Customs, Excise and Gold Tribunal - Delhi
M/S. Phoenix Industries Ltd. vs Cc, New Delhi on 22 March, 2001
Equivalent citations: 2001(132)ELT731(TRI-DEL)
ORDER
Lajja Ram
1. In this appeal filed by M/s. Phoenix Industries Ltd. (hereinafter referred to as 'PIL'), the matter relates to the classification of imported material for which PIL sought to claim the benefit of exemption under Notification No.25/95 Cus dated 16.3.95 (as amended). Against Sl.No.2 of the Table annexed to that Notification dated 16.3.95, raw hides and skins (fresh, salted, dried, pickled or limed), whether or not split, including sheep skins ni wool, falling under Chapter 41 of the Customs Tariff, enjoyed nil rate of customs duty. The imported material was described in the import documents as 'raw skin of lamb with hair'. The classification was sought under sub-heading No.4102.10 of the Customs Tariff. Pending test of the imported material, the consignment was cleared provisionally. Subsequently after the test report from the Footwear Design and Development Institute (FDDI), a show cause notice was issued on 2.5.96 on the ground that the imported material was the tanned/dressed fur skins classifiable under sub-heading No.4302.19 of the Customs Tariff. In the show cause notice dated 2.5.96, customs duty of Rs.11,97,074/- was demanded. Penal provisions were also invoked. In the first adjudication order, the Commissioner of Customs, Air Cargo, New Delhi confirmed the demand and imposed a penalty of Rs.2,00,000/-. When the matter came-up before the Tribunal, it was pleaded that the Test Report on the basis of which it had been alleged that the imported material was tanned/dressed fur skins had not been supplied to the importers. The Tribunal under their order dated 20.10.99 remanded the matter to the jurisdictional Commissioner of Customs to decide the issue afresh after supplying the copy of the Test Report to the importers. On re-adjudication, in addition to the confirmation of the demand of customs duty, the amount of penalty was increased from Rs.2,00,000/- to Rs.10,00,000/-.
2. The matter was heard on 1.3.2001 when Shri J.S. Agarwal, Advocate submitted that PIL had imported raw skin of lamb with hair and the same had been properly described n the import documents. Their declared classification was sought to be changed by the Revenue of the basis of a Test Report whose veracity was doubtful. The goods were with the Customs when they were provisionally released. There was no suppression of any fact. Their invoice value has been accepted by the Department. In-readjudication order, a penalty of Rs.10,00,000/- has been imposed while in the first original order, only a penalty of Rs.2,00,000/- has been imposed. It was submitted by the ld. Advocate that the Revenue has not been able to discharge the burden cast on them. He relied upon the following decisions:-
(1) Godrej Foods Ltd. Vs. CCE, Indore reported in 2000 (115) ELT 403 (Tribunal).
Provisional assessment having been permitted, there could be no question of suppression of facts justifying invocation of Section 11 AC of the Act for levy of mandatory penalty.
(2) Atul Glass Industries Ltd. Vs. Commissioner of Central Excise, New Delhi - 1999 (34) RLT 519 (Tribunal) Duty and penalty are not to be enhanced in remand proceedings.
(3) Bonanzo Engg. & Chemicals Pvt. Ltd. Vs. Commissioner of Central Excise - 2000 (89) ECR 113 (Tribunal).
When the issue involved was that of classification of a product, the imposition of penalty was not warranted.
In reply, Shri Sheo Narayan Singh, SDR pleaded that the Test Report had not been challenged and it was clear from the said Test report that the goods in question were tanned/dressed fur skins. The ld. SDR referred to the cross examination of Shri V.B. Parvatikar, Addl. Director (Tech.), FDDI and submitted that the report given by FDDI was reliable and that correct view has been taken by the adjudicating authority and that in the facts and circumstances of the case, the penalty imposed was also justified.
3. We have carefully considered the matter. The goods were imported by the appellants and three bills of entry were filed for their clearance on 17.1.96, 5.2.96 and 20.3.96. In the bills entry, the goods were described as "raw skin of lamb with hair". In the commercial invoices also, the goods were described as "raw skin of lamb with hair". The goods were provisionally released and at the stage of the clearance, the benefit of exemption Notification No.25/95 Cus was extended which benefit was available to the imports of raw hides and skins.
4. As recorded in the show cause notice dated 2.5.96, the importers in their letter dated 5.1.96 addressed to the Dy. Commissioner of Customs had categorically stated that the material imported by them was neither tanned nor dressed. The material has been simply salted, dried and pickled for preservation. The process of salting, drying, pickling, etc. would not convert the raw hides and skins into tanned/dressed fur skins. At the time of import, the benefit of exemption was allowed provisionally.
5. According to the Report dated 19.4.96 of the FDDI, the sample was "hair on tanned sheep (lamb) skin". The Tariff description under Heading No.43.02 was tanned or dressed fur skins. In the scheme of the Tariff, raw hides and skins were covered by Heading Nos.41.01, 41.02 and 41.03; raw for skins were classifiable under Heading No.43.01. The hides and skins of animals which had been tanned or dressed with the hair or wool on, were covered by the description of tanned or dressed fur skins classifiable under Heading No.43.02. It is thus seen that fur skins could be raw fur skins or the fur skins that have been tanned or dressed with the hair or wool on. The tanned or dressed fur skins are those hides or skins of animals which have been tanned or dressed with the hair or wool on. For classification of a product as tanned/dressed fur skin, it is required that the fur skin was tanned or dressed with the hair or wool on. On this aspect, we find that Report of FDDI relied upon by the Revenue is not categorical.
