Customs, Excise and Gold Tribunal - Delhi
Sony India Ltd. vs Cc, Icd on 28 May, 2002
Equivalent citations: 2002(103)ECR288(TRI.-DELHI)
ORDER
K.K. Usha, J. (President)
1. In this appeal at the instance of M/s. Sony India Ltd. the challenge is against the order-in-original No. KK/CC/ICD/TKD/6/99 dated 30.1.1999 (issued on 1.2.1999) passed by the Commissioner of Customs, Inland Container Depot, Tughlakabad, New Delhi. Under the above order the Commissioner has confirmed differential duty demand of Rs. 42,89,75,196/- under proviso to Section 28(1) of the Customs Act, 1962, imposed a penalty of Rs. 30,19,92,183/-under Section 112(a) read with Section 114(a) and levied interest under Section 28AB of the Customs Act. The import of several parts of Colour Television made by the appellant for the period from April 1995 to 1997 were treated as import of complete Colour Television Set for the purpose of assessment by the Commissioner.
2. When the appeal filed by the assessee came up for hearing before a two Member Bench difference of opinion arose between the Members on the application of Rule 2(a) of General Rules for interpretation under first Schedule of Import Tariff to the imports made by the appellant. Learned Member Judicial took the view that the parts imported cannot be treated as complete colour television set (CTV) and, therefore the duty demand, confiscation penalty etc. were held unsustainable. On the other hand, the learned Member Technical took the view that Rule 2(a) should be applied in the present case but felt that the matter should be heard by a Larger Bench in the light of the different views taken by different Benches and also considering the importance of the issue involved. Learned Member Technical was also of the view that the issue whether the assessee is entitled to the benefit of exemption from duty in terms of Notification No. 91/89 dated 1.3.1989 as amended by Notification No. 79/95-Cus. dated 31.5.1995 and 36/96 dated 23.7.1996 in case it is held that by applying Rule 2(a) the imported parts are considered as complete or finished CTVs is also to be considered by the Larger Bench. Learned Member was of further view that the Larger Bench should consider the question whether the amendment brought in HSN Explanatory Notes to interpretative Rule 2(a) in March 1997 will have retrospective effect. Thus, the following points of difference are referred for consideration of the Larger Bench:
Whether the goods in question are components and cannot be treated as complete colour Television sets and hence the duty demand, confiscation of penalty are unsustainable as held by Ld. Member (J).
OR Whether the issue as to the circumstances under which Rule 2(a) of the Interpretative Rules can be applied, as to whether the benefit of Notification exempting components only will be available, if the product is considered as complete or finished article by virtue of deemed provisions of Rule 2(a), and whether the changes effected in Explanatory Notes of HSN will have only prospective application or it will be applicable for the earlier period also, requires to be referred to a Larger Bench, as held by Ld. Member (T).
The facts relevant for consideration of the above issues are as follows:
3. A proposal put forward by Sony Corporation Japan to establish a wholly owned subsidiary in India for the manufacture of CIV sets and other electronic products was accepted by the Government of India under proceedings dated 31.8.1994. The proposal showed Localization Plan of Components as 10%, 15% and 20% for the years 1996, 1997 and 1998 respectively. There was no proposal to utilize any parts procured locally in the year 1995. It is also made clear that accomplishment of this figure will depend on many other factors like FIPB's approval, completion of factory etc. As regards the requirement for importing 20-21" colour Cathode Ray Tube and Printed Circuit Boards (PCB) they were directed by communication dated 31.8.1994 to approach the Ministry of Commerce, Office of DGFT for completion of the rquisite formality for the grant of import licence as 'actual user'. Annexure 1 of the above communication also made it clear that the import of capital equipment, components and raw materials will be allowed as per the Import Policy prevailing from time to time. Thereafter Ministry of Industries, Government of India, granted industrial licence to the appellant for the manufacture of CTVs in their factory at Daruhera, in the State of Haryana. On the basis of the application submitted by the appellant, DGFT granted import licence to the appellant for import of colour cathode ray tube and PCBs.
4. Appellant thereafter placed purchase orders on the foreign supplier, namely, Sony International (Singapore) Ltd. Singapore for supply of various components required for the manufacture of CTVs. It is the case of the appellant that Sony International (Singapore) Ltd. in its turn would place purchase orders for these components with their different approved vendors situated at Thailand, Taiwan, Japan, Malaysia, United Kingdom, China, Singapore etc. The part number of a particular component would indicate the vendor from whom the component has to be purchased. The components thus procured by Sony International (Singapore) Ltd. were sent to Sony India in container loads to save freight. A perusal of the copies of Bills of Entry and corresponding invoices would show that the countries of origin are different for different components. During the period from April 1995 to January 1997 appellants imported 94 consignments of various components of CTV. Two of the components, viz., CRT and PCB were imported under the import licence granted by the DGFT. Some of the imports were effected against the advance licence granted to the appellants and the balance items were imported without any licence as it was not required. Components imported under 94 Bills of Entry were assessed by the Customs authorities under appropriate individual sub-headings of customs tariff and the appellant cleared the same on payment of duty. These components were used by the appellant in the manufacture of CTVs. They paid excise duty on clearance of CTV from their factory. They also availed Modvat Credit of CVD paid on the imported goods.
