1992(12)LCX0004

BEFORE THE CEGAT, SPECIAL BENCH ‘C’, NEW DELHI

S/Shri G.P. Agarwal, Member (J) and P.K. Kapoor, Member (T)

PLAST FAB

Versus

COLLECTOR OF CUS.

Order No. 353/92-C, dated 2-12-1992 passed in Appeal No. C/2156/91-C

Cases Quoted

Mangla Brothers v. Collector - 1984 (015) ELT 151   [Paras 3, 8]

Basant Export Corpn. v. Collector - 1989 (043) ELT 65      [Paras 3, 9]

Fransa Corpn. v. Collector - 1991(05)LCX0061 Eq 1991 (056) ELT 0586 (Tribunal)     [Para 3]

Mirah Decon v. Collector - 1992 (57) E.LT. 312 .  [Para 3]

Geep Flash Light Industries v. U.O.I. - 1984(08)LCX0021 Eq 1985 (022) ELT 0003 (S.C.)            [Paras 4, 5, 13, 15, 18]

Precise Impex (P) Ltd. v. Collector - 1984(07)LCX0012 Eq 1985 (021) ELT 0084 (Mad.)          [Paras 4, 5, 16]

PAC Systems (P) Ltd. v. Collector - 1991(06)LCX0017 Eq 1992 (058) ELT 0131 (Tribunal)    [Para 4]

Collector v. Hindustan Motors Ltd. - 1990(08)LCX0052 Eq 1991 (051) ELT 0400 (Tribunal)     [Para 4]

Honesty Traders v. Collector - 1990(04)LCX0005 Eq 1991 (055) ELT 0102 (Tribunal)    [Para 4]

Janta Traders v. Collector - 1986(12)LCX0001 Eq 1988 (034) ELT 0065 (Tribunal)     [Para 4]

Satellite Engineering Ltd. v. U.O.I. - 1987(07)LCX0062 Eq 1987 (031) ELT 0356 (Bom.)          [Paras 5, 27]

Globe Engineering Works v. Collector - 1988(06)LCX0043 Eq 1988 (038) ELT 0471 (Tribunal)     [Paras 5, 6]

Babcock Venkateshwara Hatcheries (P) Ltd. v. Collector

1985 (20) E.LT. 335 (Tribunal)     [Para 20]

Advocated By: Shri A.S. Sunder Rajan, Consultant, for the Appellants.

Smt. Ananya Ray, SDR, for the Respondents.

[Order per: P.K. Kapoor, Member (T)]. - This is an appeal against order dated 20-3-1991 passed by the Additional Collector of Customs, Kandla. Briefly stated the facts of the case are that the appellants filed Bill of Entry No. 2625 dated 15-5-1990 for the clearance of a consignment weighing 18.480 MTs. declared to contain “Plastic Rolls (PVC Flocked Sheet in Rolls)”. Along with the Bill of Entry the appellants filed an invoice issued by M/s. Polymers International Texas, USA showing the net weight of the goods as 18.480.00 Kgs. and the unit price as US $950/M.T. The goods were declared to be of Taiwanese origin and as per Bill of Lading No. KND-4 they were shipped from the port of Keelung in Taiwan. For the clearance of the goods the appellants filed 5 REP Import Licences, all issued in the name of M/s. Hindustan Spinning and Weaving Mills. These licences were endorsed as per provisions of paras 175 and 176 of me Import and Export Policy for the period AM 1988-91. The appellants also produced a licence issued in favour of M/s. Al Hamid International permitting the import of goods as per para 215 of Import and Export Policy for the period AM 1988-91. The appellants were served with a show cause notice dated 27-9-1990 wherein it was alleged that the goods were not covered by Sr. No. 377 of Appendix 3; Part-A Import and Export Policy for AM 1988-91 for which the licences produced were valid. It was also alleged that the imported goods being ‘consumer goods’ were covered under Sr. No. 145 of Appendix 2, Part-B of Import and Export Policy for the period AM 1988-91. It was further alleged that goods weighing 1.160 MT had been imported in excess since on weighment the actual weight of the goods had been found to be 19.640 MT as against declared weight of 18.480 MT. It was stated that the duty attempted to be evaded due to the excess quantity was Rs. 81,796. On the basis of invoices relating to certain imports by other parties, it was also alleged that as against the declared value of US $750 PMT the value of the goods was US $1700 PMT; resulting in attempted evasion of duty amounting to Rs. 5,74,895/-. The appellants were furnished a copy of the test report which showed that the various varieties of imported goods contained mainly PVC ranging from 67.6% to 72.3% and the balance comprised of ‘viscose flocks’ and binding material.

2. In the impugned order dated 20-3-1991, the Additional Collector held that the imported goods were “consumer goods” covered by Sr. No. 145 of Appendix-2, Part B of AM-1988-91, Import Policy since they were sold in the market as car seat covers, sofa covers, table covers etc. The Additional Collector observed that they did not fall under OGL (Appendix-6 of the Policy). On these grounds he held that the import licences produced by the appellants were not valid and the goods were liable to confiscation under Section 111(d) of the Customs Act, 1962. On the question of valuation of the goods, the adjudicating authority held that the transaction value was not acceptable in terms of Rule 4 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, on account of the invoice price being much lower than the price of US $ 1675 MT in respect of identical goods shown in some of the invoices relied upon by the department. On this ground and also the reason that the ascertained weight of the goods was in excess of the declared weight, it was held that the value of the goods had been misdeclared. The Additional Collector also rejected the appellants’ claim that the goods were classifiable under Heading 39.26 of the Tariff and held that the goods having been imported in the form of sheets were classifiable under Tariff Heading 39.21. On these grounds the Additional Collector ordered that the determination of the assessable value of the goods on the basis of the unit price of US $ 1675 PMT. He also confiscated the goods under Sections 111(d) and (m) of the Customs Act, 1962. He, however, gave the appellants the option to redeem the goods on payment of a fine of Rs. 3.5 lakhs. He also imposed a penalty of Rs. 1 lakh on the appellants.

