2003(03)LCX0037

IN THE CEGAT, NORTHERN BENCH, NEW DELHI

Justice K.K. Usha, President and Shri C.N.B. Nair, Member (T)

SEAGRAM MANUFACTURING LTD.

Versus

COMMR. OF CUS., NEW DELHI

Final Order No. 129/2003-NB(A) and Stay Order No. 81/2003-NB(A), dated 25-3-2003 in Appeal No. C/401/2002-A

CASES CITED

Bussa Overseas and Properties (Pvt.) Ltd. v. U.O.I. — 1990(10)LCX0050 Eq 1991 (053) ELT 0165 (Bom.) — Referred [Paras 21, 23, 24, 25]

Crescent Corporation Calcutta v. Collector — 1992 (41) E.C.R 444 (S.C.) — Referred....... [Para 12]

Hindustan Polymers Co. Ltd. v. Commissioner — 1996(12)LCX0163 Eq 1999 (106) ELT 0012 (S.C.) — Relied on [Paras 11, 14]

J.K. Steel Ltd. v. U.O.I. — 1978 (002) ELT (J 355) (S.C.) — Distinguished...................... [Para 13]

N.B. Sanjana v. Elphinstone Spinning & Weaving Mills Co. Ltd. — 1978 (002) ELT (J 399) (S.C.) — Distinguished     [Paras 12, 13]

Rattan Chand & Sons v. Collector — 1986(11)LCX0041 Eq 1987 (027) ELT 0533 (Tribunal.) — Relied on... [Paras 11, 14]

REPRESENTED BY :   Shri V. Lakshmikumaran, Advocate, for the Appellant.

Shri Bishwajit Bhattacharya, Advocate, for the Respondent.

[Order per : Justice K.K. Usha, President]. - In this appeal at the instance of Seagram Manufacturing Ltd. the importer challenge is against the order in original dated 31-5-2002/4-6-2002 passed by the Commissioner of Customs, ICD Tughlakabad, New Delhi. Under the above order, the Commissioner had adjudicated two show cause notices, one by DRI dated 19-12-2000 covering imports of alcholic beverages during the period January, 1995 to June, 2000 and the second issued by Commissioner, ICD Tughlakabad dated 16-8-2001 covering imports during the period July 2000 to May 2001. The provisional assessment of the imports was finalised by the Commissioner taking recourse to Rule 6 of Customs Valuation Rules, 1988. He confirmed an extra duty demand of Rs. 41,70,49,724/- as against the total demand proposed in the two show cause notices of Rs. 50,05,12,913/-.

2. The appellant is a wholly owned subsidiary of Seagram India Ltd. which in turn is a 100% subsidiary of the Seagram Company Ltd., Canada. The Foreign Investment Promotion Board (FIPB), Government of India granted approval for the proposal put forward by Seagram Company Ltd., Canada to set up a wholly owned subsidiary for, inter alia, establishment of a non-molasses based spirit manufacturing/blending facility.

3. The appellant was incorporated on 28-4-94. Its main objects were :-

(a)     to carry on the businesses of manufacturers, merchants, importers, factors and dealers of all kinds of alcoholic and non-alcoholic beverages, including spirits, wines and fruit juices and all products, by-products and ingredients thereof;

(b)     to buy sell, deal in and with, manufacture, produce, process, age, blend, rectify, compound, bottle, warehouse, store, import, export, transport and advertise for sale of all kinds of alcoholic and non-alcoholic beverages, including spirits, wines and fruit juices and all products, by-products and ingredients thereof.

Pursuant to an application made by the appellant import licence dated 20-12-94 was issued by the office of Controller of Imports & Exports for importing concentrate of alcoholic beverages. Prior to issue of this licence, the Ministry of Food Processing Industries, Government of India had informed the appellant under letter dated 20-10-94 that ‘import of concentrate of alcoholic beverages which is on the negative list is permitted to the actual user alone as per the Exim Policy’. It was also suggested that intent issued to the company should be converted into an industrial licence so that the application in question could be further processed on the basis that the appellant is an actual user. Since the above process would have taken some time, the appellant took a decision to take on lease a manufacturing facility to establish its status as an actual user and to that extent sought partial modification of its earlier proposal made under application dated 20-9-94. It was thereafter the import licence was issued.

