2001(01)LCX0391

IN THE CEGAT, WEST ZONAL BENCH, MUMBAI

S/Shri J.H. Joglekar, Member (T) and G.N. Srinivasan, Member (J)

GEETANJALI WOOLLENS PVT. LTD.

Versus

COMMR. OF CUS. (EXPORT), MUMBAI

Order Nos. 215-16/2001-WZB/C-II, dated 18-1-2001 in Appeal No. C/1096/2000-Mum.

Advocated By :   Shri V.M. Doiphode, Advocate, for the Appellant.

Shri A.K. Jain, JDR, for the Respondent.

[Order per : J.H. Joglekar, Member (T)]. - When this stay application was heard, Shri V.K. Doiphode ld. counsel appearing for the applicants submitted that the case may be taken up for final disposal on two grounds; the first is that this is the first import of his clients who are an 100% EOU and more imports are in the pipeline. The second ground is that if his argument on the stay application is accepted, there would be nothing left in the case to be decided. The ld. JDR Shri A.K. Jain has reservations but we accept the grounds pleaded by Shri Doiphode and take up the appeal itself for final disposal after granting waiver of pre-deposit of the penalty amount of Rs. two lakhs imposed on the applicants.

2. The appellants are an EOU situated in Halol, Gujarat. They filed two Bills of Entry describing the goods as “old original synthetic hosiery rags completely premutilated”. Examination showed that the goods were actually old and used serviceable hosiery garments/sweaters in unmutilated condition. The classification claimed by the importers was under Customs Tariff Heading 63.10. The Department was of the opinion that the classification attracted was under CTH 6309. It was alleged that the import would require a specific import licence which had not been produced by the importers. It was alleged that the consignments were liable to confiscation under Sec. 111(d) and Sec. 111(m) of the Customs Act, 1962. The importers waived the issue of formal show cause notice. After hearing the importers, the Commissioner of Customs (EP), Mumbai passed the impugned order. He mentioned that he had seen the samples of the goods and found that they were serviceable garments and not rags. He set out the coverage of the term “rags” and held that the goods imported were not rags. He confiscated the goods on the observations that the goods were serviceable garments. He increased the value from the declared value of US $ 0.18 per kg to US $ 0.45 per kg. He prescribed the total fine in lieu of confiscation of Rs. 4,70,000/- and imposed penalty of Rs. 2,00,000/- on the importers. Hence, the appeal.

3. Shri Doiphode relied on the Exim Policy relating to the period as well as paragraph 9.5 of the Hand Book of Procedures dealing with EOU etc. which prescribes that the concerned authorities of the Export Promotion Zone would be the Licensing Authority and that the letter of permission given by them should be construed as a licence for procurement of raw materials by the EOU unit. Shri Doiphode submits that the list of capital goods and raw materials were submitted to the concerned authorities of the Export Promotion Zone. He referred to the letter dated 28-6-2000 from the Dy. Development Commissioner, Kandla Free Trade Zone to the effect that attestation of list of raw materials by the Development Commissioner is not required as per Exim Policy. They take this letter to mean that the appellants were permitted to import the raw materials required by them for the manufacture of export goods without specification of the raw materials. Shri Jain showed us a letter dated 18-7-2000 from the same authority addressed to the appellants in which NOC is given to the importers on “rags” in unmutilated condition.

4. Shri Doiphode shows us a subsequent letter dated 20-12-2000. In this letter the same authority has amplified the capability of import and it said that they had no objection to their import of unmutilated rags/uncut worn clothing falling under Customs Tariff Heading 6309 or 6310. Shri Jain counters by saying that this letter was subsequent to the importation and is therefore, not valid.

5. We have considered the submissions. We take the letter dated 20-12-2000 to be clarificatory in nature emphasising that the appellants were capable of importing raw materials which were required for their manufacture. At this stage we also notice, Paragraph 9.8 of the Handbook of Procedures which permits raw materials to be imported by an EOU provided they are not prohibited items in the ITC(HS) classifications. The note thereto permits such goods to be in second-hand condition also. There is no doubt that both rags and serviceable garments were raw materials. The paragraphs did not make any specification. Even if the importers had in their letter of indent to the Free Trade Zone authorities specified rags, the list was not required to be attested. Thus, in terms of the clear wordings of the Policy and also by the correspondence with the people who were entrusted with enforcing the Policy, it appears that there was no significant distinction held by the Licensing Authority between the rags and unmutilated rags/uncut worn clothing. At this stage, we have also seen the certificate dated 15-11-2000 given by the Central Excise Authorities to the appellants on which reliance was placed by Shri Jain. This is a certificate meant for presentation to the Customs House and certifies that the importers would be an EOU and it does not in any way restrict or prohibit the importability of raw materials by an EOU.

6. We have seen the ITC (HS) classifications. The Entry at heading 630900 00 relating to the contested goods is reproduced below :

7. Shri Doiphode stated that the items were restricted and not prohibited and in terms of the aforesaid paragraph 9.8, the goods were capable of being imported. As regards the requirement to possess a licence, he refers to the Appendix 27 which declares the Development Commissioner and its subordinate officers to be the Licensing authority in their jurisdiction. There is no doubt that the present appellants’ factory was situated in the jurisdiction of the Kandla Free Trade Zone. In the letter dated 28-6-2000 from the Dy. Development Commissioner of Kandla Free Trade Zone, clearance for importation of capital goods was given without requirement of attestation of list of raw materials by the Development Commissioner. We have also seen Paragraph 9.5 of the Hand Book of Procedures which specifically indicates that the letter of permission by the concerned authorities would be construed as the licence for all purposes including for procurement of raw materials. The letter read in conjunction with the paragraph would establish that whatever raw materials were required by the importers could be imported by the importers provided that they were prohibited goods.

8. The line between the serviceable garments and rags is quite thin. The Customs Tariff requires serviceable garments to show signs of appreciable wear. The sub-note to Heading 63.10 covering rags in the HSN shows that rags consist of articles of furnishing clothing and clothing accessories, other textile articles so worn out, soiled or torn so as to be beyond cleaning and repair.

9. The Commissioner had himself inspected the samples and had certified that the contested goods were not “rags” but were “worn clothing.” This is the ground on which he finds the goods liable to confiscation. During the hearing before us, the importers had not contested this belief but established that there was no bar to their importation of worn out clothing also. They also established that the Licensing Authority was the Development Commissioner and that the permission given by such Commissioner himself acted as a licence. It was also established that worn clothings are not prohibited item but are restricted items. On this consideration, we hold that the orders of confiscation under Section 111(d) do not survive.

10. As regards the orders of confiscation under Section 111(m) Shri Jain maintains that the importers had misdeclared the goods as premutilated rags when the goods were found to be serviceable garments. He submits that this misdeclaration would have benefited the importers in many ways including in undervaluation of the goods. Hence, the orders of confiscation under Section 111(m) would survive. The point made by Shri Jain is valid. There is a misdeclaration made by the importers but then it has to be seen as to what advantage would be gained by them by such misdeclaration. In case, the gain was significant, then the act of misdeclaration should be viewed sternly. In the present case, it was established that the importers were entitled to import worn garments also. Therefore, even though, technically, the act of misdeclaration is there, we do not find that it should result in confiscation of the goods or penalty to be imposed on the appellants. We also observe that the appellants were not contesting loading of the value in finding that the goods were serviceable garments.

11. In the result, we hold that the appellants are competent to import serviceable garments as raw materials without payment of duty. The appeal succeeds and is allowed with consequential relief according to law.

Equivalent 2002 (149) ELT 1192 (Tri. - Mumbai)