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2005 (118) ECR 109 (Tri.- Mumbai)
In the Customs, Excise and Service Tax
Appellate Tribunal
West Zonal Bench
Coram
: Shri. Krishna Kumar, Member
(J)
Shri. C. Satapathy, Member (T)
Pioneer Embroideries Ltd. & Ors.
V.
CC, Mumbai
For the Appellant(s) : Shri. Naresh Thakkar &
Shri. V. S. Nankani
Advocates
For the Respondent(s) : Shri. K. M. Mondal, Consultant.
HELD : Classification (CTA)/Exemption-
Old and used mechanical embroidery machines imported along with new Jacquard
Control Devices – The impugned machines are not classifiable as Computerized
Embroidery Machines, nor are they eligible for exemption under Notfn.11/97-Cus-
Impugned order upheld. “At the time of import, the consignment is
thus seen to be consisting of the 12 old and used mechanical embroidery
machines along with 12 brand new Jacquard Control Devices. At no point of time
before the old mechanical embroidery machines.
As such, these goods cannot be called computerized embroidery machines
in dis-assembled condition as declared ……….It is not as if complete
computerized embroidery machines were manufactured and it was shipped in
unassembled condition for convenience of packing, handling or transport. What has been shipped is a set of over
twenty years old and used mechanical embroidery machines along with brand new
Jacquard Control Devices. Hence, as
presented, in our view, they do not merits to be classified as complete
computerized embroidery machines. It is
not material that subsequently after importation and clearance to the
appellants premises some of the unusable parts required for mechanical working
of the old embroidery machines have been removed and the brand of the old
embroidery machines have been remove and the brand new Jacquard Control Devices
have been integrated to produce new entitles namely computerized embroidery
machines. Such integration, of the
imported items obtained from different sources, after importation and
subsequent use cannot have a bearing on the classification which has to be done
at the point of import looking the goods as presented at that time. The items under import have to be,
therefore, classified separately and not as computerized embroidery machines…..
In view of our findings as above, we are of the view that the appellants are
not entitled to exemption under Notification No.11/97 dtd.1.3.1997 which
applies to any computerized embroidery machines.” (Paras 11,12 & 13)
2.
Valuation (Customs)-Old mechanical embroidery machines, and new Jacquard
Control Devices, etc, imported together –Duty is chargeable separately on
different goods – impugned order upheld.
(para 14)
3. Penalty-Jacquard Control Devices not
declared as the Appellants were under the impresssion that the entire set of
goods were classifiable as a single item viz. Computerized Embroidery Machines
– In view of the complexities of classification issue involved, benefit of
doubt is extended to the Appellants, and the impugned order imposing penalties
is set aside. (Para 15)
Appeal dismissed.
Case Law Cited
1. Tata Mills Ltd. v. UOI Referred
[1982 ECR734
(Bom)] (para
6)
A.K. Impex v. UOI --
do –
[1991 (33) ECR 77 (Mad)]
Intercontinental (India) v.
UOI --
do –
[2003(154) ELT 37 (Guj)]
Flat Products Equipments
(I) Ltd. v. CCE, Mumbai-III --
do –
[2000 (90) ECR 609 (T)]
Vinar Systems Ltd. v. CC,
Calcutta-II --
do –
[2001 (131) ELR 578
(T-Kol)]
New India Industries Ltd.
v. CC, Bombay --
do –
[1994 (54) ECR 500 (T)]
Rajasthan Spg. & Wvg.
Mills Ltd. v. CCE, Jaipur --
do –
[1995 (58) ECR 569 (SC)]
Paramount Centrispun
Castings Ltd v. CCE, Nagpur --
do –
[1995 (59) ECR 260 (T)]
Hindusthan Motors Ltd. v.
CCE, Calcutta-II --
do –
[2001 (96) ECR 768 (T)]
Vardhaman Acrylics Ltd. v.
CC, Mumbai --
do –
[2002 (146) ELT 604
(T-Del)]
CCE, Hyderabad-III v.
