Customs, Excise and Gold Tribunal - Delhi
Supreme Laces vs Collector Of Customs on 4 March, 1992
Equivalent citations: 1992(60)ELT442(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. The issue involved in both these appeals being common, they were heard together and are being disposed of by this common order. The brief facts of the case are as follows:
2. Appeal No. C/436/90-C The appellants imported two consignments of rubber tape/band from Hongkong and filed two sets of bills of entry with invoices and transferable R.E.P. licences under the 1988-91 ITC Policy for clearance of the goods. Subsequently these licences were replaced by REP Licences with the flexibility in utilisation of Appendix 3A items. The invoice per Kg. price of HK $ 23.34 equivalent to Rs. 42/- per Kg. was not accepted by the Department which had noticed quotations of 1986 of M/s. Sun Fashion Corporation, Japan of US $ 19.00 and 19.40 per Kg. CIF (equal to Rs. 326/- and Rs. 333/-) for Polyurethane Bands type MB 4025 and MB 5025. However, the Department decided to load the declared value on the basis of an adjudication order passed by the Collector, Air Cargo Complex, Bombay fixing the per Kg. price of identical gods at Rs. 200/- CIF. The order of the adjudicating authority was set aside by the Tribunal and the matter remanded for de novo adjudication. Reliance upon the adjudication order of the Collector, Bombay was ruled out, and the Department was directed to supply copies of all documents to the importers. Aggrieved by the order passed after remand confiscating the goods for mis-declaration, unauthorised importation and undervaluation (holding that they are to be assessed as articles composed of Polyurethane type of polymer) the appellants have preferred the above appeal.
3. Appeal No. C/1540/89-C This appeal covers import of one consignment of 600 Kgs. of synthetic rubber tape at the price of HK $ 23.40 per Kg. CIF. On physical and chemical examination of the goods, charges of misdeclaration, description and value were laid against the importer, who waived show cause notice and personal hearing and requested a decision on the basis of the representation made by M/s. Supreme Laces, this appellant in the other appeal. The adjudicating authority ordered confiscation, imposed penalty and ordered loading of value of the goods at the rate of Rs. 200/- per Kg. CIF and ordered classification of goods as articles of plastic (Polyurethane type of polymers under Chapter 39 CTA).
4. We have heard Shri L.P. Asthana, learned Counsel tor the appellants in C/436/90-C, Shri N.C. Sogani, learned Consultant in C/1540/89-C and Shri L.C. Chakraborty, learned SDR for the Department, carefully considered the submissions and perused the records.
5. The goods have been confiscated under Section 111(d) and 111(m) of the Customs Act, 1962 on the following two counts:
(i) mis-declaration of the goods both with regard to the value and the description, (ii) import in contravention of ITC regulations.
6. Re: Valuation: The evidence relied upon by the Department consists of (a) quotation dated 1-12-1986 of M/s. Sun Fashion Corporation for bands MB 5025 (b) quotation dated 21-11-1986 of M/s. Sun Fashion Corporation for bands MB 4025 and 5025 (c) values ascertained by local market survey. The quotations are found at pages 70-71 of the paper book and are as follows:
" Sun Fashion Corporation, Osaka, Japan Dec. 1,1986 Dear Sir, 'MOBILON' Polyurethane Coloured Bands.
We acknowledge with many thanks receipt of your kind letter ref. 3886 dated Nov. 25, the contents all of which met our careful attention.
However, we very much wondered at your comment on prices. You say that you are getting the same (?) quality of coloured bands as our at 35% lower prices than our quoted prices from Hongkong.
As you may know, our MOBILON Bands are made of 100% polyurethane which produced only by our factory - Nisshinbo, not rubber products. This is very important matter. We believe that coloured bands you got from Hongkong are rubber products, not polyurethane.
Just for your information, our customers in Hongkpng are now buying from us Mobilon coloured bands at US $ 18.50 per kg. for standard colour and at US $ 22.10 for fluorescent colour both CIF. HK nett by sea. You are assured that above prices are reasonable.
