Customs, Excise and Gold Tribunal - Tamil Nadu
Wipro Ltd. vs Commissioner Of Customs on 16 October, 1998
Equivalent citations: 1999(63)ECC328, 1999(107)ELT398(TRI-CHENNAI)
ORDER V.K. Ashtana, Member (T)
1. These 79 appeals are against the Order-in-Original No. 99/97-CAV, dated 16-7-1997 passed by the Commissioner of Customs, wherein the following orders have been passed :-
(a) The consignments imported and allowed provisionally clearances in September, 1995 are classified under Heading 8471.91 CTH and 8471.00 CETH as personal computers and the declared value has been enhanced by 10% under Rule 8 of the Customs Valuation Rules, 1988. The differential duty on this basis is ordered to be paid though not yet quantified. A fine in lieu of confiscation of Rs. 1,63,00,000/- has also been imposed.
(b) For the goods cleared prior to this period under other Bills of Entry, a similar classification as well as value enhancement has been ordered and a redemption fine of Rs. 2,65,00,000/- has been imposed. In these cases, demand of duty of Rs. 1,54,19,777/- has been confirmed.
(c) A penalty of Rs. 1,54,19,777/- have been imposed under Section 114A in respect of consignments already cleared and Rs. 8,00,000/- towards penalty is further imposed under Section 112(a) of Customs Act, 1962 for the current consignments.
(d) A further personal penalty of Rs. 2,00,000/- has been imposed on Shri Ashok Soota, Group President, Rs. 1,00,000/- on S/Shri Sathish Menon, Company Secretary, Ragupathy, General Manager (Materials) and K.C. Harsha, Manager (Procurement).
2. The matter involves two basic issues as follows :-
(i) Whether goods imported under these Bills of Entry under purchase orders commencing from 6-12-1994 and ending on 28-7-1995 are to be treated as components of computers falling under Heading 8473.30/8424.90/8471.92 or complete personal computer systems (as held in the impugned order) falling under 8471.91.
(ii) Whether the values declared in these Bills of Entry are to be accepted or the enhancement thereof by 10% under Customs Valuation Rules (Rule 8) is justifiable.
3. Heard learned Senior Advocate Shri C. Natarajan and the learned Advocate Shri R Ravindran for the appellants and the learned JDR Shri S. Sankaravadivelu for the revenue.
4. The learned Senior Advocate submitted as follows :-
(a) The subject goods have been imported over a period of many months partly through air and partly through sea, spread over a large number of Bills of Entry and each import only consists of various components of computers. Therefore, the issue to be decided is whether the impugned order has correctly taken the view that all imports should be clubbed together and thereafter they are regarded, in aggregate as complete computer systems in SKD/CKD condition.
(b) He submitted that the definition of computer system in the Import Trade Control Policy does not support the view taken by the impugned order.
(c) The samples were drawn and sent to two institutions. The reports obtained from M/s. I.I.T. was on the same date on which the sample was drawn and in both the cases it was reported that the Mother Board was inclusive of the Central Processor Unit. Aggrieved by this, they represented vide their letters dated 30-9-1995 and 5-10-1995 and the Custom House drew the second set of samples on 5-10-1995 but had sent it only to one of the two earlier institutions i.e. it was not sent to I.I.T. in the second time. The revised opinion so obtained and as supported by the cross-examination of the Assistant Commissioner of Customs in Page 240 in Volume V of the paper book read with letter at Page 246 of the Technical Authority dated 16-10-1995 stated that the Mother Board was without any processor (CPU) affixed thereto but only contained a socket capable of accepting such a CPU. Therefore, he submitted that even the Mother Board was only a component as the CPU being the brain thereof was not affixed thereon at the time of import.
(d) He submitted that these consignments had been imported as a result of a number of purchase orders as noted above and imported under many Bills of Entry standing over many months. Under the Customs law, each consignment has to be assessed as it is presented on the Bills of Entry. In this connection, he referred to Pages 122 to 129 of the paper book, wherein it was shown that different items were imported and also cleared from bonds in different quantities at different times for purchase orders Nos. 6649 and 6650. Therefore, it was erroneous to consider these imports as complete computer systems in SKD/CKD. He submitted that there are 46 purchase orders involved starting from 6-12-1994 to September, 1995 and 75 Bills of Entry involved in the imports being from February, 1995 to September, 1995.