5. While so, a show cause notice dated 4.3.1997 was issued by the Commissioner of Customs proposing to treat the 94 consignments of components as CTV in CKD form under heading 8528.12 of the First Schedule to Customs Tariff Act, 1975. They were also directed to show cause why the components of CTV imported by it should not be considered as CTV for licensing purpose under Exim Policy 1992 1097 and consequently restricted for import. On the above basis differential duty of Rs. 42,89,75,196/- was proposed to be recovered. Show cause notice also contained a proposal lo confiscate the goods under Section 111(d) and (m) of the Customs Act and to impose penalty under Section 112. They were also directed to show cause why penalty under Section 114(a) of the Customs Act for an amount equivalent to the amount [of] duty sought to be evaded should not be imposed on them. In the show cause notice reference is made to a purchase order dated 27.1 1.1994 places by Sony India Private Ltd. on Sony International, Singapore and it is alleged that this order was nothing but an order for 1500 CKD Kits of CTV for Model KV-2185GE. Reliance is placed on Rule 2(a) of the General Rules for Interpretation of the First Schedule to the Customs Tariff Act 1975 in support of the allegation that the 94 consignments were to be treated as complete CTV, unassembled or disassembled. It was also alleged that the assessee had deliberately mis-declared CKD Kits of CTV as components of CTV in the relevant Bills of Entry to get benefit of lower duty. The show cause notice further alleged that the complexity of the process of assembly of CKD Kits to form a complete item has no bearing on its licensing angle or dutiability. According to the show cause notice even if 100% components are not imported, they will still be assessed to duty as complete articles provided that if all the components are assembled the incomplete or unfinished article has the essential character of the complete or finished article. Going by the nature of the components imported by the appellant it was alleged that when assembled it will have the essential character of the finished article, that is, CTV.
6. In reply to the above show cause notice, the appellants filed a detailed reply wherein they had referred to communications and discussions with different departments of Union of India regarding establishment of the manufacturing unit in India, the conditions under which permission was granted to the project, the mode of import of components and details of its manufacturing process. It was also contended that there was no violation of any provisions of the Import Policy while importing the components, Rule 2(a) has no application to the assessee's import, even if Rule 2(a) is applied, in the nature of the import made by the appellant, Rule 2(a) will not be satisfied. HSN Explanatory Notes to Rule 2(a), as it stood during the relevant period i.e. prior to March 1997 would rule out application of Rule 2(a) in the facts of the appellant's case. The amendment to HSN Explanatory Notes which was brought in March 1997 cannot be applied to the imports which are covered by the show cause notice, as amendment is only prospective. Even if the amended provision is applied, according to the assessee its imports will be outside Rule 2(a) as some of the components imported are subjected to further working operation for completion into the finished state. The appellant is eligible for concessional rates of duty of Customs on the imported components even if they are treated as CKD Kits of CTV. It was also contended by the appellant in his reply that the duty demand is barred by limitation. Show cause notice which was issued on 4.3.1997 covered import for the period from April 1995 to January 1997. Goods were cleared after inspection by the Customs authorities. Items imported under any of the consignments would not have been enough to make CTV sets. Therefore, the assessee could have declared the goods only as components. There was no collusion, wilful misstatement or suppression of facts committed by the assessee, which would justify the assessing authority to take recourse to the larger period of limitation of 5 years.
7. After granting an opportunity of personal hearing, the Commissioner rejected the contentions raised by the appellant. In paragraph 35 of his order, the Commissioner observed as follows:
Here, ii is reasonable to conclude that the imported goods are certainly not fully manufactured TV sets having been disassembled for the purpose of import. But there is not doubt the goods imported under Bills of Entry mentioned in the Annexure to show cause notice are the component which would be TV sets, when assembled.
In the middle of paragraph 38 it is further observed as follows:
The above analysis would clearly indicate that the components imported by M/s. Sony India were the colour TVs in unassembled condition. They were certainly not the components in disassembled condition which implies the manufacture of a colour TV set first and then its dismantling for the purpose of convenience for its transport into semi knocked down condition or a completely knocked condition.
In paragraph 45 the Commissioner holds that the charge of violation of import Policy, so far it relates to a period prior to 25.3.1996 does not sustain for the following reason-
The show cause notice alleges that the imports of the components are coloured television sets in CKD or SKD conditions. It is clear from the facts of the case that this was not a case of imports in SKD or CKD conditions which always pre-supposes that the goods were first assembled and then disassembled fully or partially for more convenient transport of the goods. I would also add that this import was also not in 'ready to assemble sets' which expression is clearly different from expression 'components unassembled' as used in Rule 2(a). While the expression 'ready to assemble' implies that components can be given the shape of consumer item with some efforts, the expression 'components unassembled' presupposed a state wherein manufacturing process including working on the romponents may be involved before a fully finished article is brought into existence.
8. Contention raised by the assessee that the imported goods are to be assessed in the condition in which they are imported and the various consignments during the different period cannot be clubbed together were not accepted. The Commissioner also took the view that HSN Explanatory Notes are not binding for interpretation of Rule 2(a). While coming to the above conclusion the Commissioner distinguished the decision of the Supreme Court in CCE v. Wood Craft Products Ltd. observing that the Apex Court has not held that HSN Explanatory Notes are binding or compelling in nature but only held that they are safeguards for interpreting Central Excise Tariff. Apart from the above the decision being on Central Excise Tariff is not applicable to the facts of the present case where interpretation of Rule 2{a) of Interpretative Rules in Customs Tariff is involved. Even otherwise in view of the amendment on 14.3.1997 which, according to the Commissioner, has retrospective effect, the complexity of the process is irrelevant. Therefore, the Commissioner did not go into details of the manufacturing process explained by the assessee. In arriving at the above conclusion the Commissioner has relied on Judgment of the Court (Fifth Chamber) Luxembourg dated 16th June 1994 in the case of Develop Dr. Esbein GmbH & Co. v. Hauptzollamt Stuttgart-West, copy of which was served on the assessee along with the show cause notice. As far as the Board's Circular No. 44/97 dated 30.9.1997 relied on by the assessee is concerned the Commissioner took the view that it is not binding on the adjudicating authority as it is not an instruction issued under Section 151A of the Customs Act, 1962. Commissioner also took the view that the assessee is not entitled to the benefit of exemption Notification No. 91/89 available to the components. The choice of larger period of limitation was sustained by the Commissioner for the reason that the assessee had suppresssed from the assessing authority the fact that all the components which would give the colour TV sets its essential character were to be imported and then were to be assembled in India.