By the way, we wish to requote our best and final prices as follows to start business relation with your esteemed company:
Standard colour (MB-4025/ .. @ $ 19.00 per KG CIF by sea
MB-5025)
Fluorescent (MB-5025F/ - @ $ 22.50 per KG CIF by sea
MB-5025F)
If you prefer C&F prices, you may reduce 1% from above prices respectively.
Please once study above and try best to realise orders on our MOBILON coloured bands.
We are anxiously awaiting further good news very soon, and wish to remain.
Yours very truly Sd/-
Sun Fashion Corp.
...
Nov. 21,1986 Your letter dated Nov/14,1986 'MOHILON' BANDS Mohilon Polyurethane Small Colour Bands Colour available:
1. Standard colour : White yellow, pink, red, blue and black
2. Fluorescent colour : Pink, Red, Yellow, Orange and Green Prices: 1. Standard colour @ $ 19.45 per Kg.
2. Fluorescent colour @ $ 23.00 per Kg.
Specification
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AHTNo. Width Thickness Circumference Yield per Kg.
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MB-4025 abt. 2mm abt. 0.5mm abt. 8cm abt. 9000 pcs. MB-4025F abt. 2mm abt. 0.5mm abt. 8 cm abt. 9000 pcs. MB-S02SF abt. 2mm abt. 0.5 mm abt. 10 cm abt. 7200 pcs. MB-5025 abt. 2mm abt. 0.5mm abt. 10cm abt. 7200 pcs.
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Packing: 1 Kg. nett in single colour (not assorted colour) bulk packed in a poly-bag, then 20 Kgs. to a carton case.
Colour minimum: 20 Kgs (1 carton) per colour Shipment: about one (1) month after receipt of L/C Payment: by an irr. L/C at sight in our favour Origin: Japan Sun Fashion Corporation Sd/-"
7. No reliance can be placed on these quotations for the following reasons:
(a) The name of the person to whom the quotation has been addressed nor his address is given on the quotation and in spite of a specific request no particulars were furnished by the Department.
(b) There is no evidence that any import took place at this price nor is there any evidence of sale or firm offer for sale.
(c) These quotations related to 1986 which is two years prior to the import of the goods in dispute in these appeals.
(d) These quotations relate to bands MB 4025 and MB 5025 which are not comparable to the disputed goods viz. bands MB- 4024. There is no evidence to show that MB 4024 is comparable to either MB 4025 or MB 5025. In fact, as may be seen from the letter dated 8-11-1989 at page 75A manufacture of article Nos. MB 4025, 5025 and MB 5025F was discontinued in 1987, and the production has shifted to the new item MB 4024. The letter of M/s. Sun Fashion Corporation in this regard reads as follows:
Nov. 8, 1989 M/s. Supreme Laces No. 10 Clive Row, Calcutta-700001.
Dear Sirs, We would like to give your the following explanation about MOBILON Polyurethanc Coloured Bands referred to in our letter of December 1st, 1986, which was raised by you this time:
1. Art. Nos. MB-4025, MB-5025 and MB-5025F mentioned in the letter have already been .discontinued in production since 1987 and are no longer marketed at present.
2. The reason is that the prices of the old items were too high and not competitive at all due to the excessive price-gap against rubber bands produced by other countries.
3. Also, there were too many problems in view of the subsequent high Yen trend, which forced these items into discontinuation.
4. Then, the production has wholly been sifted to the new Item No. MB-4024, which is currently being marketed, and the price competitiveness has been regained.
5. No. MB-4024 is also made of a synthetic material (100% polyurethane) like the old numbers, but, the type of the raw material, production and processing methods, packaging and packing, etc. are all different from those applied to the old ones.
We trust that the foregoing explanation will make you fully understand the difference in the qualities and the prices between the articles mentioned in our old letter and the currently selling new item.
We sincerely hope that your interest in this particular product will continuously remain lively.
Yours faithfully, Sd/-
Sun Fashion Corp."
