Customs, Excise and Gold Tribunal - Delhi
Antifriction Bearings Corpn. Ltd. vs Collector Of Customs on 22 April, 2000
Equivalent citations: 2000(70)ECC771, 2000(126)ELT1242(TRI-DEL)
ORDER A.C.C. Unni, Member (J)
1. The appellants M/s. Antifriction Bearings Corpn. Ltd. had imported an Automatic Noise Testing Machine AD-0100 for Ball Bearings alongwith standard accessories and filed Bill of Entry No. 7013, dated 27.5.91. The appellants sought clearance of the machine under OGL classifying the item under Customs Tariff sub-heading No. 9024.10 read with Notifications No. 26/88 and 14/88. There was dispute as to whether the machine was automatic or not, though it was not in dispute that the machine was to be used for testing noise/vibration of bearings. Acordingly, by Show Cause Notice dated 7.8.91, they were asked to show cause why assessment of the machine should not be made under sub-heading 9031.80 read with Notification No. 118/86 and also why the machine should not be confiscated Under Section 111(d) of the Customs Act, 62 on account of importation of the same without a valid licence. The matter was adjudicated by Addl. Collector of Customs, Bombay after hearing the party. The Addl. Collector held that the machine was not an automatic testing machine but a non-automatic one since there was no micro computer interfaced with the machine under import and therefore, it cannot give results automatically. Accordingly, he held that the machine was correctly assessable to duty under subheading 9031.80 read with Notification No. 118/86. The machine was also directed to be confiscated Under Section 112 with option to the importer to redeem the same on payment of redemption fine of Rs. 8 lakhs. A penalty of Rs. 2 lakhs was also imposed Under Section 112 of the Customs Act, 1962.
2. Shri R.J. Majra, Ld. Advocate appeared for the appellants and Shri A.K. Agarwal, Ld. DR appeared for the respondent Collector.
3. Shri R.J. Majra, Ld. Advocate submitted that the appellants are engaged in the manufacture of Ball and Roller bearings and they had placed an order for the supply of Automatic Noise Testing Machine for Ball Bearings with a manufacturer in Japan. He submitted that the said machine is used for checking vibrations and sound of ball bearings. The procedure of checking involved positioning of a bearing on an arbour. The inner ring of the bearing is then given a rotating motion at a predetermined speed of 1800 revolutions per minute. During this controlled rotation of the inner race the noise generated is measured and the same is amplified and shown on the meter in three different bands as per AFBMA standard. It is also heard through the built-in amplifier and the speaker. The range covers all the frequency bands and permits the bearing quality to be verified according to its indicator reading supplemented by tone and sound volume. The entire operation is designed to function without any human regulation or control. On arrival of the machine, the appellants had classified the item under sub-heading 9024.10 (machine and appliances for testing metals) of the Customs Tariff Act and applied for the benefit of Notification No. 26/88-Cus. S. No. 14 of the said Notification provided for exemption for a machine described as Automatic noise and/or vibration tester for bearings.
Under S. No. 3 of Part B of Appendix I of OGL, Automatic noise and/or vibration tester for bearings were covered.
Ld. Advocate referred to the reply filed by the appellants to the Show Cause Notice explaining the difference between an automatic machine and a manual machine and also drew attention to the catalogue of the testing machine to show that the operational functions of the machine were automatic. At the time of personal hearing before the Additional Collector also, the appellants had explained the difference between Automatic Testing Machine and non-Automatic Testing Machine and contended that there was no testing machine which was semi-automatic. They had also produced an expert opinion in the matter from Mrs. D.V. Asrani, Chartered Engineer. The Chartered Engineer had given opinion that the noise and /or vibration testing machine for bearings are either "manual" or "automatic" and there was no intermediate classification as semi-automatic. Ld. Counsel submitted that in the impugned order, the Addl. Collector had relied on material collected behind the back of the appellants without disclosing the same to the appellants in violation of the principles of natural justice and fair play. The Addl. Collector had relied on information supplied by M/s. SKF Bearings and the specifications of their machine No. MVM 90B and the catalogue/manual of the said machine which is used in online production. It was contended on behalf of the appellants that the question involved in the case was whether the testing machine imported by the appellants was "automatic" or not. The Addl. Collector had mis-directed himself by comparing the imported testing machine with a totally different machine of a different kind and model, and having a different purpose. He has, therefore, fallen in error in concluding that the items was not "automatic noise and vibration testing machine". The point for consideration should have been whether the function of the testing machine was performed automatically or manually by using head-phones. Further, the Additional Collector had held the item as not automatic merely for the reason that there is no micro computer interfaced with the testing machine. According to the appellants the absence of a micro computer does not make the machine non-automatic. It was also wrong to hold that just because the imported machine was used in testing bearings on random basis it will come within the category of an automatic testing machine. It was also contended that the Additional Collector had failed to deal with the certificates of four technical experts, namely, Shri V.R. Asrani, Chartered Engineer, Mrs. D.V. Asrani, Chartered Engineer, M/s. Suganware Laboratories and M/s. TELCO stating that the testing machine imported by the appellants is an Automatic Testing Machine.