4. Pursuant to the issue of import licence, appellant imported first consignment of 88 barrels of concentrated alcoholic beverage in two batches of 58 barrels and 30 barrels. They were importing goods from Joseph E Seagram & Sons, Scotland, a related party. The goods were cleared on the basis of provisional assessment in terms of Section 18 of the Customs Act, 1962. Thereafter the DRI conducted certain inquiries and a show cause notice dated 19-12-2000 was issued covering 186 Bills of Entry during the period January 1995 to June 2000. Under the above show cause notice demand of a sum of 37,96,70,451/- was made under the provisions of Section 28 of the Customs Act. There was a proposal to impose penalty under Section 112 and 114(a) of the Customs Act and to confiscate goods valued at Rs. 28,32,88,730 and Rs. 14,56,29,785/- under Section 111(m) and (d) of the Customs Act. In the event of physical unavailability of the said goods, having been released provisionally, appropriate amount of redemption fine should not be imposed in lieu of confiscation. The show cause notice further contemplated imposition of penalty on the company and also on its officials individually.

5. The appellant filed writ petition No. 1348/2001 before the Hon’ble High Court of Delhi challenging the show cause notice as without jurisdiction on the ground that the notice under Section 28 can be issued only after finalisation of the provisional assessment and adjustment of final duty thereof. The writ petition was disposed of by the Hon’ble High Court on 27-8-2001. Relevant portion of the order is extracted below :-

“Notice issued under Section 28 and Section 111 of the Customs Act, 1962 (in short the Act) is assailed in this writ petition. Learned Solicitor General, on instructions submits that the notice may be treated to be one for the purpose of finalisation of the assessment in terms of Section 18(2) of the Act.”

The writ petition was disposed of on the basis of the above submission made by the learned Solicitor General.

6. In the meantime, a second show cause notice was issued on 16-8-2001 by the Commissioner of Customs covering imports effected during the period July 2000 to May 2001 covering 41 Bills of Entry. Proposal was to determine the value of imported CAB on the same basis as indicated also in the first show cause notice dated 19-12-2000. Demand of a sum of Rs. 12,08,42,462/- was made in the above notice.

7. In the light of the order passed by the Hon’ble High Court of Delhi, the adjudicating authority treated both the show cause notices as notice for finalizing the provisional assessment and proceeded to, finalize the assessment under the order impugned.

8. As mentioned earlier the Commissioner has finalised the provisional assessment by applying the provisions contained under Rule 6 of the Central Excise Valuation Rules. The main contention raised by the appellant challenging the impugned order is that the order goes beyond the show cause notice and that it had been passed in valuation of the principles of natural justice. It is contended that in the show cause notice the transaction value was proposed to be fixed under Rule 8 and before arriving at the above proposal the show cause notice referred to Rule 6 and rejected the method giving reasons to justify non-application of Rule 6. Paragraph 10.4 of the show cause notice which refers to the above aspect reads as follows :-

“10.4 To determine value under Rule 6 (similar goods) transaction value of similar goods sold for import to India and imported at or about the same time need to be taken into account. One can resort to this Rule to compare the controlled transaction with un-controlled transaction that are most comparable. The standard of comparability does not require that un-controlled transaction be identical or exactly comparable to the controlled transaction. It should only be ‘sufficiently similar’ to the controlled transaction so that it provides reasonable level of bench marks for determining whether the controlled transactions result in an arms length transaction or not. Uncontrolled transaction can be adjusted to account for any material difference between the controlled and uncontrolled transactions. For this purpose characteristic of property that are likely to affect including the quality of the goods being transferred, the contractual terms and economic circumstances are relevant considerations which need to be taken into account. In the present case, no doubt considering the market segment, age of maturity of the products sold and consumer-price ranges, there appears to be a case for attempting to determine the value under this rule. The importers have, in fact, admitted that the blind test conducted by them to determine the comparable products vis-a-vis their products had revealed that their product was found to be comparable, if not superior, to the products of other similarly placed importers. In fact, there are quite a lot of factors which support determination of value on the basis of this rule. Details of data available on import of similar goods imported by other importers during the material period of import will be discussed in length which would indicate clearly that the declared value of M/s. SML is quite low and indicative of the fact that the transaction is not at arm’s length. However, the importers may to claim that their contractual terms and the business strategy are vastly different from the other importers. More over in the present case there has also been transfer of intellectual property including right to use industrial assets such as patent, trade names, designs or models. These assets have considerable value even though they have no book value in the company’s balance sheet. The independent manufacturers are expected to bear normal business risks such as market risk, foreign exchange risk, credit risk, inventory risk. In the present case, the contract assumes year-end adjustment to ensure the minimum return (reference document at Sl. 58 of para 5 above) on investment. To this extent the Indian manufacturer does not bear the normal business risk associated with the import and subsequent selling of the finished goods. Adequate data is also required to be furnished to give adjustment to various intra-group services. More over, details of strategy and the cost involved on market penetration has not also been made available by the importer. Even though the department has the landed cost and the selling price of goods imported by other similarly placed Indian importers, in the absence of adequate data to make necessary adjustments it may not be possible or appropriate to determine the value under this Rule.”

