Delhi High Court
Endow Power Battery vs Union Of India And Anr on 8 August, 2012
Author: S. Ravindra Bhat
Bench: S. Ravindra Bhat, R.V. Easwar
$~7 & 19
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision : 8th August, 2012.
+ W.P.(C) 4541/2012
NAV DURGA ASSOCIATES ..... Petitioner
Through Mr. Pradeep Jain, Adv.
versus
UNION OF INDIA AND ORS ..... Respondents
Through Mr. B V Niren, CGSC with Mr. Prasouk Jain,
Adv. for R-1
Mr. Piyush Kaushik, Adv. for customs
+ W.P.(C) 4351/2012
ENDOW POWER BATTERY ..... Petitioner
Through Mr. P K Mittal, Adv.
versus
UNION OF INDIA AND ANR ..... Respondents
Through Mr. Neeraj Chaudhari, CGSC for R-1
Mr. Piyush Kaushik, Adv. for customs
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
S. RAVINDRA BHAT,J: (OPEN COURT)
Admit.
2. With consent of counsel for the parties matter was heard finally.
WPC Nos.4541/12 & 4351/12 Page 1 of 10
3. Counsel for the respondent seeks leave to place on record the counter affidavit.
Leave granted. Counter affidavit is taken on record.
4. The writ petitioners are aggrieved by the action of the respondent - Customs
authorities in determining the goods imported by them as classifiable under CTH 85
06 10 00 as "complete battery cell" and subjecting them to full duty including the
payment of applicable anti dumping duty, along with interest. The brief facts of the
petition in W.P. (C) 4541/2012 are that the petitioner manufactures dry battery cells
and had imported the following articles: -
Empty Zinc Tube (classifying under sub-heading 8506 90 00 of the Customs
Tariff),
Round paper parts (SH : 4811 90 99),
Asphalt Sealing Material (SH : 6807 90 90),
Carbon Rod (2803 00 90),
Round Plastic Ring (SH : 3926 90 99),
Metal Caps (8506 90 00),
Printed Cover (4811 90 99),
Plastic Packing Tube (SH : 3926 90 99),
Packing Material (SH : 3926 90 99),
Empty Cartons (SH : 4819 50 90),
Empty Plastic Bags (SH : 3926 90 99).
5. The petitioner claims that these articles were not dry battery cells but parts or
components used for the manufacture of these dry battery cells. The petitioner (in
W.P. (C) 4541/2012) imported the above articles through a Bill of entry dated
6.2.2012 along with related import documents. The petitioner in W.P. (C) 4351/2012
WPC Nos.4541/12 & 4351/12 Page 2 of 10
imported similar goods through bills of entry dated 28.3.2012. It is also stated that the
applicable customs duty was paid. At that stage, the authorities are alleged to have
directed the petitioner to pay the anti dumping duty and prevented the import of goods.
The petitioners contend that by a notification dated 13.4.2007, the import of dry cell
batteries was subjected to anti dumping duty from China at specific rates. It is stated
that the said notification does not encompass the constituents and components used for
the manufacture of dry cell batteries and consequently insistence on payment of anti
dumping duty is without the authority of law. Ld. counsel submitted that in terms of
the provisions of First Schedule of Customs Tariff Act, 1975, a special procedure has
been mandated whereby a competent authority is under a duty of following the
procedure, i.e. of granting hearing to the importers of suspect goods before issuing an
order that ultimately culminates in a notification levying a tax which would otherwise
be unauthorized.
6. Counsel submits that the methodology adopted by the respondents in this case
seeking to levy anti dumping duty, by a clarification dated 16.12.2010, issued by the
Central Government Board of Excise and Customs, amounts to adoption of a
procedure unknown to law. Once the designated authority under the Customs Tariff
Act, 1975 returns a finding after due investigation and such finding does not include a
recommendation for anti dumping duty on the components or constituents of the
products and dry cell batteries, it is not open to the customs authorities by application
of rules to include such articles.
7. Counsel for the Customs contends in this case that the petitioners are importing
nothing less than dry cell batteries. It is emphasized that each of the articles which has
been imported is covered by the notification dated 13.4.2007 as an assembly of those
would make a whole dry cell battery. Counsel further submitted that the process
involved in putting together the raw material imported by the petitioners, is minimal
WPC Nos.4541/12 & 4351/12 Page 3 of 10
and what in effect they seek to achieve is the import of dry cell itself.