4. Ld. DR Shri A.K. Agarwal on the other hand contended that even going by the features described in the catalogue of the machine, the equipment is described as Anderon Meter because the unit of measurement of vibration is an Anderon Unit and vibration frequency is divided into three bands namely, low, medium and high and the vibration rate is displayed on the indicator corresponding to each band. The vibration sound is simultaneously heard manually through a built-in amplifier-speaker system, which covers all the frequency bands and the quality of bearing tester is verified by the quality of tone and sound alongwith the indicator value of each frequency band. Further, the bearing to be tested has to be loaded manually to the mandrel of the Anderon meter and after inspection check, the bearing is passed for its quality, based on the manual judgment which is dependent on the reference standards adopted by a particular manufacturer. The Addl. Collector had, therefore, observed that the machine imported was a simple inspection instrument to measure vibration of the bearing. The machine was, therefore, suitable for use in testing bearings on a random basis rather than on line during production for which fully automatic noise testing machine is used. Ld. DR referred to the impugned order in which the Additional Collector has referred to the opinion given by M/s. SKF Bearings who were reputed manufacturers of bearings. The catalogue of Automatic Noise and/or Vibration Tester used in their factory, namely, Machine MVM 90-B was an Automatic Noise and/or Vibration Tester, This automatic machine has the facility of picking up automatically the bearings from the production line and loading them automatically on the rotating mandrel of the testing equipment and the vibration is picked up and analysed through a Micro Computer. After the testing, the results are analysed as per pre-programmed reference standard in the Micro computer and the bearing is sorted out into any one of the three chutes in accordance with various parameters. Ld. DR submitted that the machine imported did not have the facilities of automatic testing, analysis and recording the results automatically and sorting out the bearings automatically in the production line. He therefore, submited that there was a clear difference between noise and/or vibration testing machine and the machine imported by the appellants. The machine imported by the appellants would, therefore, not qualify for being an automatic noise and/or vibration tester for ball bearing allowed under the OGL scheme. He submited that the impugned order had correctly directed the confiscation of the said machine with option for redemption. The Addl. Collector had also correctly held that the item was assessable to duty under sub-heading 9031.80 liable to the appropriate rate of duty read with Notification No. 118/86. He also submitted that in the facts of the case, a penalty of Rs. 2 lakhs was warranted.
5. We have considered the submissions. The Department's case is that the machines cannot be considered automatic since it did not have the facility of automatic testing, analysing and recording of the results automatically and sorting out the bearings automatically in the production line. It is pointed out on behalf of the Department that there are certain parts of the operations which are required to be performed manually like loading of the bearing to be tested on to the mandrel and checking the bearing for its quality based on manual judgment depending on the reference standards adopted by a particular manufacturer. The Additional Collector had compared the features of the Automatic Noise and/or vibration testor used by another manufacturer of ball bearings, namely, M/s. SKF Bearings, and their catalogue. Their automatic machine had the facility of picking up the bearings automatically from the production line and loading them on the rotating mandrel of the testing equipment and for analysing the vibration through a micro computer. The said equipment also had the facility of analysing the results as per preprogrammed reference standard in the Micro computer and sorting out the bearings into various chutes. For these reasons the Additional Collector had held that with the machines imported by the appellants would not qualify to be classifiable and sub-heading 9024.10 read with exemption Notifications No. 26/88 and 14/88. Appellants on their part had relied on various decisions, namely,
1.;
2. 1980(6)ELT 75;
3. ;
4. 1989 (25) ECR 491 (Bom.);
5. ;
6. ; and
7. .
