Customs, Excise and Gold Tribunal - Delhi
Bakeman'S Home Products Pvt. Ltd. vs Collector Of Cus. on 30 June, 1997
Equivalent citations: 1997ECR39(TRI.-DELHI), 1997(95)ELT278(TRI-DEL)
ORDER
U.L. Bhat, J. (President)
1. These appeals are directed against Order Nos. 48-49/94-CAC, dated 12-4-1994 passed by the Collector of Customs-II, Bombay. The appellants are :-
1. M/s. Bakeman's Home Products Pvt. Ltd. - Appeal C/539/94-A (for short, BHPL)
2. Sri. Rajiv Kumar, Jt. M.D. - Ditto - Appeal C/538/94-A
3. M/s. Farm House Biscuits Co. Ltd. - Appeal C/540/94-A (for short, FBCL)
4. Sri I.M. Kapoor, V.P. - Ditto - Appeal C/537/94-A
5. Sri Pankaj Agarwal, V.P. - Ditto - Appeal C/536/94-A
2. Each of the two concerns, FBCL and BHPL imported a consignment of certain machines etc. of USA origin through supplier M/s. Peters Machinery Coy USA (for short, PMC). The particulars of the imports are as follows :-
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FBCL BHPL
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Bill of Entry 11-4-1990 9-2-1990
Invoice 27-10-1989 27-10-1989
Goods and (1) Cream Sandwiching 58,000 (1)Same 75,000
FOB value in Machine, including
US $ Cream bite export box (2) F & I 2,030
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77,030
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(2) Spares 5,600
(3) Dies 2,700
(4) Change parts 8,800
(5) Insurance and Freight 1,930
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77,030
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(1) Wrapping Machine 2,92,360 (1) Wrapping 2,99,860
with audo and Collating Machine
Unit and export box '
(2) Spares 7,500 (2) F & I 6,635
(3) I & F 6,035
----------- -----------
3,06,495 3,06,495
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3. On receipt of information that invoices in the two cases had been manipulated so as to reduce the value of Cream Sandwiching Machine attracting higher rate of duty under tariff sub-heading 8438.80 and proportionately increasing the value of Wrapping Machine attracting lower rate of duty under tariff sub-heading 8422.40 with intent to evade duty, DRI investigated the cases. Statements of various persons connected with the two importers were recorded. Enquiry was made with the persons connected with PMC through USA Customs and copies of original invoices of PMC were obtained from PMC through USA Customs. It was found that the correct value, in US $ of various goods imported were as follows :-
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FBCL BHPL
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Sandwiching Machine 1,31,670 1,31,670
Accumulator 45,600 45,600
Wrapping Machine 1,46,000 Wrapping Machine automatic 1,46,000
spike and spare parts kit
Stencil 2,565 Stencils 2,565
Spare parts 5,510 Spare parts 5,510
Export Boxing 4,655 Export Boxing 4,655
Feeders 38,860 Feeders 38,860
----------- ----------
3,74,860 3,74,860
F&I 8,665 F&I 8,665
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3,83,5251 3,83,525
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It was seen that there was deliberate shifting of a considerable part of the value of higher duty paying Sandwiching Machine to lower duty paying Wrapping Machine. Since these consignments were cleared on the basis of declared classification and value, there was substantial evasion of duty. It was also found that there was clandestine remittance of US $ 8000 by each importer towards the price. The goods in the possession of the importers were seized. Show cause notices dated 17-5-1993 were issued by Assistant Director, DRI to the respective importers and the connected persons alleging deliberate mis-declaration of value land proposing demand of differential duty, confiscation of the goods and imposition of penalty.