9. We will take up two of the issues referred for consideration of the Larger Bench together as they are interlinked. One of the issues relates to the circumstances under which Rule 2(a) of Interpretative Rules can be applied and the other the effect of Explanatory Notes to HSN relating to Rule 2(a) and the applicability of the amendment to HSN Explanatory Notes brought in March 1997 to the facts of the case. In other words the issue to be considered is whether the import of components of CTV made by the assessee under 94 consignments during the period April 1995 to January 1997 can be treated as import of complete CTV sets by applying Rule 2(a) of the Interpretative Rules and in the light of the HSN Explanatory Notes before and after the amendment in March 1997.
10. Relevant portion of the Rules of the Interpretation of First Schedule to the Import Tariff reads as follows:
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 according to the following provisions:
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).
Relevant portion of the Explanatory Notes of HSN is as follows.
RULE 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.
HSN EXPLANATORY NOTES RULE 2(a) (Articles presented unassembled or disassembsled) (V) The second part of Rule 2(a) provides that complete or finished articles presented unassembled or disassembled are to be classified in the same Heading as the assembled article. When goods are so presented it is usually for reasons such as requirements or convenience of packing, handling or transport.
(VI) This Rule also applies to incomplete or unfinished articles presented unassembled or disassembled provided that they are to be treated as complete or finished articles by virtue of the first part of this Rule.
(VII) For the purpose of this Rule, 'articles presented unassembled or disassembled' means articles the components of which are to be assembled either by means of simple fixing devices (screws, nuts, bolts etc.) or by riveting or welding, for example provided only simple assembly operations are involved.
Unassembled components of an article which are in excess of the number required for that article when complete are to be classified separately.
Clause (VII) of the Explanatory Notes was deleted and substituted In the following manner by Circular No. 06/97-Cus. dated 14.3.1997:
No account is to be taken in that regard of the complexity of the assembly method. However, the components shall not be subjected to any further working operation for completion into the finished slate.
11. It is the case of the appellant that a reference to components Imported under each Bs/E would show that they were not sufficient to manufacture a complete CTV set and therefore, when the imported articles namely, the components were presented it cannot be treated as "articles presented unassembled or disassembled". According to the appellant when they placed orders with M/s. Sony Corporation (S) Ltd. they were compelled to order certain prescribed minimum quantity of the components as insisted by the approved vendors of the various components at different places like Japan, Thailand, Taiwan, Malaysia, United Kingdom, China, Singapore etc. Minimum order quantities of the following parts and numbers are as indicated below:
PART No. DESCRIPTION MINIMUM ORDER
QUANTITY
X-4032-667-1 Heat Sink Assembly 300
1-102-074-51 Cap Ceramic 0001 MFB 1000
1-104-574-51 Cap Ceramic-4700PFB 1600
1-424-461-11 Transformer Line Filter 320
1-459-907-22 Coil Horizongtal Linearity 220
4-048-689-02 Rail R Guide 170
4-048-690-02 Rail 1 Guide 100
8-451-404-42 DYY25GXAS (Neck Band) 108
8-719-052-82 Diode RBV-406H-02 1200
8-759-336-30 IC TA8223K 15
The appellant further submits that it had to place orders for the minimum quantity from the vendors taking into account their inventory of a particular component and their production plan for the next quarter. The appellant submits that it is not permissible under law to combine all the imports under 94 Bs/E during the period from April 1995 to January 1997 and then to hold that the components as presented are complete CTV unassembled or disassembled. Customs authorities have no jurisdiction whatsoever to classify and assess the goods imported taking into consideration post importation operation or activity of the process undertaken by the importer. Reliance was placed by the learned Counsel for the assessee on the following decisions:
Vareili Weaves Pvt. Ltd. v. Union of India Union of India v. Tarachand Gupta & Sons Susha Electronics Industries v. CC 1989 (39) ELT (T) Dipen Enterprises v. CC CC v. Mitsuny Electronic Works 1987 (13) ELT 345 (Cal. HC) 1992 (42) ECR 188 (Cal) Trident Television Pvt. Ltd. CC HCL Ltd. v. Union of India Ghanshyam Chejra v. CC Vishal Electronics Pvt. Ltd. v. CC 1996 (15) RLT 306 : 1997 (70) ECR 702 (T) Polar Appliances Ltd. v. CC 2001 (43) RLT 32 (T) SAB Electronics Ltd. v. CC Learned Counsel for the assessee further pointed out that even the judgment of the German Court relied on by the Commissioner in his order holds that, for the application of Interpretative Rule 2(a), the pre-requisite is that all the components have to be presented for assessment at the same time and they must have the essential character of the finished goods. In support of the contention that HSN Explanatory Notes to Rule 2(a) as it stood during the relevant period should be made applicable in the appellant's case and, if that be so, the imports will go out of the purview of Rule 2(a), learned Counsel relied on the decision of the Supreme Court in CCE v. Woodcraft . Reliance was also placed on the decision of the Tribunal in Space Age Engg. Projects Pvt. Ltd. v. CCE 1995 (78) ELT 544 : 1995 (59) ECR 473 (T), Modi Zerox Ltd. v. CC , Phoenix International Ltd. v. CC 2001 (138) ELT 484 : 2001 (96) ECR 143 (T), Polar Appliances v. CC 2001 (43) RLT 32 and SAB Electronics v. CC in support of the submission that HSN Explanatory Notes to Rule 2(a) are to be applied and complexity of assembly operations is a relevant factor. It was further submitted that the judgment of Supreme Court in Sharp Business Machines Pvt. v. CC has no application to the facts of the present case where the appellant has imported components strictly in accordance with the licence issued to it and on the basis of Import Policy.