(e) The letter dated 11-7-1989 of M/s. Sun Fashion Corporation on whose quotations the Department has relied, quotes the price of MB 4024 as US $ 240 and MB 4025 as US $ 3 per kg. CIF Calcutta (page 73)
(f) M/s. Tomito Corporation, Japan who are the selling agents for India have confirmed the price of Sun Fashion Corporation indicated at Sl. No. (e) above, by their letter dated 29-8-1989.
(g) The importations by the two appellants confirm each other as the import prices of both are the same.
(h) The appellants made a reference to M/s. Sun Fashion Corporation and obtained a reply on 11-7-1989 clarifying that Sun Fashion Corporation was not available for direct business for India markets and the appellants in C/436/90-C were directed to contact M/s. Tomito Corporation directly.
8. The report of the local market survey is at page 76 Annexure-G. However, this market survey cannot be relied upon by the Department for the reason that it does not contain any details of the goods surveyed nor were any such details given to the appellants. The report also states that the imported goods in dispute are not available in the market. The Department contacted two shopkeepers who are not selling the imported goods and the report does not refer to any details, etc. indicating bills having been produced before the shopkeepers. There is nothing in the report that the price ascertained is a wholesale price or a retail price. It is observed that of the two consignments imported one pertains to the period before the introduction of the New Valuation Provisions from August, 1988 and the other has been imported after the introduction of the New Valuation Provisions. The adjudicating authority has determined the value in the case of the consignment imported before the new rules came into force with regard to the best judgment clause of the valuation rules as applicable at the relevant time. He has adopted the price of Rs. 200/- per Kg. CIF as a reasonable one having regard to the fact that of the grade imported is MB 4024 and the importation has been effected nearly 2 years after the quotation was given. For these reasons he has not adopted the price given in the quotation and he has instead made adjustments to arrive at the assessable value, in view of the wholesale cash price prevailing in the market. For the consignment imported in September, 1988 he adopts the same price on the basis that both the consignments have been imported from the same suppliers from Hongkong at the same contracted price, in terms of Rule 11 of the Revised Valuation Rules read with Section 14 of the Customs Act. The Department has not discharged the burden of proving undervaluation. The consistent view of the Tribunal has been that the onus lies upon the Department to prove undervaluation. In the case of Orient Enterprises v. Collector of Customs reported in 1986 (23) E.L.T. 507 it was held by the Tribunal that the charge of under-invoicing is to be supported by evidence of prices of contemporaneous import of such or like goods. In the case of Weston Electro Electroniks Ltd. v. Collector of Customs reported in 1987 (29) E.L.T. 318 the Tribunal took the view that the onus to prove the charge of undervaluation is upon the Customs Department and the evidence relied upon by them as contained in the adjudication order was not at all sufficient to discharge that onus. The Tribunal held that there was no cogent evidence on record to prove any relationship between the appellants and the foreign supplier (in these appeals there is no evidence to show that there is any relationship between the appellants and the suppliers or any extra consideration is involved).
9. In the light of the above discussion we hold that the charge of misdeclaration of value not having been established by the Customs authorities and having regard to the evidence produced by the appellants, cannot be sustained. Therefore, the invoice price of the goods is to be accepted as reflecting the correct price.