(e) He further submitted that the report of the Surveyor available on Page 198 of Volume V of the paper book, clearly shows that the imports were of components and the CPU was not contained in the Mother Board. He submits that this is a good evidence in this connection.
(f) The learned Senior Advocate further submits that as is contained in internal Page 33 of the impugned order, the learned Commissioner has recorded therein that since the technical experts were not agreeable to being cross-examined, therefore, all the technical opinions are not considered by him, while passing the impugned order. Therefore, the impugned order is not based on any technical opinion of experts and is a non-speaking order.
(g) The learned Senior Advocate submits that when their objection was to the opinions obtained only on the first set of samples drawn on 17-8-1995 and not on the revised opinion dated 16-10-1995 on the second set of sample drawn on 5-10-1995, therefore, even if, the expert was not made available for cross-examination, his opinion having not been disputed by the Respondents to the show cause notice, could not have been brushed aside or ignored by the learned Commissioner and this was against the principles of natural justice.
(h) He submits that they had obtained the technical view of the Department of Electronics, which is contained on Page 11 of Volume IV of the paper book, on the two main purchases Orders Nos. 6649 and 6650 and the Department of Electronics, which is the Expert Body for the computers in the Government of India has clearly opined that the goods imported were not complete computer systems, but only components. He further submitted that the opinion of the Department of Electronics is relevant in the case of computers.
(i) He further submitted that the impugned order holds that the appellants had utilised mere screw driver process on the goods imported. This was an arbitrary conclusion because, the learned Commissioner has not considered that their manufacturing plant engaged throughout 76 skilled workers, 10 technically qualified Electronics Engineers, full management staff headed by a General Manager and plant & machinery including testing equipments at an aggregate cost of approximately Rs. 8 crores. By no stretch of imagination, this could be termed as a mere screw driver activity.
(j) The learned Senior Advocate further submitted that the pattern of consumption by the appellants in this plant of the goods imported is contained at Page 154 of Volume IV of the paper book and also at Page 94 of Volume VI. He led the Bench through these documents and submitted that the pattern of consumption clearly indicated that the various goods imported were not utilised in a manner so as to reach an objective conclusion that all of them were used to merely put together a full computer system. He submitted that the consumption pattern clearly shows that ACER brand of components used in any lot or month in their factory was often less than even 50% of the non-ACER components. The dispute being only with respect to ACER brand components imported, it was clear that even if all the ACER brand components were used during any month, they were not used to manufacture a full computer system as their content was often even less than 50%. He submitted that this vital evidence has not at all been considered in the impugned order and to this extent, the order is a non-speaking one.
(k) The learned Senior Advocate further submitted that the Import Policy involved was making distinction between components which were available for import under OGL, except those which fell under the restricted list like Key-board and Monitor etc. All the key-boards and monitors imported by them were therefore, backed by a valid Special Industrial Licence issued by DGFT and it was their contention that other components legitimately could be imported under OGL. In this connection, he submitted that the ITC Policy as contained in Para 156F is more specific to computers than Para 156A thereof. He further submitted that the policy has to be read in two parts i.e. that prevailing up to 31-3-1995 and that prevailing after 1-4-1995 and referred to Page 302 of Volume V of the paper book, wherein he submitted that after 1-4-1995 the term 'parts' has been excluded from the heading 'consumer goods'. In this connection, he cited the case Tarachand reported in 1983 (13) E.L.T. 1456, wherein it was held that the Interpretative Rule 2(a) under the Customs Tariff Act was not applicable to the Import Policy. The computer systems had been separately defined under the said Import Policy and briefly the concept involved was that a complete computer system consisted of a processor, monitor, key-board and any internal peripherals but excluded later add-ons.
(1) The learned Senior Advocate further submitted that individually imported components in different Bills of Entry at different times had to be assessed individually and not aggregated in entirety. In support of this argument, he cited the following case laws :-
(1) Ganeshrajah Organisations v. C.C. as reported in 1991 (56) E.L.T. 830 (Tribunal);
(2) H.C.L. Ltd. v. Union of India as reported in 1992 (59) E.L.T. 507 (Cal.); and (3) Vishal Electronics Pvt. Ltd. v. C.C. as reported in 1998 (102) E.L.T. 188 (Tribunal).