4. The contentions raised by the importers and others can be summarised as follows:
They had acted bona fide and had no intention to evade duty. Importers, engaged in the manufacture of Biscuits imported the machines for modernisation of their plants. The machines were necessary for fast wrapping or packing. Sandwiching Machine can be used also for creaming biscuits by using cream, bite, pump and stencil. Feeder and Accumulator are basically part of Wrapping Machine and not of Sandwiching Machine. Creaming was only a supplementary function. The entire consignment merited classification under sub-heading 8438.80 with lower duty liability and excess duty had been paid by wrong declaration of classification. Wrapping Machine could be imported under OGL. By declaring "Creaming Machine", they were obliged to produce specific licence which they did. Value of one machine was not shifted to another. There was no evasion of duty; on the other hand, excess duty was paid erroneously. There was no payment of extra-consideration as alleged. Statements were recorded without making available requisite documents and by deceit and coercion. Documents said to have been obtained by USA customers were only copies and cannot be relied on. The importers are entitled to refund of excess duty paid. Notice under the proviso to Section 28(1) of the Customs Act, 1962 was without jurisdiction as Assistant Collector was not competent to issue the notices and only Collector had competency to issue it.
5. Collector overruled the identical contentions raised by the importers and others and confirmed demand of differential duty of Rs. 28,13,233/- on FBCL and of Rs. 27,36,125/ on BHPL. He ordered confiscation of Cream Sandwiching Machines, Feeders, Accumulators, Stencils and Spares under Clauses (d) and (m) of Section 111 of the Act and of Wrapping Machines under Clause (m) of Section 111 of the Act; since the machines had been released provisionally, the Collector directed Rs. 15 lakhs each to be recovered from the two concerns. The Collector imposed penalty of Rs. 14 lakhs each on the importers and Rs. 1 lakh on Shri I. M. Kapoor, Rs. 2 lakhs on Shri Rajiv Kumar and Rs. 1 lakh on Shri Pankaj Agarwal under Section 112(a) of the Act.
6. Learned Counsel for appellants contended as follows :-
On the date on which show cause notices were issued (17-5-1993) only "Collector" was competent to issue show cause notice under the proviso to Section 28(1) of the Act as prescribed by the CBEC and notices issued by Assistant Director (in the rank of Assistant Collector) was without jurisdiction. When the demand of differential duty based on allegation of mis-declaration of value fails, confiscation and penalty based on mis-declaration of value cannot stand. There was no inflation of value of one machine or deflation of value of another machine. The stand taken in the reply to the show cause notices was that the consignment contained only one machine, namely, Wrapping Machine. Even assuming that there were two machines, Wrapping Machine and Sandwiching Machine, both have nexus with the job of packing or wrapping and attract subheading 8438.80 and it was a misnomer to call the latter as Cream Sandwiching Machine. For creaming preparations, the machine can be used with the help of stencil. Creaming equipment consists of Cream Tube, attachment and stencil. Sandwiching segment, feeder or vibrator conveyor, Accumulator, Wrapping Head are all parts of Wrapping Machine. The invoices produced along with the Bills of Entry must be understood in this context. The documents supplied by USA customers, though styled as invoices came into existence prior to the invoices received by the importers and can only be regarded as internal date sheet. Even to manufacture and pack biscuits without cream, Sandwiching Machine without stencil etc. would be necessary. The documents supplied by USA Customs do not keep in mind the correct meaning and function of Wrapping Machine and Sandwiching Machine. US $ 77,030 was the price of creaming attachment and the balance amount out of US $ 1,31,678 was the price of Pile arrangement unit. The particulars shown in three of the documents at pages 201, 202 and 222 are correct. The description given in one document at page; 200 is incorrect. Initially the supplier prepared one invoice for a consolidated price describing the goods as "Cream Biscuit Packing Line". The importers apprehending that the entire consignment may be treated by Custom House as attracting sub-heading 8438.80, suggested that suppliers may furnish break up of price for the machine and creaming attachment and accordingly the invoices were prepared by the suppliers and furnished to the importers. This is supported by the Explanatory Notes 5 and 6 under Heading 84.22 and the language used in Heading 84.38. Reference has to be made to the language in Notification No. 125/86. Assuming that there was extra payment of US $ 8,000, it would be referable to "interest" on advance required to be paid and such interest cannot be included in assessable value. Where valuation is sought to be reopened, importers have right to point out error in the classification shown in the Bills of Entry and this right cannot be affected by the circumstance that any claim for refund would be barred by time.
