Customs, Excise and Gold Tribunal - Tamil Nadu
Madras Hydraulic Hose Pvt. Ltd. vs Collr. Of Customs on 20 February, 1996
Equivalent citations: 1996(86)ELT327(TRI-CHENNAI)
ORDER S.L. Peeran, Member (J)
1. This appeal arises from order-in-original dt. 3-12-1990, passed by the Collector of Customs, confirming the allegations raised by the department, when the appellants filed a Bill of Entry No. 043584 dated 25-10-1990, in respect of the import and attempted clearance of the goods described in the Bill of Entry as "Boiler Components - Stainless Steel Tubes (Flexible)" and claimed clearance under OGL Appendix 6, List 8, Part I, Sl. No. 744 of the Import Policy on the ground that the Tubes are not covered under Item 685 (F) of the Appendix 3, Part A of the Policy, wherein only pipes and hoses are mentioned and not tubes. As a result, the Learned Collector has imposed penalty of Rs. 1 lakh under Section 112(a) of the Customs Act, 1962 for alleged past clearances of seven consignments, for which no show cause notice had been issued. The imported goods in respect of live components, the Learned Collector has ordered for confiscation under Section 111(d) of the Customs Act, 1962, however, has granted redemption on payment of fine of Rs. 30,000 besides imposing penalty of Rs. 5,000.
2. The department on investigation found the importers to have been licensed for the manufacture of stainless steel flexible corrugated hose pipes. The DGTD had issued a certificate for importing 25,000 Mtrs. of stainless steel corrugated flexible tubes of various diameters subject to OGL conditions. It was found that the importer had cleared seven consignments on various dates during December 89 to Sept. 90 in terms of this OGL provision. It is stated in the order-in-original that under the import policy, raw materials, components and consumables, other than those included in the Appendix 2,3 Part A, 5 & 8 are allowed to be imported by actual users (Industrial). The import policy defines actual user (Industrial) as an undertaking be it in the larger scale, small scale, or cottage industries sector engaged in the manufacture of any goods for which it holds a licence or registration certificate from appropriate govt. authorities. It is stated that on enquiries it revealed that the importers had not undertaken any manufacturing activity by utilising the imported steel tubes and the braiding machine which had been installed in the factory had not been put to use. In support of this allegation the department relied on the following documents :
1. Central Excise File
2. A Note Book maintained by Central Excise Consultant
3. Invoices relating to the sale of imported Steel Tubes
4. The stock register The Learned Collector has held after perusing the Central Excise file found that no production/manufacture had been undertaken in the factory and nil statement had been sent to the Central Excise authorities. A note book maintained by the Central Excise Consultant clearly indicated that the factory was not functioning since 14-3-1990, till the time of inspection by the officers on 16-11-1990. The sale invoice for steel tubes also showed that the material had been sold out at a particular length by mere cutting of the tubes. Besides, in the stock register maintained for the imported tubes, the issues were shown as per their sales invoices. Therefore, the Learned Collector, held that these factors go to prove that the importers had not undertaken any manufacturing activity and the imported materials had been sold without undergoing any further process except mere cutting; which does not amount to manufacture.
3. The Learned Collector has further held that the importers have violated the actual user condition and there is contravention of ITC regulations, as the goods were released under OGL subject to actual user condition. In respect of consignment 1 to 4, the shipments had been placed during the earlier policy period, AM 1988-91 and the item under import was also under OGL, in that policy period. The value of consignment was Rs. 3,79,106. In their subsequent imports vide Sl. Nos. 5, 6 and 7, the value was Rs. 1,30,872 and the shipments had been effected in the Policy AM 90-93. Therefore, under the current policy, there is an entry in Appendix 3, Part A vide Sl. No. 685, which included flexible corrugated stainless steel pipes/hoses. They had described the goods as flexible tubes and claimed clearance under OGL, stating that flexible tubes would not be covered under the said entry in Appendix 3, Part A. The Learned Collector after examining the definition of the term, as per the dictionary of Scientific and Technical terms, on the term "hose", found it to be nothing but flexible tube used for conveying fluids and 'pipes is a tube made of metal or clay'. Therefore, he held that the tubes under import are nothing but hoses and they are covered under Appendix 3, Part A. The importers had also described the said goods in the sales invoices as hoses. He held that in these imports goods of Appendix 3, Part A, category have been cleared under OGL provisions, without satisfying actual user conditions, hence the consignments covered under Sl. Nos. 1 to 7 liable for confiscation under Section 111(d) of Customs Act, 1962 read with Section 3(2) of Import and Export (Control) Act, 1947.
4. As regards the pending consignment at harbour vide B/E 0435584/25-10-1990, it was found that the importer had imported "Stainless Steel Flexible Tubes" of CIF value Rs. 69,138 and claiming clearance under OGL; on the same finding the Learned Collector has held that the said goods cannot be cleared under OGL, while noting the importer's admission that the goods would be diverted for sale.
