Customs, Excise and Gold Tribunal - Delhi
M.J. Exports Pvt. Ltd. vs Collector Of Customs on 8 September, 1986
Equivalent citations: 1986(10)ECC217, 1987(10)ECR348(TRI.-DELHI), 1986(26)ELT972(TRI-DEL)
ORDER
G. Sankaran, Vice President
1. This is an appeal against the captioned order-in-original passed by the Principal Collector of Customs and Central Excise, Bombay.
2. The facts of the case, briefly stated, are that M/s Mathuradas Naraindas and Sons, Customs House Agents, presented two shipping bills Nos. 004136 and 004144, both dated 8-5-1985, on behalf of M/s M.3. Exports Pvt. Ltd., (the appellants) to the Customs authorities at Bombay. The bills were for the export of 4000 and 3070 pieces of fishing rods under Duty Exemption Entitlement Certificate (DEEC) No. 5328 (BOM) dated 11-12-1984. The goods were described as spinning, telescopic, fishing rods, fibre glass, of 6 parts, in the former case and as spinning fishing rods fibre glass, of 2 parts, in the latter. The shipments were for M/s. Raznoexport, Moscow, U.S.S.R. Both the shipping bills were processed by the Custom House in the usual course on the basis of the shipping documents including the declaration under the D.E.E.C. scheme. The Customs House received intelligence to the effect that the appellants had obtained the D.E.E.C. Book No. 005327 (BOM) Import dated 11-12-1984 for import of "components of fishing rods" against export obligations of three types of fishing rods under DEEC Book No. 5328 (BOM)/Export, but that the appellants did not manufacture or carry, out any manufacturing process on the imported components of fishing rods but imported the components by mis-declaring them as "fishing rods".
As a follow up, the above said shipping bills were taken up for investigation, certain premises, including those of the appellants, were searched, certain documents were recovered and statements of three persons were recorded. The appellants presented to-the customs 5 more similar consignments for export. The goods were examined and found to be components of fishing rods without fittings of hooks, slings, reels, spools etc. which are "accessories for making a unit as a complete fishing rod without which it cannot be used for fishing" (to quote the show cause notice Issued to the appellants). The. customs authorities, therefore, concluded that the goods tendered for export were components of fishing rods as imported and not fishing rods as declared in the shipping documents. The investigations also revealed that the appellants had earlier imported four consignments of "components of fishing rod" under the same DEEC Book No. 5327 dated 11-12-1984. These goods of c.i.f. value Rs. 42,38,474/- had been passed by the customs without payment of duty (amounting -to Rs. 70,09,102.90) for specific use for manufacturing/assembly of "fishing rods" for export in the factory premises of M/s. -Milind Engg. Works, Dombivili. The appellants had exported 12 consignments described as "fishing rods" (under D.E.E.C. Book No. 5328 dated 11-12-1984) during the period from April 1985 to July 1985. The appellants did not undertake any manufacture or assembly operations. The imported goods were repacked (in the appellant's godown) in indigenous packings in certain cases, the import packings being retained in others. M/s. Milind Engineering Works had not received the imported goods for manufacture/assembly of finishing rods, 7 out of 12 consignments referred to above were allowed export against a letted of guarantee with bank surety for an amount equal to 10% of the export value of the goods.
3. Based on the above material,, the customs authorities( issued a show cause notice dated 11-10-1985 to the appellants containing several allegations against the appellants and their Custom House agents and calling on them to explain why -
"(a) The export covered by all the 12 S/B mentioned in Para 7(vi) Supra should not be confiscated under Provisions of Sec, 113(d) and 113(i) of Customs Act, 62. As, the goods have been exported and for the export FOB value of Rs. 33 lakhs appx. the Bond have been executed duly supported with Bank Surety to the extent of 3,40,000/-. As the export goods are not available for confiscation why the penalty under Section 114 of Customs Act, 62, should not be imposed on M/s. M.J. Exports.