7. Shri K.K. Jha, SDR rebutted the above contentions and made submissions which can be summarised as follows :-
The Board circular dated 14-5-1992 cannot be regarded as amounting to assignment of functions of "Proper Officer" as contemplated in Section 2(34) of the Act and the earlier assignment of duties in 1962 and 1963 would be deemed to be in force and accordingly Assistant Collector would be "Proper Officer" competent to issue show cause notice. Even assuming that notice regarding demand of differential duty under the proviso to Section 28(1) was without jurisdiction, the other parts of the notice under Section 124 of the Act and regarding penalty having been issued by competent officer would survive and have been rightly adjudicated by the Assistant Collector. On merits, the Report of the USA customers and the documents supplied clearly establish the charge made regarding mis-declaration of value. The invoices showing inflated and deflated value were prepared by the supplier at the instance of the importers. Dispute regarding classification cannot be raised in reply to the show cause notice in the absence of an appeal or refund application filed within time. The correct value was reflected in the case of supply to an importer in Egypt. The extra consideration paid should be part of assessable value. Piling Unit is part of Creaming Machine and not part of Wrapping Machine. The reasoning and conclusion in the impugned order are correct.
8. The following points arise for consideration in these appeals :-
(1) Whether show cause notice under the proviso to Section 28(1) of the Customs Act, 1962 was without jurisdiction.
(2) If so, whether show cause notice in relation to the proposal for confiscation and imposition of penalty would be illegal.
(3) Whether allegation of mis-declaration of value has been substantiated.
(4) What consequential reliefs, if any, to be granted.
Point No. 1 : Under Section 28 of the Act as originally stood, notice contemplated under Sub-section was required to be issued by "proper officer". Section 2(34) of the Act defines "proper officer" in relation to any function to be performed under the Act as meaning the officer of customs who is assigned those functions by the Board or Collector of Customs. Section 28 was amended with effect from 27-12-1985. Provision in Sub-section (1) requiring the proper officer to issue notice was not altered but the proviso was amended to bring out that notice thereunder could be issued only by the Collector of Customs. The proviso was again amended with effect from 14-5-1992 deleting the requirement of notice being issued by the Collector. In other words, with effect from 14-5-1992, the provision under Sub-section (1) requiring the proper officer to issue notice would apply to notice under the proviso also. Notices in the present case were issued subsequent to 14-5-1992 and, therefore, were required to be issued by the proper officer, that is, officer of Customs assigned the particular function by the Board or the Collector. There is no dispute that prior to 27-12-1985, Assistant Collector and officers of the rank of Assistant Collector had been assigned all functions under the provisions of the Act required to be attended by the proper officer. It is in this light that the Department contended that notice by the Assistant Collector under the proviso to Section 28(1) of the Act would be valid. Appellant relies on Board's circular dated 14-5-1992 which has been extracted in paragraph 16 of the order of the Tribunal in C.O.C. v. Poona Roller - 1997 (89) E.L.T. 604 (Tribunal). The Circular read thus :
"Section 28 of the Customs Act is being amended to provide that in cases where any duty has not been levied or has been (short) levied or has been erroneously refunded because of collusion, wilful mis-statement or suppression of facts, the Show Cause Notices demanding such duties for a period of 5 years can be issued by the respective Adjudicating Officers (namely the Assistant Collector, the Deputy Collector, the Additional Collector or the Collector etc.) depending upon the powers of adjudication, instead of the Collector of Customs, as was the position hitherto. It may however be noted that though as a result of this aforesaid amendment the Assistant Collectors/Deputy Collectors or Additional Collectors are competent to issue a Show Cause Notice for the extended period of five years, it has been decided by the Government that notwithstanding the aforesaid amendment, such Show Cause Notices shall continue to be issued and the cases decided by the Collectors only. It is repeated that the status quo should be maintained for the issue of Show Cause Notices and deciding cases involving the extended period of five years. The Collectors are required to issue appropriate standing orders as also Trade Notices/Public Notices for this purpose."
