Bhagyanagar Metals Ltd. Vs. the Commissioner of Central - Court Judgment

Excerpt:
1. the appellants are importers of a consignment of cdma fixed wireless telephone (hereinafter referred to as fwt) and declared them as "hardware parts and accessories of cdma wll cellular phone (lsp=340e).the goods were supplied by m/s l.g. electronics inc., korea. the classification was claimed under customs tariff heading 8525.20.17 with benefit of exemption under notification 21/02-cus (serial no.313/serial no 427) as amended by notification no. 26/2003.2. on a perusal of the sample and after browsing the user's manual guide detailing the features and functions of the fwt, it appeared to the department that the item under import was a complete cdma fixed wireless telephone model no. lsp=340e with parts and accessories, and exemption notification 21/02-cus (serial no 313/serial no 427) as amended which covered inter alia "cellular phones", was not available.the department seeks to interpret the scope of the term "cellular phones," which in appeared them to refer to only hand held mobile phones. the benefit of exemption to the imports, was denied after coming to the conclusions: i) the clarification issued by the concerned ministry i.e. department of communication and information technology, government of india, cannot be taken to determine an assessment under a particular tariff heading. "7".......it is indeed a telephone which does not required to be connected with cable for its operation, and therefore it can be moved from one are a of operation to another, and it is of the size of a normal desk-top telephone. it has not been disputed that it works on cellular technology; but the issue is whether on the ground of its use of cellular technology, it would quality to be within the purview of 'cellular phone.' the controversy has arisen basically because there is no definition of 'cellular phone' either in the customs tariff or even in the dictionaries that i have consulted. the hon'ble supreme court has made it clear in many judgments that when the definition of a particular term is not available in the statute, the final test for deciding whether a particular item would be covered by the said term would be the test of common parlance. in this connection, i rely upon the tribunal decision in the case of richardson hindustan ltde (1988 (35) elt 424) which has been upheld by the supreme court vide its order dated 10.1.99. i also rely upon the supreme court judgment in the case of natural hearth products (p) ltd (2003 (158) elt 257 (sc). nobody can deny that if one goes to a shop dealing with various types of telephones, and asks for a 'cellular phone', the shopkeeper would show him various models of hand held mobile phones also known as 'cellular phones' only. the shopkeeper will surely not offer him a desktop phone working on cellular technology, when a customer asks for a 'cellular phone'. in the present case this would be the final test of common parlance. i am therefore of the view that in common parlance a 'cellular phone', which is popularly known as cell phone refers to hand held mobile phone which can slip into the pocket and not to the telephones which are of the size of normal desktop telephones merely because it works on cellular technology and it can be moved around from one desk-top to another in different locations. on the issue of classification, i therefore hold that the imported item cannot be considered as 'cellular phone' merely on the ground that it works on cellular technology and that it can be moved from one place to another and that it does not require any cable connection for its operation. i therefore hold that the imported item would be appropriately classifiable under customs tariff heading 85.20.19. for the same reasons, 1 hold that the item would not be entitled to the benefit of exemption notification no. 21/2002-cus as amended. iii) as regards whether the item import is to be considered as a complete telephone or part thereof, it was found, by the ld commissioner, that the entity as imported has the essential character of a complete telephone and absence of a few items like patch panel antenna, rf feeder cable, battery connecting cable and data cable which are to be procured locally will not lake away the essential character of a telephone from the imported item, therefore in terms of rule 2 (a) of the general rules for the interpretation of tariff, he held the importer item to be a complete telephone and not part of a telephone.after coming to these findings, he found that there has been no mis-declaration and suppression of facts on the part of the importer and on the issue of classification they had not misdeclared the description of the goods. they have merely claimed classification under a particular tariff heading and benefit of an exemption and as regards valuation, they have declared the value of a telephone without the software loaded on it and claimed assessment of software separately.since the issue is of interpretation whether software was part and parcel of the telephone and being dedicated are debatable, it was held by the commissioner that there were no mis-declaration or suppression of facts with regard to value and therefore he did not find any reason to order confiscation of the goods imported under section 111 (m) of the customs act, 1962 and penalty under section 112 (a). he however ordered classification of the fwt under 8525.20.19 and denied the exemption claimed under notification 21/02-cus (serial 313/serial 427) as amended and ordered the subject goods to be assessed, at appropriate rate of duty, after rejecting the value and re-determined the same at us$ 98 c1f per piece under rule 8 of the customs valuation rules by adding the values of software imported separately on equal number of discs. hence the present appeal.3. after hearing both sides, and considering the issues involved, it is found: a) both sides rely upon the decision of the supreme court in the case of tata teleservices ltd v. commissioner of customs, chennai 2004 (168) elt 181 (tri-del). that decision has considered the definition of mobile phone, cellular telephone functions, and then in para 8 coucludes- "8. it is thus apparent that cellular telephones has to be a mobile one and thereafter granted the benefit of sr no. 427 inserted by notification 21/2002 to notification 21/2002 and denied the benefit under sr no. 313/2002, after finding that the entity therein was not "mobile". b) in the present case, before us, the commissioners specific findings in para 17 has been stressed by the commissioner that the model can be used and moved from place to place and it works on cellular technology. only the size being of a "desk type" and in capacity to step into a pocket are the features which the commissioner has found to be reasons for them to be not covered by the term "cellular phones". this finding is reinforced by his own understanding and opinion of a presumed visit to a shop. on the other hand, the date down loaded from the internet and relied upon by the ld dr does indicate a photograph of a hand held model of cellular phone, which can not slip into a normal sized pocket of a human dress. the