(b) The components of Fishing Rods imported under Cover of four Bs/E as per details in Para 7(iv) Supra should not be confiscated under the Provisions of Section 111(o) of Customs Act, 62 read with Section 3(2) of Imports and Exports (Control) Act, 1947. As the goods imported under DEEC which are liable to confiscation under Section 111 (o) of Customs Act, 62 read with Section 3(2) of Imports & Exports (Control) Act, 1947 are not available for confiscation, a penalty equal to the fine in, lieu of confiscation should not be imposed.
(c) M/s. M.J. Exports Pvt. Ltd. should not be called upon to pay the import duty of Rs. 70,09,102.90/- payable on the components of Fishing Rods imported as per the details shown iii para 7(iv) above to the Custom House Treasury in terms of Section 143(A)(2)(b)/of Customs Act, 62 along with interest (§ 18% P.A.' from the date of clearance of the goods to the date of payment of such dues.
(d) Action should hot be taken against M/s. M.J. Export Pvt. Ltd. and M/s. Mathuradas Naraindas & Sons CHA 11/170, S/Shri Ashok C. Shah and K.C. Chakravarty of the exporters under Sections 112 and 114 of Customs Act, 62 as persons concerned in the commission of the said offence."
4. In' due course, after conducting adjudication proceedings, the Principal Collector of Customs, Bombay passed the impugned order dated 29-3-1986 to the following effect:
"(i) the goods not being available for confiscation an amount of Rs. 3,40,000/- be adjusted as fine in lieu of confiscation against the Bank guarantee given by them to the Custom House.
(ii) that the duty at Rs. 70,09,102.90 leviable on the goods be recovered in terms of the Bond/bank Guarantee executed by the party to the Custom House and the Jt. Chief Controller of Imports & Exports.
(iii) I also impose a penalty of Rs. 50,000/- (Rs. Fifty Thousand only) under Section 112 of Customs Act, 1962 and a further penalty of Rs. 50,000/- (Rs. Fifty Thousand only) under Section 114 of the Customs Act, 1962 on M/Si M.3. Exports, Pvt. ltd."
The collector did not impose any penalty on Shri Ashok, C. Shah, Director of M/s. M.J. Electricals Pvt. Ltd. (an associated concern)" Shri R.C. Chakrawarty, Director M/s. M.J. Exports Pvt. Ltd, and the Customs House Agent.
5. The Collector's findings on the various allegations are contained in paras 12 and 13 of his order which read as follows: -
"The goods imported were declared as components of Fishing Rods. Physical inspection of the representative samples from the export consignments showed that these were not complete fishing rods as declared in the shipping bill but were the same components which were imported earlier. No process was, therefore, undertaken to change the nature of goods from components to finished product. The conditions of the exemption notification 177/78 as well as the DEEC have not been fulfilled. The goods, therefore, become liable to duty. Further, the imported goods were diverted to a place other than the factory premises specified in the DEEC book. Both Shri R.C. Chakrawarty and Sh. Ashok C. Shah of M/s. M.J. Exports have categorically stated in their statements recorded under Section 108 of Customs Act, 1962, that the imported components had not been subjected to any manufacturing or assembling process and had not changed identity and were re-exported with the same brand and labels. The goods Were also exported in the same packing except for part of the goods which were re-packed. No satisfactory explanation of the value added for more than 25% has also been given. Since the conditions under which the import was allowed had not been fulfilled, there is contravention of Section 111(o) of Customs Act, 1962, making the goods liable to confiscation and the importers liable to penal action under Section 112 of Customs Act, 1962. For making a false declaration which is established on the basis of the facts of the case as well as the statements of Shri R. Chakrawarty and Shri Ashok C. Shah, the contravention under Section 117 read with Section 50(2) of Customs Act, 1962 is established.
Party from beginning was aware that no manufacturing activity would, be undertaken and the goods will be exported in the same condition in which they were imported. They were fully aware that the conditions of the DEEC scheme and the notification 117/78 would not be fulfilled. For this knowing contravention, they are liable to penal action under Section 112 of Customs Act, 1962. Similarly they have exported components parts of fishing rods declaring them as complete fishing rods fully knowing that, no manufacturing process was undertaken by them as contemplated in the DEEC Scheme making such goods liable to confiscation under Section 1130) of the Customs Act, 1962. They are, therefore, liable for penal action under Section 114 of Customs Act, 1962."