Pursuant to the circular various Collectorates issued Trade or Public Notice to the above effect. It is true that the circular did not specifically purport to be assignment of functions under Section 2(34) of the Act nor was Section 2(34) quoted. But this would not invalidate the circular if, otherwise, issue of circular could be traced to any statutory power (See Assistant Commissioner of Commercial Taxes v. Dharmendra Trading Co. - AIR 1988 SC 1247). Undoubtedly Board has the power to assign specific functions to officers of Customs. Collector of Customs is an officer of Customs and the circular specifically required that notice under the proviso to Section 28(1) could be issued only by Collector. The Board specifically required that status quo, as it stood prior to 1992 amendment, should be maintained. It must necessarily follow that even after 1992 amendment, as long as the circular was in force, Collector of Customs alone was competent to issue show cause notice under the proviso to Section 28(1) and the Assistant Collector was not competent to do so. We therefore agree with the appellant that the show cause notices insofar as they related to the proposal for demand of differential duty under the proviso to Section 28(1) was concerned were without jurisdiction.
Point No. 2 : The show cause notices comprehended three aspects, namely, demand of differential duty, confiscation of the imported machinery and imposition of penalty. According to the Department, even if notices to the extent they proposed demand of differential duty fail on account of jurisdictional defect, the parts of the notices under Section 124 of the Act proposing confiscation and also proposing penalty have no such jurisdictional defect inasmuch as the Assistant Collector could issue such notices and survive as valid notices. There is no dispute that Assistant Collector was competent to issue notice proposing confiscation and imposition of penalty. According to the appellants, the basis of all the three proposals was the alleged mis-declaration of value and consequent inadequacy of licence in one case and when demand of differential duty based on mis-declaration of value fails, the other actions proposed also must fail. We shall advert to the decisions relied on by both sides in this behalf.
9. In Shree Dyeing and Bleaching Works v. CCE, Meerut -1989 (40) E.L.T. 102, a show cause notice was issued proposing confiscation of goods and imposition of penalty alleging that the appellant manufactured fabrics without obtaining Central Excise Licence. Another notice was issued proposing demand of excise duty on fabrics manufactured and removed from the factory. It was held that the notice under Section 11A of the Central Excise Act, 1944 was barred by time in regard to the period from 15-6-1979 to 30-11-1979 but there was no defect regarding the demand of duty on the seized goods which were dutiable and confiscation of such goods. This decision is not helpful in deciding the subject controversy.
In Northern India Woollen Mills v. COC - 1991 (53) E.L.T. 81 (Tribunal), Collector of Customs, Ahmedabad confiscated polyester staple fibre imported at Bombay and sold in contravention of conditions of the advance licence and conditions in Notification No. 117/78 under which the fibre had been imported and also imposed penalty. A Bench of two Members of the Tribunal held that the demand of duty, confiscation and levy of penalty were to be done in a composite manner and duty demand cannot be segregated from the confiscation and penalty and severance of the demand of duty from the levy of penalty and confiscation would amount to truncation and would create an anomalous situation because there cannot be two parallel processes of adjudication, one for demand and other for confiscation and penalty.
Alcobex Metals (P) Ltd. v. COCE - 1992 (58) E.L.T. 108 (Tribunal) was decided by a three Member Bench on a difference of opinion among Members of a two-Member Bench. The allegation against the appellant was of manufacture and clearance of excisable goods without discharging duty liability. It was proposed to demand such duty, it confiscate the seized goods and assets and to impose penalty. The Deputy Collector who issued the notice had no jurisdiction to do so under the proviso to Section 11A(1) of the Central Excise Act, 1944, and the demand for period beyond six months prior to the notice was barred by time. It was held that since allegation of fraud, collusion etc. had been made, the notice was not valid even in respect of period within six months prior to the notice. This decision does not have a direct bearing on the controversy in the present cases.