3. On behalf of the appellants, the learned consultant Shri A.S. Sunder Rajan appeared before us. He stated that he was not contesting the finding that the weight of the consignment was in excess of the declared weight. He contended that the excess weight found on actual weighment of the goods could have been due to the variation in the thickness of the material. He argued that enhancement of the assessable value and imposition of penalty was not warranted since the appellants had paid only the invoice price for the goods and the excess weight was without their knowledge. As regards the Collector’s finding that the imported goods were ‘consumer goods’ covered by Sr. No. 145 of Appendix 2, Part-B of the AM 1988-91 Import-Export Policy, Shri Sunder Rajan produced a sample of the imported material and claimed that they could be used only as raw materials for the manufacture of items such as purses, car seat covers etc. He contended that the Collector’s finding that the imported goods could be used as car seat covers, sofa covers, simply by cutting was erroneous. He stated that the goods not being ready to use items could not be deemed as ‘consumer goods’ in terms of definition of the term ‘consumer goods’ in the Import Policy. In support of his contentions he placed reliance on the following case law:-

1. Mangla Brothers v. Collector of Customs, Bombay - reported in 1984 (015) ELT 151.

2. Basant Export Corporation v. Collector of Customs - reported in 1989 (043) ELT 65.

3. Fransa Corporation v. Collector of Customs - reported in 1991(05)LCX0061 Eq 1991 (056) ELT 0586 (T).

4. Mirah Decon v. Collector of Customs - reported in 1992 (057) ELT 312.

The learned consultant further contended that the Collectors finding that the goods being in the form of sheets were classifiable under Tariff Heading 39.21 was also erroneous. He argued that the goods having been imported in the form of rolls and the plastic content in the imported items having been found to be between 67.6% to 72.3%, they could not be deemed as sheets of Plastic. He argued that the imported flocked material in rolls being neither “sheets” nor wholly made of plastic had to be deemed as ‘other articles of plastic’ covered by Heading 39.26 of the Tariff. In support of his contention he cited the following case law:-

1. Geep Flash Light Industries v. Union of India and others - reported in 1984(08)LCX0021 Eq 1985 (022) ELT 0003 (S.C.).

2. Precise Impex (P) Ltd. v. Collector of Customs, Madras - reported in 1984(07)LCX0012 Eq 1985 (021) ELT 0084 (Mad.).

As regards the Collectors finding that the value of the goods had been misdeclared and the assessable value of the goods was US $1675 PMT. Shri Sunder Rajan contended that the ‘Transaction Value’ of the goods represented the assessable value in terms of Rule 4 of the Customs Valuation (Determination of the Price of Imported Goods) Rules, 1988 since none of the circumstances provided in Rule 4 on the basis of which the ‘Transaction Value’ could be questioned were proved to have been in existence. He argued there being no evidence to show that the buyer and the seller were related to each other or the price was not the sole consideration, the ‘Transaction Value’ had to be deemed as the assessable value. He added that the invoices dated 27-1-1989 and 23-12-1989 which were relied upon by the department as supporting evidence were not relevant since the imports covered by these invoices were not contemporaneous. He added that Invoice Nos. LK/887 dated 26-3-1990 and 888 dated 26-3-1990 could also not be relied upon since they covered much smaller quantity of goods as compared to the quantity covered by the contract entered into by the appellants and also for the reason that they covered goods of Japanese origin which were specifically for use as insole/midsole for leather footwear. He stated that for the same reasons Invoices No. 900310A dated 13-3-1990 which covered a quantity of only 3.096 MT was also not relevant. In support of his contentions he placed reliance on the following case law :

1. 1991(06)LCX0017 Eq 1992 (058) ELT 0131 (Tri.) = 1991 (037) ECR 647

2. 1991 (51) E.LT. 400 (Tri.) = 1991 (031) ECR 656

3. 1990(04)LCX0005 Eq 1991 (055) ELT 0102 (Tri.) = 1990 (29) ECR534

4. 1986(12)LCX0001 Eq 1988 (034) ELT 0065 (Tri.) = 1987 (013) ECR 685

The learned consultant argued that on account of the reasons given by him the goods were not liable to confiscation and the appellants were not liable to penalty.

