1998(11)LCX0016

IN THE CEGAT, SOUTH ZONAL BENCH, MADRAS

S/Shri S.L. Peeran, Member (J) and V.K. Ashtana, Member (T)

VARSHATRONICS PVT. LTD.

Versus

COMMISSIONER OF CUSTOMS, CHENNAI

Final Order Nos. 2491-2494/98 and Misc. Order Nos. 777-79/98, dated 27-11-1998 in Appeal Nos. C/COD/1096-1098 in Supplementary A. Nos. C/1191-1193/98 and A. No. C/2935/91-B/Md

Cases Quoted

U.O.I. v. Tarachand Gupta — 1971(01)LCX0007 Eq 1983 (013) ELT 1456 (S.C.) — Referred                                             [Para 13]

Sharp Business Machines Pvt Ltd. v. Collector — 1990(08)LCX0089 Eq 1990 (049) ELT 0640 (S.C.) — Referred [Paras 13, 14]

Vishal Electronics Pvt. Ltd. v. Collector — 1996(05)LCX0129 Eq 1998 (102) ELT 0188 (Tribunal) —Distinguished [Paras 13, 14]

Collector v. Maruti Udyog Ltd. and Sipani Automobiles v. Collector — 1997 (072) ECR 0948 (Tribunal) — Referred          [Paras 13, 16]

Hindustan Petroleum Corporation Ltd. v. Collector — 1986(02)LCX0042 Eq 1986 (024) ELT 0637 (Tribunal) —Referred [Para 14]

Advocated By : Shri S.D. Nankani, Advocate, for the Appellant.

Shri S. Sankara Vadivelu, DR, for the Respondent.

[Order per : S.L. Peeran, Member (J)]. - The supplementary appeals arise from the same order-in-original. The COD applications have been filed for condonation of the delay in filing the supplementary appeals as the appellants were required to file as many appeals as the BEs involved in the case. As per the practice of the Tribunal, the delay in filing the supplementary appeals is condoned, since the common appeal filed earlier was in time.

2. The facts of the case are that the appellants imported four consignments of components of washing machine. They claimed release of the components under OGL as actual user on the basis of SSI registration certificate and some of the components against REP licence which was endorsed for import of items in terms of para 177 according to which items listed at Appendix 3, Part A can be imported. They also claimed classification of the same components under Heading 8450.90 as components of washing machine. After 100% examination of the said four consignments, the Assistant Commissioner, SIB issued show cause notice to the appellants alleging that the items imported could constitute essential character of washing machine and can be assessed as such in terms of Rule 2(a) of rules of interpretation of the Customs Tariff Schedule. Invoking the same rule, it was stated that an article which is incomplete or semi-finished has the essential character of complete or finished article and it has to be assessed as complete article for the purpose of classification of the goods under Customs Tariff. It was also found that the goods were packed in single carton even though the components were found invoiced separately. In the packing condition, the goods were found arranged and fixed in such a way that it appeared as a washing machine. It was stated that as import of consumer goods in SKD condition is restricted under the import policy, the same could not be imported. On investigation and inspection of the appellants’ factory address given in the SSI certificate, it was noticed that the importer did not have any machinery for the purpose of manufacturing/assembling of washing machine. Except having a small room in the same premises no other activity as undertaken by the importer for the purpose of manufacturing washing machine. It was also found that washing drum and drying drum were assembled together and they were in the nature of assembly consisting of washing drum, impellers, plastic pulley, drying drum and housing. It was also noticed that drying drum and impeller parts were assembled to the washing machine. In the imported condition, the washing drum under import was not mere washing drum but it was a washing drum assembly consisting of drying drum, impeller and other parts. Besides, other parts like pressed metal covers, plastic base, front panel were also in the nature of SKD parts of washing machine. On enquiry it revealed that only very few components like electric motor, timers and rubber belts were required further, for the purpose of assembly of washing machine. The markings available on the packing cartons indicated the description of the goods “Twin Tub Washer” but the goods imported are washing machine without electrical motor and timbers. It was seen from the packing carton that those cartons were originally meant for supply of complete washing machine. It was also further found that the components under import were disassembled parts of washing machine and considering the nature of import, the importers had to necessarily import other parts which had not arrived in the subject consignments. On investigation it was found that no stock of indigenous components were found in the factory of the appellants and there was no document available in the factory for the procurement of indigenous components.