10. In COCE v. H.M.M. Ltd. - 1995 (76) E.L.T. 497 (S.C.), show cause notice dated 17-10-1983 was issued under the proviso to Section 11A of the Central Excise Act, 1944 for duty for the period from 1-4-1981 to 31-1-1983 and two notices dated 7-11-1983 and 19-11-1983 were issued proposing imposition of penalty under Rule 9(2) read with 173Q of the Rules. It was held that the proviso to Section 11A was not attracted and question of penalty would arise only if the department was able to sustain its demand under the first notice.
11. COC, Bombay v. Poona Roller -1997 (89) E.L.T. 604 (Tribunal), three consignments imported were cleared duty-free. Parts of two consignments were subsequently seized. Three show cause notices dated 15-5-1993 were issued by the Assistant Director, DRI proposing demand of duty on the ground of non-availability of benefit of exemption, confiscation of seized goods and imposition of penalty. The notices invoked the proviso to Section 28(1) of the Customs Act. In all the three cases, the Commissioner held that notice of demand under Section 28 was without jurisdiction. Two cases were disposed. In the case of Parekh Food International, he also held on merits that a part of the demand and confiscation were not sustainable. It was held by the Tribunal that the notices raising demand under the proviso to Section 28(1) were without jurisdiction as the Assistant Director, DRI was not proper officer for such purpose on the date of the notices. The allegation in the notices was that the imported goods were not those for which advance licences had been granted and hence the importers were not eligible to avail the benefit of duty-free import and hence duty has to be recovered. Admittedly the bulk of the imported goods had been, after alleged processing, exported by way of fulfilling the export obligation. Since the goods were not physically available, quantification of penalty was relevant, if the allegation in the notices was proved. The Tribunal observed :-
"This aspect will have a direct bearing on the issue of attempted evasion of duty which issue again falls within the ambit of the provisions of Section 28(1) of the Act. Thus, both the issues appear to have been so interlinked that holding of separate proceedings or segregating the issues may neither be feasible nor desirable. Thus though theoretically it can be held that notice under Section 124 of the Act, cannot be held as invalid on the ground raised for notice under Section 28(1) of the Act, and the ld. Adjudicating Authority himself has adjudicated upon such a notice in relation to seizure from M/s. Parekh Food International, so far as the goods seized from them are concerned, in the given set of circumstances, when in the first two group of appeals, and in relation to import of the quantity other than the one seized, in relation to the third group of appeals, it does not appear justified in remanding the matters limited for that purpose, particularly when he has permitted issuance of fresh notices, which have been actually issued and process of adjudication thereon is nearly at the stage of completion. The submission of the ld. SDR that, in any case, the Adjudicating Authority should be directed to adjudicate on the show cause notice issued vide Section 124 of the Act, cannot be accepted."
(Emphasis supplied) It was also clarified that the order will not have any bearing on the fresh adjudication proceedings initiated pursuant to the said orders as the assessee had not filed cross objection challenging the same and that no finding as to the validity of such direction is given under the order of the Tribunal as that was not in issue.
12. In Manohar Bros. (Capacitors) v. COC -1996 (15) RLT 581, aluminium foils were imported at concessional rate as per Notification No. 345/96. Show cause notice was issued on the ground that concessional rate of duty was not available and proposing demand of differential duty and proposing confiscation of those articles. It was held that show cause notice under Section 28(1) of the Customs Act, 1962 was without jurisdiction and invalid. It was contended that adjudication in regard to Section 124 of the Act would stand. The Bench rejected this argument in the following manner :-
"The subject notices are composite notices and segregation thereof is not possible. There do exist some pronouncements which held that if part of the notice is beyond jurisdiction, adjudication can be continued for that much part which is within his jurisdiction, adjudication can be continued for that much part which is within his jurisdiction to adjudicate upon. They however relate to the issues where part of the demand is time-barred and the authority adjudicating could not invoke extended period, whereas the other part was within his powers to adjudicate, the position here however is different and ratio of those pronouncements could to stand attracted so as to save part of the proceedings initiated."