We find that only one decision, namely, K. Mohan and Co. v. Collector of Customs, Madras deals with the controversy of what is 'automatic' machine. In that case the question arose whether the automatic cloth cutting machines imported by the appellants could be considered an automatic machine since certain functions like production of material on to the machine for automatic cutting would make it a non-automatic cloth cutting machine. After considering the definition given to the word "automatic" in Mc Graw Hill Dictionary of Scientific and Technical Terms defining it as "having a self-acting mechanism that performs a required act at a pre-determined time or in response to certain conditions". The Tribunal held that when it was manifest with the imported machines had in-built self-acting mechanism for being used for cutting without any manual effort, it would qualify for being considered as an automatic cloth cutting machines. In that view of the matter the assessee's appeal was allowed with consequential relief. In the present case we find that the only dispute is whether certain functions like loading of the bearing on the mandral and the inspection check on the bearing for its quality based on manual judgment and the absence of the facility for on line testing would make the machine a non-automatic machine. We observe that the appellants had described the goods as "automatic noise testing machine for ball bearings" in the Bill of Entry. It is not in dispute that certain functions as described above have to be performed manually and the machines did not have the facility of fully dispensing with the manual part. Additional Collector had compared the functions performed by the automatic noise and vibration tester used in M/s. SKF Bearings to conclude that to qualify for classification under the category of 'automatic' machines it should be a machine which performs the testing functions independently and without manual operation to any extent.
6. It is common knowledge that with the constant improvement in the degree of sophistication in equipment and machinery and upgradation of technology functions which were performed manually earlier are becoming automatic in the newer models of even the same machines. The question whether a machine is automatic or semiautomatic etc. is, therefore, a question of degree. For understanding the intention of the Legislature in classifying a particular machine/equipment as automatic, one has to ascertain the features of the model which had the highest degree of automation at the relevant time. It has to be presumed that at the time of issue of the Notification when there were two models of the same machine available, one with a lesser degree of automation and another with a higher degree of automation the Legislature should be deemed to have intended to classify only that machine as 'automatic' which had the greater degree of automation and correspondingly, lesser degree of manual operation. The automatic noise and/or automatic vibration machine available at M/s. SKF Bearings had, admittedly, much less manual operations and therefore, clearly an 'automatic' machine. Any machine performing the same functions with manual inputs cannot, therefore, be also an 'automatic' machine, In the face of this fact we are unable to agree with the claim of the appellants that their machine which has to be operated manually in certain crucial aspects like loading, analysis and sorting out, would also be covered under the category of 'automatic' machines for purposes of OGL. We do not agree with the appellants' contention that the SKF machine was a totally different machine since the functions performed admittedly by both the machines are noise testing of ball bearings.
7. However, having regard to the highly technical nature of the dispute and the possibility of a bona fide difference of opinion existing as to the correct classification, we hold that the penalty imposed on the appellants was not warranted. Accordingly, we set aside the penalty of Rs. 2 lakhs imposed on the appellants.
8. Appeal is accordingly allowed to the extent of setting aside the penalty. The impugned order is modified in that respect and the Appeal disposed of in the above terms.
S.K. Bhatnagar, Vice President
9. I find from the catalogue titled Fibration/acoustic analysing apparatus of Sugawara Laboratories showing the details of the item in question that the imported goods described as "Automatic Noise Testing Machine AD-0111 for Ball Bearings" is an 'Anderson Meter'. It has been described as a bearing inspection instrument to measure the same and vibrations on a finished bearing and has, inter-alia, the following features:
Outline and Features
--Bearing inspection instrument to measure the sound and vibrations on a finished ball bearing or roller bearing, etc.
--The bearing sound--vibration detection not done using with conventional air vibrations (microphone) but rather using direct vibrations (converter head) eliminates the need for an acoustic room or a sound-proofing room.
--Permits 100% inspection in an ideal production site for true quality control.
--All the frequency bands are divided into 3 bands, low, medium and high. The vibration rate is displayed with a indicator for each band.
--Listening to vibration sound with the built-in amplifier and speaker covering all the frequency bands, permits product quality to be verified according to its tone and sound volume together with the indicator judgment.
Anderon Meter....
A vibration/sound inspector for finished bearing products eliminating the need for an acoustic room. When the inner ring is rotated smoothy, this meter measures how much the external ring of a bearing vibrates in a radial direction.
During the course of hearing Ld. Counsel has emphasised the fact that conventional microphones which were earlier used for such purposes have been dispensed with in this model and they had produced certificates from experts in support of their contention that it has essential features of an automatic machine and in this connection drawn attention in particular to a certificates of the Chartered Engineer and from Telco who had testified that it measures vibration and sound in an automatic manner as against conventional manner. However, the views expressed in these documents are more or less subjective in character and in view of the various degrees of automation, we have to be one degree extra careful.