Sanghi Polyesters Limited --
do –
[2003 (110) ECR 777 (T)]
B. R. Industrial Trading
Co. v. CC, Mumbai --
do –
[2003 (162) ELT 184
(T-Mumbai)]
Goodwill Electronics v. CC,
Mumbai --
do –
[2004 (112) ECR 148 (T)]
Queensland Alumina Limited
v. CEO of Customs Followed
[2003 (AATA 290] (para
6)
Per Shri. C. Satapathy,
Member (T)-These
appeals were heard on two days on 6.5.2004 and 20.5.2004 when the learned
advocates Shri. V. S. Nankani and Shri. Naresh Thakker respectively appeared on
behalf of the appellants on these days.
Shri. K. M. Mondal, learned consultant appeared on both dates on behalf
of the Revenue. We place on record our
appreciation for the painstaking efforts by both the learned advocates and the
learned consultant in taking us through all aspects of the case and bringing to
our notice several case laws having a bearing on these appeals.
2. The main issue in these appeals is whether
the impugned imported goods can be classified as ‘computerized embroidery
machine’ and therefore, can be extended the exemption under Notification No.
11/97-CUS dated 1.3.1997.
3. Before we deal with the issue of
classification and eligibility to duty exemption, we first take up the plea
advanced by the learned advocates for remand of the case back to the
adjudicating Commissioner on the ground that he has taken into account only the
minority report by two members of the panel of experts ignoring the majority
report of four members of the panel of experts. The learned consultant Shri. Mondal opposes the plea of remand on
the ground that it would serve no purpose except causing delay.
4. We have given our due consideration to the
request for remand. We find it very
strange that different members of the panel of experts constituted to examine
the machinery under import have given two separate reports on two different
dates. We also find it strange that the
adjudicating Commissioner has dealt with the minority report but has not
mentioned the majority report in his adjudication order. However, we find that there is essentially
no difference in both the reports insofar as they relate to physical
examination of various machinery items under import. The main difference is in the opinion given in the two reports
regarding classification of the imported machinery and eligibility to exemption.
It is well settled that the question of classification and the question of
entitlement to a particular exemption are questions of law, which was in the
jurisdiction of the adjudicating Commissioner to decide upon and which, this
Tribunal is fully competent to further hear on appeal. It was not for the members of the panel of
the experts to pronounce on such legal questions. It was the job of the
members of panel of experts to identify the goods under import and to provide a
proper description of the same and assist the adjudicating Commissioner on such
other questions of facts relating to the imported machinery. We find that there is no difference as
regards the facts of the import and the identification of various machinery
items in the two reports. As regards
the questions of law relating to classification and entitlement to exemption,
the adjudicating commissioner was fully competent to take a view on the same
and in appeal, we can decide whether the view taken by him is correct or
not. It is, therefore, our considered
opinion that no purpose will be served by remanding the matter to the
adjudicating Commissioner merely on the ground that he has not considered the
majority report in his adjudication order since we are of the opinion that
difference in the two reports is merely on the legal questions of
classification and grant of exemption, which was not in the domain of the panel
of experts to opine on the that there is no difference in both the reports as
far as identification of the goods and all other questions of facts are
considered.
5. We now proceed to deal with the main
question as to whether the goods under import can be considered as
‘computerized embroidery machine’ or not.
Grant of exemption under notification No.11/97-CUS dtd.1.3.1997 is
automatic of the goods are held to be computerized embroidery machine and hence
the second question is clearly dependent or resolution of the question of
classification.