12. On the other hand learned Senior Counsel who appeared on behalf of the Revenue submitted that there is no rule that the parts or components presented unassembled as contemplated by Rule 2(a) cannot be parts imported under different Bs/E. According to the learned Counsel there is no difference between a person who is importing components with the objective of manufacturing TV and a person importing parts without such project. It is further submitted that the decision of the Apex Court in Sharp Business Machines Pvt. Ltd. v. CC would clearly show that there is nothing illegal in the Customs authorities combining different consignments under different Bs/E for the purpose of proper assessment. It is also the case of the Revenue that, in the light of the amendment to HSN Explanatory Notes which came in March 1997, the contention of the assessee that components have to undergo complex procedure of assembly is irrelevant while considering the nature of the imports for being brought under Rule 2(a) of the Interpretative Rules.
13. On going through the opinion expressed by the two Members, we find that the learned Judicial Member has taken the view that imports under different consignments cannot be clubbed together (sic) the purpose of assessment under the Customs Act, the HSN Explanatory Notes are to be looked into for understanding the scope of Rule 2(a) of Interpretative Rules and that it is the HSN Explanatory Notes that stood at the relevant period which has to be taken into consideration and not the one after the amendment in March 1997. Learned Judicial Member has also taken the view that complete assembly operation involved in the manufacture of CTV is complex and not a simple assembly operation to bring the imports under Interpretative Rule 2(a). On the other hand, the learned Member Technical placing reliance on Sharp Business Machines Pvt. Ltd. took the view that all the parts imported unassembled would being into existence complete CTV and even the Explanatory Notes of HSN recognizes the fact that unassembled components of article in excess of the number required for that article when complete are to be classified separately. Learned Member, therefore, distinguished the decision of this Tribunal in the case of Polar Appliances & SAB Electronics Ltd. Learned Member further took the view that HSN Explanatory Notes are in the nature of clarification. Therefore, the amendment made in March 1997 can be given effect to the imports made even prior to the date of amendment. Therefore, the requirement of simple assembly operation is no more there in the Explanatory Notes and thus the alleged complexity of the manufacturing process of CTV will not take it out of the purview of Interpretative Rule 2(a).
14. It is not the case of the Revenue that anyone of the 94 consignments covered under 94 Bs/E contained all the required components to assemble or manufacture one CTV set. The appellant has in the form of a chart given the number of components covered by each B/E and also the further items required for manufacture of a complete CTV e.g. under Bill of Entry No. 104026 dated 26.4.1995 only 3 components were imported whereas under Bill of Entry No. 104025 of same date another 6 components are covered. To make a complete CTV about 100 number of parts are required. Under Bill of Entry No. 112011 dated 24.11.1995 the component CRT without which one could not make a complete CTV were not imported, whereas under Bill of Entry No. 10025 dated 8.1.1997 only CRTs were imported. The chart would show that under certain Bills of Lading only rear cover was imported or only remote commander was imported. The above would clearly show that as mentioned earlier, and the Revenue has also no case, that any one of the Bill of Entry would cover all the required components of a complete CTV.
15. We are not impressed by the argument put forward on behalf of the Revenue that a reference to the purchase order dated 27.11.1994 would show that it was nothing but an order for 1500 CKD kits of CTV for Model KV-2185GE. A reference to the table shown in the show cause notice regarding description of components, required number for each set, quantity actually imported and quantity required for 1500 CTV sets would show that many of the items e.g. CAP Ceramic, Resistance, Network C, Lead Jumper, Fuse Time Lag 3 150A, Link ICICP N 20, Cord Power (with Connector), Switch Block, AC Cord, Holder, Shaft (S) Door, Eyelet, Diode, Transistor, Heat Sink, etc. are not 1500 in number or its multiple. It is also seen from the show cause notice itself about 5 items in the purchase order like Clip assembly, Cover (rear lead) CV, Cover (main) CV, Band hold and holder HV Cable are not components required for the manufacture of the relevant model. The show cause notice itself referred to certain items from 93 to 98 in the table as parts which cannot be considered as components of CTV. The manner in which the purchase orders are placed by the appellant has been explained by it and we have referred to the same in an earlier part of this order. Therefore, we are of the view that the components imported under 94 consignments cannot be treated as disassembled or unassembled CTV sets, placing reliance on the purchase orders.
16. We thus come to the core dispute in this appeal whether the different parts imported under 94 Bs/E spread over the period from April 1995 to January 1997 can be combined together for the purpose of assessment by applying Rule 2(a), of the Interpretative Rules. Going by the language of Rule 2(a) the question whether parts or components are to be treated as article complete or finished, has to be considered at the time when they are presented unassembled or disassembled. There is no case for the Revenue in these proceedings that at some point of time before the import the goods were in the form of CTV sets and thereafter they were disassembled and imported as parts or components. The contention is that parts in 94 consignments taken together should be treated as CTV sets presented unassembled. We may first examine the background against which the relevant imports are made. The assessee with the permission of Ministry of Industries, Department of Industrial Development had obtained industrial licence for manufacture of CTV in their factory at Daruhera. It obtained import licence as actual user' in respect of the import of CRT and PCB from the office of the DGFT, that too, as per direction given in the communication dated 31.8.1994 issued by the Ministry of Industries granting permission for establishment of the company for manufacture of CTV. It is also clear from the above communication that the Govt. of India was fully aware of the proposal of the assessee to import the required components for manufacture of CTV and to gradually increase the use of components locally purchased from India. It is not the case of the Revenue that import of the consignment covered by any of the 94 Bs/E is in contravention of law if the goods comprised therein are to be treated as parts or components. Assessments were also being made under the relevant heading or subheading in respect of each component as and when Bs/E were presented during the relevant period. It is in the background of the factual position, as above, we are to consider whether by applying Rule 2(a) of the Interpretative Rules the components imported are to be treated as CTV presented unassembled.