In the order impugned Commissioner has come to the conclusion that since similar or comparable brands of liquor were imported by others in India during the material period, the transaction value can be arrived at by taking recourse to Rule 6. It is, therefore, not necessary to refer to Rule 7 or 8 as was done in the show cause notice. Thus, according to the appellant the Commissioner has travelled beyond the show cause notice.

9. In the show cause notice as well as in the order of the Commissioner three brands of SML, namely, 100 Pipers, Passport and Some Thing Special and treated as comparable to three brands of United Distilleries, namely VAT, Black & White and Black Dog respectively. The International Malt whisky was compared to VAT Malt imported by Whyte and Machay India. The Commissioner thereafter adopted the lowest value CIF per B/L of the comparative brands. Thus, the value was fixed as GBP 1.735, 1.58 and 1.241 for 100 Pipers, Passport and Something Special and GBP 1.53 for the International Malt whisky.

10. Appellants attack the method adopted by the Commissioner in fixing the transaction value by taking recourse to Rule 6 under different grounds. Firstly, it is contended that the show cause notice having rejected the applicability of Rule 6 in the facts of the case after specific consideration of different aspects including special conditions of the agreement transferring intellectual property also and the absence of proper data it was not open to the assessing authority to take recourse to Rule 6. The appellant would contend that such an action is in clear violation of principles of natural justice as the appellant was not put to notice that the provisional assessment is being finalised by applying Rule 6. Secondly it was contended that while applying Rule 6 the Commissioner has committed grave error in not following the mandatory conditions incorporated in the Rule. According to the appellant before applying Rule 6 the following requirements are to be satisfied-

(a)     the transaction value of all similar goods imported at or about the same time as the imported goods should be available.

(b)     if more than such value is available, the lowest of such values should be taken into account.

(c)      the said lowest value should be adjusted for difference in commercial levels and quantities and both.

(d)     the adjustment should be made for differences affecting similarity such as quality, reputation and the existence of trade mark.

The appellant submits that none of these requirements is satisfied in the present case while the Commissioner applied Rule 6.

11. The show cause notice dated 19-12-2000 covers the period January 1995 to June 2000 and the second show cause notice dated 16-8-2001 covers the period July 2000 to May 2001. For 100 pipers value has been fixed as GBP 1.735 on the basis of GBP of VAT 69 imported under Bill of Entry dated 5-5-99. For Passport the value of Black & White imported under Bill of Entry dated 18-1-99 as GBP 1.58 is adopted. For Something Special the value at the rate of GBP 2.41 of Black Dog imported under Bill of Entry dated 5-5-99 is taken. For International Malt whisky the GBP at the rate of 1.53 was fixed on the basis of import of VAT Malt under Bill of Entry 2-12-98. The very same rate was adopted for the transaction value in respect of the imports during the period from July 2000 to May 2001. According to the appellant, the above procedure followed by the Commissioner is totally untenable in law. The Commissioner has taken into consideration only the details of certain number of imports as shown in the annexure to the show cause notice for the purpose of arriving at the transaction value by applying Rule 6. Such a procedure is irregular. The department cannot pick and choose such transactions and on the basis of such data transaction value cannot be fixed under Rule 6. Apart from the above, it is contended that even though in the show cause notice it is mentioned and there are other importers of similar goods, no reference is made to import by other importers except United Distilleries for the relevant period. For these reasons, it is contended that the transaction value fixed by the Commissioner by applying Rule 6 is to be rejected. The assessee placed reliance on decision of the Supreme Court in Hindustan Polymers Co. Ltd. v. CCE, Guntur - 1999 (106) ELT 12 and that of the Tribunal in Rattan Chand & Sons v. CCE, Allahabad - 1987 (027) ELT 533 in support of its contention that a rule which had been considered and given up in the show cause notice cannot be relied on by the Commissioner.

