Dredging Corpn. of India Ltd. vs Commissioner of Customs, Vizag>2000(06)LCX0053

2000(06)LCX0053

IN THE CEGAT, SOUTH ZONAL BENCH, CHENNAI

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

DREDGING CORPN. OF INDIA LTD.

Versus

COMMISSIONER OF CUSTOMS, VIZAG

Final Order Nos. 850 & 851/2000, dated 30-6-2000 in Appeal Nos. C/542 & 543/97

CASE CITED

Boskalis Dredging India Pvt. Ltd. v. Commissioner — Order No. A-1436/Cal/97, dated 22-7-1997 — Relied on [Para 14,. 20]

Advocated By : S/Shri Habibulla Badsha, Sr. Advocate and R. Sudhakar, Advocate, for the Appellant.

Shri S. Kannan, DR, for the Respondent.

[Order per : S.L. Peeran, Member (J)]. - These appeals arise form Order-in-Original No. 3/97 dated 21-5-1997 confirming duty demand of Rs. 5,44,65,058/- under the provisions of Section 112(a) of the Customs Act, 1962. The appellants is a public sector undertaking who had entered into a contract on 24-10-1988 with M/s. I.H.C. Holland, for supply of one number Trailing Suction Hopper Dredger (TSHD) for 4,500 Cu.M. Hopper capacity. The contract price was a sum of 47,460,000 Dutch Guilders, DGL. The various conditions contained in the contract were incorporated after due negotiation between Holland, Ministry of Surface Transport, Govt. of India, Ministry of Finance, Govt. of India in consultation with the Govt. of Netherlands who had offered concessional loan for some equipments and grant for others. The cost of the design, construction, supply and delivery of the dredger were supposed to have been discussed by the various authorities of the Govt. of India and only thereafter this contract was executed. As a result, appellants made arrangements for procuring the dredger by obtaining necessary licence to cover the value of the goods. The same was granted vide Licence dated 1-8-1990 for a sum of Rs. 86,63,94,350/- (96,906,208 DGL). They filed a Bill of Entry No. 170 dated 23-4-1991 before the Customs Department, Visakhapatnam for clearance of one number TSHD Trailing Suction Hopper Dredger (TSHD) No. XIV along with the relevant documents including the two invoice, contract etc. The declaration made in the Bill of Entry was “One TSHD XIV of 4,500 Cu.M. Hopper capacity (a self propelled) together with the required accessories, spare parts and the repair implements”. They claimed classification under 8905.10 CTA 1985 and claimed the benefit of Notification No. 180/90 dated 31-5-1990. The goods were inspected by the Customs Department including the contract, the invoice and all the materials available on board. The value was arrived at by the Department and the Licence was accordingly debited. Thereafter, the Customs made an appropriate endorsement on the reverse of the Bill of Entry with regard to the clearance of the goods. The Department charged duty on certain consumables which was deposited.

2. On 21-8-1995 the officers of the Regional Unit of the DRI, Hyderabad visited the office premises of the appellants and verified the accounts documents, etc. The DRI department was of the view that the appellants had evaded payment of Customs duty on spares and accessories by misdeclaration and suppression of facts. They examined several documents including contracts and recorded the statements of following persons :

(i) G.G. Rao, General Manager (Technical)

(ii) R. Venkateswara Rao, Manager (Materials)

(iii) C.S. Sastri, Chairman-Cum-Mng. Director

(iv) T. Devaraman, Sr. Marine Engineer

After a detailed analyses of the documents and statements, show cause notice was issued to the appellants on the following facts as revealed from the investigation :-