17. In the light of the authoritative pronouncement of the Apex Court, it is beyond challenge that HSN Explanatory Notes to Rule 2(a) has to be applied while considering the relevant Tariff Entry for each item. In CCE Shillong v. Woodcraft Products Ltd. the contention raised by he Revenue was that the expression 'similar laminated wood' in the Central Excise Tariff Heading 44.08 has to be examined in the light of the Explanatory Notes to HSN. Accepting the above contention the Apex Court held that in case of any doubt regarding tariff classification HSN is are guide for ascertaining the true meaning of any expression used in the Central Excise Tariff Act. Even though this decision was placed by the assessee before the Commissioner it was not accepted for the reason this the decision was rendered in a case of assessment under Central Excise Tariff Act. We find that the reason given by the Commissioner to distinguish the decision of the Apex Court is totally unsustainable. Indian Customs Tariff is completely aligned with HSN. In Grasim Industries v. CC Bombay 1998 (24) RLT 598, a Larger Bench of this Tribunal had applied the decision in Woodcraft Products Ltd. to a proceeding under Customs Tariff Act. Apart from the above, in a later decision in CC Bombay v. Business Forms Ltd. 2002 (142) ELT 16 (SC) : 2002 (103) ECR 283 (SC), the Supreme Court has reiterated the same legal position in an assessment under the Customs Tariff act. The orders passed by the Tribunal were set aside and remanded for fresh consideration for the reason that the Tribunal had declined to place reliance on the Explanatory Notes in HSN stating that at the best this can have only persuasive value. After referring to Woodcraft Products Ltd., the Supreme Court observed that HSN Explanatory Notes are entitled to far greater consideration than the Tribunal has given in its orders.
18. In the present case, when a dispute is raised regarding the classification of the components as complete CTV by applying Rule 2(a), it has to be solved with reference to HSN Explanatory Notes to Rule 2(a). According to HSN Notes, complete or finished articles are presented unassembled for reasons such as requirements or convenience of packing, handling and transport. In Modi Zerox Ltd. the contention raised by the assessee that the items imported by them are Fax Machines in CKD condition and therefore they are to be assessed as complete Fax Machine was not accepted by this Tribunal. Relying on HSN Explanatory Notes it was held that it was an import of individual parts and not Fax Machine in unassembled form as fax machines are not such type of machines which for convenience are required to be transported in an unassembled state. This decision was affirmed by the Supreme Court in 2001 (133) ELT A 91. In SAB Electronics Ltd. 2001 (44) RLT in 137 and Phoenix International Ltd. 2001 (138) ELT 484 : 2001 (96) ECR 143 (T) also Tribunal has taken recourse to HSN Explanatory Notes to Rule 2(a) in order to arrive at a conclusion whether the parts imported are unassembled form of final and complete article. In the present case the complete or finished article is CTV. It cannot be for a mutant contended that CTV has to be presented unassembled for the convenience of packing, handling and transporting.
19. It also explained in HSN Notes that, for the purpose of Rule 2(a), 'articles presented unassembled or disassembled' means articles the components of which are to be assembled either by means of simple fixing devices (screws, nuts, bolts etc.) or by riveting or welding, for example, provided only simple assembly operations are involved.
20. The assembly of the components of CTV involves a complex operation and not a simple one. The affidavit filed by the Director who was in charge of the factory operations of Sony India Ltd. gives detailed account of CTV manufacturing process. It is stated therein that the whole CTV manufacturing procedure is divided into two parts (a) F'WB assembly and (b) Final assembly. PWB assembly is further divided Into four Sections (1) Auto insertions (2) Hand mounting (3) Soldering Stage and (4) Testing and Adjustment. Auto insertion is sub classified as seceded Mounting and JV Auto Insert. The relevant extract from the details provided in the affidavit regarding the above process is given below:
(a) Eyelet Mounting: This section has two numeric controlled, dedicated eyelet punching machine specially developed for Sony India. This machine inserts and punches the eyelet wherever required on the PWB automatically. The eyelet punching is a standard procedure adopted by Sony Corporation to improve the soldering joints for bulky and critical components on the PWB. The loading and unloading of the PWB is done manually on a X-Y. A numeric program is loaded in the Central Processing Unit (CPU) of the machine which is according to the location and size of the eyelet to be mounted on the bare PWB. Once the bare PWB is fixed on the machine, it automatically locates the position by moving the PWB in X and Y direction and punches Eyelets sequentially. The machine automatically stops functioning after punching the required No. of Eyletes. on the board. The No. of eyelet on the board depends on the model and design of the circuit diagram. The main advantages of this machine are higher efficiency, less operate fatigue & less damages. The numeric program in the machine can be changed by using a computer through RS-232C serial communication line and stored in the memory for future use.
(b) IV Aulo Insert: -The Eyelet punched PWB is now moved to automatic IV Machine for auto insertion of jumper wire. The IV machine is also a sophisticated computer controlled machine used for jumper wire insertion. The jumper wire cutting insertion and clinching operation is done automatically by the machine. A numeric program is loaded in the CPU of the machine which is according to the length and location of the jumper to be inserted on this PWB. The tin coated copper wire in the roll form is used as a jumper in this machine. The machine automatically locates the position by moving first in the horizontal direction and then automatically changes the position by 90 to locate the point in Y direction. It cuts the wire in required length, insert it and finally clinches the jumper wire. When all the jumper are inserted on the PWB, the machine automatically unload the inserted PWB and loads a new PWB to repeat the process again. The specific lengths are 5 mm to 30 mm with a clinching pitch of 1.4 mm. The scrap is automatically collected in a Jar. In case of any discrepancy during the operation the buzzer is automatically activated. Thus, the output of auto insertion section is a PWB mounted with eyelet and jumper wire which is an input for Hand Mount section.