(m) Pursuing a similar line of argument, the learned Senior Advocate submitted that in the impugned order the Interpretative Rule 2(a) had been applied erroneously to import policy and that the said interpretative rule cannot be applied for the interpretation of the import policy as has been held in the case of Universal Commercial Corporation v. C.C. as reported in 1994 (69) E.L.T. 150 (Tribunal). He further submitted that the said rules of interpretation were not allowed even to interpret a Customs notification as has been held in the case of Victory Gramophone Co. v. C.C. as reported in 1997 (21) RLT 424 (CEGAT) and therefore, the question of applying it to ITC Policy was still more remote. He also submitted that parts are not to be treated as complete articles as has been held in the case of Vijay Auto Industries Pvt. Ltd. v. C.C. as reported in 1996 (82) E.L.T. 619 (Tribunal).
(n) Explaining the concept of the term CKD, the learned Senior Advocate submitted that the word "CKD" must be given their ordinary dictionary meaning i.e. 'made or constructed so as to be capable of having knocked down or taken apart as far transportation in parts ready to be assembled', as has been held by the Hon'ble Supreme Court in the case of Tarachand Gupta & Sons as reported in 1983 (13) E.L.T. 1456 (S.C.).
(o) With respect to the mandatory penalty imposed in the impugned order under Section 114A of Customs Act, 1962, the learned Senior Advocate submitted that this was totally due to non-application of mind because, now it is a well settled law that mandatory penalty cannot be imposed with retrospective effect i.e. prior to the coming of the said section into force. To support this contention he cited the following decisions :-
(1) Marcandy Prasad Radhakrishna Prasad Pvt. Ltd. v. C.C.E. as reported in 1998 (25) RLT 919 (CEGAT);
(2) Lakshmi Packaging (P) Ltd. v. C.C.E. as reported in 1998 (98) E.L.T. 91 (Tribunal);
(3) Universal Electrodes P. Ltd. v. C.C.E. as reported in 1998 (99) E.L.T. 134 (Tribunal).
In this case, the imports are prior to the introduction of Section 114A of the Customs Act, 1962, which came into force from 28-9-1996, whereas the imports in question ended in September, 1995. He, therefore, submitted that no mandatory penalty under this section was imposable, particularly as there was no allegation also of the offence continuing thereafter.
(p) With regard to the valuation issue, wherein the declared value has been enhanced by 10% under Rule 8, the learned Senior Advocate submitted that the only ground on which transaction value has been discarded is Memorandum of Understanding dated 18-11-1994 (Page 453 of Volume III of the paper book). He submitted that this memorandum of understanding is not at all applicable to the present imports for the following reasons :-
(i) It is clearly mentioned in the said memorandum of understanding that this was only an understanding and would be acted upon after a definitive final agreement is reached in the matter. This happened only in May, 1995, when WIPAC was incorporated as a Joint Venture between the present appellants and M/s. ACER. The proposed company WIPAC was incorporated in India in May, 1995 and the first imports by WIPAC commenced only, in October, 1997. As against this, the import in dispute in the case are for the period from February, 1995 to September, 1995 and are therefore, outside the purview of this memorandum of understanding. He, therefore, concluded that the transaction value cannot be discarded only on the strength of the existence of memorandum of understanding, which was in no way connected with the present imports as the importer had not acted upon the memorandum of understanding while importing these goods. He, therefore, argued that the impugned order is also erring in this respect as it has not clearly discussed as to how such a memorandum of understanding could be connected with the said import, but has merely sought to apply certain provisions of the said memorandum of understanding to these imports.
(ii) Therefore, he concluded that since no offence was committed either under the ITC or under Section 4 of the Customs Valuation Rules, therefore, no personal penalty or confiscability of goods was maintainable.