3. In view of above position, it was alleged that all the components for washing machine in SKD condition were imported except the electric motors, timbers, and rubber belts. Even without the above said small parts, the imported goods had got the essential character of a washing machine. Therefore, in terms of Rule 2(a) of General Rules for Interpretation of Customs Tariff Schedule, as discussed earlier, the department proceeded to classify the items under Heading 8450.19 of the CTA as washing machine with rate of duty 70% (Basic), plus 50% (Aux.) plus 20% (Addl.) plus 50% SED. It was alleged that a small screw driver was sufficient for assembly of those parts to make the washing machine. Import of such consumer goods viz. washing machine in SKD condition is restricted under the import policy AM 90-93 vide Appendix 2 Part B, Sl. No. 173. The import licence produced by the appellants was valid for the import of items falling under Appendix 3, Part A of AM 90-93 and the same licences were not valid for import of item under Appendix 2, Part B. It was alleged that the goods imported under description washing drum/drying drum were not individual parts as reflected in the invoice but they were assembled together with other parts like impeller, plastic pulley and housing. Therefore, the import under the description washing drum were not mere washing drum, and hence it fell outside scope of entry under Sl. No. 580 of Appendix 3 Part A of AM 1988-91 policy. It was stated that the import of consumer goods under SKD condition is restricted. The importer had attempted to clear the washing machines in SKD condition by declaring the same as components of washing machine. The importers were indirectly importing washing machine in SKD condition which were not directly allowed for import under import policy in force. In view of the above, it was stated that the importation was without a valid licence and were un-authorised and the goods are liable for confiscation under Section 111(d) of the Customs Act, 1962 read with Section 3(2) of Imports & Exports (Control) Act, 1947.

4. Regarding the value aspect the importers had declared the value for washing drum/drying drum as DHS 56 (c.i.f), (equivalent to Rs. 290/- set). It was seen that the value of impeller, plastic pulley and housing was indicated in the invoice. It was found during enquiry by the department that such components were being imported at higher prices in the port. The value recorded by the Customs in the imports of identical goods by M/s Vijay Appliances, Madras was as follows and the invoice was raised by M/s. Prabalaji Enterprises, Singapore :

 Considering the abovesaid recorded value, the value declared for the subject import was low and could not be accepted for the purpose of assessment. Taking into consideration the recorded value of identical components, and also considering the value for plastic pulley and housing parts, the value for the washing drum/drying drum assembly under import can be considered at Rs. 450/- per set as against the declared value of Rs. 270/- per set by the importers.

5. On the basis of the valuation as indicated above, the assessable value for the subject consignments worked out to Rs. 4,12,571/ (c.i.f. value Rs. 4,10,625) as against the declared value of Rs. 3,35,532/-. The Customs duty worked out to Rs. 6,85,689/- while assessing the goods as complete washing machine under Heading 8450.19. Therefore the differential duty worked out to Rs. 1,85,972/- on account of enhancement of value and assessment of goods as complete washing machine.

6. The importer attempted to clear the goods by misdeclaring them as components of washing machine and thereby they had attempted to avail the benefit of Customs duty under Heading 8450.90 as against the correct duty leviable under Heading 8450.19 of the CTA, as complete washing machine. Therefore, they were charged with misdeclaring the value of the goods as indicated above for washing drum, drying drum assembly and had attempted to evade payment of appropriate customs duty. Hence they were called upon to explain as to why the goods should not be confiscated under Section 111(d) and 111(m) of the Customs Act, 1962 and also penalty imposed under Section 112(a) of the Customs Act, 1962.

7. In their reply, the importers submitted that they were a small scale industrial unit and they were doing the manufacturing activity of assembling domestic washing machines. Para 58(1) of the Import Policy for AM 90-93 lays down that requirements of raw materials, components etc. can be met by importing such raw materials and components inter alia under Open licence (OGL). Similarly para 58(4) of import policy lays down that import of raw materials, components and consumables is also permissible under the import- Export Policy. The appellants stated that actual user can meet the requirement of the raw materials, components by availing different licensing provisions simultaneously.