6. The crucial question that needs to be answered in this dispute is what is a fishing rod 1 We say this question is crucial because the department's stand is that what was exported by the appellants was not not fishing rod. The basis for this view is that a fishing rod is not complete unless it has also with it such items as fishing line, hook, spool, reel etc. The appellant's stand, however, is that these latter mentioned articles are not component parts of fishing rods. They are in the nature of accessories of fishing rods.
7. In fact, the Collector himself has considered the aforesaid articles as accessories of fishing rods. However, he has gone on to hold that without these articles, fishing rods are incomplete and the exported goods were, therefore, not fishing rods, complete.
8. Since both sides have not cited any authorities that may have shed light on this question, we have looked up the dictionaries. Dictionaries give the following meanings to various terms unsed in relation to fishing:
"Fishing rod - a long slender rod to which aline is fastened for angling. (Chambers Twentieth Century Dictionary)
-long tapering usu. jointed rod to which fishing line is attached (Concise Oxford Dictionary) Fishing -tackle - nets, lines etc. - used in fishing tackle (Chambers Twentieth Century Dictionary) Fishing hook - a barbed hook for catching fish.
(Chambers Twentieth Century Dictionary) Fishing line - (opp. net-fishing); hook, line and sinker (Concise Oxford Dictionary) - Thread, string, cord, rope, esp. one for fishing (Chambers Twentieth Century Dictionary) Fishing spool- revolving cylinder of angler's reel (Concise Oxford Dictionary) Fishing reel - cylinder, drum, spool, bobbin, or frame on which the reel, fishing-line, wire cables may be wound (Chambers Twentieth Century Dictionary)
9. Turning to the explanatory notes to the Customs Cooperation Council Nomenclature (CCCN) we find the following passage at p. 1753 under heading 97.07 ("Fish hooks, line fishing rods and tackle....") "Line fishing rods and tackle. Fishing rods may be of various sizes, and may be made of various materials (bamboo> wood, metal, glass fibre, artificial plastic material etc.). They may consist of a single piece or be jointed. Fishing tackle comprises such items as:-reels and reel mountings; artificial bait (e.g., imitation fish, flies, insects or worms) and hooks mounted with such bait; spinning bait; mounted lines and casts; fishing floats (cork, glass, quill, etc.) including luminous floats; line winding frames; automatic striking devices; mounted fishing rings (other than mounted rings of' precious stone); sinkers, and fishing rod bells on mounts."
10. The above passages extracted from; authoritative reference books point to the conclusion that fishing rod is but one of the many things which go to make up fishing tackle. Articles such as reels, hooks, mounted lines and casts are the other things that comprise the tackle. They are, therefore, at best adjuncts or accessories to fishing rods. They may perhaps be even termed as component parts of fishing tackle, but cannot be termed as component parts of fishing rods which are but long, slender, tapering rods of diverse materials, in a single piece of "jointed to which the fishing line is attached.
11. Therefore, the view taken by the Collector that the exported goods did not constitute complete fishing rods in the sense that they did not comprise also of hooks, reels, spools, etc. is not tenable.
12. The learned Counsel for the appellants very vehemently contended before us that the Collector had no jurisdiction to adjudicate upon the matter. The jurisdiction was entirely that of the Import Trade Control Authorities as laid down in paragraph 29 of Appendix 19 of the Import Trade Control Policy, Vol. I, 1985 April - 1988 March. The Customs authorities could only recover duty under Section 142 of the Customs Act, 1962, where the Import Trade Control Authorities held that there had been a breach of the Bond. It was only- the Import Trade Control authority that could call upon the appellants, to pay up the customs duty in terms of the bond executed with them and the recovery of the customs duty as ordered should be effected by the '."'.Customs, authorities under Section 142 of the Customs Act. Equally vehemently, the learned Senior Departmental Representative contended that it was squarely within the jurisdiction of the customs authorities to adjudicate upon violation of the conditions subject to which the import was allowed and duty exempted at the time of import.