5. Heard learned JDR, Shri S. Sankaravadivelu with respect to the charge of under-valuation and addition and loading of 10% in the impugned order. He submitted that the Memorandum of Understanding between M/s. WIPRO and M/s. ACER dated 8-11-1994 was relevant to the issue. Even though, the initial shipments were in the name of M/s. WIPRO, because it was specified that the new company called "WIPAC" would take over all the operations in this matter within the next 18 months and would sell the goods under the ACER brand name. Secondly, he submitted that the goods were despatched by M/s. ACER, Hongkong, though the purchase order was placed on M/s. ACER, Singapore. In this connection, he referred to Page 5 of the Order-in-Original, wherein it has been observed that even the ACER name plate and packing materials etc. had been imported. Thirdly, he submitted that there exists a relationship between M/s. WIPRO and M/s. ACER i.e. importer and exporter because of the importer being allowed to use the brand name of the exporter, even though no royalty was paid to the exporter. This special relationship is also demonstrated by assertion in the catalogue of M/s. ACER that M/s. WIPRO is the sole operator of M/s. ACER in India. Therefore, there exists a relationship with each other, and the importer-appellants have mis-declared that they were not related to each other, as per Bills of Entry.
6. The learned JDR also submitted with regard to aggregation of the imports concerned in the impugned order, that while it is true that Para 156F of the ITC Policy is more specific to computers, however, the imports made in these Bills of Entry still constitute the computer systems because of the following reasons
(a) He referred to Page 307 of Volume V of the paper book, wherein a copy of the relevant ITC Policy was placed and referred to the Entry at serial number 65 on Page 308, wherein the word "consumer goods" have been used in connection with computers, He thus argued that since DGFT uses the word "consumer goods" even for computers in this part of the policy, therefore, even Para 156A dealing with 'consumer goods' is relevant to the issue,
(b) The Order-in-original itself distinguished the cases cited by the Respondents to the show cause notice. As against those, the Order-in-Original was supported by the decision in the case of Akbar Badruddin Jiwani as reported in 1990 (48) E.L.T. 441 and also in the case of Sharp Business Machines Pvt. Ltd. as reported in 1990 (49) E.L.T. 640 (S.C.), which was further followed in the case of Photocopy Centre as reported in 1991 (56) E.L.T. 801.
(c) It is not material, whether the CPU was not fixed to the Mother Board, which is imported as the CPUs were imported separately by air and could be easily fixed on the Mother Board which contains socket which would accept them.
(d) He submitted that for deciding the issue of aggregation and also applicability of the Interpretative Rule 2(a), the relevant criteria is not clearances of goods for use in manufacture from bond but the presentation of the declaration at the time of importation. Therefore, he submits that the goods under bond were cleared over a period of time and that the percentage of non-acer equipments,
(e) The learned JDR further submitted that survey report was not in presence and that learned Commissioner did not rely on opinion on second sample test as the expert was not willing to come for cross-examination; and
(f) The Department of Electronics is not final authority on ITC matters, instead it is DGFT. So this is a solicited reference and not reliable.
The learned JDR, therefore, prayed that the impugned order be upheld as correct in law.
6. Learned Senior Advocate rebutted as follows :-
(a) Surveyor's report was not behind back of Customs as it is endorsed therein that Customs official was present;
(b) For all imports from May, 1995 Bills of Entry were endorsed that they were related [even though they were legally not related under Rule 2(2) of CVR];
(c) If ACER International farms out supply orders to various divisions, it is their internal arrangement and Wipro India has to control over it.
(d) Not one of the factors enumerated in Rule 2(2) (defining "related") is applicable to facts in this case. Impugned order does not invoke Rule 2(2), but vaguely adjudges a "special relationship" due to the memorandum of understanding (Page 42 Para 2 of order) without explaining in detail how this is established;
(e) Department of Electronics being a Government department, there was no question of "soliciting" any opinion in their favour. Department of Electronics's opinion is relevant for computers;
(f) The case law of Sharp Business Machines (supra) is distinguished on facts as well as law. He drew a distinction between absolute prohibition and a restriction. In present matter there was an alleged restriction but no absolute prohibition. Secondly, on facts, in Sharp Business Machines, 10 machines in CKD was imported under one single Bill of Entry (out of total 14). This was not the case here, so it is distinguishable on facts. He further submitted that ITC Policy should be read plainly.