“M/s. DCI have placed an order for supply of two dredgers with M/s. IHC Holland and have entered into contract with them. As per the terms of the contract there is basic building price of the dredger which is 41,460,000 DGL, in addition to the basic building price of M/s. DCI have also entered into a contract for supply of essential component systems like self emptying system stationary dredging system, shore discharge connection and floating shore lines amounting to 2,440,000 DGL. Position Finding Equipment amounting to 340,000 DGL items mentioned and prices in the specification addendum for an amount of 750,020 DGL loose parts including 22% handling margin amounting to 2,366,980 DGL at actuals aggregating to 280,000 DGL. The aggregate of these additional items/spares works out to 6,000,000 DGL. The total contract price including building price plus additional cost thus works out to 47,460,000 DGL per each dredger. According to these additional items, the position finding equipment and loose parts as per schedule along are not eligible for assessment under CN 133/87-Cus. dated 19-3-1987 by applying the provisions of Accessories (Conditions) Rules, 1963 as both these items are found to be optional in nature and have been charged separately by the supplier. The position finding system is an optional accessory which is not an integral component of dredger and is essential only for the purpose of knowing the position of the vessel during operation. Therefore, ‘position finding system’ cannot be equated with an integral component and is to be termed as optional accessory. Similarly, in respect of ‘fenders’ which are supplied along with dredger XIV on a request made by M/s. DCI it is observed that fender is only a protective accessory to absorb the shock of impact with Jetty by dredger or in the case of double banking with another vessel. The fenders have been charged separately for an amount of 32,000 DGL and therefore they can be considered as protective accessory. Therefore, the fenders also do not attract the benefits of Accessories (Conditions) Rules, 1963. Further, in respect of loose parts as per schedule they are found to be spare parts which are essential and required for maintenance of dredger. However, even though these spare parts are essential in nature, still they are found to be supplied based on a request made by M/s. DCI and are not compulsorily supplied by M/s. IHC. Therefore, these spares appear to be optional in nature. As could be seen from the cost schedule of the contract and also the other relevant documents, the cost of these loose parts is over and above the building price of the dredger. At the outset i.e. before filing the documents with the customs M/s. DCI have obtained the advice of the consultant who has advised them to obtain a tailor made invoice to suit their requirement of getting the benefits of Accessories (Conditions) Rules, 1963. M/s. DCI have scrupulously followed the advice of the consultant and also have instructed the supplying company not to keep on board the spare parts list with price list as it could be seen by the customs at the time of inspection of the dredger. In the beginning itself, the consultant had advised M/s. DCI to erase the words ‘initial’ and ‘price’ appearing on the spare parts list and therefore, the spare parts list produced by M/s. DCI before Customs is without ‘price’ and ‘initial’.

3. On the basis of the above facts the conclusion drawn was that out of the total contract price of 47,460,000 DGL in respect of dredger, the following items do not appear to be integral parts of the dredger and appears to have been charged separately over and above the negotiated building price of the dredger 43,900,000 DGL. Therefore, these items do not appear to qualify for assessment under Accessories (Conditions) Rules, 1963 as per the rate applicable to the dredger which is NIL rate of duty. The items are as under :-

(a) The position finding equipment valued at 340,000 DGL which is required for showing the position of a dredger. It may be mentioned that in respect of dredger imported earlier, DCI has had this position finding equipment from Calcutta Port Trust on hire basis and utilised them as seen form DCI note dated 19-2-1990. This indicates that position finding equipment is not an essential and integral part of the dredger.

(b) Loose parts (described as initial in the list of spare parts) valued at 2,366,980 DGL.

(c) Fenders valued at 32,554 DGL which is a protective accessory to absorb the impact of shock of dredger with a jetty as seen from Inter-office memos, DCI dated 10-5-1990 and 31-5-1991 and price details of fender.

4. On the basis of the above facts, it was alleged that the appellants had wilfully suppressed the information regarding the collection of separate charges in respect of above 3 items (a), (b) & (c) over and above the basic building price and also by wilfully procuring a tailor-made invoice which is not in conformity with the cost schedule of the contract and also by wilfully misdeclaring in the Bill of Entry that the price shown is inclusive of the cost of spares and accessories and no separate charge is made in respect of spares and accessories. Accordingly, the duty on the above items were worked out to Rs. 5,44,65,058/- as per the work sheet enclosed to the show cause notice on the ground of misstatement and suppression of facts by the appellants.

5. The appellants vide their reply, dated 26-8-1996 submitted as follows :-

(a) They submitted that since the goods were released by the Customs authorities after examining the contract, other related documents and goods, the customs department is aware of the goods imported by M/s. DCI and hence M/s. DCI have not removed anything clandestinely without the knowledge of the Customs authorities.

(b) They submitted that there is no suppression of facts for invoking the proviso to Section 28 of the Customs Act, 1962.

(c) They also submitted that once the goods are cleared under Section 47 of the Customs Act, 1962, the only recourse available is to invoke Section 129D of the Customs Act, 1962 and not to proceed under Section 28 of the Customs Act, 1962 and on this ground alone the show cause notice is not maintainable and cannot be sustained.

(d) They further submitted that the position finding equipment is a very important piece of equipment for the dredge and a very essential part of the dredger and the loose parts which have been supplied are for the use of the dredger and not for any other purpose. Similarly, the fenders are required for the safety of the dredger.

(e) They submitted that neither the statement of Sri G.G. Rao, General Manager (Tech.) nor the letter of the Consultant nor the invoice, etc. have any bearing on the question as to whether the parts are part of the dredger or not.