9A. Re : description of the goods, the allegation of the Department that the goods are bands of plastics and not of rubber is based upon chemical test of the samples. The samples were tested in the Calcutta National Test House which reported that "the sample is in the form of black coloured band width 1.5 cm. and thickness 0.39 mm. It is composed essentially of polyuruhane type of polymer". During the course of the hearing, the learned Consultant Sim Sogani made an oral prayer for retest of the sample of the goods to ascertain whether the goods conform to the definition of synthetic rubber as laid down in Chapter Note 4 to Chapter 40 of the First Schedule of the Customs Tariff Act, 1975, as the Chemical Examiner's Report at 44-45 does not answer the query of the Customs Authority as to whether the goods are vulcanised tape or band of rubber. By Miscellaneous order No. 153/90-C dated 28-5-1990 the request for retest was allowed for determination whether the goods conform to the definition of synthetic rubber under Chapter 40 of the Tariff Schedule. The sample was forwarded for test to the Central Revenues Control Laboratory, New Delhi by the Calcutta Customs House under letter dated 31-H-1990. In the report dated 30-10-1990 the Chief Chemist had stated that the sample was in the form of circular elastic ring made of polyurethane and was an article of plastic. He had also expressed the view as per Note 4 to Chapter 40, the expression "synthetic rubber" applies to only unsaturated synthetic substance which will satisfy the test as in Note 4(a). He further expressed his opinion that since polyurethane is not unsaturated synthetic substance, the test referred to above is not relevant for the case and the product being an article of polyurethane is specifically covered under Chapter 39. The appeals were heard again on 24-1-1991 and orders were reserved at the conclusion of the hearing. However, at that point of time it was felt that some further information was needed in order to enable the Bench to arrive at the proper conclusion regarding description of the goods. The Bench issued Miscellaneous Order No. 67 and 68/91-C as during the course of the hearing the appellants placed on record material from which it appeared that there could be unsaturated polyurethane which may be vulcanised with sulphur and normal accelerator systems as with rubber. It would be useful to reproduce the above miscellaneous order No. 67 & 68.
" The two abovementioned appeals were heard on 24-1-1991 and, on the conclusion of the hearing, orders were reserved. However, when the files were taken up for study for preparation of orders, it was felt that some further information was needed in order to enable the Bench to do justice to the matters. This is set out in the following paragraphs.
2. Statutory Note 4 to Chapter 40 of the First Schedule to the Customs Tariff Act, 1975 reads as follows:
"4. In Note 1 to this Chapter and in Heading No. 40.02, the expression "synthetic rubber" applies to:
a. Unsaturated synthetic substances which can be irreversibly trans-formed by vulcanisation with sulphur into non-thermoplastic substances which, at a temperature between 18°C and 29°C, will not break on being extended to three times their original length and will return, after being extended to twice their original length, within a period of five minutes, to a length not greater than one and half times their original length. For the purposes of this test, substances necessary for the cross-linking, such as vulcanising activators or accelerators, may be added; the presence of substances as provided for by Note 5(b)(ii) and (iii) is also permitted. However, the presence of any substances not necessary for the cross-linking, such as extenders, plasticisers and fillers, is not permitted;
b. Thioplasts (TM); and c. Natural rubber modified by grafting or mixing with plastics, depolymerised natural rubber, mixtures of unsaturated synthetic substances with saturated synthetic high polymers provided that all the abovementioned products comply with the requirements concerning vulcanisation, elongation and recovery in (a) above.
[b and c are not relevant for the present purpose] The Customs authorities had enquired of the Chemical Examiner at Calcutta whether the goods conformed to the requirements of 'synthetic rubber' under Chapter 40 of the Tariff Schedule. The Chemical Examiner, however, did not answer this query but contended himself by stating that the sample was made of polyurethane. When the matter was specifically directed by the Tribunal to be referred to the Chief Chemist, Central Revenues Control Laboratory, New Delhi, he also did not carry out any test in the light of the said Chapter Note 4 on the ground that polyurethane was not an unsaturated synthetic substance and that the tests set out in the Chapter Note were to be conducted only if the substance was unsaturated.
3. During the course of the hearing, the appellants have placed on record sufficient material from which it would appear that there could be unsaturated polyurethane which may be vulcanised with sulphur and non accelerator systems as with rubber (see page 384, 385 of "Dictionary of Rubber" by K.F. Heinisch). It has therefore, become necessary to subject a sample of the present goods to determine whether it conforms to the requirements of Chapter Note 4. In this connection it is noted from the Calcutta Chemical Examiner's report that the sample was free from sulphur. It would therefore appear that a sample drawn from the consignment could be subjected to test for the requirements laid down in Chapter Note 4.