5. We have heard Shri Srinivasa Raghavan, the Learned Consultant for the appellants and Shri R. Victor Thyagraj, the Learned DR for the Revenue.
6. At the outset the Learned Consultant pointed out that although they had waived the show cause notice in the case it pertained only to the live consignments and that the importers were not aware that they would be proceeded against the previous imports. The Learned Collector also had not indicated about these proceedings during the personal hearing and was ordered for imposing penalty of Rs. 1 lakh on the previous 7 consignments is not legal and is required to be set aside. It is his contention that the importers were licensed to manufacture stainless steel flexible corrugated hose pipes under the industrial licence, and having capacity to manufacture 25,000 Mtrs. per annum. The Learned Consultant explained the manufacturing process which involved:-
1. making a pipe from stainless steel sheet/coil
2. making a tube by controlling thickness and corrugating
3. cutting of the tube into required sizes
4. assembling the tube with end fittings
5. braid the tube if necessary.
7. He explained that in order to undertake this manufacturing activity the appellants indented for supply of machinery namely, Tube Forming Machine with corrugation device, Braiding Machine with Winding Machine, Welding units and also Test Apparatus from Germany. The suppliers of these machinery supplied all the machineries except the Tube Forming Machine with Corrugation Device. Almost 90% of the manufacturing activity could be completed by the Tube Forming Machine which is yet to be supplied by the supplier of Germany. He submitted that the importer assuming that the delivery of the machinery would take place in time they have also procured and installed a 150 KVA Generator, a 250 KVA Transformer and a Compressor. The total project cost of the plant and machinery including buildings etc. is to the extent of Rs. 3.3 crores out of which the importer had spent nearly Rs. 2 crores on the machinery, plant, equipment, land and buildings. It was pointed out that the manufacture of corrugated hose pipes is an import substitute and was to be manufactured for the first time in the [country]. For want of this Tube Forming Machine the importers were not in a position to commence their full-fledged production activity in their factory. It is stated that under the circumstances, the importer approached the DGTD for issue of permission to launch on phased manufacturing programme by using the existing infrastructure facilities and importing the Stainless Steel Flexible Corrugated Tubes as raw material to manufacture the final product namely, stainless steel flexible corrugated hose pipes, till their last set of machinery. It is stated that such permission to import one lakh metres of stainless steel flexible tubes granted on 7-8-1989 to commence the phased manufacturing activity. It is stated that as it was not economical to import the tubes, by paying a huge customs duty, therefore, on the representation, DGTD had reduced the quantum of import and issued certificate for import of 25,000 metres vide their letter dated 3-11-1989. It is stated that they had carried out the manufacturing activity inasmuch as they had subjected the imported tubes to processing such as cutting and assembling end-fittings by undertaking welding process and the processed goods attaining the nomenclature of hose pipe or tubes with fittings and therefore, the same was sold. It is also stated in Heading 83.07.00 of Central Excise Tariff Act that:
"flexible tubing of base metal with or without fittings."
This would clearly show that the flexible stainless steel tube without fittings on import had already discharged duty liability under Section 3 of the Customs Tariff Act. The end-fittings which are bought out items are assembled to the imported tubes which does not result in the emergence of any new excisable goods. It is stated that if the appellants are undertaking braiding of the tube it would be resulted in a new braided hose or pipes. Therefore, it is their stand that in the absence of such process of braiding having been undertaken there is no warrant to consider any manufacturing activity had been undertaken. Hence the statutory records maintained under Central Excise Act and Rules did not disclose the activity of manufacture having been undertaken by the importer. He submitted that the presumption of the Collector that no manufacturing had undertaken and hence, they had violated the conditions of OGL vide Para 3 Page 3 and the order is wrong conclusion. It is stated that the activity of cutting, assembling of end-fittings and welding is a process of manufacture. It is his submission that the definition of manufacture as defined under Section 2(f) of the Central Excises & Salt Act cannot be concluded or applied for the purpose of restriction of OGL for industrial user for the purpose of OGL imported material had been used in cutting after assembling of end-fittings. Without assembling the end-fittings it would be merely called a tube. The tube cannot be fixed in plant or machinery for allowing the liquids to pass through without having its accessories such as end-fittings assembled at both ends. He further submitted in this connection that the actual user has been defined in the case of industrial undertaking the item concerned shall be utilised for the manufacturing process or operations conducted within its authorised premises. Therefore, the Learned Consultant submitted that certain manufacturing activity should be undertaken and therefore, it satisfies the conditions of OGL, the actual user and they had not violated the OGL conditions. He also pointed out that the imported item was tube what was sold by hose pipe after carrying out the various processes and in this connection he relied on the extract of Webster's Third New International Dictionary appearing at page 1093. He submitted that hose is defined as "Flexible Tube" and pipe is also defined as "tube made of metal or clay". Therefore, there appears to be no reason for Government of India to define Import Policy in respect of making of distinction between pipe/hoses and tubes. He also submitted that while SS pipe and hose are covered by Appendix 3, tubes are covered by Appendix 6. He submitted that there is a distinction between these two terms. He further submitted that a tube has no functional utility whereas a hose has a finished product and therefore, is covered under Appendix 6 and hence, the question importing a hose by an actual user would not arise. On the other hand, under Appendix 6 an actual user can import a tube which is semi-finished in character vis-a-vis a hose and makes the finishing process such as cutting and fixing the end-fittings and then market site. He submitted that the actual user undertakes certain process and fully complies with the condition applicable to the actual user i.e. importer themselves. In this context he relied on the Supreme Court's judgment rendered in the case of Akbar Badruddin Jiwani v. Collector of Customs as reported in 1990 (47) E.L.T. 161 (SC).