13. Only four of the decisions cited before us are relevant in the context of the dispute before us. In Northern India Woollen Mills v. COC -1991 (53) E.L.T. 81 (Tribunal), it was held that duty demand cannot be segregated from confiscation and penalty. In COC v. Poona Roller - 1997 (89) E.L.T. 604 (Tribunal) while purporting to recognize the theoretical possibility of notice under Section 124 surviving even after failure of demand of duty, it was observed that both aspects are so interlinked that segregating the issues may be neither feasible nor desirable. In Manohar Bros. (Capacitors) -1996 (15) RLT 581, it was held that when demand of differential duty fails, the proceeding cannot survive. The decision of the Supreme Court in COCE v. H.M.M. Ltd. - 1995 (76) E.L.T. 497 (S.C.) that the question of penalty would arise only if the Department is able to sustain the demand of duty has to be taken into consideration. In the cases at hand, demand was raised under the proviso to Section 28(1) of the Act on the allegation of mis-declaration of value and the demand is found to be without jurisdiction. Proposals for confiscation and imposition of penalty are also based on the framework of alleged mis-declaration of value. The demand of duty on allegation of mis-declaration of value cannot be segregated from action of confiscation and penalty based also on mis-declaration of value. Consequently since the demand of duty fails, action for confiscation and penalty cannot survive. We hold so on the weight of authority referred to above.
14. Point No. 3 : The crucial allegation is one of mis-declaration of value, that is, deflated value of Cream Sandwiching Machine falling under sub-heading 8438.80 entailing higher duty and proportionate inflation of the value of Wrapping Machine falling under sub-heading 8422.40 involving lower duty. We have referred to the relevant figures in paragraphs 2 and 3 above. Value of Feeder or Vibrating Conveyor and Accumulator had been included by the supplier in the value of Wrapping Machine. The two importers are sister concerns and part of the same group. The supplier is the same. The supplier had manufactured Wrapping Machine and had purchased Sandwiching Machine from the F.M.C. Machinery Co., USA.
15. The materials in support of the allegation of mis-declaration of value are the following :-
(a) Statement of Shri Pankaj Agarwal, Vice President of FBCI, that he came to know from his sources that the correct FOB value in US $ was as follows :
Sandwiching Machine 1,31,670
Wrapping Machine 1,91,600
Feeder 38,860
Stencil Dies 2,565
Spares 5,510
Export Boxing 4,655
(CIF value reckoned on the above basis was the same as the value alleged by the Department. Feeder had not been declared in the Import documents. US $ 8,000 was paid by each importer during a visit to USA.) The statement was retracted subsequently.
(b) Statement of Shri Inder Mohan Kapoor, Vice President of FBCL that he met officers of supplier and finalised the order and required them to furnish value separately. US $ 16,000 was paid additionally on account of two consignments, though as interest. He had asked supplier to show lesser value of US $ 58,000 FOB for Sandwiching Machine as against the correct value of US $ 1,31,670 FOB and to inflate the value of Wrapping Machine from US $ 2,92,300 FOB to US $ 1,46,000 FOB after indicating the difference in duty and the Sandwiching Machine required REP licence. The statement was retracted subsequently.
(c) Subsequent statement of Shri Sanjeev Kumar, M.D. of both companies.
(d) Copies of documents obtained by USA Customs from the supplier, in particular copies of invoices dated 3-4-1989 at pages 200 to 203 and 222 of the paper book which showed the prices in US $ as follows :-
Sandwiching Machine with mobile hopper and pump unit 1,31,670 Two High Stack Accumulator 45,600 Horizontal Wrapper with Automatic Splice and spare parts kit 1,46,000 Row Base Cake Feeder 38,860 (sum total would be equal to sum total of declared value).