8. The appellants denied the items being incomplete washing machine. They stated that washing drum/drying drum is a one piece moulded component and that the same is never manufactured and marketed as two separate drums. The appellants disputed the invoice of M/s. Vijay Appliances which indicated that washing drum and drying drum are two different/separate items. They stated that washing drum and drying drum is a one piece component which is indivisible and inseparable and satisfy the description at Sl. No. 580(b), Appendix 3, Part A of the Policy for AM 90-93 which reads as under :

Washing/Drying drum/tub

With regard to impeller, plastic pulley and housing are concerned, they stated that they were imported along with washing drum and drying drum. The fixing of pulley and impeller is done with the help of one screw each. They stated that even from the invoice of M/s. Vijay Appliances it would be noticed that the same indicates only plastic impeller separately and plastic pulley and housing are not mentioned separately. Value of plastic pulley and housing appeared to be included in the value of washing drum and drying drum. Value of plastic impeller is shown to be only Singapore Dollar one. Value of plastic pulley and housing appeared to be included in the value of washing drum and drying drum which have been artificially divided in the ratio of 80% and 20% in the said invoice of M/s. Vijay Appliances. The appellants also relied upon various judgments in support of their plea and contended that the subject items can be imported as parts and they are not in SKD/CKD condition. They also challenged the classification of the goods as complete washing machine by applying Rule 2(a) of the Rules for the Intepretation of Customs Tariff Schedule.

9. The Commissioner in the impugned order rejected the appellants’ pleas and confirmed the charges made against them in the show cause notice. He also imposed a redemption fine of Rs 50,000/- on BE No. 053132 dated 28-12-1990 and Rs. 25,000/- each on the other BEs. However, he did not impose any penalty.

10. He has held that while examining the value aspect it is noticed that the invoice produced for the consignments did not include certain parts viz. plastic pulley, impeller and housing but they are found assembled with the washing drum/drying drum assembly. When certain items are imported without being properly included in the invoice, the said invoice value cannot be considered as the correct value for the consignment and doubt can be entertained on the bona fides of the invoice. The department relied upon contemporaneous imports of such goods which cannot be simply discarded. The department had produced such evidence for value in respect of washing drum/dyring drum and impeller, which he considered sufficient for deciding the value. He has noted that the importers did not produce any other evidence contrary to the evidence produced by the department. The value as per the evidence is Rs. 370/- per set for the above said three items. In respect of plastic pulley, and housing parts, the value appraised by the Department is Rs. 80/- per set which in his opinion was reasonable. He noted that the importer did not produce any other evidence to show that such parts were being imported at a lower price. Therefore, he fixed the value at Rs. 450/- per set for washing drum/drum assembly consisting of impeller, pulley and housing under Rule 8 of Valuation Rules. He has noted that the value so fixed for washing drum/drying drum assembly under import is consistent with the principles and general provisions of Valuation Rules, 1988 Section 14(1) of the Customs Act, 1962. He refrained from imposing any penalty on the importer under Section 111(m) and Section 112 of the Customs Act, 1962 on account of the enhancement of value.

11. Regarding classification of the goods for levy of Customs duty, he held that washing machine in SKD condition had been imported except electric motors timers and rubber belts. He held that items in the imported condition, without other parts, the imported goods had attained the essential character of washing machine. Therefore, applying Rule 2(a) of the Rules of Interpretation of Tariff Schedule, held that the article which is incomplete or unfinished if it has the essential character of finished or complete article, it has to be treated as complete article for the purpose of classifying the goods under the Customs Tariff. He noted that the imported goods are in the nature of sub assemblies. He held that import of consumer goods in SKD condition is prohibited under the Import Policy vide Sl No. 173 of Appendix 2, Part B. The import of washing machines is hit by the above said entry viz Appendix 2, Part B and therefore, the import cannot be allowed against import licences which are valid only for items falling under Appendix 3, Part A. He noted that the goods imported under the description washing drum/drying drum are not individual parts as reflected in the invoice but they are assembled together with other parts like impeller, plastic pulley and housing. Therefore, the goods imported under the description washing drum are not mere washing drum and therefore, it fell outside the scope of entry at Sl. No. 580 of Appendix 3, Part A of AM 1988-91 Policy. He held that the goods fell under Appendix 2, Part B and therefore, the licences produced are not valid for importation and the importation has become unauthorised and are liable for confiscation under Section 111(d) of the Customs Act, 1962 read with Section 3(2) of the Import & Export Act, 1962 (sic). Taking into consideration the demurrage suffered by the importers, the Commissioner refrained from imposing any penalty on them.

12. We have heard Shri S.D. Nankani, learned Counsel for the appellants and Shri Sankaravadivelu, learned DR for the Revenue.