7. We have carefully considered the arguments on both sides as well as the records of the case. We find that the impugned order suffers from non-application of mind on the following issues :-
(a) The expert technical opinion on the samples dated 5-10-1995, which is not disputed by the appellants has also been discarded. As a result there is no expert opinion considered on this issue, particularly when the written opinion of Department of Electronics, Government of India has also been brushed aside. When the appellants themselves plead support from this revised technical opinion, which is in turn, supported by the deposition, in cross-examination of the concerned Assistant Commissioner and the Surveyor's report, then this evidence is good and cannot be discarded merely because the witness is not available for cross to the appellants. Secondly, the opinion of Department of Electronics, Government of India, on whether the items constitute complete computer systems in CKD/SKD, cannot be brushed away lightly (particularly when no opinion of DGFT to the contrary is on record) merely on the ground that only DGFT is the relevant authority to interpret the policy. We cannot accede to the view that the Department of Electronics's opinion is a 'solicited' one and therefore, not reliable at all;
(b) the conclusion that the appellants merely used screw-driver technology is not supported by any evidence in the face of the appellants leading facts on technically qualified numerous engineers and a plant etc. costing over Rs. 8 crores;
(c) the order has not considered the pattern of usage of the ACER branded imported items vis-a-vis the total items needed to constitute a computer system. Revenue argues that this is not relevant. We cannot agree with this, because it is not revenue's case that all components were simultaneously imported in one or few Bills of Entry. When they seek to aggregate imports under 75 Bills of Entry over a period of many months and by both sea and air transport, then at the same time they cannot say that only the importation event is relevant and not its clearance and use. Therefore, there is no discussion on the statements of clearance/use of ACER and non-ACER items per month as contained in Page 154 of Volume IV and page 94 of Volume VI of the paper book. A plain reading of these shows that the ACER brand components (which alone are subject matter of this appeal) often constitute even less than 50% of the total items cleared for producing the computer systems. This evidence needs therefore, to be considered in details, as it would be an illogical position where import of CKD/SKD computer systems are adjudged when more than 50% other components were required for producing the systems. There is no such discussion or findings;
(d) It is now well settled law that Interpretative Rule 2(a) of Customs Tariff Act, 1985 cannot be used to interpret either notifications or Import-Export Trade Control Order. The impugned order has held imports violative of the ITC Policy by aggregating imports in terms of the said Rule 2(a). As against this, appellants have all along stressed that Para 156F of ITC Policy supersedes the Para 156A thereof, the former being more specific to computers. The impugned order is silent on this issue;
(e) It is also now well settled law that mandatory penalty cannot be imposed with retrospective effect i.e. prior to Section 114A of Customs Act, 1962 coming into force on 28-9-1996. Since subject imports were much prior to this, the impugned order has not discussed how and why this penalty is still imposable;
(f) With regard to the valuation matter, the impugned order does not clearly explain as to -
(i) how the memorandum of understanding taints the transaction value in these imports;
(ii) how, when provisions of Rule 2(2) of the Customs Valuation Rules, are not attracted by this memorandum of understanding, does a relationship exist between the importer and the foreign exporter; and above all,
(iii) how and as per what evidence, the related status has influenced the transaction value, necessitating it to be discarded and thereafter why only Rule 8 is applied without detailed findings on applicability of preceding rules.
(g) Furthermore, the impugned order has imposed a penalty of Rupees One lac on a specified number of individuals. However, since the explicit words "each" or "respectively" are not used, the resultant order is capable of a dual meaning and it is not clear whether each of these individuals are subjected to a penalty of Rupees One lac or this amount is to be shared between them and in what proportion. This needs to be clarified.
8. We, therefore, find that the impugned order is liable to be set aside and the matter liable to be remanded to the learned Commissioner for de novo consideration. Ordered accordingly with the further directions that in this de novo proceedings all the infirmities noted in sub-paras (a) to (g) above shall be reconsidered and a detailed speaking order passed. While doing so, the case laws cited by appellants as recorded above shall also be considered, after giving the importers an opportunity of being heard. The appeals succeed by way of remand with the aforesaid directions.