(f) They also submitted that no erasure of the words ‘price’ and ‘initial’ in the spare parts list was made as admitted in Sri Venkateswar Rao’s statement.

(g) They contended that in the present case, the cost was split up in order to avail of the grant made by the Dutch Government and not for any other reason, and this was sent out in Sri C.S. Sastry’s statement.

(h) They submitted that the entire transaction was done openly and with the knowledge of Ministry of Finance, Government of India and there was no intention to evade payment of customs duty and Sri T. Devaraman confusedly said that the words ‘initial’ and ‘price’ were deleted from the spare parts list and they reserve the right to cross-examine Sri T.Devaraman.

(i) They also submitted that the cost of the loose parts was included in the cost of the dredger as per the contract dated 24-10-1988.

(j) They contended that it is not known as to how it is concluded that position finding system is not an integral part of the dredger.

(k) They further submitted that since the negotiations with the supplier and consultation with the Ministry of Finance, Government of India and signing of the contract dated 21-10-1988 were done along before the advice of the consultant was sought for there was no modification of the terms of the consultant whose opinion does not change the position of law. As regards the change that the spare parts with the price list was not kept on board at the time of inspection of the dredger by the customs authorities does not in any way prove the case of the Department.

(l) They denied that M/s. DCI have procured a tailor made invoice which is not in continuity with the cost schedule of the contract.

(m) They contended that no basis for invoking the provisions of Section 111(o) or 111(m) have been shown.

(n) They submitted that no provisions of Sec. 111(o) are totally inapplicable to this case.

(o) They submitted that there is no mens-rea established for invoking Section 112(a) in this case for confiscation or levy of penalty.

(q) Finally they submitted that the question of levy of duty does not arise as far as the goods are on board the dredger and have not crossed the frontier and when the dredger is exempted from payment of duty, the spare parts on board the vessel are also exempted from duty. They finally requested to grant permission for cross examining 1) Shri T. Devaraman, Chief Engineer, V.P.T.; 2) R. Venkateswar Rao, Manager (Materials), DCI, and requested to accord an opportunity to be heard in person before finally deciding the case.

6. The appellants availed of the opportunity of personal hearing and also to cross-examine initial witnesses whose statements have been recorded by the Department. The Commissioner, after a detailed analyses of the case, upheld the charge on the following grounds :-

(a) On analyses of the contract, it could be inferred that the appellants had agreed to acquire two numbers of Trailing Suction Hopper Dredger (TSHD) from IHC Netherlands. As could be seen from the cost schedule available along with the contract, the building price of each dredger works out to 41,460,000 DGL for one vessel. In terms of the contract, the dredger which was numbered as dredger XIV by DCI has been built by M/s. IHC and delivered to M/s. DCI (appellant). For clearing the dredger M/s. DCI consulted their consultant.

(b) On examining the letter No. 138/90, dated 28-8-1990 and letter No. 151/90, dated 7-9-1990 addressed to DCI by the Consultant, he among others, advised M/s. DCI that the import licence is issued for the import of capital goods together with spare parts/accessories and the Customs will therefore treat it as “goods” under Section 2 (22) of Customs Act, 1962 and accordingly the provision of Accessories (Conditions) Rules, 1963 are applicable; that all the accessories and spare parts and maintenance or repairing implements become duty free along with the dredger; since the latter is duty free provided that invoice complies with the aforesaid rules. In this letter, dated 7-9-1990 the Consultant further advised that the words ‘initial’ and ‘price’ added in ink on the front cover of the spares list should be erased immediately since these words would suggest that the spares are separately charged thwarting their efforts to rope them under Accessories (Conditions) Rules, 1963.

(c) T. Devaraman therefore issued a telex to M/s. ICH, Holland informing them to send the invoice in the proforma given stating that it is required for making advance arrangements for clearance of dredger XIV on her arrival in India. The said telex dated 8-3-1991 was issued to Shri U. Chakravarthy, representative of M/s. DCI at Netherlands wherein it was specifically mentioned, among other things, to furnish invoice as per the Proforma given by M/s. DCI and also not to keep spare part list indicating individual prices on board. Accordingly M/s. IHC had sent an Invoice showing the total price of dredger at 47,180,000 DGL inclusive of accessories, spare parts and maintenance/repair implements and no separate charge is made for supply of above items which were furnished at the time of clearance of goods. This Invoice was furnished to the Customs authorities by suppressing the fact that separate charges were paid for the supply of spare parts, accessories, parts, etc. at the time of clearance of the goods. In addition to the loose parts valued 2,366,980 DGL the appellants had also imported fenders valued 32,554 DGL which is a protective accessory to absorb the impact of shock of dredger with Jetty (Office Memos, DCI dated 10-5-1990 and 31-5-1991) on payment along with the dredger XIV. These were cleared without payment of duty claiming benefit of Accessories (Conditions) Rules, 1963. The spares list indicated valued 2,366,980 DGL and the contract indicated that the position finding equipment was charged to 340,000 DGL separately free of duty under CN. 133/87 dated 19-3-1987 and CN. 180/90 dated 31-5-1990 applying the provisions of Accessories (Conditions) Rules, 1963.