8. The Learned DR reiterated the findings given by the Learned Collector in the impugned order.
9. We have carefully considered the submissions made by both the sides and have perused the records.
10. There are two points raised before us. The first is that the Learned Collector has gone wrong in penalising them with regard to the past seven consignments as the same was not the subject matter of dispute and what was before the Learned Collector was only pertaining to the live consignment. The Party had waived show cause notice only on the bill of entry filed by them and that they had not been informed of any proceedings to be initiated regarding the previous clearances and hence, this portion of the order is required to be set aside. We see lot of force in this submission. The department has not placed any evidence to show that the importer had waived show cause notice with regard to the past clearances. The department has also not shown that the importer had been informed by the Learned Collector either orally or he was also proceeding against the past clearances during the personal hearing, therefore, the imposition of penalty on the past clearances, without any issue of show cause notice is illegal and not sustainable. Hence, the penalty of Rs. one lakh imposed on these past clearances is liable to be set aside and we do accordingly order for the same.
11. As regards the allegation with regard to the live consignment of Bill of Entry filed by the importer is concerned, the department has made out a very good case against the importer. It is very clear on record that the appellants had not carried out any manufacturing activity in their factory. This allegation of not carrying out any manufacturing activity and not paying any excise duty is also not seriously contested by the importer. The only defence taken is that mere cutting the tubes and after affixing the end-fitting selling the same to the customers. The records clearly disclose that they were not having any braiding machine and that mere cutting of tube indeed does not result in a process of manufacture, as held by the Learned Collector. The Tribunal in the case of Collector of Central Excise v. Western India Tanneries Ltd. as reported in 1989 (44) E.L.T. 113 has held that mere cutting of tanned leather into straps does not amount to manufacture. Likewise, merely cutting the tubes would not bring into existence a new product. The clearance has been claimed under OGL Appendix 6, List 8, Part I, Sl. No. 744 which reads :
"Stainless steel fittings, pipes and tubes other than those covered by Appendix 3, Part A."
The department has alleged that the imported item is covered under Sl. No. 685 of Appendix 3, Part A of the Policy, which cannot be imported, which reads as : "685(f) Flexible corrugated stainless steel pipes/hoses."
12. The Learned Collector has found the importer to have been licensed for manufacture of "Stainless steel flexible corrugated hose pipes". They had been granted certificate by DGTD under OGL for the import of 25,000 Mtrs. of stainless steel corrugated flexible tubes of various diameters. It has been found that they have sold the item by sales invoice as 'steel tubes' only and without carrying out any activity and that they have not marketed the final goods, for which they have been licensed in respect of earlier consignments. There is, therefore, a clear violation of OGL actual (industrial user provisions, inasmuch as that the imported goods were not to be utilised for manufacturing the final products for which they have been licensed. The department official found the braiding machine not having been put to function and that there was no manufacturing activity going on in the factory. There was (sic.) The Importer by [their] letter dated 21-11-1990 had admitted that they were not fully equipped to carry out the manufacture for want of tube-forming machine. In view of this admission that they were not equipped to manufacture and also that no manufacturing activity was going and that they had admitted that they were going to merely cut the tube in separate length and sell it, to reduce the losses of the factory, as done in cases of previous consignments, therefore, it has been brought out very clearly by the department that there has been violation of OGL actual user (industrial) provisions of the Import Export Policy. There is no need to proceed on the other basis of the finding of the Learned Collector of misdeclaration, as that charge may not be correct, as what has been imported is only stainless tube, for converting it into "stainless steel flexible corrugated hose pipes". The contention that the importer had fixed end-fittings and had earlier sold it as a "hose", is not supported by any evidence, but evidence support that they had merely sold it as "tube" itself by their sale invoice on earlier occasions and that they were to do' the same likewise in respect of imported goods by the live Bill of Entry also. Therefore, the charge of violation of actual user (Industrial) is proved and hence, the order the confiscation and release by payment redemption fine and imposition of penalty is valid and we uphold this portion of the impugned order. All other pleas raised by the importer regarding this charge has no merit and it is rejected.