4. There are certain guidelines given in the Explanatory Notes to the said Chapter Note (as appearing at pages 578 and 586 of the Harmonized Commodity Description and Coding System - Volume 2). They are reproduced below:
(i) Synthetic rubber as defined in Note 4 to this Chapter. For the purpose of the test required by Note 4, a sample of the unsaturated synthetic substance or a substance of a kind specified in Note 4(c) (in the con-, dition of unvulcanised raw material) is to be vulcanised with sulphur and then subjected to the elongation and recovery test (see the Explanatory Notes to Heading 40.02). Accordingly, in the case of substances containing materials not permitted by Note 4, such as mineral oil, the test is to be carried out on a sample which does not contain such materials or from which such materials have been removed. In the case of vulcanised rubber articles, which cannot be tested as such, it is necessary to obtain a sample of the unvulcanised raw material from which the articles are made, in order to perform the test. No test is, however, required for thioplasts which are regarded as synthetic rubber by definition.
(ii) Unsaturated synthetic substances, which meet the requirements concerning vulcanisation, elongation and recovery as laid down in Part (a) of the Note. For the purposes of the test, substances necessary for the cross-linking, such as vulcanising activators, accelerators or retar-ders may be added. The presence of small amounts of breakdown products of emulsifiers [Note 5(b)(ii)] and very small amounts of the special purpose activities mentioned in Note 5(b)(iii) is also permitted. However, the presence of any substances not necessary for the cross-linking, such as pigments (other than those added solely for the purpose of identification), plasticisers, extenders, fillers, reinforcing agents, organic solvents is not permitted. Thus, the presence of mineral oil or dyoctyl phthalate is not permitted for the purpose of the test.
Note 5(b) : The presence of the following substances in any rubber or mixture of rubbers shall not affect its classification in Heading No. 40.01 or 40.02, as the case may be, provided that such rubber or mixture of rubbers retains its essential character as a raw material:
(i) emulsifiers or anti-tack agents;
(ii) small amounts of breakdown products of emulsifiers;
(iii) very small amounts of the following; heat-sensitive agents (generally for obtaining thermosensitive rubber latexes) cationic surface-active agents (generally for obtaining electropositive rubber latexes), anti-oxidants, coagulants, crumbling agents, freeze-resisting agents, peptisers, preservatives, stabilisers, viscosity-control agents, or similar special-purpose additives.
Accordingly, in the case of substances containing materials not permitted by Note 4, such as mineral oil, the test is to be carried out on a sample which does not contain such materials or from which such materials have been removed. In the case of vulcanised articles, which cannot be tested as such, it is necessary to obtain a sample of the unvulcanised raw material from which the articles are made, in order to perform the test.
5. From the record it appears that the National Test House at Alipore, Calcutta, had conducted a test on a sample of the product at the instance of the appellants vide test certificate No. CH/Misc. 788/29 dated 2-11-1988. However, the test was conducted only to determine whether the sample was natural rubber or synthetic rubber and the certificate stated that the sample satisfied the characteristics of synthetic rubber. The present test is, however, with a different purpose, that is, to determine whether the sample conforms or not to the requirements set out in Chapter Note 4 (reproduced in paragraph 2 above).
6. Since this information is considered essential for the purpose of proper disposal of the present appeals, it is directed that:
(a) the Collector of Customs shall arrange to draw three representative samples in the presence of the appellants in each case duly certified as representative by the customs authorities as well as the importers;
(b) send one set of samples to the Alipore Test House with a copy of this order for determination whether the sample conforms to the requirements set out in Chapter Note 4 to Chapter 40 of the Customs Tariff Schedule, at the appellants' expense.
7. In view of the fact that the goods have been under detention for a long time, we expect the Collector to act with utmost expedition in the matter of drawal of samples and to make arrangements for the tests with the National Test House ex-peditiously and forward copies of the test reports immediatety on their receipt. We trust that the test report will be available to the Bench within four weeks from date.
The matters are listed for 'mention' and further arguments if any. To come up on 8-3-1991 at 10.15 AM. The representative samples may also be produced on 8-3-1991 for perusal of the Bench."