(d) The Commissioner has noted from the statement of T. Devaraman that he had admitted that he was associated with the import of dredger XII & XIV and had sent the telex to IHC, Holland to send an Invoice in the manner suggested by the Consultant. In his statement he had admitted that the words “initial” and “price” were deleted from the spares list as advised by the Consultant to ensure that the spares were assessed under Accessories (Conditions) Rules, 1963 and to avoid payment of customs duty. The Commissioner has noted from the statement of Shri G.G. Rao that he had admitted that position finding equipment is not an integral part of the system but essential for accurate dredging and guidance of Master while sailing. He had also stated that there are two types of spare parts (i) for which no payment is made and the price of which is included in the price of the dredger & (ii) the other spares in respect of which the price is separately charged by the supplier. He had further elaborated that the price of class and standard tools and spares are included in the building cost of the dredger and the spares listed under the columns ‘initial’ are paid as per the rates indicated. He had stated that the telex dated 25-2-1991, from T. Devaraman, Deputy General Manager (Technical) was sent the owner’s representative at Holland to obtain invoice in the proforma indicated by the appellants. He had also admitted that telex, dated 8-3-1991 was sent by Sri T. Devaraman to owner’s representative in Holland not to keep on board the list of spares with prices, but to send it separately to M/s. DCI by courier.

(e) The Commissioner has noted the statement given by Sri Venkateswara Rao, Manager (Materials) from which it is evident that he is associated with the import of the vessel and was aware that M/s. DCI had been advised by the Customs Consultant that customs duty can be avoided provided that the spares value is included in the cost of the invoice hiding the fact of separate payment for the spares, loose parts, position finding equipment and fenders by way of a fabricated invoice wherein the cost of the spares and optional equipment like position finding equipment etc. are also included in the value of the dredger. The Commissioner has noted that it is also explicit from the Inter-Office Memos, DCI dated 10-5-1990 and 31-5-1991 that fenders valued at 32,554 DGL which is a protective accessory to absorb the impact of shock of the dredger had been charged separately and cleared in terms of Accessories (Conditions) Rules, 1963.

(f) The Commissioner has further found that the Office Note No. TD/SB/035, dated 3-2-1989 indicated that M/s. IHC Netherlands had initially recommended spares worth Rs. 5,824,280 DGL for the first dreder - XII and 4,898,300 DGL for in respect of second Dredger XIV. However, the amount provided for in the grant-in-aid for spare parts come to 2,366,980 DGL for each dredger. The appellants had pruned down the requirement to be in line with the grant-in-aid available as per the contract to the extent of 2,566.980 DGL for each dredger. Therefore, from this circumstantial evidence he has concluded that DCI in connivance with the supplier had suppressed the information relating to payment of separate charges in respect of position finding equipment valued at 340,000 DGL which is not an integral part of the dredger being an accessory, loose parts valued at 2,366,980 DGL and fenders valued at 32,554 DGL as per the advice offered by the Consultant by producing fabricated documents at the time of clearance of the goods with an intention to evade huge amount of customs duty. Therefore, the Commissioner held that charge of suppression which established without an iota of doubt and hence proviso to Section 28 had been correctly invoked.

(g) He rejected the plea that demands cannot be initiated under Section 28 and that only recourse should have been resorted to provisions of Section 129(d) of the Act as there was suppression of facts.

(h) He rejected the appellants’ plea that loose parts and position finding equipment are integral parts of the dredger and that they were covered by the Notification and Accessories (Conditions) Rules, 1963 for the reason that they were charged separately as was evident from the documents on record and hence they were liable to duty on import. He further rejected the plea that the appellants were under the impression that these spares are not chargeable to duty as they arrived with the vessel is not acceptable to him because in the Consultant’s letter, the appellants were already aware that these spares were not covered by the accessories conditions and they were liable to pay duty on merits as they had separately paid for the same.