(e) Report of USA Customs at pages 178 to 184 after extensive enquiries with the supplier and study of documents indicating as follows :-
The two machines constituted an integral production line designed specifically to the customer's needs. The Cream Sandwiching Machine accepts biscuits from an oven, inserts cream filling and places a second biscuit on top. The Wrapping Machine built by FMC was incorporated into production line by the supplier. The core price of basic Sandwiching Machine ranged between US $ 60,000 to US $ 65,000. The invoices to be sent to importers were prepared as per requirement of importers. The price shown for FMC machine (Wrapping) was seriously inflated. The proforma invoices had been revised. J.R. Patel of Supplier admitted manipulation of the prices. The 4 invoices furnished to USA Customs by the supplier were admitted to represent the final actual cost to the customer. On 18-3-1988, Supplier quoted base price of US $ 1,46,700 for Cream Sandwiching Machine, US $ 2,700 for additional stencils, US $ 6,000 for spare parts, US $ 3,000 for export boxing and US $ 30,000 for Feeder. At a meeting held on 13-1-1989, multiple changes in proforma invoices were requires by Shri I.M. Kapoor.
(f) In the internal memorandum dated 2-8-1991 of Supplier it was indicated that the importers were having same problem with Indian Cvistoms and Shri Pankaj Agarwal had called Bob Petes of the Supplier to tell Indian Customs regarding "split", if they asked. Another internal memorandum dated 16-1-1989 referred to the visit of Shri. I.M. Kapoor, his request for multiple changes in the proforma invoices and for showing the Wrapping Machine as the main event with the Creaming Machine as merely being a part of the system since import duty on Wrapping Machine was much lower than that on Sandwiching Machine and since it will take months to obtain import licence for Sandwiching Machine.
(g) Failure to declare Feeder in the Bill of Entry and import without licence.
16. The impugned order shows that the adjudicating authority relied mainly on the documents of the Supplier procured by the USA Customs and various documents of Supplier dealt with in the report of USA Customs. We do not find much reliance placed on the retracted statements recorded by the investigator from various persons connected with the imports. The documents and materials of the Supplier clearly establish that invoices submitted along with the Bills of Entry were manipulated with the intention of depressing the value of goods with higher burden of duty and of inflating the value of goods with lesser burden of duty. There was also suppression of the value of Feeder, etc. These acts were committed by or at the instance of the importers and prima facie, could have been only with the intention of evading duty.
17. Faced with the above situation, it was contended on behalf of the appellant that classification furnished in the Bills of Entry for Cream Sandwiching Machine as sub-heading 8438.80 was not correct, that the machine basically performs the job of packing or wrapping and correctly attracts sub-heading 8422.40 and therefore there was no duty implication in the alleged mis-declaration of value. It was argued that the machine described as Sandwiching Machine is really part of Wrapping Machine and when accessories such as stencil and cream tube are used in conjunction, it can be used to convert biscuits into cream biscuits and when the machine is used without such attachment it would be only part of Wrapping Machine aiding operation of arranging and stacking biscuits for the purpose of packing and wrapping. It was stated that the Sandwiching Segment (that is, Sandwiching Machine without the attachments) together with Feeders, Accumulator, Wrapping head are all part of Wrapping Machine. In support of this stand, reliance was placed on a chart of the system produced along with the appeal memorandum, tariff descriptions in the two sub-headings, HSN Explanatory Note for Heading 84.22 at pages 1185 and HSN Section Note 4 at page 1130. Accordingly it was contended that for the purpose of Notification No. 125/86 which granted partial exemption for High Speed Automatic Wrapper of Chapter 84 for use in processing or packaging of food articles, the wrapping machine must include Feeder and Accumulator and lower rate of duty would apply to Feeder and Accumulator also. It was also pointed out that Chapter Notes can be read to understand scope of Exemption Notification. For this purpose reliance was placed on the decisions in COCE, Hyderabad v. Bakelite Hylam Ltd. - 1997 (19) RLT 203 (S.C.), Gujarat State Fertilizers Co. v. COCE -1997 (91) E.L.T. 3 (S.C.), Naffar Chandra Jute Mills Ltd. v. A.C. of C.E. - 1993 (66) E.L.T. 574 (Cal. H.C.), Singh Alloys & Steel Ltd. v. A.C. of C.E. - 1993 (66) E.L.T. 594 (Cal. H.C.) and decision of a Larger Bench of the Tribunal in Union Carbide India Ltd. v. COCE -1996 (86) E.L.T. 613.