10. Upon issue of this order, the National Test House by its letter dated 22-3-1991 confirmed that it is equipped to carry out physical tests of elongation and recovery. By miscellaneous Order No. 148/91-C dated 10-6-1991, the National Test House was directed to carry out the test of elongation and recovery at the specified temperature in terms of Note 4 to Chapter 40. The Test House if equipped to do so, was also directed to determine the presence of substances not necessary for cross-linking such as pigments, (other than those added solely for the purpose of identification), plasticisers, extenders, fillers, reinforcing agents and organic solvents.
11. Pursuant to the above miscellaneous Order samples were sent for re-testing and test certificates dated 20-8-1991 reveal the following "1. Specimens when extended to Specimens did not break and these returned three times their original after release of stretch, length (on the lines of IS :
3400 : 84)
2. Specimens when extended to To a length of 1.125 times of its original twice their original length length, within a period of 5 minutes measurement was taken (on the lines of IS : 3400-84) On the lines of IS: 3400-84
3. Carbon black content, per : Nil cent by mass
4. Ash (at 55°C) content per : 1.49 cent by mass Note : Plasticisers, extenders, reinforcing agents and organic solvents cannot be estimated.
Remarks: The sample meets the requirements regarding test item Nos. 1 & 2 as per the limit laid down in statutory Note 4 to Chapter 40 of the First Schedule to Customs Tariff Act, 1975 forwarded.
Regarding test item Nos. 3 & 4, whether they are necessary or not for cross-linking are not known, hence no comment can be offered."
The goods therefore satisfy elongation and recovery criteria laid down in Note 4 to Chapter 40 of the Customs Tariff thereby establishing conclusively that the bands are made from synthetic rubber. Therefore, the goods have been correctly described and the charge of mis-declaration of description falls to the ground. Since the goods are made of synthetic rubber, they are classifiable under Heading 40.16 and will, therefore, attract duty @ 100% basic duty + 45% auxiliary duty and 15% additional duty.
12. Re: ITC Contravention : The importers claim that the goods are covered by Appendix 3 Part 3 Sl. No. 396 which covers "rubber products inclusive of products from natural and/or synthetic rubber and accessories excluding the following :
(a) Oil, seal, bushings O Rings and tyres/tubes (including flaps in equal numbers) for automotive application.
(b) Drive rubber belts, rubber rings, rubber cushions and rubber rollers for tape recorders/tape deckmechanism.
(c) Rubber blankets, all types According to the appellants the entry "rubber products and accessories excludes from its scope certain items by name and includes the rest of the articles individually. The importers sought to clear the goods under an REP licence which was not accepted by the Customs Department and subsequently the importers claimed that as the goods are covered by Appendix 3 Part 3 they may be permitted to clear under flexibility clause to cover import of the goods falling under Sl. No. 396 and 587A Of Appendix 3 Part A1988-91 Import Policy. Sl. No. 587A includes Plastic extruded/moulded/fabricated components or products. The term elastic bands is not specifically described any where in Appendix 3 Part A. Moreover the title of Appendix 3 Part A covers raw materials, components, consumables, tools and spares and the elastic bands imported by the appellants are not covered under any of these Headings. The goods in question are elastic rubber bands in 5 or 6 different colours and these are sold in market in packets of 1 dozen each. These are used by ladies for tying their hair i.e. they are consumable items. We see no reason to differ with the finding of the adjudicating authority that the goods are consumer goods falling under Sl. No. 145 Appendix 2 Part B and, therefore, in the absence of a valid licence the goods have been imported unauthorisedly, in contravention of Section 11 of the Customs Act read with Section 3(2) of the Import and Export Control Act, 1947 and liable for confiscation under Section 111(d) of the Customs Act. The importers in Appeal No. C/436/90-C were given an option to redeem the goods on payment of a fine of Rs. 32,000/- which is hereby reduced to Rs. 25,000/-. The redemption fine of Rs. 25,000/- imposed on the importers in C/1540/89-C is hereby reduced to Rs. 20,000/-. The penalty of Rs. 10,000/- imposed on M/s. Satya Vijay Exports - Appeal No. C/1540/89-C is hereby set aside as not warranted.
13. The appeals are disposed of in the above terms.