8. The Customs relies upon Rule 2(a) of the General Rules for the interpretation
of the First Schedule of Customs Tariff Act, 1975 which lists out general rules for the
interpretation of the Schedule. It is stated that in terms the insistence upon payment of
anti dumping duty is warranted having regard to the said Rule which reads as follows:
"2. (a) Any reference in a heading to an article shall be taken to
include a reference to that article incomplete or unfinished, provided
that, as presented, the incomplete or unfinished article has the essential
character of the complete or finished article. It shall also be taken to
include a reference to that article complete or finished (or falling to be
classified as complete or finished by virtue of this rule), presented
unassembled or disassembled."
9. It was argued in addition that the competent designated authority which went
into the issue in depth, examined the issue of the entire process. Particular reference is
made to the observations of the designated authority in its findings dated 31.1.2007
which preceded the final notification imposing anti dumping duty. Counsel for the
customs also relied upon the decisions of the Supreme Court reported as Sharp
Business Machines Pvt. Ltd., Bangalore Vs. Collector of Customs, Bangalore (1991)
1 SCC 154 and Commissioner of Customs, New Delhi Vs. Phoenix International
Ltd. And Another (2007) 10 SCC 114.
10. It is evident from the above discussion that the narrow dispute in this case is
whether the petitioners are correct in contending, as they do, that anti dumping duty is
not recoverable from them in respect of the products which they have imported from
the People‟s Republic of China. These products, listed in the earlier part of this
judgment, are used for manufacture of dry cell batteries. The petitioner has in some
detail described the process of manufacture of the dry cell batteries in para 8 to 10 of
the writ petition. The petitioner also contends that the notification in this case was
silent as to the levying of anti dumping duty on components or constituents of dry cell
WPC Nos.4541/12 & 4351/12 Page 4 of 10
batteries. The petitioner derives strength by referring to the Customs‟ Notification
no.65/03 dated 4.4.2003 where anti dumping duty was levied on „steel tapes‟ and
„parts and components of steel tapes‟ as well as notification No.132/2009-Cus dated
8.12.2009 imposing anti dumping duty on complete Synchronous Digital Hierarchy
(SDH) equipment including CKD/SKD and including its parts and components which
have dedicated use for the equipment.
11. At this stage it would be useful to extract the notification in question which
reads as follows: -
"Now, therefore, in exercise of the powers conferred by sub-sections (1) and
(5) of section 9A of the Customs Tariff Act, 1975 read with rules 18 and 23 of
the Customs Tariff (Identification, Assessment and Collection of Anti-
dumping Duty on Dumped Articles and for Determination of Injury) Rules,
1995, the Central Government, after considering the aforesaid final findings
of the designated authority, read with the amendment dated the 29th March,
2007, hereby imposes on the subject goods, the description of which is
specified in column (3) of the Table below, falling under heading of the First
Schedule to the said Customs Tariff Act as specified in the corresponding
entry in column (2), the specification of which is specified in column (4) of
the said Table, originating in the countries as specified in the corresponding
entry in column (5), exported from the country as specified in the
corresponding entry in column (6), and produced by the producers as
specified in the corresponding entry in column (7), exported by the exporters
as specified in the corresponding entry in column (8), imported into India, an
anti-dumping duty which shall be equal to difference between the amount
mentioned in the corresponding entry in column (9) in the currency as
specified in the corresponding entry in column (11) and as per unit of
measurement as specified in the corresponding entry in column (10), of the
said Table, and the landed value of such imported goods in like currency and
like unit of measurement.
Table
Sl.No. Heading Description Specification Country of Country of Producer Exporter Amount Unit of Currency
of goods Origin Export (US $) measurement
(1) (2) (3) (4) (5) (6)) (7) (8) (9) (10) (11)
Zinc Carbon
1 8506 Dry Cell Pencil China China Any Any 54.59 1000 pieces USD
Batteries batteries, R6, producer exporter
AA, UM3, etc
WPC Nos.4541/12 & 4351/12 Page 5 of 10
Zinc Carbon Any
2 8506 Dry Cell Pencil country China Any Any 54.59 USD
Batteries batteries, R6, other than producer exporter 1000 pieces
AA, UM3, etc China
Zinc Carbon Any country
3 8506 Dry Cell Pencil China other than Any Any 54.59 USD
Batteries batteries, R6, China producer exporter 1000 pieces
AA, UM3, etc
2. This notification shall be effective for a period of five years (unless
revoked, superseded or amended earlier) and the anti-dumping duty shall be
paid in Indian Currency."