13. However, we do not think a consideration of the above-said rival contentionsis necessary for disposal of the dispute before us. From the application submitted by the appellants to the Chief Controller of Imports and Exports, New Delhi (Exhibit 'C1 to the appeal) for grant of advance licence under the Duty Exemption Scheme, it is seen that-
(a) the appellants had received from the Russian Buyer, a firm order for supply of 89,100 pieces of fishing rods of various sizes of the total F.D.B. value of Rs. 1,47,17,190/- less commission payable. ' A photo copy of the Order was attached. The order gives the details of the goods contracted for supply. They are described as -
1. Fishing rod, spinning Model Daiwa Super Spin Art S.S.80 two-handed, fibreglass, consists of 2 parts, 6 ceramic rings....
2. Fishing rod, spinning model Daiwa Super spin two-handed, fibreglass, consists of 2 parts, 6 ceramic rings....
3. Fishing rod, spinning, telescopic, Article 276D-25 model Daiwa Tele Pack fibreglass of 6 parts....
The application' goes on to say that for execution of the export order for 89,100 pieces of fishing rods, the appellants needed to import 24,17,300 pieces of components of the total C.I.F. value of, Rs. 85,47,600 - It further states that the imported components would' be assembled by' M/s. Milind Engineering Works, Bombay, associates of the appellants. The list of materials sought to be imported duty-free spells out the-details of the components-3, 3 & 2 components respectively per piece of the 3 different types of fishing rods. It was also mentioned in the application that during 1981-82 and 1982-83, the appellants had exported to the U.S.S.R., fishing rods valued at over Rs. 66 lakhs and Rs. 62 lakhs.
14. It was on the basis of the above-mentioned application that import licence No. B-3056000/C/XX/93/B/84 dated U-12-1984 came to be issued to the appellants for import of 2,17,300 pieces of components of fishing rods. The "condition/slip" attached to the licence required the appellants to export 22,140/16,960/50,000 pieces of fishing rods of the 3 models noted earlier. "The imported goods were required by the condition slip to be utilised in accordance with the provisions of Customs notification No.F.No.602/14/8/DBK dated 9-7-1978. A legal undertaking for fulfilment of the export obligation was required to be executed with the licencing authority. In the event of failure to fulfill the export obligation within the prescribed time limit, the licence would be ' required to pay to the Customs authorities the duty on the proportionate quantity of the material corresponding to the products not exported. The bond executed with the licencing authority inter alia provided that the appellants should, in the event of default, pay to the Customs authorities the amount of duty that was leviable at the relevant time on the proportionate. quantity of the exempt materials corresponding to the product not exported by them.
15. It may thus be seen that the appellants were allowed by the licence to import components of fishing rods and required to export fishing rods. The appellants had stated before the licencing authority that the imported component parts would be assembled into fishing rods at the premises of their associate firm. The licence did not permit the appellants, not did the appellants seek permission, to import hooks, strings, spools, reels, lines etc. required to manufacture, assemble or produce complete fishing tackle. As we have already seen, fishing rod is but one of the several items required to make up fishing tackle. Therefore, the Collector; was in error in holding that fishing rods (in the sense of fishing tackle) were not exported by the appellants. :
16. Customs Notification No. 117 dated 9^6-1978 exempts inter alia goods imported against an Advance Licence issued under the Import (Control) Order, 1955, being materials required to be imported for the purpose of manufacture of goods, or replenishment of the materials used in the manufacture of goods, or both, for execution of one or/ more export orders, from the whole of basic customs duty and additional custom duty. The relevant conditions are (i) the imported materials are covered by D.E.E.C: (ii) the goods corresponding to the resultant products in respect of value, quantity, description, quality or technical characteristics, as 'specified in the D.E.E.C. are exported; (iii) the exempted materials are used in the manufacture of the resultant products required to be exported.