7. The Commissioner has rejected the plea that the statements of Devaraman and Venkateswar Rao had been taken under threat and therefore their resilement given in cross-examination is not acceptable for the reason that they resiled after a period of one year after recording the statement. He also rejected the plea that the annexure to the show cause notice did not reflect the correct duty leviable in respect of individual items and in many cases there are exemptions given in respect of individual goods. He has held that this is a far too generalised claim. He held that they had neither indicated specific items to have eligible for exemption nor they had furnished any technical details of the goods to substantiate their eligibility for exemption of duty in their arguments.

8. The Commissioner has rejected their plea that Section 111(m) and 111(d) does not apply in their case for the reason that they had misdeclared the value of the goods by suppressing the fact that separate charges were paid to the loose parts/position finding equipment and fenders and hence attracted provisions under Section 111(m) and 111(d) of the Customs Act, 1962. He held that for having contravened the Accessories (Conditions) Rules, 1963 they attracted provisions under Section 111(o) of the Customs Act, 1962. He examined all the judgments cited and distinguished the same as not having any applicability to the facts of the case and therefore held in conclusion that appellants had suppressed the fact of payment separate charges for position finding equipment, loose parts and fenders and had evaded Customs Duty amounting to Rs. 5,44,65,058/-. However, after thorough examination with regard to penalty, he did not impose the same for detailed reasons given therein.

9. We have heard Sr. Advocate Shri Habibulla Basha assisted by R. Sudhakar, Advoate for appellants and Shri V.T. Gopalan, Addl. Solicitor General of India and Shri S. Kannan, ld. DR.

10. Ld. Senior Counsel, while strenuously arguing for appellant, took us through the entire records of the case and submitted that the entire case and charge is built on the basis of the statement and letter sent by the Consultant of the appellant company Sri Appa Rao, who had suggested the term ‘initial’ and ‘price’ be erased from the invoice. He contends that this charge is not maintainable as this advice was not acted upon. The Consultant had also not advised to make any separate payments for spares and that there was no suppression of price arising out of the said advice. The appellant company also did not claim the benefit of Accessories (Condition) Rules as charged. He submitted that the further charge was that position finding equipment was part of the dredger. He contends that it is an essential part and equipment of dredger and without it the main function of dredger cannot be performed. Moreover its classification has been adopted with the same heading for which dredger has been classified; which has not been changed by the Department, therefore, the Revenue has not proved its charge of undervaluation, by showing that some extra payment was made to the Netherland Government. He contended that the contract was arrived at with negotiation between the two Governments and the contracted price is fixed. The contract clearly stipulated all the terms including the price of the dredger. The split-up in the price was as a result of the loan to be advanced by the Dutch Government and another portion of the amount was to be advanced by grant to be given by that Government. There was nothing mala fide in this arrangement and this arrangement was not done with an ulterior motive to undervalue or to suppress facts with an intention to evade duty or to wrongly avail of the benefit of the notification in question. Ld. Senior Counsel further argued that there was no suggestion or allegation of connivance with the foreign Government to undervalue the invoice price with an intention to evade duty. He contends that the entire contract, price list, inventory had been scrutinized by the Department, well in advance and all the facts pertaining to the transaction had been made known to the Department, hence these allegations of suppression does not stand to reason and hence the demands are not enforceable as being barred by time.

11. Ld. Sr. Advocate contended that the charge that the invoice as tailor-made to evade duty is totally fallacious for the reason that the price was arrived at after negotiation by Government of Netherlands & Government of India by Ministry of Surface Transport and the transaction was quite transparent and clear.

12. Ld. Sr. Counsel further contended that the position finding equipment is an essential equipment of dredger and it has been classified under sub-heading 8905.10 of the Customs Tariff and as its classification has not been changed, therefore, the benefit of the notification in question cannot be denied. He further submitted the spares, for which, benefit of notification is being denied, is also classifiable under the same sub-heading 8905.10 and hence, Revenue has not made out a case for demanding short levy in the matter. He submitted that the Customs had inspected all the item including all the documents and annexures before approving the classification under sub-heading 8505.10 and they have not given any appropriate reason for short levy and no levy can be raised in the absence of revision of the approved classification. He contends that although there was separate shipment of spares but they are entitled to the benefit of the notification. It was not supplied free and its price had been built in the contract. He pointed out to the relevant Bills of Entry to demonstrate that no benefit of Accessories Rules were availed. He pointed out that Commissioner had wrongly raised the issues and findings were beyond the charges as made out by the SCN. He submitted that as no separate charges were paid other than the contracted price, hence there was no undervaluation. He contended that although separate invoice was raised for spares, it was only to facilitate the release of grant of Dutch Government and no separate payment was made in terms of the separate invoice as the contract price was fixed one. Therefore, the finding arrived at by the commissioner that invoice was fabricated is not sustainable; as such collusion between two Governments cannot be so easily alleged. He pointed out that the initial statement of G.G. Rao, General Manager was out of contract and without checking the facts of transaction and his statements cannot have precedence over documentary evidence. The documentary evidence clearly shows that no benefit of Accessories Rules was availed.