size contraction due to improvement in technology, will not bar these old hand held models of considerably large sizes to be excluded form the lesson "cellular phones" when, in fact, they work on that technology, term cellular phones cannot be restricted only to handheld cellular phones as that would be placing an uncalled for restriction on the applicability of the coverage of the term. phones i.e. brand held or lap top / desk top led so long as they are portable and based on cellular technology would be covered by the term used in the notification. in the present case before us, the entity in question undoubtedly works on cellular technology and is admitted and found to be portable. a perusal of the sample which was demonstrated by both sides before us, confirms that there can be no doubt about the portability or and mobility of the phone in question. we therefore find no reason to restrict and exclude the coverage of the benefit of notification from the benefit of the subject notification, which is using the term 'simplicitor cellular phone'. this term has to be interpreted to mean all kinds of telephones, which would be working on cellular technology and would be portable & cannot be restricted to any specific size or model. c) we find sufficient force in the plea made by the ld advocate for the appellant as regards the finding of the commissioner, "nobody can deny that if one goes to a shop dealing with various types of telephones, and asks for a 'cellular phone', the shopkeeper would show him various models of hand held mobile phones also known as 'cell phones' only. the shopkeeper will surely not offer him a desk top phone working on cellular technology, when a customer asks for a 'cellular phone''. in the present case, this would be the final test of common parlance. i am therefore of the view that in common parlance a 'cellular phone', which is popularly known as cell phone refers to hand held mobile phone which can slip into the pocket, and not to the telephones which are of the size of normal desk top telephones merely because it works on cellular technology and it can be moved around from one desk top to another in different locations." that the ld commissioner is led by his personal interpretation and opinions which are not based on any technical and expert opinion. such findings cannot be used to arrive at conclusion or to understand products, especially which are high technology products, as of a telephone based on cellular technology, credence has to be given to an understanding of the persons who deals in such goods, such a person would be the dealers / manufacturers, other i raised expert in case of high technology products. a common parlance test as applied by the ld commissioner is not therefore approved. in any case, the ld commissioner appears to be restricting the word 'cellular phone' to apply only to it mobile hand held pocket sized cellular telephones or cell phones, we find no reason to apply such a restriction, when it is on record that the ministry of industry, department of telecommunication and information technology, government of india to mtnl and bsnl which are major customers of the appellants products have certified the present imported goods to be known as "cellular telephones". if the intention of the notification was to restrict the eligibility to only such size of phones, which were hand, held and can slip into the pocket, the notification would have indicated the same. the reliance of the ld d.r. on circular of board no. 57/2003-cus dated 27.6.2003, para 3 and 4 thereof which read as under: "2. the matter regarding eligibility of fixed wireless telephones and fixed wireless terminals under notification no. 21/2002-cus sr 313, dated 1.3.2002, has been examined. the notification 21/2002-cus., sl 313 covers "cellular phones and radio trunking terminals" falling under sub heading 8525.20. the notification entry does not define the term "cellular phone'. it is a settled law that where a taxing statute does not define a term, it has to be interpreted according to its meaning in common trade parlance. the term cellular phone, in common parlance, refers to mobile phones. the hsn notes also equate cellular phones with mobile phones. thus a telephone will not be considered as 'cellular phone' merely because it works on 'cellular technology'. it may be noted that the relevant entry in the notification is 'cellular phones' and not 'phones based on cellular technology." does not induce us to deny the benefit by restricting the benefit to the "cellular phones/mobile pocket sized phones. the hsn notes mentioned in this paragraph of the boards order have not been shown to us. we do not find any reason to deny the benefit on the grounds that term used in the notification is 'cellular phones' and not 'phones based on technological information'. the term 'cellular phone' would include all kinds of phones which would work on cellular technology and the term cannot be restricted as has been interpreted by the revenue only to cover hand held mobile phone. a) we find force in the catena of decisions relied upon by the ld advocate for the appellants (including the judgment of the gujarat high court in inter continental (india) vs union of india 2003 (154) elt 37 (guj) to claim that central board of excise & customs' circular providing conditions to a notification would be tantamounting to rewriting a notification or legislating by circulars when the notification itself is not found to provide any condition as being interpreted in that notification. following this position of the law, as settled by the gujarat high court, on this aspect and other issues settled therein, we find no merits in upholding the order impugned before us and are reasons to uphold the same. the benefit of notification as claimed, cannot be denied. b) as regards valuation, the appellants have submitted that the software programme imported are to render instructions to be upgraded for various additional capacities with which the telephone instruments are not capable as imported making them compliant for data transfer use, making them capable of being worked under different net work, being provided by bsnl throughout the country etc. we therefore find that the software under import separately has the form & function of an accessory in as much as it goes to enhance the performance and capability and is not an essential part of the entity under import . then value of such an accessory, to the complete instrument, as arrived at by the commissioner, cannot be added for the purpose of levy of duty at the rates applicable to the main instrument. therefore, we cannot uphold the order of the commissioner and his departure from the transaction value in the facts and circumstances of this case. c) since we find that the decision in the case of tata tele service ltd (2004 (168) elt 181) was arrived at in the facts of that case on a finding of the instrument not being mobile and granting the benefit not in sr no. 427 of notification and we find no merit in the plea of the ld dr to refer the matter to larger bench.4. in view of our findings hereinabove, this appeal is allowed after setting aside the impugned order.