12. It is evident that facially the notification does not direct payment of anti
dumping duty on parts of components of dry cells. In this connection the question is
whether the respondent is correct in its argument that the rules of interpretation
embodied in Rule 2(a) of the General Rules in the First Schedule of Customs Tariff
Act, 1975 covers a situation like the present one. It is in this context that the customs
had relied upon the ruling in Sharp Business Machines Pvt. Ltd., Bangalore (supra)
and Phoenix International Ltd. And Another (supra). In Sharp Business Machines
Pvt. Ltd., Bangalore (supra), the Supreme Court had to grapple with a situation where
the company was seeking to clandestinely import the prohibited articles i.e.
photocopier. The company in that case adopted a subterfuge. It is evident from the
following extract: -
"The company had tried to practice a fraud in defeating the import
policy itself. The intention and purpose of the import policy was to give
incentive and encouragement to the new entrepreneurs establishing
small scale industries and in the first phase to import 62 per cent of the
components of the copiers and the balance of 38per cent was to be
manufactured by them indigenously. According to the import policy this
percentage of 62 per cent was to be reduced in the subsequent years.
The import policy was not meant for such entrepreneurs who instead of
importing 62 per cent of the components, imported 100 per cent of the
components of a fully finished and complete goods manufactured by a
foreign country. It is an admitted position that fully finished plain
paper copiers were a prohibited item for import and thus the device
adopted by the company in the present case was a complete fraud on
WPC Nos.4541/12 & 4351/12 Page 6 of 10
the import policy itself. Apart from the above circumstances in our view
the Tribunal was not right in setting aside the finding of the
adjudicating authority and in taking the view that one has to look into
the respective licence and not to the fact that if all the consignments
covered by all the bills of entry assembled together, there will be a full
and complete machinery."
13. In Phoenix International Ltd. (supra), the mode adopted by the importer, to
escape higher levy of customs duty on import of shoes, was to pass off the
independently imported components of shoes through two separate sister companies in
their unfinished form i.e. shoes uppers for one concern and shoe soles to another
concern. The question posed by the Supreme Court was as follows: -
"2. The question of law that arises for determination in these civil
appeals is: -
Whether shoe uppers, outer soles, insoles and sock liners imported by
M/s. Phoenix Industries Ltd. (PIND) in the same container could be
clubbed so that it could be considered as import of the shoe itself in
semi knocked down (SKD) condition? Whether the importer was guilty
of mis-declaration when the importer declared SKD goods as
components."
The Supreme Court held that the subterfuge was not permissible and the Customs‟
department‟s decision that the components were classifiable as „shoes‟ was lawful. Its
holding is as follows: -
"32. In the present case, the Department has alleged that a device
was evolved by the importer showing import of shoe uppers by PIL
whereas outer soles, insoles and sock liners imported by PIND. A
subterfuge was, therefore, created to show that two independent
companies had imported separate parts of the footwear in order to
bypass Para 156(A) of the EXIM Policy, 1992-97. Under the said
paragraph, importation of synthetic shoes in SKD condition could only
be made against specific import licence. PIL was aware of the
restrictions. It was the only real importer of all the four items. PIL had
funded PIND with interest free loans running into Rs.18 crores
(approximately). PIND was the factory of PIL (see the DEEC
certificate).
WPC Nos.4541/12 & 4351/12 Page 7 of 10
33. When there is an allegation of subterfuge, the court has to
examine the circumstances surrounding the import to ascertain
whether the importer had entered into fictitious arrangement to evade
customs duty. The intention behind the act of importation has to be
probed. In this case, the most clinching circumstance is that there is
manufacture of the finished products, namely, "synthetic shoe" for
domestic and export markets. PIL manufactured export quality
synthetic shoes on their own account whereas those sold in the
domestic market by PIND was also manufactured by PIL for PIND."