5. On behalf of the Revenue, the learned SDR Smt. Ananya Ray stated that the appellants had admitted that the actual weight of the goods was in excess of the weight indicated in the invoice. She contended that the quantity and value of the goods having been misdeclared by the appellants, they were liable for penalty. As regards, the appellants’ claim that goods were industrial raw materials she referred to the Collectors finding that the imported goods were capable of being used in the form of cut pieces as sofa covers and car seat covers. She argued that the goods being capable of use without any processing had to be deemed as consumer goods covered by Sr. No. 145 of Appendix 2, Part-B of AM 1988-91 and accordingly they were correctly held as having been imported in contravention of the provisions of the Import and Export (Control) Act. On the question of classification of the goods, she stated that the goods consisted of different materials, they were, therefore, classifiable in terms of Rule 3(b) of the Interpretative Rules as if they consisted of PVC which being the predominant constituent gave them their essential character. She contended that on this account and in terms of Note 10 to Chapter 39 the imported goods had to be deemed as covered by Tariff Heading 39.21 in preference to the residuary Heading 39.26 which covered articles produced by further working on various plastic materials of Chapter 39. She stated that the judgement in the case of Geep Flash Light Industries Ltd. cited by the appellants was not relevant since it was given in the context of the interpretation of the Item No. 15A(2) of the erstwhile Central Excise Tariff. She added that the decision in the case of Precise Impex (P) Ltd. v. Collector of Customs, Madras was also not relevant to the issue involved in this case since in that case as well for the purposes of interpreting Notification No. 228/76-Cus., dated 2-8-1976, the High Court had examined the scope of the expression ‘Articles made of plastics’ in Item 15A(2) of the erstwhile Central Excise Tariff. Dealing with the question of the valuation of the goods, the learned SDR contended that the appellants had filed a photo-copy of the invoice issued by a party in USA when the goods were shipped from Taiwan. She stated that the invoice was for a quantity of only 18.480 MT and did not refer to any contract. She contended that under these circumstances the claim that goods had been imported against a contract for the import of a much larger quantity could not be accepted. She added that several contemporaneous invoices relied upon by the Department showed that there was a wide gap between the price at which the goods in question were being ordinarily sold in the course of international trade at the relevant time and the prices at which the goods had been imported by the appellants. She argued that the, Transaction value’ of the imported goods could not be accepted as the assessable value since it was at variance with the international price of the goods in terms of Section 14(1) of the Customs Act, 1962. In support of her contentions she placed reliance on the Tribunal’s order No. C/2115/91-A dated 18-12-1991. In this regard she also referred to the decision of the Bombay High Court in the case of Satellite Engineering Ltd. v. Union of India reported in 1987 (031) ELT 356. She contended that in the face of documentary evidence produced by the Department showing that the international price of the goods at time of importation was much higher, the onus had shifted to the appellants to prove that the invoices relied upon by the Department did not represent the international price of the goods at the time of importation and this could have been done by them by producing the relevant price lists of the foreign suppliers. In support of her contentions she placed reliance on the Tribunal’s decision in the case of Globe Engineering Works v. Collector of Customs reported in 1988 (038) ELT 471.

6. In his reply, Shri Sunder Rajan stated that it was not open to the Revenue at this stage to refer to Rule 3(b) of Interpretative Rules to the Customs Tariff since in the impugned order the adjudicating authority had not applied his mind to the question whether the essential character of the goods was derived from PVC. He reiterated his stand that on the basis of the definition of ‘consumer goods’ in the Import Policy and decisions of the Tribunal quoted by him, the goods in question could not be deemed as ‘consumer goods’. He added that in the absence of any evidence to show that price paid was not the sole consideration for the goods, the transaction value could have been rejected only on the considerations stipulated in Rule 4 and there could no charge of misdeclaration of value merely on the basis of imports at higher price by other parties. He contended that the decision of the Tribunal in the case of Globe Engineering Works v. Collector of Customs being in the context of the unamended Section 14 was not relevant to the issues involved in the appellants’ case.

7. We have examined the records of the case and considered the submissions made on behalf of both sides. It is seen that the questions that arise for consideration in this case are :

(i) Whether the imported “PVC Flocked sheets in Rolls” are raw materials required for use in certain industries or they have to be deemed as ‘consumer goods’ covered by Sr. No. 145 of Appendix 2, Part B of the Import and Export Policy for the period AM 1988-91;

(ii) Whether the goods are classifiable under Heading 39.21 as held in the impugned order or under Heading 39.26 as claimed by the appellants;

(iii) Whether the ‘transaction value’ of the goods could be questioned on the basis of the evidence cited by the Department;

(iv) Whether enhancement of the assessable value of the goods and imposition of penalty on the appellants would be warranted on account of the weight of the goods having been found to be in excess of the invoice weight.

8. Taking up the first of these questions we find that the appellants claimed clearance of the imported ‘PVC Flocked sheet in Rolls’ against REP licences which were transferred in their favour and were also endorsed for the flexibility benefit in terms of paras 175 and 177 of the AM 1988-91, Import Policy. The fifth licence produced by the appellants was an Additional Licences issued under Para 215 of the Import Policy for the period AM 1988-91. The Collector held that the imported PVC Flocked Sheets in Rolls being usable as seat covers, sofa covers etc. in the form of cut pieces they had to be deemed as ‘consumer goods’ covered by Sr. No. 145 of Appendix 2, Part B of AM 1988-91 Import Policy. On these grounds, it was held that the Import Licences produced by the appellant were not valid for the goods in question. As against this, the appellants case is that “Flocked PVC sheet in Rolls” have to be deemed as covered by the licences in question since they were raw materials which would require processing before being put to use for meeting human needs. We are, however, not impressed by the Department’s stand. On inspection of the samples of the goods produced by Shri Sunder Rajan, we had found that “PVC Flocked Sheet in Rolls” had the appearance of soft leather and it is commonly used for the manufacture of products such as handbags, purses, car seat covers, parts of shoes etc. Evidently, the finding of the Collector that the imported material can be put to use as sofa covers or table cloth merely by cutting it in pieces of the required shape is erroneous. The material being in the nature of soft leather in running length would necessarily have to be subjected to processes such as cutting and stitching by heavy duty sewing machines for converting it into items such as car seat covers, sofa covers, hand bags, shoe parts etc. We find in the case of Mangle Brothers v. Collector of Customs, Bombay (supra) the Tribunal had held that raw materials are in their natural or semi-manufactured state and are meant for use for the manufacture of products whereas consumer goods are goods, such as clothing and food, which are made for the consumer and are not intended to be used in further production. Paragraph 11 of the said decision being relevant is reproduced below:

“In order to appreciate the Department’s case regarding contravention of I.T.C. restrictions, it has become necessary to give a finding whether the blank video tapes imported by the appellants can be considered as ‘raw materials’ (in the manufacture of video tape recorder) or as consumer articles, the view adopted by the Additional Collector. Expressions ‘raw material’ and ‘consumer goods’ are well understood in the commercial world. However, since the case against the appellants from the ITC angle hinges on the distinction between these two expressions, we have referred to some standard books to find out how these have been defined therein. The expression ‘raw material’ has been defined in the manner in some of the standard works as indicated below:

‘Raw material’

“Any material or commodity in its natural or semi-manufactured state, which is capable of being wed for manufacture of any other kind of finished products which could be prepared out or such material is a raw material.’’

(Venkataramaiya’s Law Lexicon &. Legal Maxims, Vol. 3)

“Raw material, is commonly understood, is used in process of manufacture. Printing machinery will certainly not come under the category of raw material.”

(T.P. Mukherjee’s Law Lexicon, Vol. 2)

“Any material in its natural form suitable for being manufactured or procassed into a finished form.”

(New Webster’s Dictionary of the English Language)

It is quite clear from the definition of the expression ‘raw material’ quoted from the standard books that in order to be treated as a ‘raw material’, the material or commodity should be in its natural or semi-manufactured state and should be capable of being used for manufacture of finished products. It also follows that ‘raw material’ cannot be consumed directly.

As regards the expression ‘consumer goods’, we find that the New Webster’s Dictionary of the English Language defines it as follows:

“Goods, such as clothing and food, which are made for the consumer and are not intended to be used in further production.”

From the above definitions of the expressions ‘raw material’ and ‘consumer goods’ it is clear that the contention of the appellants to treat the blank cassette tapes as raw material is not at all tenable. For all practical purposes these are finished products, can be sold off-the-shelf of a shop for consumers who wish to tape any visuals either from a VCR belonging to them or from a professional studio. We find no substance in the appellants’ argument that these tapes when they are imported cannot be used as such. On the same analogy tea leaves, which are undisputably consumer goods cannot be used as such. These have to be boiled and mixed with sugar and milk before these can be consumed. Even when these tapes are imported by a manufacturer of video cassette recorders, the tapes would be treated as finished components and not as ‘raw material’. In the present case the goods have been imported by export houses whose main activities have nothing to do with the manufacture of VCRs. Further, these export houses are under no obligation to sell those tapes only to manufacturer of VCRs. These tapes can, therefore, be passed on to dealers of electronics goods for direct sale to consumers. We are, therefore, clearly of the view that by no stretch of imagination, the blank cassette tapes imported by the appellants can qualify to be treated as ‘raw materials’; these are clearly consumer goods as understood in the commercial parlance. The learned Additional Collector has, therefore, rightly treated the blank cassette tapes as contravening the provisions of I.T.C. Policy as these are ‘consumer goods’ and not ‘raw material’. The charge of mis-declaration under Section 111(m) of the Customs Act, 1962 stands, therefore, established against the appellants, the confiscation of the goods under the said Section is also justified".

9. We find that the Tribunal had expressed similar views in paragraph 11 of the case of Basant Export Corporation v. Collector of Customs (supra) which is reproduced below:

“Let us now see whether Sodium Vapour lamps imported could be considered as consumer goods. Shri Nankani argued that goods that are consumed or where the utility is destroyed alone could be treated as consumer goods. But the definition of consumer goods in Para 513 of the Import Policy for AM-84 defines consumer goods as consumption goods which can directly satisfy human needs without further processing. In this case, the Sodium Vapour lamp satisfies the human needs of electrification without any further processing to the bulk itself. It may require a ballast or a capacitor but these bulbs will continue to be consumer goods because they can be used without further processing. The bulbs themselves are finished goods and are known in the trade parlance as sodium vapor bulbs. The technical write-up furnished by the appellant mainly deals with the road lighting system and does not advance the case of the appellant in regard to the questions involved in this proceedings."

On the ratio of the decision quoted above we are of the view that the imported ‘’PVC Flocked sheets in Rolls" were in the nature of raw materials and could not be deemed as ‘consumer goods’ covered by Sr. No. 145 of Appendix 2, Part B of the Import and Export Policy for the period AM 1988-91. We, therefore, hold that the Collectors finding that the imported goods were ‘consumer goods’ and had been imported in contravention of the provisions of Import and Export (Control) Act, is not sustainable.

10. The next question to be decided is whether the imported “PVC Flocked sheets in Rolls” would be classifiable under Heading 39.21 as “Other sheets of plastics (PVC)” or they have to be deemed as ‘Articles of plastics and other materials’ falling under sub-heading 3926.90.