13. Sri V.T. Gopalan, Additional Solicitor General appearing for the Revenue contended that the appellants had suppressed the transaction details, in as much as that appellants had clearly suggested to the Dutch supplier to prepare the documents in a particular way, as such, documents were specifically required for Custom’s clearance purpose. Therefore, he argued that when documents are tailor-made to suit the appellants design to evade customs duty then the conclusion one would get is that there was suppression of facts. He contended that (a) position finding equipment (b) extra spares & (c) fenders were not part of dredgers and hence, its value cannot be added in the value of dredgers. They were required to have been separately declared and duty paid thereon, as the same being not classifiable along with dredgers for the purpose of grant of benefit of the exemption notification. He contends that dredger is capable of movement even without spares and hence duty is chargeable on them, notwithstanding the fact that all the three items may be essential for the dredger’s efficacious running. He contended that tax arrangement and tax planning does not mean that the party can manipulate documents in such a way that duty is evaded. Therefore, the statements recorded under Section 108 of the Customs Act cannot be brushed aside, as not having any precedence over documentary evidence. The documents would lost its evidentiary value as it is fabricated one. The appellants had acted at the behest of their Consultant Shri Appa Rao and the documents i.e. the invoice is a prepared one for Customs evasion purpose. Hence, there is clear suppression for attracting larger period and for confirming the demands in the matter. Referring to the Accessories (Condition) Rules, learned Addl. Solicitor General contended that it applies only to compulsory spares supplied along with the dredger and where no separate charge is collected. In the present case, the impugned items do not come within the ambit of Accessories (Condition) Rules and separate accessories are chargeable to duty. Learned Addl. Solicitor General further took us though the records and the show cause notice and the annexures therein and pointed out that each item had been classified on merits. It is clear from the said classification adopted that they were not under the same heading as in the Notification. The valuation had been arrived at on the basis of separate heading of classification of each item as they were not integral part of the dredger and therefore, it cannot be argued by the appellants that the Revenue had not adopted separate classification or re-classification in the show-cause notice. The appellants had been put to clear notice on the re-classification i.e. required to be adopted in respect of the three impugned items for the purpose of levy of short duty and therefore, he contended that the charge of suppression has been clearly brought out in terms of the documents and statements made out and also the plea that the three items cannot be classified along with the dredger and hence the appellants were required to discharge the duty thereon. He submits that the order impugned passed by the Commissioner is totally a speaking order on all aspects of the matter and the plea raised by them that the order impugned is not a speaking order and the issues raised by them were not in terms of the show-cause notice are not correct. He points out that Sri G.G. Rao had clearly admitted that the position finding equipment is not an integral part of the dredger. However, he added that they are essential for the purpose of use of dredger. Learned Addl. Solicitor General submitted that for the purpose of considering the position finding equipment to be classified along with the dredger, then it has to be an integral part and not just an essential part, therefore, the statement of Sri G.G. Rao admitting that it is not an integral part clearly establishes that position finding equipment has to be separately classified. He points out that there is a clear mis-declaration on this count. He further points out that Sri Appa Rao, Consultant also advised that Notification No. 133/87 is available only to dredger and not to spares and had asked them to claim the benefit of Accessories (Condition) Rules. Sri R. Venkateswar Rao had also admitted about erasing the words “initial” and “price” form the spare part list. This clearly discloses wilful intention to evade duty. Party had conceded that the item is not spare parts and more spare parts could be supplied free. Sri T. Devaraman had also admitted about having prepared invoices with a view to obtain the benefit of Accessories (Condition) Rules. Therefore, these statements clearly establish the motive of evading tax and such modus operandi cannot be considered as tax planning. He points out that some of these go with dredger while some do not go along with the dredger and the appellants had erased certain words to bring all the parts within the ambit of the Accessories (Conditions) Rules. There is enough material to show that they are separate parts which are for maintenance purpose and they are not given free. It was planned by the appellants to import the items in such a manner as to claim the benefit of the Notification, which is not available and the items are dutiable. He points out that invoice dated 7-9-1990 was prepared by the supplier in terms of the advice given by the Consultant and the telex issued accordingly by the appellants to the supplier. The raiding officers would know about the suppression only after the documents were seized and the statements recorded. He points out that the cause schedule worked out also clearly indicates that it did not include the value of the position finding equipment and the dredger had been valued at 41,460,000 DGL and the excluded items were valued at 6,000,000 DGL. He points out that the contract cannot be considered as final for the purpose of valuation neither it can be considered as technical literature nor to decide the details of spares. He submitted that the spares value had been included in the value of main equipment i.e. dredger only for the purpose of evasion of duty. The appellants ought to have shown separate invoice for spares and clearing the same on payment of duty. The appellants getting single invoice was at their own instance which is patent on record. It is contended that there should have been two Bill of Entry filed in the matter one for the main dredger and one for the other three impugned items. The appellants have filed a combined Bill of Entry which clearly indicated mis-declaration in terms of the seized documents. They have cleared spares, fenders and position finding equipment as part and parcel of main dredger knowing fully well that the same is not eligible for the benefit of Notification. Therefore, the re-opening of assessment by alleging suppression is fully justified. He submitted that the appellants had not resiled or retracted from the statement, hence the statements were justifiably relied upon by the Commissioner to arrive at the conclusion that there was suppression.