12. It is contended on behalf of the Revenue that there is no merit in the objection raised by the appellant against the Commissioner arriving at the value by applying Rule 6 for the reason that in the show cause notice proposal was to fix the value on the basis of Rule 8. It is open to the assessing authority to take recourse to a particular rule if the action is within its jurisdiction. In support of the above contention, the learned counsel for the Revenue placed reliance on decision of the Supreme Court in N.B. Sanjana v. Elphinstone Spinning & Weaving Mills Co. Ltd. - 1978 (002) ELT J399 and also a decision of the Tribunal in Crescent Corporation, Calcutta v. CC, Calcutta - 1992 (041) ECR 444.

13. We find merit in the objection raised by the appellant against the procedure followed by the Commissioner in choosing Rule 6 for fixing the value and also in the manner in which Rule 6 was applied in this case. Admittedly, in the show cause a reference was made to Rule 6 and after giving certain reasons it was proposed not to apply Rule 6 to arrive at the value in this case. Thus the assessee was not put to notice in the show cause notice on the application of Rule 6. Therefore, if the Commissioner thought it fit to proceed under Rule 6 for fixing the value the assessee should have been given an opportunity to put forward its contention against the proposal to proceed under Rule 6. This is a requirement to satisfy the salutary principles of natural justice. On going through the decision of the Supreme Court in N.B. Sanjana v. Elphinstone Spinning and Wvg. Mills Co. Ltd. relied on by the Revenue we do not find any ratio laid down therein which would go against the above view. In the above case the Supreme Court took the view that if the Assistant Collector of Central Excise had power to issue notice either under Rule 10A or Rule 9(2) the fact that the notice refers specifically to a particular rule, which may not be applicable, will not make the notice invalid on that ground. In coming to the above conclusion the Apex Court placed reliance on its own earlier decision in J.K. Steel Ltd. v. Union of India - 1978 (002) ELT (J 355) (S.C.) = AIR 1970 S.C. 1173. There it was held that if the exercise of a power can be traced to a legitimate source, the fact that the same was purported to have been exercised under different power does not vitiate the exercise of the power in question.

14. In the case before us it is not a mere reference to a wrong rule in the notice and later preceding under a different rule. This is a case where Rule 6 was adverted to and rejected for certain reasons, as mentioned above. Thereafter, when the adjudicating authority proceeds under Rule 6 the party should have been given an opportunity to meet the proposal. The fact that while proposing to fix the value under Rule 8 the show cause notice makes reference to Rule 6 and the appellant has given reply to such proposal, will not be sufficient compliance on the requirement of an opportunity to meet the proposal to proceed under Ruled 6 to fix the value. The decision of the Supreme Court in Hindustan Polymers Co. Ltd. v. CCE, Guntur is more relevant to the situation available here. It was a case where a demand was made against the assessee under Tariff Item 68 and had proceeded upon the basis that there is a process of manufacture of coloured polystyrene from uncoloured polystyrene. The Tribunal came to the conclusion that coloured polystyrene could not be classified under Tariff Item 68 but proceeded to hold that the appellant should pay the excise duty as at the coloured stage, but limiting the quantum thereof to that which would have been paid had the demand under Tariff Item 68 been sustained. The Supreme Court took the view that since the demand that was made upon the appellant was under Tariff Item 68 and it proceeded upon the basis that there was a process of manufacture of coloured polystyrene from uncoloured polystyrene and since the Tribunal has come to a conclusion against the Revenue on these counts the appropriate order for the Tribunal to have passed was to set aside demand and left it open to the Revenue to proceed against the appellant as permissible under law. In Rattan Chand & Sons v. CCE, Allahabad, this Tribunal had occasion to consider a similar situation. The Revenue relied upon Rule 10 as well as Rule 10A. Subsequently they expressly gave up the demand under Rule 10 and specifically relied upon Rule 10A. It was held that when the applicability of Rule 10A is ruled out in the facts of the case, Revenue cannot be permitted later to rely on Rule 10 to sustain the demand which would be within time under Rule 10.