Hand Mount: The Hand Mount section receives the PWB inserted with eyelet and jumpers. All the discrete components (both radial and axial) like assistors, capacitors, inductors, diodes, transistors and other bulky components are to be inserted. It is claimed that various components in tape reel form requires pre forming to make them usable for mounting because they are not available in such a position to be mounted directly on the PWB. Special Machines are required for performing tape reel form of component. These component leads are then cut and bend with specified pitch suitable for mounting. The above would show that as part of manufacturing process working on the components are also required. The IC's which generate heat during the TV operation are required to be fitted in heat sinks prior to insertion on the PWB to protect them from burning out. The IC's fitted on heat sinks are supplied to hand mount line as heat sink assembly and can be directly mounted on the PWB. All the components are according to their physical structure in two groups, namely axial component and radial component. Hence the hand mount line is also sub divided into three stages namely, axial HM line, Missing Checker Machine and Radial Hand Mount. All radial components are divided in fifteen stages on radial mount conveyor with one operator per stage. The number of stages can be varied according to set targets. The radial Hand Mount line is designed such that each stage has approx. 25 to 30 components and can produce 500 complete chassis per day.
21. It is claimed that axial HM line uses a specially designed Mask for each stage to cover all components' locations on the PWB except the required location to be mounted. The operator uses Static insulation band to minimize rejections. The operators are given specialized training to read component value using standard coding techniques and to insert them on the correct location using masks. This system is developed to achieve maximum efficiency during insertion of axial component with least possible human errors. The PWB inserted with eyelets, jumper wire and axial component are passed through a missing checker machine to detect any error. The machine using one electronic sensor to detect any error which would be indicated by a buzzer alarm and necessary action has to be taken accordingly. The error free PWB is then fed to the radial HM line. The populated PWB (Chassis) undergoes visual inspection where the operator can find out any persisting fault in insertion.
22. The next stage is soldering stage. This process would show that even soldering is not a simple process. Testing and adjustment stage consists of in Circuit Tester and Circuit Board Adjustment. PWB is passed through ICT Jig. This is a highly sophisticated computerized controlled machine for positive checking of the components. Here also there is an elaborate procedure to be followed. The ICT checks the PWB for any short/open or component test. The MPX card supplies rated voltage across the two pin and the current flowing through these pins is measured by measurement card and the component value calculated from this. After ICT checking the populated PCB goes to Circuit Board Adjustment. This is also a highly sophisticated computer controlled system. The PWB is placed on a pin fixture that has various connections with the system and the different wave form are shown on the programmable oscilloscope. The operator can view the wave form and can adjust presets on the PWB which are meant for specific adjustments like Power line short circuit check, line voltage check, Deflection Adjustment, Channel Preset VHF and UHF, Sub brightness Adjustment, APC (3.58 and 4.43) Adjustment, PAL III delay and ANTI-PAL Adjustment, SECAM Adjustment, Timer AGC Adjustment, User switch function check. Remote control check and Audio Inspection.
23. The adjusted and checked PWB is transferred to Final Assembly Line. There also we find that there is an elaborate procedure taking alace in CRT Docking stage, Chassis Docking stage, Rough Adjustment stage and Final Adjustment stage. At the final assembly line CTV had to so through Convergence Adjustment, Landing and Geometry Adjustment, White Balance Adjustment and Colour Balance and Separation Check. These processes are also complex and highly specialized requiring sophisticated machinery as well as qualified and trained operators.
24. The Revenue has not pleaded before us that the manufacturing process is anything other than what has been explained by the assessee. In the light of the above, we have no hesitation to hold that the process involved is a complex manufacturing process during which many components are subjected to working operation requiring sophisticated machinery and skilled operators. It is relevant to note that the assessee had at the relevant time made an investment of more than Rs. 213 crores for establishment of the unit for the aforesaid manufactural operations.
25. Now we will consider the effect of amendment to HSN Explanatory Notes to Rule 2(a) which came on 14.3.1997. It is to be noted that there is no amendment to Clause (V) which refers to the circumstances under which finished articles are presented unassembled, namely for the convenience of packing, handling and transport. Clause (VI) is amended to the effect that complexity of the assembly method was made irrelevant. But it is made clear that the components shall not be subjected to any further working operation for completion in the finished state. A reference to the manufacturing process would show that some of the components require further working operation for completing the manufacturing process of CTVs. And as mentioned earlier, CTV is not a machine which is presented unassembled for the sake of convenience of packing, handling or transport. Therefore, even applying the amended HSN Explanatory Notes we are not persuaded to come to a conclusion that the import of Components is import of CTV presented unassembled.
26. We will now examine the issue from another angle. Rule 2(a) speaks about a complete article presented (emphasis supplied) unassembled or disassembled. What is the relevant point of time at which the article is presented unassembled? According to the assessee it is at the time of presenting each Bill of Entry to the proper officer as contemplated under Section 46 of the Customs Act, 1962. On the other hand the Revenue would contend that goods imported under 94 Bills of Entry can be clubbed together for bringing within the term presented unassembled under Rule 2(a). [Emphasis Supplied].
27. In Susha Electronics Industries the assessee imported 90 pieces of 20 colour picture tube and 90 sets of plastic moulded components with cabinet front panel and rear covers. They sought clearance under OGL at Kandla Port. They had also imported 90 sets each of sub-assemblies, speakers, twiters, antenna and 90 sets of remote control pressed and punched parts and had filed B/E at Air Cargo Complex, Ahmedabad. The above imports were covered by licences. Revenue took the view that the goods imported under three consignments are to be treated together as CTV sets in SKD condition taking recourse to Rule 2(a) of General Rules for Interpretation. The Tribunal took the view that when the import Policy permitted import of components of TV sets some against licences and some under OGL the Collector had no jurisdiction to object to the clearance of the OGL item on the ground that those items if clubbed with items imported at Air Cargo Complex against licence would constitute complete TV set in SKD condition. In SAB Electronics Ltd. components of EPABX/Telephone were imported over a period of 22 months under 37 Bs/E. It was sought to be assessed as complete EPABX/Telephone system in CKD/SKD condition by invoking Rule 2(a) of the Interpretative Rules. The Revenue did not have a case that complete APABX was brought and clearance was sought at different Customs station by splitting the consignment. The Tribunal took the view that the assessee had imported components and they are to be classified accordingly. Prayer for combining 37 Bs/E during the period of 22 months was not accepted. A similar view was taken by this Tribunal in Polar Appliances Ltd. v. CC New Delhi 2001 (43) RLT 32.