10. In this respect, I agree with my Ld. Colleague's observation as recorded in paragraph 6 above that there are degrees of automation as a machine may be automatic or semi-automatic; and in such circumstances in a notification one has to see the intention from the language of the notification in question. Interpretation of a Customs Notification is the basic function and responsibility of the Customs Officers and not that of other autorities or experts.
11. The table annexed to Notification No. 26/88 (as amended) covers several items including some which are automatic and others which are semi-automatic. It is, therefore, incorrect on the part of the appellants to plead that there is no concept of semi-automatic in this field. In fact, in the Notification in question where serial No. 14 covers only "Automatic noise and/or vibration tester for bearings", the immediately next entry at serial No. 15 covers "Automatic and /or semi-automatic washing and/or lubricating and/or assembling machines or line for bearings." In other words, the former entry (14) covers only automatic and semi-automatic items. Once there is such a distinction, we have to take note of the same, and therefore, I agree with the findings of my Ld. Colleague that the imported item would not be covered by the category of automatic machines. Further, in my opinion, this is the position w.r.t. both the exemption notification as well as licencing because in the case of relevant Appendix also the words used are the same namely automatic noise and/or vibration tester for bearings indicated against Sr. No. 14 under Appendix I Part BII and the very next entry is automatic and/or semi-automatic washing or lubricating or assembling machine or line for bearings; and this shows that the notification has been aligned with the Import Licence requirement to this extent.
12. I therefore, hold that they were neither entitled to the benefit of the Notification 26/88 nor for clearance under OGL and the goods were liable to confiscation. I therefore, uphold the order of the Collector regarding classification, exemption notfication, licensing and liability to confiscation.
13. At the same time looking to the totality of facts and circumstances, I consider that fine of Rs. 8 lakhs (Rupees eight lakhs only) coupled with a penalty of Rs. 2 lakhs (Rupees two lakhs only) is excessive and am of the opinion that looking, inter-alia, to the CIF value of the goods, a fine of Rs. 6 lakhs (Rupees six lakhs only) was sufficient and no penalty was called for.
In views of the difference of opinion between the Hon'ble Member Judicial and the Vice-President, the matter is submitted to the President for reference to a third Member on the following point:
Whether in view of the facts and circumstances of the case, the redemption fine imposed by the Additional Collector should be confirmed or it should be reduced to Rs. 6 lakhs form Rs. 8 lakhs?
S.S. Kang, Member (J)
14. The following difference of opinion between Hon'ble Vice-President and Member (Judicial) is referred to the 3rd Member:
Whether in view of the facts and circumstances of the case, the redemption fine imposed by the Additional Collector should be confirmed or it, should be reduced to Rs. 6 lakhs from Rs. 8 lakhs?
15. Heard both sides.
16. In this case the appellant made an import of Automatic Noise testing machine for Ball bearing alongwith standard accessories and claimed the classification under Sub-heading of Customs Tariff 9024.10 read with Notifications No. 26/88 and 14/ 88 and also claimed the clearance under OGL. A show cause notice was issued for classifying the machine under sub-heading of Customs Tariff 9031.80 read with Notification No. 118/86 and for confiscation of the machine Under Section 111A of the Customs Act on account of import without a valid import licence. The adjudication authority held that machine is classifiable under heading 9031.80 of Customs Tariff and ordered the confiscation of the machine Under Section 112 with opinion to redeem the same on payment of redemption fine of Rs. 8 lakhs. A penalty of Rs. 2 lakhs was also imposed Under Section 112 of Customs Act, 1962.
17. It is a settled position of law that redemption fine is not a penalty in a strict sense. It is more compensative than retributive. In cases where redemption fine is imposed on goods which are imported in contravention of legal provisions, the profit which would have been earned by importer is taken as the reasonable yardstict. After taking into consideration of the facts and circumstances of the case and having regard to the highly technical nature of dispute and the possibility of bona fide opinion existing as to the correctness of classification, I agree with the view taken by the Hon'ble Vice-President that a redemption fine of Rs. 6 lakhs is sufficient to meet the ends of justice.
MAJORITY OPINION In view of the majority opinion, the penalty of Rs. 2 lakhs is set aside and redemption fine is reduced to Rs. 6 lakh for Rs. 8 lakh. Otherwise, the impugned Order is upheld.