14. Learned Senior Advocate countering the arguments, contended that the charge made out in the show-cause notice was under-valuation and wrongfully utilizing the Accessories (Conditions) Rules. He submits that the appellants have not undervalued the goods as the price of the entire items was arrived at by the appellants, who is a PSU, through the Ministry of Surface Transport with the Government of Netherlands. The price was clearly stipulated in the contract and therefore, the grounds raised that there was suppression of under-valuation is not proved. He submits that all the three items are part and parcel of the main equipment and they are entitled for the benefit of Notification. He submits that each and every charge has been scrutinised in terms of the contract and the technical literature produced by the appellants, therefore, the statement loses its value and documentary evidence continues to remain on record as valid evidence. There was nothing in the statements of S/Shri Appa Rao, G.G. Rao, and R. Venkateswar Rao, which were inclupatory in nature. Had the appellants utilized the Accessories Rules for clearing the spares, then there would have been charge made out against the appellants. The advice was not acted upon. The invoice was prepared only for the purpose of seeking grant of spares to an extent of 6,000,000 DGL. He further pointed out that even G.G. Rao clearly indicated that position finding equipment is essential for the dredger in terms of the Interpretative Rule, Section Note and Chapter Note, the position finding equipment is required to be classified only along with the dredger and so also the essential components, parts and spare parts. He pointed out that the show-cause notice has restricted only with regard to payment of separate charges for position finding equipment, loose parts/spare parts. He submitted that there was no connivance or intention to evade duty as two Governments were involved in the matter and there was nothing required to be done for the purpose of evasion of duty in the matter. He submitted that there was no need to file two Bills of Entry as contended and as the contract was single one, which had met approval of the Ministry of Finance and the licence had been issued by the authorities for total price, the contract had envisaged supply of parts and dredger and therefore, they were to be treated as parts of dredger. He submitted that the Notification was clearly applicable to position finding equipment as it is part and parcel of dredger and dredger cannot work without this item. So also with regard to the other spares which had been classified along with the dredger as they are falling under the same heading. He submitted that there is no separate heading for such parts and they are rightly classifiable along with the dredger and there is no claim for re-classification made by the Revenue. He pointed out that on reversal of the Bill of Entry to show that there was thorough inspection done on all the items and the authorities had satisfied themselves in applying the mind both on packing list and the items imported in terms of the contract and the technical literature. He submitted that once the goods are exempted and passed out of customs charge, then there cannot be a charge of suppression or under-valuation. He submitted that the statements have no meaning at all as they were given under coercion and even otherwise it does not lead to any influence of under-valuation and payment made out of the contracted sums. He pointed out that the Commissioner's order was beyond the charges brought out in the show-cause notice. Therefore, he submits that there was no ground made out for suppression of facts or for mis-declaration or for imposition of penalty in the matter. Both sides have also filed written submissions and relied on the citations. The learned Counsel relied on the rulings of East Regional Bench in order No. A-1436/Cal/97 dated 22-7-1997 rendered in the case of Boskalis Dredging India Pvt. Ltd. v. CCE, wherein various parts including spare parts and consumable spares were held to be parts of dredger and they were entitled to the benefit of Notification No. 133/87 and 106/92. He submits that this decision would completely apply to the facts of the case and this has since been confirmed by the Hon’ble Supreme Court in Civil Appeal No. 4061/96 dated 19-2-1999. On the basis of this judgement alone, the appeal is required to be allowed.