15. In the present case since the adjudicating authority took the view that the value can be arrived at under Rule 6, it is not necessary to go to Rule 7 or 8 as was proposed in the show cause notice. An opportunity should have been given to the appellant to put forward its case against the proposal to proceed under Rule 6. We are also of the view that while working out the provisions of Rule the Commissioner has not taken into consideration all the relevant factors. While fixing the value under Rule 6 the authority has to look into the definition of the term ‘similar goods’ under Rule 2(e) and that the conditions contained therein are satisfied. Clauses (b) and (c) of sub-rule (1), sub-rule (2) and sub-rule (3) of Rule 5 are made applicable to Rule 6 also. We find that there is no proper consideration of the above provisions by the Commissioner while arriving at the value under Rule 6. The appellant is justified in complaining that comparison was not made with the transaction of similar goods sold for export to India and imported at or about the time as the goods being valued, especially in the case of the goods covered by the second show cause notice dated 16-9-2001. Comparison is made with imports which had taken place in January 1999, May 1999 and December 1998 for valuing the goods imported during the period July 2000 to May 2001.

16. The appellant had put forward a contention that it has right to demonstrate under Rule 4(3)(b) of the Customs Valuation Rules that the transaction value declared by it would closely approximate to one of the values referred in clauses (i) to (iii) of Rule 4(3)(b). It was submitted that unlike in the case of application of Rules 5 to 8 in a sequentially manner as provided under Rule 3(ii) there is no condition that clauses (i) to (iii) under Rule 4(3)(b) can be applied only in sequential manner. The appellant submits that it has proved that the relationship has not influenced the declared value by taking recourse to Rule 4(3)(b)(ii).

17. The Revenue would contend that there is no merit in the above claim made by the appellant. Referring to Interpretative Notes to Rule 4(3)(b) it was contended that what the importer can demonstrate under Rule 4(3)(b) is that the transaction value closely approximates to a ‘test value previously accepted’ by the proper officer of Customs. In the present case there is no test value to compare with and approximate to. The appellant has no case that there are identical goods imported and it has not relied on the value of import of similar goods. Therefore, according to the Revenue Rule 4(3)(b) can have no application to the appellant’s case.

18. We find merit in the contention raised by the Revenue. Interpretative Notes to Rule 4(3)(b) say that the importer gets an opportunity to demonstrate that transaction value closely approximates to a ‘test value previously accepted’ by the proper officer of Customs and is, therefore, acceptable under the provisions of Rule 4. If the proper officer of Customs has already sufficient information to be satisfied, without further detailed enquiries that one of tests provided under Rule 4(3)(b) had been made, there is no necessity to require the importer to demonstrate that test can be met. In the present case, as rightly contended by the Revenue, there is no ‘test value previously accepted’ by the proper officer of Customs and therefore, by applying Rule 3(b) the appellant cannot be heard to contend that it was able to prove that the relationship had not influenced the price.

19. We will now refer to the issue whether Something Special imported during the period 1995-96 has to be treated on a par with Passport and 100 Pipers as far as its value is concerned. It was alleged in the show cause notice that during the period the appellant had bottled Something Special as deluxe whisky and sold the same in Indian market at a price of Rs. 1200/- to Rs. 1300/- as against Rs. 650/- to Rs. 800/- of Passport and 100 Pipers. The Commissioner has held in the assessment order that Something Special imported during 1995-96 i.e., before September 1996 was of the same quality of Something Special imported after September 1996. It is the case of the appellant that Something Special was imported during the relevant period without any claim that it was 12 years old and that the age certificate would show that Something Special concentrates were only 4 years old and not 12 years. The contention of the appellant that this fact was confirmed during the investigation by H.M. Customs and Excise U.K. does not seem to be correct. The documents relied on by the appellant in support of the above contention only go to show that Something Special was priced at the same rate of Passport and 100 Pipers before September 1966. No where it is mentioned or certified that Something Special imported before September 1996 was not 12 years old but only 4 years old. The letter dated 3-6-93 addressed to the exporter would also clearly show that the importer has treated both blend and age of the product as relevant considerations. The allegation that during the relevant period Something Special concentrate was bottled by the appellant as deluxe whisky and was being sold in Indian Market at a higher rate than 100 Pipers and Passport is not shown incorrect by the appellant. We are, therefore, inclined to hold that the Commissioner was correct in his finding on this issue.

