matter is no longer res integra. In the case of Sipani Automobiles Ltd., it has been made very clear that Interpretative Rules cannot be relied for the purpose of interpreting an exemption notification and that an exemption notification is required to be strictly construed according to the plain reading of words used therein. The Tribunal has examined all the case law on the subject while holding this view.

12. In the case of Winter Misra Diamond Tools Ltd. (supra) also the Tribunal observed in Para 40 of the order that in that particular case words have been literally lifted from tariff and incorporated in the Notification and hence in that context expressed an opinion that Rule 2(a) can be pressed as an aid for interpreting a notification. In the present case, such a circumstance does not arise, as the notification merely refers to goods falling under Chapter 85.17. Admittedly the parts of goods falling under Chapter 85.17 are excluded from the ambit of the notification in question, as they are shown in S. No. 4 of the notification, which excludes the items in question from the ambit of the notification. By applying the legal fiction of Interpretative Rules, the imported items which are in the nature of sub-assemblies i.e. parts cannot be held to be goods falling under Chapter 85.17 as contended by the learned Advocate, in the light of the judgments noted above. Therefore, applying the ratio of the judgments cited by the learned DR, the conclusion arrived at by the Collector for denying the benefit of notification is required to be upheld. There is no other ground urged for consideration. Therefore, there is no merit in this appeal and hence the same is rejected.