15. We have carefully considered the rival submissions and gone through the charges made out in the show-cause notice, findings, documents relied in the case, written submissions, grounds of appeal and facts of the case. As it can be seen from the entire records of the case, the appellant is a Public Sector Undertaking, who had entered into a contract on 24-10-1988 with M/s. I.H.C., Holland for supply of one number Trailing Suction Hopper Dredger (TSHD) for 4500 Cu.M. Hopper capacity. The terms of the contract reveal that the price for the entire equipment including the impugned items which are in this appeal totalling to 47,460,000 Dutch Guilders, DGL. The contract was executed only after the negotiation was entered into by the Ministry of Surface Transport and Ministry of Finance in consultation with the Government of Netherlands, who had offered concessional loan for some equipment and grant for others. The cost of design, construction, supply and delivery of the dredger was discussed in detail by various authorities of the Government of India and only thereafter the contract was signed. On a perusal of the contract these facts are clear and there is no ambiguity in terms of the contract, the price entered into, the value and mode of payment which is required to be made in the matter. The details of contract entered in the matter has been placed before us for perusal and on a perusal thereof, we confirm that there is no alteration or changes brought into, the contract after the import and the same was entered into after due negotiation and the price was negotiated price. The correspondence between the appellants Chairman and the Development Adviser (Ports), Ministry of Surface Transport dated 24-8-1988, which is at Volume III of the paper book indicates clearly that the appellants had negotiated for the price which includes also the initial spares for dredgers. They had clarified to the Government that the same is required to be purchased in Dutch Aid Package. Ministry of Surface Transport vide their letter, dated 18/21-11-1988 to the appellants Chairman has conveyed the sanction of Central Government for the purchase of two nos. of Shallow Draft Trailer Suction Hopper Dredgers of 4500 M3 Hopper capacity from IHC Holland with Dutch assistance and the financial arrangements entered into has been discussed therein. The arrangements which are noted in the said sanction order are re-produced by extracting the entire letter :-

GOVERNMENT OF INDIA MINISTRY OF SURFACE TRANSPORT PORTS WING

NO : PD/28015/1/87-DCI New Delhi 18th Nov. 1988

The Chairman-cum-Managing Director, Dredging Corporation of India, Dredge House, VISAKHAPATNAM.

Subject :- Purchase of 2 Nos. Shallow Draft Trailer Suction Hopper Dredgers by DCI from M/s. IHC Holland - sanction regarding.

Sir,

I am directed to refer to this Ministry’s letter No. PW/PDD/63/85 dated 16th Feb. 88 and telex of even number dated 24th Oct. 88 on the above subject and to convey the sanction of the Central Government for the purchase of 2 Nos. Shallow Draft Trailer Suction Hopper Dredgers of 4500 M3. Hopper capacity by DCI from IHC Holland with Dutch assistance under the following financial arrangements :-

(a) The total cost of the two dredgers of Dfl 47,460,000 each inclusive of additionals such as additional floating pipeline, position finding equipment, optional items, spares, crew familiarization training and attendance of trials etc. is covered by the financing offer of the Government of Netherlands.

(b) The negotiated building price per dredger of Dfl 43,900,000/- will be covered by a loan portion of Dfl 41,460,000/- and grant portion of Dfl 2,440,000.

(c) The balance of the offered grant of Dfl 6,000,000/- being provided for each dredger, being Dfl 3,560,000 would be utilized for additional items such as spare parts etc.

(d) While the orders for the two dredgers will be placed together, DCI will stagger the delivery of the 2nd dredger as per requirement without any increase in price.

An itemwise specification of the financial arrangements will be presented in the draft side letter, that will be made available by Netherlands authority.

2. It has also been decided by the Government to pass on the concessionality of the loan facility to the DCI in the sense that DCI would take a direct loan from the Dutch Government and bear the foreign exchange risk. The Government would stand guarantee and the benefit of the technical assistance provided would also be available to the Project authorities.

3. I am to request that immediate action may be taken to place the order for the two dredgers on M/s. IHC Holland and to enter into the necessary contract agreement for the same with the said firm, in accordance with the aforesaid decision of the Government. Six copies of the contract agreement signed with the firm may be forwarded to this Ministry at an early date for onward transmission to the Ministry of Finance (Dept. of Economic Affairs) for further necessary action. Another copy of the contract agreement may also be sent for record in the Ministry.

4. This sanction issues with the concurrence of Ministry of Finance, Deptt. of Economic Affairs vide their U.O. No. 248-DS (EEC)/88 dated 24-10-1988 and with the approval of Finance Wing vide their U.O. No. 4453/TF-I/88 dated 15-11-1988.

Yours faithfully,

Sd/-

(MUNSHI RAM)

DESK OFFICER(PD-IV)

Equivalent 2001 (135) ELT 0240 (Tri. - Chennai)