20. We will now consider the issue regarding the correct quantity covered by Bills of Entry No. 105223 dated 26-5-1975 and No. 1085550 dated 13-8-97. The quantity declared in the first Bill of Entry was 6946 BL of MWW Malt whereas the actual quantity received was 11745 BL. Under the second one the quantity of MIF-Malt spirit declared was 3779.4 BL and MIZ-Malt spirit was 3725.6 BL. The actual quantity received was 6282 BL and 6280 BL respectively. The appellant admits the correctness of the actual quantity received as above. The only dispute between the parties is whether less quantity was declared willfully with intention to evade duty as alleged by the Revenue or by a bonafide mistake as claimed by the appellant. This aspect is not relevant in this proceeding where the provisional assessment is being finalised. Therefore, we do not express any view on this aspect in this order. The actual quantity received as shown above will be taken into consideration for the purpose of quantifying the duty liability.

21. Now we will come to the issue regarding classification of the goods imported under 10 Bills of Entry namely, 103038 dated 24-3-95, 103843 dated 20-4-95, 105240 dated 30-5-95, 105555 dated 7-6-95, 105556 dated 7-6-95, 107231 dated 20-7-95, 107637 dated 31-7-95, 109548 dated 20-10-95 and 100309 dated 10-1-96. The provisional assessment was finalised by classifying the goods under Tariff Entry 2208.30 as against the claim of the importer under Tariff Item 2208.10. The Commissioner has taken the view that the product which is imported having alcoholic strength over 60% V/V has to be classified under the Heading ‘Whisky’ which is a specific Entry 2208.30 irrespective of its alcoholic strength and irrespective of whether it is consumable in its imported condition. The Commissioner observes that a whisky which has been distilled and matured in Scotland for a period of over three years can only be called as Scotch whisky. The importers in their agreement had stated that they would import ‘Bulk Scotch Whisky’. He further states that letter of approval from FIPB to the importer states that the project involves imports of scotch whisky for local bottling and marketing and to be used in upgrading local liquors through blending. The goods have been described as whisky along with its particular brand, namely 100 Pipers or Passport or Something Special or Malt Whisky in the import documents in the initial stages which were later erased with white ink to change the description to CAB before submitting to Customs. It is further alleged that the description of the goods on the barrels was also required to be removed at the instance of the Indian importer. The Commissioner, therefore, arrives at the conclusion that the importer was all along aware that the correct description of the goods was whisky which is assessable under Heading 2208.30. Even though the importer has placed reliance on a decision of the Bombay High Court in Bussa Overseas and Properties (Pvt.) Ltd. v. Union of India - 1991 (053) ELT 165, the Commissioner was not inclined to follow the above decision. According to him, the High Court was provided with wrong information about description and manufacturing process of whisky which had led to the view expressed in the decision. He further states that the basis of the observations made is not known. But he admits that the judgment which was against the Revenue was not in appeal.

22. The Tariff item 2208 at the relevant point of time reads as follows :-

“22.08   Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80% vol; spirits, liqueurs and other spirituous beverages; compound alcoholic preparations of a kind used for the manufacture of beverages”.

It is contended by the appellant that sub-heading 2208.10 covers exclusively compound alcoholic preparations of a kind used for manufacturing beverages. The product imported by the appellant has, therefore, to be classified under the above heading. The reference is made to HSN Explanatory Notes to Heading 2208 which divides the Heading into categories -

(a)     Undenatured ethyl alcohol of an alcoholic strength less than 80%;

(b)     Spirits, liquors and other spirituous beverages; and

(c)      Compound alcoholic preparations of a kind used for the manufacture of beverages.

It is submitted that the HSN clearly provides that compound alcoholic preparations are used in the manufacture of various beverages and are not for immediate consumption. According to the appellant since CAB imported by it was at the strength of 60 to 63% V/V, it is neither intended for immediate consumption, nor could have been sold at the said strength. The concentrate has to be converted and diluted to the scheme at the rate of 42.8 V/V under relevant Excise Laws. Therefore, classification of the product imported under 2208.10 was justified. On subsequent deletion of the Heading 2208.10 from the Tariff the Heading applicable will be 2208.90.

23. The learned counsel for the appellant placed strong reliance on the decision of the Bombay High Court referred above. He submitted that the Commissioner has gravely erred in not following the above decision. Learned counsel also pointed out that the comments made by the Commissioner on the decision of the High Court show scant respect for the higher judiciary. It is also pointed out by the appellant that the import licence issued to the appellant showed the description of the goods as concentrate alcoholic beverages. The appellant denied the allegation that it had erased the description in the import documents made by the importer. The appellant had advised the  exporter  to  use  the same  description as is given in the import licence in the invoice and other documents. If any correction had been made it was by the importer and not by the appellant. In any view of the matter  what  is relevant is whether the product  imported could be classified under the relevant entry and not the description given by the importer.