28. In Trident Television Pvt. Ltd. a decision of the High Court of Calcutta Customs authorities sought to assess the components of colour TV imported by the assessee as complete TV set in SKD condition. The components were imported under different consignments. The High Court took the view that each consignment has to be separately assessed. It was further observed that even if one importer brings different items which are admittedly spare parts and components the Revenue authorities cannot take the plea that if those are assembled together there would be complete TV set. Ghanshyam Chejra is yet another decision of the Calcutta High Court where a similar view was taken.
29. Learned Member Technical has sought to distinguish Polar Appliances v. CCE 2001 (43) RLT 32 for the reason that in Polar Appliances the import was from different foreign suppliers whereas in the present case it was from a single supplier. According to the appellant herein the real foreign suppliers are from different countries and Sony International (S) Ltd. is acting only as a consolidating agent for procuring these components and shipping the same from Singapore for convenience. As mentioned earlier the shipping document would go to show that the country of origin in respect of different components are different. Apart from the above, with great respect, we are of the view that even if the 94 consignments had come from one foreign supplier it would not have made any difference in the matter of application of Rule 2(a) in the facts of this case. The reason given by the learned Member Technical for distinguishing the decision of this Tribunal in SAB Electronics v. CC is that the Revenue had failed to adduce any evidence in that case to show that the complete EPABX was bought and clearance was sought at different Customs stations by splitting the consignments but in the present case the components have been imported with the intention of only assembling complete CTV. With great respect we are not able to agree with the above view. In the present case the Revenue has no contention that complete CTV sets were brought and clearance was sought at different customs station by splitting the consignments. The fact that components are brought under 94 consignments spread-over a period of two years with the intention of manufacturing complete CTV would not bring imports of such components under Rule 2(a). In this connection, it will be relevant to refer to the decision of the Apex Court in Vareli Weaves Pvt. Ltd. v. Union of India . The dispute in this case was whether Partially Oriented Yarn (POY) imported by the appellant should be taken to fall within Item (iv) under the head Polyester Yarn relating to POY of 75 deniers and above but below 100 deniers or within item (iii) relating to POY of 100 deniers and above but not above 750 deniers for the purpose of availing the benefit of exemption from countervailing duty. Accepting the contention raised by the appellant, the Supreme Court took the view that countervailing duty must be levied on goods in the state in which they are when they are imported. There was no warrant for the levy of countervailing duty on the basis that, subsequent to the process of text rising, POY that was imported would have the denier age stated under item (iii). Therefore, for the purpose of imposing duty under the Customs Tariff Act the intention of the importer to utilize the component for manufacturing CTV sets is not relevant. Learned Member Technical distinguished the case CC v. Mitsuny Electronic Works 1987 (13) ELT 345 1992 (42) ECR 188 (Cal), a decision of the Calcutta High Court for the reason that in that case the import was by three Export Houses. We find hat the very same High Court has taken a view in Trident Television Private Ltd. v. CC that even if the imports are made by one importer the Revenue authorities cannot club together different consignments of components to arrive at a conclusion that they would make complete TV sets.
30. In Vishal Electronics Pvt. Ltd. a decision of this Tribunal an elaborate discussion is there on this issue. In the above case the as-sessee had imported under 5 consignments, components and sub-assemblies of CCT Video Camera. One consignment under REP licence and others under OGL. The Revenue took the view that when these imported goods are put together it formed complete sets of video camera in CKD condition the import of which is restricted as per the terms of Import Policy and required specific licence which the assessee did not possess. The Tribunal took the view that each B/E must be considered with reference to either the licence in case where specific licence is necessary and in other cases the particular tariff item relating to goods which could be imported and the provisions relating to OGL. In the absence of prohibition or any specific restriction as in the case of Girdharilal Bansidhar v. Union of India and Sharp Business Machine it is not open to the Department to contend that the goods imported under all the Bs/E if put together would constitute video camera in CKD condition and the same cannot be permitted without specific licence.
31. The above discussion takes us to the two decisions of the Supreme Court which are sought to be relied upon by the Revenue. Girdharilal Bansidhar case arose under Sea Customs Act. Appellant had a licence for import of iron and steel, bolts nuts, screws, studs excluding those adapted for use on cycles. He imported certain goods described as 'stove bolts and nuts' on the strength of the licence. The goods were found to be 'parts of nuts and bolts of Jackson Type single bolt oval plate belt fasteners' whose import had been totally prohibited by a notification in force at the time of import. The Collector held that the import was an attempt to evade the prohibition. Upholding the above view, the Apex Court observed as follows:
...We cannot accede to the position that it is the intention of the rule that importers are permitted to do indirectly what they are forbidden to do directly, and that it permits the importation separately of components which have no use other than as components of an article whose importation is prohibited, and that an importer is thereby enabled to assemble them here as a complete article though if they were assembled beyond the Customs Frontiers the importation of the assembled article into India is prohibited.