Judgment:
1. The appellants are importers of a consignment of CDMA Fixed Wireless Telephone (hereinafter referred to as FWT) and declared them as "Hardware Parts and Accessories of CDMA WLL Cellular Phone (LSP=340E).

The goods were supplied by M/s L.G. Electronics Inc., Korea. The classification was claimed under Customs Tariff Heading 8525.20.17 with benefit of exemption under Notification 21/02-Cus (Serial No.313/Serial No 427) as amended by Notification No. 26/2003.

2. On a perusal of the sample and after browsing the user's Manual guide detailing the features and functions of the FWT, it appeared to the department that the item under import was a complete CDMA Fixed Wireless Telephone Model No. LSP=340E with parts and accessories, and exemption Notification 21/02-Cus (Serial No 313/Serial No 427) as amended which covered inter alia "Cellular Phones", was not available.

The department seeks to interpret the scope of the term "Cellular Phones," which in appeared them to refer to only hand held mobile phones. The benefit of exemption to the imports, was denied after coming to the conclusions: i) The clarification issued by the concerned Ministry i.e.

Department of Communication and Information Technology, Government of India, cannot be taken to determine an assessment under a particular Tariff Heading.

"7".......It is indeed a telephone which does not required to be connected with cable for its operation, and therefore it can be moved from one are a of operation to another, and it is of the size of a normal desk-top telephone. It has not been disputed that it works on cellular technology; but the issue is whether on the ground of its use of cellular technology, it would quality to be within the purview of 'cellular phone.' The controversy has arisen basically because there is no definition of 'cellular phone' either in the Customs tariff or even in the dictionaries that I have consulted.

The Hon'ble Supreme Court has made it clear in many judgments that when the definition of a particular term is not available in the statute, the final test for deciding whether a particular item would be covered by the said term would be the test of common parlance. In this connection, I rely upon the Tribunal decision in the case of Richardson Hindustan Ltde (1988 (35) ELT 424) which has been upheld by the Supreme Court vide its order dated 10.1.99. I also rely upon the Supreme Court judgment in the case of Natural Hearth Products (P) Ltd (2003 (158) ELT 257 (SC). Nobody can deny that if one goes to a shop dealing with various types of telephones, and asks for a 'cellular phone', the shopkeeper would show him various models of hand held mobile phones also known as 'cellular phones' only. The shopkeeper will surely not offer him a desktop phone working on cellular technology, when a customer asks for a 'cellular phone'. In the present case this would be the final test of common parlance. I am therefore of the view that in common parlance a 'cellular phone', which is popularly known as cell phone refers to hand held mobile phone which can slip into the pocket and not to the telephones which are of the size of normal desktop telephones merely because it works on cellular technology and it can be moved around from one desk-top to another in different locations. On the issue of classification, I therefore hold that the imported item cannot be considered as 'cellular phone' merely on the ground that it works on cellular technology and that it can be moved from one place to another and that it does not require any cable connection for its operation. I therefore hold that the imported item would be appropriately classifiable under Customs Tariff Heading 85.20.19. For the same reasons, 1 hold that the item would not be entitled to the benefit of exemption notification No. 21/2002-Cus as amended.