11. The two competing Headings of the Customs Tariff are reproduced below:

12. It is seen from the impugned order that representative samples from the consignment were tested. The report given by the Customs House laboratory is reproduced below:

“Each of the three samples is cut piece of PVC sheet gummed on one side with viscose flocks, percentage composition is as follows:

13. On the basis of the test report, the learned SDR has contended that PVC being the predominant constituent of the goods, they have to be classified under Heading 39.21 in terms of Rule 3(b) of the Interpretative Rules to the Customs Tariff by treating them as sheets consisting of PVC which imparts to them their essential character. On the other hand on behalf of the appellants Shri Sunder Rajan has argued that Interpretative Rules not having been referred to by the Collector, it was not permissible for the Revenue to invoke the provisions of the rules at this stage. He has contended that the imported goods not being entirely of plastic could not be treated as ‘Plastic materials’ falling under Heading 39.21. In this regard he has placed reliance on the Supreme Court decision in the case of Geep Flash Light Industries (supra). Shri Sunder Rajan has further contended that the goods being in the form of rolls they could not be deemed as ‘Plastic sheets’ covered by Heading 39.21.

 14. It is seen that the imported goods have been described in the invoice as ‘Plastic Rolls (FVC Flocked Sheets in Rolls)’ We are inclined to agree with the learned SDR that in terms of the Interpretative Rule 3(b) the goods have to be deemed as “Other PVC sheets” falling under Heading 39.21 of the Tariff since the goods derive their essential character from PVC which is their major constituent. In this regard the appellants have contended that the Interpretative Rules to die Customs Tariff Act 1985 not having been referred to by the Collector, it was not permissible for the Revenue to invoke the Rules at this stage. However, we do not find any force in the appellants arguments. The Interpretative Rules being a part of the Customs Tariff Act, 1975 they can be referred to at any stage in order to facilitate the classification process.

15. The appellants have also argued that the goods in question could not be classified under Heading 39.21 since they were not composed entirely of plastic. In this regard they have placed reliance on the Supreme Court decision in case of Geep Flash Light Industries v. Union of India (supra). We find that in the decision relied upon by the appellants, the question that came up for consideration before the Supreme Court was whether plastic torches would fall under Item No. 15A(2) of the Central Excise Tariff which covered only plastic materials of different shape and form such as tubes, rods, sheets etc. The Court’s finding that plastic torches were covered by the residuary Item 68 and not by Item No. 15A(2) of the erstwhile Central Excise Tariff is of no relevance to the issue before us which involves the determination of the classification of the imported ‘PVC Flocked Sheets in Rolls’ under the Schedule to the Customs Tariff Act, 1985.

16. Another point raised by Shri Sunder Rajan is that the goods being in the form of rolls have to be treated as distinct from sheets of ‘other Plastic’ materials covered by Heading 39.21. In this regard the learned consultant has placed reliance on the Madras High Court decision in the case of Precise Impex (P) Ltd. v. Collector of Customs Madras (supra). It is seen that the question for decision m the case before Hon’ble Madras High Court was whether Plastic metallised films were eligible for exemption from countervailing duty in terms of Notification No. 228/76 which exempted “Articles made of plastics of all sorts” from payment of duty, excluding those specified in the Table annexed thereto. Further, there was an Explanatory Note to the Notification to the effect that articles made of plastics were to have the same meaning as in Item 15A(2) of the Excise Tariff. Though the word ‘film’ was not mentioned in the Table annexed to the Notification, the contention of the Revenue was that films had to be deemed as covered by the entry ‘’sheets and foils whether rigid or flexible" in the Table to the notification. The argument on behalf of the Revenue that a film is an article of rectangular shape and is akin to sheets, strips, foils etc. was countered by the respondents by referring to the ISI Standards relating to plastic industry wherein ‘film’ was described as ‘A sheeting having nominal thickness not greater than 0.22 mm". Rejecting the Revenue’s contention that polyster films in question had to be deemed as ‘sheets’ since on being spread out, they would be rectangular in shape, the Court observed that “still, counsel for respondent would plead that, when these films are spread out, they have a rectangular shape. If this sort of understanding the nature of goods imported is permitted, then in respect of cinematograph films which are several metres in length when spread out will have rectangular shape. Likewise, if film roll used in a camera is spread out, it takes a rectangular shape. This is undoubtedly, an illogical manner of categorising, the imported goods”. It is seen that the court accepted the contention of the counsel for the appellant that the distinction between ‘film’ and ‘sheet’ has to be made on the basis of thickness since it was provided in the relevant ISI standard that film is exceeding 0.22 mm.

17. In our view, it does not follow from the Court’s observations that an article in the form of a roll cannot be a sheet. For this reason and also in view of the fact that in the suppliers invoice the imported goods have been described as “sheet in Rolls” the contention of the learned consultant that the goods in the form of “rolls” would not be classifiable under Heading 39.21 has to be rejected.