13. The learned Counsel contends that Rule 2(a) of the Rules for Interpretation of Customs Tariff is not applicable as the imported items have not acquired the essential feature of washing machine. In this regard he relied upon the judgment of the Hon’ble Supreme Court rendered in the case of U.O.I. v. Tarachand Gupta reported in 1971(01)LCX0007 Eq 1983 (013) ELT 1456. He also contends that the judgment of the Hon’ble Supreme Court rendered in the case of Sharp Machines as reported in 1990 (049) ELT 640 is distinguishable and the same has been said so in the case of Vishal Electronics reported in 1998 (102) ELT 188. He contends that the definition of components includes sub-assemblies and therefore the importer being actual user industrial he is entitled to import this item in terms of Sl. No. 1 at Appendix 6. He further contends that washing drum and drying drum are one piece components as it had been welded together and it is not comparable to the goods imported by Vijay Appliances. He contends that in the present case, the importation is from Dubai while the import in the case of Vijay Appliances was from Singapore. He contends that the items are not comparable as the goods did not arise from the same place. He submitted that since the two importations are from two different countries they are not comparable goods for the purpose of classification. He further submitted that Rule 2(a) of the General Rules for Interpretation of Customs Tariff cannot apply in the present case for interpreting the import policy. He relied upon the judgment in the case of CC Bombay v. Maruti Udyog Ltd. and Sipani Automobiles v. C.C.E., Bangalore reported in 1997 (072) ECR 948 = 1996 (016) RLT 646.

14. The learned DR submitted that the items were in SKD/CKD condition and the packing also clearly indicated that they were in the said condition. On inspection it was clearly seen that only one screw driver was required for fixing the goods and the items had attained the essential character of fully finished goods and hence Rule 2(a) of the General Rules for Interpretation of the Customs Tariff is applicable in the present case. He relied upon the judgment rendered in the case of Hindustan Petroleum Ltd. as reported in 1986(02)LCX0042 Eq 1986 (024) ELT 0637 (Tribunal) wherein Rule 2(a) of General Rules of Interpretation of Customs Tariff has been invoked. He also relied upon the explanatory notes at page 1423, Chapter 87 of HSN which gives the example that cars without engine to be treated as cars. He submitted that the judgment of the Hon’ble Supreme Court in the case of Sharp Machines reported in 1990 (049) ELT 640 would apply to the facts of the present case. He contends that the judgment in the case of Vishal Electronics Pvt. Ltd. v. C.C., reported in 1998 (102) ELT 108 is clearly distinguishable as in that case there was no restriction for import of sub- assemblies while in the present case there was clear restriction. He submitted in the case of Tarachand Gupta (supra), it dealt with the matter where licence had been granted while in the present case there was no licence and hence that case is fully distinguishable from the facts of the present case. He also submitted that the appellants were not SSI unit and they had only proposed to set up such unit for the purpose of import as actual user and one has to be a SSI certificate holder which is a pre-requisite condition. He submitted that the Commissioner has not imposed any penlaty on this ground. As regards valuation, he has dealt with this aspect that there is a clear misdeclaration and hence transaction value is ruled out and the department has adopted the valuation on the basis of the judgment and there was clear justification for enhancement of the value.

15. On consideration of the submissions made, the points that arises for consideration are (1) with regard to classification of the goods on the Customs Tariff for the purpose of assessment, (2) pertaining to valuation and (3) the aspect pertaining to violation of the provisions of Import and Export Policy and the validity of the import under OGL as claimed by the appellants. As can be seen from the facts of the case itself, the appellants have declared the goods as components of washing machine and claimed classification under Heading 8450.90 of the Customs Tariff, while the authorities have proceeded to classify the goods, as complete washing machine under Chapter Heading 8450.19 of the CTA as washing machine by applying the provisions of Rule 2(a) of the General Rules for Interpretation of Customs Tariff under SKD/CKD condition. On consideration of the grounds urged by the appellants we notice that there is no dispute about the item being in SKD/CKD condition and the packing on examination also clearly indicated that the goods attained the characteristics of a fully finished machine. Therefore, invocation of Rule 2(a) of the General Rules for Interpretation of the Customs Tariff for the purpose of classification of the items adopted by the department is totally justified. Rule 2(a) of the General Rules for Interpretation of Customs Tariff clearly states that “any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (for falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled”.