iii) As regards whether the item import is to be considered as a complete telephone or part thereof, it was found, by the Ld Commissioner, that the entity as imported has the essential character of a complete telephone and absence of a few items like patch panel antenna, RF feeder cable, battery connecting cable and data cable which are to be procured locally will not lake away the essential character of a telephone from the imported item, therefore in terms of Rule 2 (a) of the General Rules for the Interpretation of Tariff, he held the importer item to be a complete telephone and not part of a telephone.

After coming to these findings, he found that there has been no mis-declaration and suppression of facts on the part of the importer and on the issue of classification they had not misdeclared the description of the goods. They have merely claimed classification under a particular tariff heading and benefit of an exemption and as regards valuation, they have declared the value of a telephone without the software loaded on it and claimed assessment of software separately.

Since the issue is of interpretation whether software was part and parcel of the telephone and being dedicated are debatable, it was held by the Commissioner that there were no mis-declaration or suppression of facts with regard to value and therefore he did not find any reason to order confiscation of the goods imported under Section 111 (m) of the Customs Act, 1962 and penalty under Section 112 (a). He however ordered classification of the FWT under 8525.20.19 and denied the exemption claimed under Notification 21/02-Cus (Serial 313/serial 427) as amended and ordered the subject goods to be assessed, at appropriate rate of duty, after rejecting the value and re-determined the same at US$ 98 C1F per piece under Rule 8 of the Customs Valuation Rules by adding the values of Software imported separately on equal number of Discs. Hence the present appeal.

3. After hearing both sides, and considering the issues involved, it is found: a) Both sides rely upon the decision of the Supreme Court in the case of Tata Teleservices Ltd v. Commissioner of Customs, Chennai 2004 (168) ELT 181 (Tri-Del). That decision has considered the definition of Mobile Phone, Cellular Telephone functions, and then in para 8 coucludes- "8. It is thus apparent that Cellular Telephones has to be a mobile one and thereafter granted the benefit of Sr No. 427 inserted by notification 21/2002 to notification 21/2002 and denied the benefit under Sr No. 313/2002, after finding that the entity therein was not "mobile".

b) In the present case, before us, the Commissioners specific findings in para 17 has been stressed by the Commissioner that the model can be used and moved from place to place and it works on Cellular Technology. Only the size being of a "desk Type" and in capacity to step into a pocket are the features which the Commissioner has found to be reasons for them to be not covered by the term "Cellular Phones". This finding is reinforced by his own understanding and opinion of a presumed visit to a shop. On the other hand, the date down loaded from the Internet and relied upon by the Ld DR does indicate a photograph of a hand held Model of Cellular Phone, which can not slip into a normal sized pocket of a human dress. The size contraction due to improvement in Technology, will not bar these old hand held models of considerably large sizes to be excluded form the lesson "Cellular Phones" when, in fact, they work on that Technology, Term cellular phones cannot be restricted only to handheld cellular phones as that would be placing an uncalled for restriction on the applicability of the coverage of the term. Phones i.e. brand held or lap top / desk top led so long as they are portable and based on Cellular Technology would be covered by the term used in the notification. In the present case before us, the entity in question undoubtedly works on cellular technology and is admitted and found to be portable. A perusal of the sample which was demonstrated by both sides before us, confirms that there can be no doubt about the portability or and mobility of the phone in question. We therefore find no reason to restrict and exclude the coverage of the benefit of Notification from the benefit of the subject notification, which is using the term 'simplicitor cellular phone'. This term has to be interpreted to mean all kinds of telephones, which would be working on cellular technology and would be portable & cannot be restricted to any specific size or model.

c) We find sufficient force in the plea made by the Ld Advocate for the appellant as regards the finding of the Commissioner, "nobody can deny that if one goes to a shop dealing with various types of telephones, and asks for a 'cellular phone', the shopkeeper would show him various models of hand held mobile phones also known as 'cell phones' only. The shopkeeper will surely not offer him a desk top phone working on cellular technology, when a customer asks for a 'cellular phone''. In the present case, this would be the final test of common parlance. I am therefore of the view that in common parlance a 'cellular phone', which is popularly known as cell phone refers to hand held mobile phone which can slip into the pocket, and not to the telephones which are of the size of normal desk top telephones merely because it works on cellular technology and it can be moved around from one desk top to another in different locations." that the Ld Commissioner is led by his personal interpretation and opinions which are not based on any technical and expert opinion.