18. It has been contended by the appellants that the imported goods are classifiable under Heading 39.26 which covers “Other articles of plastics and articles of other materials of Heading Nos. 39.01 to 39.14". In our view, there is no force at all in the appellants claim, since on a simple perusal of the items covered by various sub-headings of Heading 39.26 it follows that the heading covers only articles which have been produced out of plastic materials such as office or school supplies, apparel, fittings for furniture, ornamental articles, statuettes etc. The imported goods have admittedly to be worked upon to produce various articles of plastics. Hence, in the state in which they have been imported they have to be categorised only as ‘plastic material’. On the question of the distinction between ‘plastic materials’ and ‘articles of plastics’ we consider it desirable to refer to the following extracts from para 3 of the decision of the Hon’ble Supreme Court in case of Deep Flash Light Industries v. Union of India and Others (supra):

“Petitioner is admittedly manufacturing plastic torches. It is contended on his behalf that for the purpose of levy of excise duty plastic torch manufactured by the petitioner is governed by Tariff Item No. 15A(2) which reads as under :

‘Articles made of plastics, all sorts, including tubas, rods, sheets, foils, sticks, other rectangular or profile shape whether laminated or not, and whether rigid or flexible including lay flat tubings and polyvinyl chlorides sheets’

The learned Counsel contended that the plastic torch manufactured by the petitioner is nothing else but plastic tube made of plastic in which certain other devices are inserted so as to make it a torch but it none-the-less retains the character of a plastic tube. A mere reference to Tariff Item No. 15A(2) would show that the articles therein described are plastic material in different shape and form and not articles made from such plastic material. There is a noticeable difference between plastic material in different shape and form such as tubes, rods, sheets etc. and articles made from such plastic material such as plastic torch. It would be doing violence to language if one were to include plastic torch in articles under Tariff Item No. 15A(2)."

Since the appellants have themselves claimed that the imported goods are materials required for manufacture of various type of articles their classification under Heading 39.26 has to be ruled out.

19. In view of the above discussion, we uphold the Collector’s finding that the imported “PVC Flocked Sheets in Rolls” would be classifiable under Heading 39.21 of the Tariff.

20. The next question to be examined is whether the ‘Transaction Value’ of the imported goods could be deemed as the assessable value in terms of Rule 4 of the Customs Valuation (Determination of the Price of Imported Goods) Rules 1988. In this regard it is seen that on account of the wide difference between the ‘Transaction Value’ of the imported goods and the price of a number of similar imports, the Collector had held that the ‘Transaction Value’ of the imported goods could not be deemed as the assessable value. The Collector’s findings that the value of the goods had been misdeclared and the assessable value of the goods in terms of Rule 8 of the Customs Valuation (Determination of the Price of Imported Goods) Rules, 1988 was US $ 1675 per MT has been challenged by the appellants on the ground that the ‘Transaction Value’ of the goods represented the assessable value in terms of Rules 3 and 4 of the Customs Valuation (Determination of the Price of Imported Goods) Rules, 1988 since none of the circumstances listed in Rule 4 on the basis of which the ‘Transaction Value’ could be rejected were in existence. The appellants have also claimed that the imported goods and the goods covered by the invoices which formed the basis for the alleged under-valuation were not comparable; on account of the difference in the time of imports, quality and quantity of the goods imported and the origin of the goods. In order to examine these points we consider it desirable to reproduce below the relevant provisions of Section 14 of the Customs Act, 1962:

“SECTION 14. Valuation of goods for purposes of assessment - (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value the value of such goods shall be deemed to be the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer for sale:

Provided that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under section 46, or a shipping bill or bill of export, as the case may be, is presented under section 50.

(1-A) Subject to the provisions of sub-section (1), the price referred to in that sub-section in respect of imported goods shall be determined in accordance with the rules made in this behalf."

On a plain reading of sub-sections (1) and (1-A) it follows that the value of any goods chargeable to duty with reference to their value has to be deemed as the price referred to in sub-section (1) and the determination of such price in accordance with the relevant rules has to be subject to the provisions of sub-section (1) of Section 14. For this reason and also in view of the fact that the provisions of the Act have overriding effect the value of any imported goods or their transaction value determined under any of the provisions of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 has necessarily to conform to the provisions of Section 14(1). Prior to the amendment of Section 14 in 1988 the provisions of Section 14(1) and the deleted sub-section (b) were mutually independent and in the event of the value not being found to be determinable under Section 14(1) it was to be determined independently under the Customs Valuation Rules, 1963. This position has undergone a change since the provisions of Section 14(1) and Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 are not mutually exclusive since Section 14(1A) reads as “Subject to the provisions of sub-section (1), the price referred to in that sub-section in respect of imported goods shall be determined in accordance with the rules made in this behalf”.

In the case of Babcock Venkateshwara Hatcheries (P) Ltd. v. Collector of Customs, Bombay reported in 1985 (020) ELT 335 the Tribunal had observed that under Section 14(1)(a) of the Customs Act the value for the purpose of assessment of duty is a deemed value and need not necessarily be the price agreed upon by the parties. Para 9 of the decision is reproduced below:-

“Another judgment which would also be relevant in this connection is that of the Bombay High Court in Union of India v. M/s. Glaxo Laboratories [1979(01)LCX0003 Eq 1984 (017) ELT 0284 (Bombay)]. At page 280 it is observed that -

“no arguments are raised, nor is, the respondent doubting the right of the department to take into account the international price of the disputed goods for the purposes of customs duty.”

This was with reference to the fact that the respondent (M/s. Glaxo Laboratories) had paid customs duty on the international market price but wanted the licence to be debited with reference to the CIF value which was the actual value under the contract between them and the seller. With reference to these facts it had been observed at page 291 that “this actual price of supply which we would assume is a genuine price in that deal can vary from the international market price which is the value for the purpose of customs taxation”. Therefore these judgments make it abundantly clear that the agreed price between the parties, though genuine, would not be the concluding factor with reference to assessment for customs duty since under Section 14(1)(a) duty will have to be levied on the deemed value, which is defined in the section as extracted earlier."