17. In the, present case, as we have seen, the imported materials are specified in the licence as well as in the D.E.E.C. as component parts of the fishing rods (not fishing tackle), In fact, the customs had passed them as such. The resultant products required to be exported were fishing rods' (not fishing tackle). The question remains whether there has been "manufacture" of fishing rods out of the imported components. "Manufacture" for the purpose of this Scheme or notification has not been defined. In the instant case, the licence and the D.E.EC. had been granted on the basis inter alia of the declaration of the appellants that the imported components parts would be assembled, after import. Therefore, we are of the opinion that if the appellants had assembled fishing rods out of the imported components, that would be sufficient compliance of the requirement 'of manufacture of the specified "resultant products" from the imported materials.
18. The Collector holds that the imported components were being sought to be exported as such, some in-the original packing, and some in indigenous packing. The appellants' contention is that the imported components were Sorted out, the pieces required to make up each fishing rod were aligned, and then re-packed for ease of export.
19. In this connection, it is noted that the appellants had produced before the Collector, two letters from the Trade Representative of the U.S.S.R. 'in /India, Bombay. The first one dated 5-6-1985 addressed to the appellants stated that the fishing rods exported by vessel P.EMTSOV had been received and that "we are satisfied with the quality of the goods". The second dated 28-10-1985 addressed to the Collector confirmed that during the period April/July, 1985, the appellants had exported to them (the letter was for and on behalf of Razno export) fishing rods as per their (Razno export's) contract dated 8-10-1984 with- the appellants. It added that Razno export were fully satisfied with the quality of fishing rods of 'DAIWA brand supplied by the appellants. Also that according to the mutual understanding between the two, it was not necessary for the appellants to export to Razno export, the accessories of fishing rods such as hooks, strings, spools, reels, etc. Though these letters were written after the Customs commenced their investigations, the fact that these letters were written by the U.S.S.R. Government Trade Representative in India, cannot be overlooked save for compelling evidence to the contrary. These letters lend support to the appellant's stand, that they were required under their contract (which was placed before the Licensing authority also before grant of licence) 'to export, and that they exported, fishing rods.
20. On the question whether there was assembly of the imported components into fishing rods, it is to be noted that Shri R. Chakrawarty, Director of M.J. Exports and Shri Ashok C. Shah of M.J.. Electricals had stated in their statements recorded under Section 108 of the Customs Act that the imported components had not been subjected to any manufacturing or assembling process and had not changed identity; they were sorted out and repacked with the same brand and labels. We have already observed that if the component parts had been assembled into fishing rods, that would be sufficient compliance on the appellant's part. The goods are not available now for verification. What is on record is that on examination of the export goods, the customs found the goods to be without items like strings, hooks, spools, reels etc. - items which, as we have already noted, cannot be said to be parts of fishing rods, but of fishing tackle. In the circumstances, we have to go by the statement contained in the letters of the U.S.S.R. Trade Representative in India that Razno export had received fishing rods as per their contract with the appellants. From some of the export invoices submitted by the appellants, it is seen that the rate for the goods was on per piece basis and each small unit of packing was stated to contain so many pieces (of fishing rods). This lends credence to the appellant's contention that they had sorted the imported components and repacked them to make up fishing rods. Further, it is seen from the examination reports recorded on some of the shipping bills, (copies submitted by the appellants) that the description and quantity were checked as per invoice specification. While the quantities were admitted, certain discrepancies were noted in the description as regards certain differences in the "casting weight", "marked length" on pieces. There is no mention in these reports to the effect that the goods were not fishing rods. Thus it appears that the basis for the allegation that the goods exported were not fishing rods but only component parts as imported seems to rest on the premise that items such as spools, reels, hooks etc. were not also exported. We have already given bur finding that fishing rod is but one of the items that go to make up fishing tackle and that the items mentioned above are not parts of fishing rods but at best accessories or adjuncts.
21. Once the position is reached that what was exported were fishing rods, the whole basis for the allegations against the appellants falls to ground. Consequently, the findings on this basis and the adjudication order consequent to such findings must also fail.
22. In the result, the impugned order is set aside and the appeal, is allowed with consequential relief to the appellants.