32. In Sharp Business Machines Pvt. Ltd. v. CC the importer had purchased 14 fully semi-finished Plain Paper Copiers, dismantled them and imported the same in SKD/CKD condition in the guise of parts and accessories under the phased manufacturing scheme of Import Policy. Under the above Policy in order to give incentive and encouragement to the new entrepreneurs establishing small scale industries permission was granted under the first phase to import 62% of the components and the balance of 38% was to be manufactured by them indigenously. The Policy was not for those who are to import 100% of the components of fully finished and complete goods manufactured in a foreign country. Admittedly, the import of fully finished plain paper copier was prohibited. Goods imported were covered by 3 Bs/E dated 3.2.1087 (sic) shipped from Hong Kong. Goods covered by these Bs/E were 10 Nos. paper copiers in SKD/CKD condition, accessories, spares, consumables and excess items. The fourth B/E covered 4 Nos. of copiers in SKD/CKD condition and consumables. The licence produced by the assessee did not cover all the items imported since as mentioned earlier the assessee was entitled to only 62% of the components of copiers whereas it imported 100%. It was also found that if all the parts were viewed individually none of the items tallied with the licence. Value was also misdeclared. The Tribunal took the view that one has to look into respective licence and not to all the consignments covered by different Bs/E asembled together. The above view taken by the Tribunal was held incorrect by the Apex Court after noting that fully finished plain paper copier was prohibited item for import and that the device adopted by the company in the present case was a complete fraud on the Import Policy. It was held that in the above circumstances the Tribunal was not right in taking the view that one has to look into respective licence and not to the fact that if all the consignments covered by B/E assembled together there will be a full and complete machinery. It was in this background of the facts that the Apex Court took the view that consignment covered by all the Bs/E assembled together should be looked into to examine whether the importer was importing an item which is totally prohibited under the Policy.
33. A Division Bench of the Calcutta High Court while hearing the appeal from the judgment of a Single Judge in HCL Ltd. v. Union of India had occasion to consider the above mentioned two decisions and also the decision in Union of India v. Tarachand Gupta & Bros. of the Supreme Court. In the above case before the Calcutta High Court the assessee had imported components of photocopying machine during the period 4.6.1990 to 22.8.1990 under required licence to import components. The Collector took the view that the components which had arrived on different dates in different ports were in fact copier models of M/s. Toshiba of Japan. According to the Collector the procedure adopted by the importer in importing full machine from Japan to Singapore from where they were dismantled and shipped to India was in violation of the Import Tariff conditions. Collector took the view that by importing components which on assembly could form photocopying machine respondent had acted in violation of the Import Export Policy. A Single Judge of the Calcutta High Court held that since the importer had requisite licence covering import of components and since photocopying machines are not totally prohibited from importation, even after assembly importer did not achieve something which he could not have legally achieved. The order passed by the Collector was accordingly set aside. While affirming the above view a Division Bench of the Calcutta High Court in its judgment dated 11.3.1996 (Judgment was rendered by Hon'ble Justice Ruraa Pal) examined in detail three decisions of the Supreme Court including Sharp Business Machines. The Bench took the view that the above decision has to be distinguished on the facts as it was rendered in the background, that the import of copier was totally prohibited and the appellants who were entitled to import only 62% of the components had in fact imported 100%. The Bench followed the dictum in Tarachand Gupta after quoting the following:
The result is that when the Collector examines goods imported under a licence in respect of goods covered by entry 295 what he has to ascertain is whether the goods are parts and accessories, and not whether the goods, though part and accessories, are so comprehensive that if put together would constitute motor cycles and scooters in C.K.D. condition. Were he to adopt such an approach, he would be acting contrary to and beyond entry 295 under which he had to find out whether the goods imported were of the description in that entry.
It was then observed that the Supreme Court rejected the contention that by importing 100% components the importer was achieving indirectly what he was not allowed to do directly for the reason that there was no restriction on importing 100% components and the question of achieving something indirectly did not arise. For the above reason the judgment of the learned Single Judge was upheld.
34. It was in the same manner this Tribunal also understood the dictum in Sharp Business Machine while rendering the decision in Vishal Electronics Pvt. Ltd. We, therefore, find no reason to take a different view in the facts of this case. In this connection it is relevant to note that even in the judgment of German Court relied on by the Commissioner the view taken is that components have to be presented for assessment at the same time for application of Interpretative Rule 2(a). The relevant portion is quoted below:
12. The Commission points out that the wording of the second sentence of Rule 2(a) is clear and that that Rule applies when all the separate parts of goods are presented at the time to the Customs....
19. The second sentence of Rule 2(a) must, therefore, be interpreted as meaning that an article is to be considered to be imported unassembled or disassembled where the component parts, that is the parts which may be identified as components intended to make up the finished product, are all presented for Customs clearance at the same time and no account is to be taken in that regard of the assembly technique or the complexity of the assembly method.
23. Accordingly, it should be stated in reply to the first question that an article is to be considered to be imported unassembled or disassembled where the component parts, that is the parts which may be identified as components intended to make up the finished product, are all presented for customs clearance at the same time and no account is to be taken in that regard of the assembly technique or the complexity of the assembly method.
35. We, therefore, hold that the decision of the German Court also did not support the action of the Commissioner in combining 94 consignments under 94 different Bills of Entry spread over a period from April 1995 to January 1997 to hold that components imported are to be considered as CTV unassembled by applying Rule 2(a) of Interpretative Rules.
36. In the light of the above view taken by us on the application of Rule 2(a) to the imports made by the appellant, we do not propose to go into the issue whether in the light of Rule (1) of Interpretative Rules it is open to the Revenue to invoke Rule 2(a) at all in the facts of the case, on which arguments were addressed before us. It is also not necessary for us to go into the question as to whether the appellant will be entitled to the benefit of the notification exempting components if the goods are treated complete and finished articles by applying Rule 2(a) even though this is one of the points referred for our consideration.
37. We, therefore, agree with the view taken by the learned Member Judicial that the components imported by the appellants cannot be treated as complete colour television sets and hold that duty demand, direction far confiscation and imposition of penalty are unsustainable under law. The order impugned is set aside and the appeal stands allowed.