As Stated by us earlier, the determination of the transaction value under the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 has to be consistent with the provisions of Section 14(1) of the Customs Act, 1962. Hence, the price paid or payable in respect of any goods would not represent the transaction value under Rule 4 of the said rules, if it does not reflect the price at which such or like goods are sold at the time and place of importation in the course of international trade, when the buyer and seller are not related.

21. It is seen that the importer has filed a copy of a contract dated 27th February, 1990 between him and M/s. Polymers International, P.O. Box 935, Humble Texas, USA for the import of about 200 MTS of Plastic Rolls (PVC Flocked sheets in Rolls) of assorted colours and varying thickness at the rate of US $ 950 MT. Though the origin of the goods was not specified the contract indicated that the goods would be shipped from Taiwan to India. On importation, the appellants filed an invoice issued by M/s. Polymer International Texas, USA in respect of 18.480 MT of Plastic Rolls (PVC Flocked sheets in Rolls) at the rate of US $ 950 MT shipped from Taiwan. As against the regular practice, the appellants did not file the certificate of origin and the packing list.

22. Thus in respect of goods shipped from Taiwan, the appellants have arranged for an invoice to be issued by a party in Texas, USA and they have chosen not to file vital documents such as packing list and certificate of origin. It is also seen that as against the contracted quantity or about 200 MTs, a quantity of only 18.480 MTs. has been imported.

23. From the impugned order we find that the Collector has recorded the following reasons in support of his finding that the invoice value did not represent the assessable value of the goods.

“In the Show Cause Notice, 4 invoices have been relied upon. In two cases, the goods are of Japanese origin while in the other two cases, the goods are of Taiwanese origin. As far as the value relating to goods of Japanese Origin concerned, the importers have disputed that these cannot be treated as similar or identical goods. Even accepting the importers arguments, there are two other invoices available covering goods of Taiwanese origin. The value in both these cases have been declared as US $ 1675 PMT. This value is also found to be more or less comparable, to those stated in the invoices for goods of Japanese origin. The importers have stated that as far as the first invoice No. 11691/89 dated 27-01-1989 is concerned, this is one year old and cannot be treated as contemporary import. However, as far as the second invoice is concerned, it is dated 23-12-1989, which is around me same time of import in the subject cases and therefore that argument will not be applicable to this invoice. The importers, subsequent to the personal hearing, forwarded one copy of Bill of Entry relating to import of M/s. EM VEE International and stated that the invoice value has been accepted in this case and therefore the invoice value in their case should also be accepted. However, it is observed that the invoice value in that case come to more than US $ 1756 PMT while in the subject case declared value is US $ 950 PMT. Therefore, it is seen that according to importers own admission there is earlier instance of accepted value of US $ 1756 PMT. However, in the Show-cause Notice, Taiwanese origin goods is proposed to be enhanced on the basis of Taiwan origin goods. Therefore, I am inclined to accept the price of US $ 1675 PMT for the purpose of ascertaining the value of goods imported."

It is seen that in addition to Invoice No. 11691 dated 27-1-1987 issued in favour of M/s. Parekh and Co. Bombay by M/s. Coral Sea Inc. Taiwan, the other 3 invoices relied upon by the Department related to goods which were imported at or about the same time when the disputed goods were imported. Of these, Invoices Nos. LK/887 dated 26-3-1990 and LK/888 dated 26-3-1990 in favour of M/s. Neesha Plast Bombay and LK/888 dated 26-3-1990 in favour of M/s. Amar Enterprises Bombay issued by M/s. Mercantile Co. Ltd. Japan were in respect of “PVC Flocking Sheets, 0.5 mm x 54" at the rate of US $ 1700 PMT (CIF Bombay).

The fourth invoice relied upon by the Department was issued on 23-12-1989 by M/s. Sinirok International Ltd. Taiwan in favour of M/s. Parekh and Co., Bombay in respect of “PVC Flocked Sheet, 0.5 mm x 54" at the rate of US $ 1675 PMT. It is seen that in respect of the consignment covered by Invoice No. LK/888 dated 26-3-1990 in favour of M/s. Amar Enterprises, Bombay the description of the goods was amplified to read as ‘”Insole Midsole sheet for Leather Foot Wear". However, in respect of the same shipment another Invoice No. 900310A was issued by M/s. Docs Ltd. Taiwan in which the goods were described merely as “PVC Flocked Sheets 0.5 x 54". On perusal of these invoices we are inclined to agree with the adjudicating authority that during the relevant period the item ”PVC Flocks Sheets" was being shipped to India by Japanese and Taiwanese suppliers at prices ranging from US $ 1675 to 1700 PMT. As against this the “PVC Flocked Sheets in Rolls” imported by the appellants from Taiwan have been invoiced at the rate of US $ 950 PMT by M/s. Polymers International Texas, USA. According to the appellants, the significant difference in the unit price of the goods imported by them and in the cases relied upon by the Department is due to the fact that the invoices relied upon by the Department were not in respect of goods which could be deemed as comparable with the imported goods with reference to quality, country of origin, dimensions and end use. It is seen that in respect of the imported goods which have been shipped from Taiwan, the invoice has been issued by M/s. Polymer International of Texas, USA. For reasons best known to them, the appellants have not filed the usual shipping documents such as packing list and certificate of origin. The goods having been charged on weight basis, it is evident that the price was not influenced by factors such as shade, grade, thickness etc. Further, even though a contract for the import of a quantity of over 200 Tonnes has been produced, the quantity actually imported is only about 18 Tonnes. For these reasons and having regard to the fact that on appellants’ own admission ‘PVC Flocked Sheets’ are capable of being used as raw materials for the manufacture of various products such as, purses, bags, sofa covers etc. we find no force at all in the appellants contention that the imported goods and the goods covered by the invoices relied upon by the Department are not comparable with reference to factors such as dimension, country of origin, end-use etc.