Shri Jha, SDR rebutted the above contentions and argued that the question of classification cannot be reopened in this proceeding and there are no materials in support of the factual contentions raised in regard to classification. According to him Chapter Notes and Section Notes cannot be looked into for the purpose of understanding the scope of exemption notification. He relied on the decisions in Khody Brewing & Distilling Inds. Ltd. v. Collector - 1997 (90) E.L.T. 336 (Tribunal), Thermax Pvt. Ltd. v. Union of India -1987 (27) E.L.T. 68 and Set Telecommunications Pvt. Ltd. v. C.C., Bombay - 1997 (19) RLT 629 (Tribunal) for this purpose. He contended that exemption notification has to be construed strictly and liberal construction which enlarges the scope of the notification would not be permissible. According to him, Feeder and Accumulator can at best be regarded as accessory to Wrapping Machine and hence would not attract the exemption notification applicable only to Wrapping Machine.
18. We are not convinced of the tenability of the contention of the Department that importers cannot in this case go back on the classification declared in the Bill of Entry. When allegation is made of mis-declaration of value by adjusting the value of one item under one sub-heading with the value of another item falling under another sub-heading to take illegal advantage of lower rate of duty available for an item, the same can be sought to be resisted by pleading that on correct classification there would be no duty advantage for the importer and the alleged mis-declaration of value would not really result in duty evasion. This view is fully supported by the observations of the Tribunal in paragraph 24 of the order deciding the case in Lili Foam Industries (P) Ltd. v. COCE -1990 (46) E.L.T. 462 (Tribunal).
19. We have adverted to the contention raised on the question of correct classification which necessarily calls for examination of the purpose and working of the various machines. This aspect had been raised in the reply to the show cause notice but not considered by the adjudicating authority from the perspective in which it was presented before us. It may be advantageous to see the machines and items and watch the same in operation. The factual matrix has not been considered in the impugned order and without such consideration it is not possible to arrive at a correct conclusion on the classification dispute and the applicability of the exemption notification. If appellants were to fail on Point No. 2, remand of the case for a proper decision on this controversy would be necessary.
20. Two more aspects remain for consideration. Though the Bills of Entry referred only to the machines with Dies, spare parts and change parts, the invoices referred to Cream Tube, Export Boxes, Audo and Collating Unit. The import documents did not refer to Accumulator and Feeder. According to the Department this was done with a view to cover up the non-declared value and the import should have been against a valid licence. The show cause notices refer to these aspects. The impugned order dealt with non-declaration of Feeder and consequent non-declaration of value and failure to produce a valid import licence for Feeder. There would be liability for confiscation and penalty if Point No. 2 were to be decided against the importers.
21. The other aspect relates to clandestine remittance of extra consideration of US $ 8,000 by each importer. According to learned Counsel for appellants, FERA proceeding in relation to the remittance has been dropped. According to appellants, assuming there was such remittance, it was towards interest on advance payment required by the Supplier but not made by the importers and as such the amount cannot be added to the assessable value. He also pointed out that the rate of interest amounted to 5% per year which is quite reasonable. In COC v. Bharat Foam Udyog (P) Ltd. -1997 (20) RLT 495, we indicated that subject to satisfaction of certain conditions interest charges under a financing arrangement entered into by the buyer and relating to the purchase of imported goods should not be regarded as part of assessable value. If appellants were to fail on Point No. 2, this aspect also would require fresh consideration on remand.
Point No. 4 : In view of our findings on Point Nos. 1 and 2, the impugned order has to be set aside and appeals have to be allowed, and we do so.