Such findings cannot be used to arrive at conclusion or to understand products, especially which are high technology products, as of a telephone based on cellular technology, credence has to be given to an understanding of the persons who deals in such goods, such a person would be the dealers / manufacturers, other I raised Expert in case of High Technology Products. A common parlance test as applied by the Ld Commissioner is not therefore approved. In any case, the Ld Commissioner appears to be restricting the word 'cellular phone' to apply only to It mobile hand held pocket sized cellular telephones or cell phones, we find no reason to apply such a restriction, when it is on record that the Ministry of Industry, Department of Telecommunication and Information Technology, Government of India to MTNL and BSNL which are major customers of the appellants products have certified the present imported goods to be known as "cellular telephones". If the intention of the notification was to restrict the eligibility to only such size of phones, which were hand, held and can slip into the pocket, the notification would have indicated the same. The reliance of the Ld D.R. on Circular of Board No. 57/2003-Cus dated 27.6.2003, para 3 and 4 thereof which read as under: "2. The matter regarding eligibility of Fixed Wireless Telephones and Fixed Wireless Terminals under Notification No. 21/2002-Cus Sr 313, dated 1.3.2002, has been examined. The Notification 21/2002-Cus., Sl 313 covers "cellular phones and radio trunking terminals" falling under sub heading 8525.20. The notification entry does not define the term "cellular phone'.

It is a settled law that where a taxing statute does not define a term, it has to be interpreted according to its meaning in common trade parlance. The term cellular phone, in common parlance, refers to mobile phones. The HSN Notes also equate cellular phones with mobile phones. Thus a telephone will not be considered as 'cellular phone' merely because it works on 'cellular technology'. It may be noted that the relevant entry in the notification is 'cellular phones' and not 'phones based on cellular technology." Does not induce us to deny the benefit by restricting the benefit to the "cellular phones/mobile pocket sized phones. The HSN Notes mentioned in this paragraph of the Boards order have not been shown to us. We do not find any reason to deny the benefit on the grounds that term used in the notification is 'cellular phones' and not 'phones based on technological information'. The term 'cellular phone' would include all kinds of phones which would work on cellular technology and the term cannot be restricted as has been interpreted by the revenue only to cover hand held mobile phone.

a) We find force in the catena of decisions relied upon by the Ld Advocate for the appellants (including the judgment of the Gujarat High Court in Inter Continental (India) vs Union of India 2003 (154) ELT 37 (Guj) to claim that Central Board of Excise & Customs' circular providing conditions to a notification would be tantamounting to rewriting a notification or legislating by circulars when the notification itself is not found to provide any condition as being interpreted in that notification. Following this position of the law, as settled by the Gujarat High Court, on this aspect and other issues settled therein, we find no merits in upholding the order impugned before us and are reasons to uphold the same. The benefit of notification as claimed, cannot be denied.

b) As regards valuation, the appellants have submitted that the software programme imported are to render instructions to be upgraded for various additional capacities with which the telephone instruments are not capable as imported making them compliant for data transfer use, making them capable of being worked under different net work, being provided by BSNL throughout the country etc. We therefore find that the software under import separately has the form & function of an accessory in as much as it goes to enhance the performance and capability and is not an essential part of the entity under import . Then value of such an accessory, to the complete instrument, as arrived at by the Commissioner, cannot be added for the purpose of levy of duty at the rates applicable to the main instrument. Therefore, we cannot uphold the order of the Commissioner and his departure from the transaction value in the facts and circumstances of this case.

c) Since we find that the decision in the case of Tata Tele Service Ltd (2004 (168) ELT 181) was arrived at in the facts of that case on a finding of the instrument not being mobile and granting the benefit not in Sr No. 427 of notification and we find no merit in the plea of the Ld DR to refer the matter to Larger Bench.

4. In view of our findings hereinabove, this appeal is allowed after setting aside the impugned order.