24. It is thus seen that there is wide difference between the price at which the appellants have imported the goods and the price at which such or like goods were being sold or offered for sale at the relevant unit in the course of international trade. It is evident that by arranging for an invoice from a party in USA in respect of goods shipped from Taiwan and not filing important shipping document viz. certificate of origin and packing list, the appellants have attempted to misdeclare the value of the imported goods. Since we have held that the transaction value in terms of any of the provisions of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 has to be consistent with the provisions of Section 14(1) of Customs Act, 1962, it has to be held that the Additional Collector was justified in holding that the declared value in respect of the imported goods, being widely at variance with the international price of the goods prevailing at or about the same time when the goods being valued were imported, did not represent the transaction value under Rule 4.

25. It is seen that after having held that the declared value or the price paid for the goods could not be deemed as the ‘Transaction Value’ the adjudicating authority observed that the value of the imported goods is also not determinable under Rules 5, 6 and 7. Thereafter, he proceeded to determine the value under Rule 8. It is seen that in terms of Rule 3, the provisions of the Customs (Determination of the Price of Imported Goods) Rules 1988 have to be applied sequentially. Hence, the Additional Collector ought to have recorded the reasons for holding that the assessable value of the goods was not determinable in terms of each of the Rules 5, 6 and 7. We find that even while determining the value under Rule 8, the adjudicating authority has not taken into account the fact the quantity imported by the appellants was larger than quantity covered by the invoices relied upon by the department. For these reasons, we are of the view that the order passed by the Additional Collector in as far as it relates to the valuation of the imported goods is not a speaking order and shows non-application of mind. We are, therefore, of the view that this matter needs to be remanded for reconsideration.

26. The last question to be examined is whether the assessable value of the goods has to be worked out on the basis of the weight of the goods actually ascertained and whether on account of the difference between the declared and ascertained weight of the consignment, the appellants are liable for penalty. In this regard we are not inclined to accept the appellants contention that the higher weight found of the consignment does not warrant the enhancement of the value since the excess weight could be due to the variation in the thickness of the material. Since the goods have been charged by the supplier on weight basis, their assessable value has necessarily to be determined by taking into account the actual weight of the goods. Hence, we reject the appellants plea that the assessable value of the goods would continue to be the ‘Transaction value’ even when the quantity of goods with reference to weight has been found to be in excess of the invoiced quantity.

27. As regards the question whether the appellants are liable to penalty on account of the actual weight of the imported goods having been found to be in excess of the declared weight, we consider it desirable to refer to the following extracts from the decision of the Hon’ble Bombay High Court, in the case of Satellite Engineering Ltd. v. Union of India - reported in 1987 (031) ELT 356.

“We now deal with the charge that the appellants mis-declared the weight of the third consignment. The appellants accepted the fact that there had been such mis-declaration, but they pleaded, on the facts which they placed before the Collector, that it was an innocent misdeclaration for which no penalty should be visited upon them. The authorities should have applied their mind to this plea to consider, in the first place, whether penalty should at all be levied and, then, what its quantum should be. There was no application of mind to the plea by either the Collector or by the Board in appeal. The Central Government in revision observed only that the appellants had mis-declared the weight and thereby rendered themselves liable to penal action so that the imposition of the penalty was correct in law, considering the fact that due to the mis-declaration there would have been a loss of duty of about Rs. 27,000/-. Even the Central Government, therefore, did not apply its mind to the plea put forward by the appellants, supported by letters, that they had filed the bill of entry on the basis of the shipping documents which showed the lesser weight, that the consignment was found to be heavier in the course of inspection at the docks, that they had written to their suppliers for an explanation, that the explanation was that two consignments of elsewhere, had been confusedly amalgamated; and that the suppliers had by their letter of explanation offered to take back the excess quantity at no cost to the appellants."

28. As observed by the High Court in the extracts reproduced above while deciding whether the appellants were liable to penalty, the Additional Collector should have given a reasoned finding after applying his mind to the question whether the weight of the goods declared by the appellants was an innocent mis-declaration on the basis of the shipping documents received by them.

29. In view of the above discussion, the following order is passed.

(i) The validity of the Import Licences shall be decided by the Additional Collector having regard to our finding that the imported goods viz. PVC Flocked Sheets in Rolls’ cannot be treated as consumer goods.

(ii) As held by the Additional Collector, the goods shall be classified under Heading 39.21.

(iii) The value of the goods shall be determined by the Additional Collector under Customs Valuation (Determination of the Price of Imported Goods) Rules, 1988 in de novo proceedings, having regard to the observations made by us.

(iv) The assessable value of the goods shall be determined having regard to the weight of the goods found on actual weighment.

(v) The question whether the appellants are liable for penalty shall be decided by the Additional Collector having regard to our observations on the question of the difference in actual and ascertained weight of the goods and his findings in regard to the assessable value of the goods in de novo proceedings.

30. The appeal is, therefore, partially allowed by way of remand. Since the goods are under detention, we shall appreciate if the matter is disposed of in de novo proceedings in accordance with law within two months of the date of the receipt of this order.

Equivalent 1993 (066) ELT 0441 (Tribunal)