6. We find that it is mentioned in the Report that the tanning process in this case consisted of soaking pickling, tanning, neutralization fat liquor, re-tanning acidification, mechanical operations like drying, staking, etc. The report is extracted below:-
We had consulted Director CLRI also in this matter and our final opinion is given below.
1. Sample 1- (Your letter reference no. VIII/ACU/MISC/GVII/20/94/444 dt. 20.1.1996) The submitted sample is hair on tanned sheep (lamb) skin the tanning process in this case consists of socking, pickling, tanning, neutralisation, fat liquor, retanning, acidification, mechanical operations like drying/staking etc. According to CLRI no further tanning is possible in this case.
2. Sample 2 (Your letter reference no. VII/12/ACU/MISC/GRII/65/96 dt. 15.2.1996) Same as above
3. Sample 3 (Your letter reference no. VIII/12/ACV/MISC/GRII/65/96/2009 dt. 29/3/1996.
Same as above
7. According to the Mc Graw Hill Dictionary of Scientific and Technical Terms - II Edition page 1592, tanning is a process of preserving animal hides by chemical treatment (using vegetable tannins, metallic sulfates, and sulfurized phenol compounds, or syntans) to make them immune to bacterial attack, and subsequent treatment with fats and greases to make them pliable. According to Kirk Othmer Concise Encyclopedia of Chemical Technology, III Edition page 694, the primary function for a tanning agent is to stabilize the collagen fibers so that they are no longer biodegradable. There are two types of tanning viz. Chrome tanning and Vegetable tanning.
According to the Leather Development Wing of the Ministry of Commerce (refer para-6 of the State of Tamil Nadu Vs. Mahi Traders - 1989 (40) ELT 266 (SC), "Raw hides and skins are 'cured' by either wet salting, dry salting or drying. In the "cured state" the raw materials can be preserved for a temporary period. In the third state of temporary preservation, the hides and skins are 'picked'. During the next stage they are tanned in which state they can be preserved almost indefinitely. These tanned hides and skins are processed further to yield dressed hides and skins which are ready for use. 'Dressed' or finished material could also be preserved almost indefinitely.
8. Dressing is a stage later than tanning, dyeing or colouring. It is to give finishing touches to the tanned leather and to make it suitable for the manufacture of particular type of goods.
"Dressing" according to the authoritative interpretations, would mean the conversion of tanned hides and skins by further suitable processing into leather of different types which are ready for use. (refer para-6 of State of Tamil Nadu Vs. Mahi Traders- 1989 (40) ELT 266 (SC).
9. We find that the report of the FDDI does not mention of the processes that were used in this case to make the raw hides and skins into the tanned and dressed fur skins. The report is not categorical and is far from being categorical to establish that the subject goods had been subjected to the process of tanning/dressing. No details as what type of test had been conducted were given even if they had necessary facilities for checking tanned/raw leather. In any case, the process of soaking, pickling, tanning, drying, staking, etc. were not the processes towards tanning as is clear from the description against Sl.No.2 of the Table annexed to Notification No.25/95 Cus dated 16.3.95 The description against Sl.No.2 of the Table aforesaid was as under:-
"Raw hides and skins (fresh, salted, dried, pickled or limed), whether or not split, including sheep skins in wool".
It is clear from the above description that the process of salting, drying, pickling or liming will not make the hides and skins as tanned or dressed.
10. The ld. Advocate appearing for the appellants had referred to the communication dated 15.12.99 from the Addl. Director (Tech.) and submitted that the procedure adopted by FDDI was doubtful. The letter is extracted below:-
Ref: Your letter dated 13/12/99 With reference to your above letter asking us to inform you the process of test adopted by us against our opinion submitted to Custom department vide our letter dated 19th April, 1996.
In this connection, we wish to clarify that on checking of our records, no test was done in our Laboratory or from any other Laboratory through us. Therefore, no report of tests are available in our records and we cannot say about the process adopted in our letter dated 19th April, 1996. We further confirm that no samples are available in our laboratory or in records. Hence, no physical or chemical test was done for this purpose.
11. We note that in the cross examination on 30.12.99 before the adjudicating authority the Addl. Director (Tech.) of FDDI had given vague answers. The record of the cross examination is given below:-
He on cross-examination by Shri Jain stated that whenever any samples are received by FDDI Laboratory, the records are kept including the records of sending the test report. These records are the samples as well as the register which are kept for one year whereafter the samples are thrown out and only the register is kept. I have been shown photocopy of the letter dated 19.4.1996 written to the Addl. Commissioner of Customs, Air Cargo by the Director (Technical of FDDI. There is no record in this laboratory register for the aforesaid 3 samples discussed in the letter of 19.4.96. I presently, do not have any paper to show that CLRI was consulted as stated in the letter dated 19.4.96. I, however, state that once it has been written they must have been consulted. As far as the laboratory records are concerned, no samples are shown. However, some times, papers and materials are received directly by the officers and dealt by them from their respective desks and test reports are given. In so far as these three samples are concerned I have already clarified the position above. It is not clear that all samples should come to the laboratory. The report can be given by the officers by visual examination or any other methods not necessarily through the instruments of the laboratory. Shri Ramesh Subramaniam is in Tata International at Chennai. I did not consult him in the matter. Concluded.
While no firm conclusion could be drawn from such submissions, this much is clear that on the basis of the letter dated 19.4.96 of FDDI, it could not be established that the goods imported were tanned/dressed fur skins. Shri Ramesh Subramaniam, Director (Tech.), FDDI was not available for seeking classification.
12. On careful consideration of the matter, we are of the view that no basis has been made out by the ld. Commissioner of Customs to classify the goods as tanned or dressed fur skins. accordingly, we set aside the impugned order-in-original and allow the appeal of M/s. PIL with consequential relief to them as per law.