14. If one sees the above rulings of the Supreme Court it is evident that in both the
cases the importer was adopting strategies or devises to get around the customs
prohibitions and from importation of certain goods and in certain cases payment of
higher duty. If Rule 2(a) has to be understood in the light of those observations and
furthermore in its own terms, what it really suggests that if an incomplete or
unfinished article has the characteristic of a complete article that would be treated as
such. In this case, the customs authorities no doubt rely upon para 13 of the order of
the designated authority; the same reads as follows: -
"13. As per claims of the Association, a number of producers in the
unorganized sector also produce the subject goods and the individual
size of these producers is too small. Production of these produces in
unorganized sector was estimated by the domestic industry in the
region of 5% of the production in the organized sector. The Authority
notes that none of the producers in the unorganized sector have
responded to the Authority and no published information is available
with regard to production by these entities. It is also not known
whether these entities undertake complete production activities, or are
producing the product from semi-finished stage. Investigations at the
premises of the domestic industry has shown that production of pre-mix
powder is the basic manufacturing activity and once the pre-mix
powder is prepared, production of the subject goods is just an assembly
like operation. Therefore, it could not be established that these
producers in the unorganized sector should indeed be considered as
"producers" for the purpose of the present investigations. However,
the Authority notes that regardless of whether or not their production is
considered, production by the participating companies is significantly
WPC Nos.4541/12 & 4351/12 Page 8 of 10
higher than 50% and it account about 85 % of Indian production, even
if production by these unorganized sector units is considered as eligible
production."
15. However, in the same recommendations the designated authority further
recorded as follows: -
"E.2 EXAMINATION BY THE AUTHORITY
16. The argument raised by the domestic industry was examined and it
is noted that the anti dumping duty has been imposed on imports of dry
cell batteries and not against pre-mix powder. It is further noted that
scope of the product under consideration can neither be extended to
import of pre-mix powder nor the volume and value of imports of pre-
mix powder can be used for the purpose of determination of dumping of
subject goods from China.
17. As regards imports from third countries, Authority reiterates its
established practice that the anti dumping duties are recommended on
the product under consideration originating in the subject country,
regardless of the country of export and in that situation even if the
Chinese origin batteries are exported from third countries, the same
will be subject to anti dumping duties levied on that product. As
regards the possible circumvention of the product raised by the
domestic industry, it is noted that the aggrieved parties may raise their
concern before appropriate Authority, since AD Rules does not cover
circumvention proceedings in the course of anti dumping
investigations."
16. The Customs‟ argument about applicability of Rule 2(a) has to be seen in the
context of a complete reading of the findings of the designated authority. Para 16 of
these findings extracted above categorically states that the investigation and
recommendation for anti dumping duty did not extend to import of dry cell pre-mix
power. Apparently, the reason for this is obvious; the anti dumping investigation by
the authorities and the findings of the designated authority were in the context of
damage or injury by depressed pricing of goods i.e. dry cell batteries imported from
China. Those goods were whole dry cells. The designated authority advisedly did not
WPC Nos.4541/12 & 4351/12 Page 9 of 10
enter into any investigation as to the components and the likelihood of injury by
importation of such components from China. Had such an exercise been undertaken
and recommendations made to the concerned authority, the notification would have
followed the same route. This Court is also alive to the fact that previous notifications
which have extended anti dumping duty to components and constituents had explicitly
said so. (Refer Customs notification No.65/03 dated 4.4.2003 and Notification
No.132/2009-Cus dated 8.12.2009). Had the authorities intended that dry cell battery
components of the kind imported by the petitioners in this case ought to be subjected
to anti dumping duty, (which is discriminatory in nature) that intention would have
been expressed in the notification. Its absence renders the clarification made by the
Central Board of Excise and Customs dated 6.12.2010 relied upon by the customs in
this case, without authority of law. The petitions therefore have to succeed; the
respondents are directed to process the writ petitioners‟ cases for release of their goods
without insisting on payment of anti dumping duty as demanded. The writ petitions
are allowed in the above terms. No costs.
S. RAVINDRA BHAT, J.
R.V.EASWAR, J.
AUGUST 08, 2012 vld WPC Nos.4541/12 & 4351/12 Page 10 of 10