24. We find merit in the contention raised by the appellant. The Revenue has no case that the import licence issued to the appellant was not for importing concentrate of alcoholic beverages. It has also no case that the import was made in violation of the terms of the import licence. No material is placed before us, nor any submission made by the Revenue to controvert the contention raised by the appellant that the standard prescribed for marketing the bottled whisky in India is that ethyl alcohol contained therein should be of 42.80 V/V. On going through the decision of the Bombay High Court we find that the very same issue was also subject matter of the decision. In Paragraph 2 the issue is raised as follows :-

“The issue in writ petition Nos. 3816 of 1987, 119, 1802 and 2315 of 1988 is whether the Gin concentrate and Whisky concentrate imported by the petitioners are or can be treated as ‘Gin or Whisky’ so as to attract higher rate of duty.”

From the facts of the case it can be seen that the product imported was also concentrated whisky of 60% strength. The department contended that the products are nothing but concentrated whisky. They are potable. The mere fact that it can be consumed after dilution by adding more water or soda than in the case of ordinary Whisky or Gin sold in the market, does not mean that it is not consumable and cannot be drunk at all. The department contended that the goods imported have to be classified as whisky or gin. The petitioners on the other hand contended that the goods imported are known in the trade as concentrated whisky or gin which are qualitatively different from whisky or gin known to trade. Concentrated whisky or gin is not and cannot be sold to consumers or even wholesalers directly as whisky or gin. They have to be sold to distilleries only who after due process convert them into India made foreign whisky or gin. It is only thereafter the product is known and sold as potable whisky or gin. The Hon’ble High Court took the view that a concentrated whisky or gin in its imported form is not consumable and that for being whisky or gin to come under the relevant entry it has to undergo further process thereby reducing its strength and when the products are thus bottled for entering the market, it is known as whisky or gin. In paragraph 17 the High Court further held as follows :-

“We have already held in the earlier paragraphs that the goods imported are not and cannot be treated as whisky, gin or brandy as is known in the trade. Accordingly, we held that the goods imported herein are classifiable under sub-heading 3 of Heading 22.09 for the purpose of writ petition 119 of 1988 and under Heading 2208.10 for the purpose of other three petitions.”

25. In Paragraph 380 of the order impugned the Commissioner has held as follows :-

“The stand taken by SML in their submissions that the imported spirit having alcoholic strength of over 60% v/v is not consumable as such and, therefore, is not classifiable as ‘whisky’ is incorrect. The item is classifiable under this heading irrespective of its alcoholic strength and irrespective of whether it is consumable in its imported condition.”

The above finding of the Commissioner is directly against the view taken by the Hon’ble High Court in the judgment referred above. The Commissioner cannot be permitted to disregard the above finding of a High Court on an identical issue and justify his stand that the High Court’s decision was based on “certain wrong premises placed before it.”

26. The Commissioner refers to justification note attached to the import application by SML and observes that the appellant has referred the product to be imported as ‘bulk scotch whisky’. On going through the letter dated 20-9-94 forwarding the application it is seen that the appellant has specifically referred to the product to be imported as scotch whisky concentrate/malts. The relevant portion reads as follows :-

“Government approval also permitted the company to import scotch whisky concentrate/malts for upgrading local production through blending as also the portion to be bottled and sold under the Seagrams Company International brand names”.

Therefore, the reference to import of bulk whisky in the first portion of the letter has to be understood in the light of the above quoted portion of the letter. Commissioner has failed to read the entire letter and has wrongly placed reliance only on the first sentence. In the light of the above discussion, we hold that the goods imported under the 10 Bills of Entry are to be classified under Heading 2208.10.

27. We, therefore, set aside the order impugned and remand the  matter to the  Commissioner  for  fresh  consideration in the light of  the findings and observations in this order. The Commissioner will afford an opportunity to the appellants to submit its reply on the proposal to invoke Rule 6. We make it clear that it will be open to the Commissioner to proceed under Rule 7 to 8 in case he comes to a conclusion after taking into consideration the reply submitted by the appellant that Rule 6 is not liable to be invoked. An opportunity of fresh hearing will also be afforded to the appellant.

28. The appeal is disposed of as above.

Equivalent 2003 (154) ELT 0610 (Tri. - Del.)