16. In the present case, the authorities have clearly found that the appellants did not have any factory and they were only proposing to set up a SSI unit. They also found that there were no documents available in their factory premises for procurement of indigenous components. The manner in which the items had been imported can be clearly considered as washing machine in SKD condition and it assumed the essential character of complete washing machines without timers. It is also found that washing drum/drying drum were not individual parts as reflected in the invoice but specifically assembled together without the other parts such as impeller, plastic pulley and housing. Therefore, the entire imported item had acquired clear essential character of washing machine which was presented in incomplete or unfinished manner. Therefore, in terms of Rule 2(a) of the General Rules for Interpretation of the Customs Tariff such incomplete or unfinished article is required to be considered as complete or finished article. The department resorting to Interpretation of Rule 2(a) in the present case is fully justified for the purpose of classifying the same as washing machine under Tariff Heading 8450.19 which is residuary heading over the other Heading 8450.90 which reads “Household or laundry-type washing machines, including machines which both wash and dry. There is no dispute that the appellants have classified the goods under Heading 84.50. It is only the sub-heading, which is disputed and the contention is that the items are merely parts. The items cannot be considered as `parts’ as it was noticed that the items were in SKD condition and that washing drum and drying drum were not individual parts as reflected in the invoice but they were assembled together with other parts like impeller, plastic pulley and housing. It was also noticed that the following parts had been imported :

The above parts were found in SKD condition and hence these parts cannot be considered as mere `parts’ but they have been taken as complete machine in view of the fact that items had acquired essential character of finished or complete article. Therefore, we uphold the order pertaining to classification of the goods. In this regard we also rely upon the judgment in the case of Sipani Automobiles v. C.C.E., reported in [1997 (072) ECR 948 = 1996 (016) RLT 646] wherein cars imported in SKD/CKD condition were made out to be cars on applicability of Rule 2(a) of the General Rules for Interpretation of Customs Tariff Schedule. The Tribunal had looked into all the relevant judgments cited before it viz. Tarachand Gupta & Bros. as well as Sharp Machines Pvt. Ltd. etc. referred to us before.

17. As regards the Vishal Electronics Pvt. Ltd. case (supra) referred to by the learned Counsel, we find that, this case does not pertain to classification of the goods under the Customs Act, 1962 and the application of Rule 2(a) of Rules of Interpretation, and therefore this case is clearly distinguishable. Further more, in the Vishal Electronics case, the matter has been analysed in a different context with regard to interpretation of various Appendices under Import Export Policy AM 1985-88 which is not relevant for the purpose of classification of the goods under Customs Tariff.

18. The next question that arises for consideration pertains to valuation of the goods adopted by the department. It is seen that the department has proceeded to adopt the valuation in terms of invoice No. 90168 dated 7-12-1990 raised by M/s. Prabhalaji Enterprises, Singapore and imported by M/s. Vijay Enterprises and held that the goods in that case and in the present case are identical and hence the same valuation is required to be adopted. This contention was seriously contested before us. Firstly the goods are not identical as the import in that case was from Singapore while in the present case the import is from Dubai. Therefore, the origin of the goods are not from the same country. It is well laid down principle in a number of judgments that in such cases, the goods cannot be considered as comparable goods when the imports are from different countries. We would have proceeded to decide the matter in this case. However, we notice that the appellants have not produced the BEs pertaining to the present case nor the invoice pertaining to the case of Vijay Applances. In the absence of the material documents for consideration of the issue, we are constrained to remand the matter to the original authority to reconsider this plea as prima facie the country of origin in the present case and the one relied upon by the Department appears to be totally different. It is well settled that only comparable goods arising from same country are required to be taken into consideration. Secondly, it is also seen that the value of plastic pulley and housing parts etc., were not declared in the Bill of Entry. On this count also, the matter needs to be remanded for reconsideration.

19. As regards the aspect pertaining to violation of import export policy, we notice that the Commissioner has not imposed any penalty on the appellants in view of the appellants having suffered demurrage. The aspect pertaining to violation or import and export policy is sustainable, once it is already held above as washing machine in SKD/CKD condition, because these are consumer goods; import of which require licence, which has not been produced. Hence Collector has correctly confiscated the goods and imposed redemption fine.

20. Since we have set aside the aspect pertaining to valuation and remanded the matter for reconsideration on the ground of misdeclaration of the goods and for not including the value of plastic pulley and housing parts, therefore, it is but proper that the aspect pertaining to levy of redemption fine is required to be re-examined along with aspect pertaining to valuation. The appeal is therefore, allowed by remand in the above terms.

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Equivalent 1999 (106) ELT 89 (Tribunal)