6. We have perused the related import documents
including the bills of entry, invoices, packing list as well as physical
examination reports by the panel of experts and the statements recorded. There is no dispute that the appellants
entered into a contract with M/s. Texchemie, Hong Kong for purchase of 12 sets
of second hand embroidery machines along with the essential auxiliary
machines. The said machines were
exported by M/s Moojin International Corporation, Korea. M/s Moojin agreed to additionally ship 12
Jacquard Control Device Reading system, one Reading System and one Card Pressed
System. These goods were imported in several containers and packed separately
for which a bill of entry was filed describing the goods a used/second-hand
computerized embroidery machines in dismantled condition for shipment claiming
benefit of exemption under Notification No.11/97-CUS dtd.1.3.1997. It is also not in dispute that after import,
the impugned textile machines have been fitted with the Jacquard Control
Devices in the premises of the appellants and are functioning as computerized
embroidery machines. The adjudicating
Commissioner has determined that at the point of import, the impugned machines
were not computerized and that the appellants are not therefore eligible to
claim exemption applicable to computerized embroidery machines. It is the claim of the appellants that even at
the point of import, the imported machines are to be considered as computerized
embroidery machines eligible for the exemption under the said Notification
No.11/997-CUS. In support of their
argument, the learned advocates for the appellants have cited the following
case laws :
1)
Tata Mills Ltd. v. The Union of India – 1980 ELT 76 (Bom.): = 1982 ECR
734 D (Bom.) – If the petitioner has produced reports and opinions of technical
experts and consultants in support his claim, which were not only relevant tot
he issue involved but the correctness of which had not been disputed by the
Department, it is obligatory on the revisionary authority to state the reasons
as to why he ignored them for taking a decision on the revision petition.
2)
A. K. Impex v. Union of India – 1991 (53) 203 (Mad.):= 1991 (33) ECR 77
(Mad) – It is to be noted that the horticulturist who gave the opinion was not
the person who was consulted by the importer; but it was only the Customs
Department which consulted him. Having
consulted the horticulturist and having obtained the opinion that the goods
were ’seeds’, the Revenue is estopped from claiming that the goods were not
‘seeds’. But they were bound by the
opinion of the horticulturist who was an expert.
3)
Inter Continental (India) v. Union of India – 2003 (154) ELT 37 (Guj.) –
Expert opinion – Technical opinion tendered by technically qualified person –
Contrary stand not to be taken unless and until such technical opinion is
displaced by specific and cogent evidence in the form of another technical
opinion.
4)
Flat Products Equipments (I) Ltd. v. CCE, Mumbai-III – 2000(115) ELT 629
(Tribunal) = 2000 (90) ECT 609 (T) – Parts of machine- Erection at site – Parts
classifiable as complete machine if it can be established that parts are
removed as such so as to constitute a complete machine even if such parts are
not removed or unassembled together – Parts of rolling mills and galvanising
lines removed for erection at site into rolling mills and galvanising lines
assessable to duty under sub-headings 8455.10 & 8479.10 of Central Excise
Tariff Act, 1985 as complete machine and not under Sub-heading for parts.
5)
Vinar Systems Ltd. v. CC, Calcutta-II – 2001 (131) Elt 578 (Tri.Kolkata)
: - Material Handling Equipments (machines) – Cleared in CKD condition because
of impossibility and impracticability to clear complete machines in fully
finished form – Parts cleared to form a complete machine in CKD condition –
Classifiable under Heading 84.28 of Customs Tariff Act, 1975 as complete
machines and not as parts of the machined under 84.31 ibid.
The learned consultant appearing for the
Revenue, on the other hand, relies on the following decisions :-
1)
New India Industries Ltd. v. CC, Bombay – 1994 (73) ELT 723 (Tri.) =
1994 (54)
ECR 500 (T) :- Classification of goods (Customs) –
Goods to be assessed in the condition in which they are imported.
2)
Rajasthan Spg. And Wvg. Mills Ltd. v. CCE, Jaipur – 1995 (77) ELT 474
(SC) = 1995 (58) ECR 569 (SC) :- Exemption notification construable strictly –
Liberal construction which enlarges the term and scope of the notification not
permissible nor extended meaning assignable to exempted item.
3)
Paramount Centrispun Castings Ltd. v. CCE, Nagpur – 1995 (77) ELT
705 (Tribunal) = 1995 (59) ECT 260
(T) :- It is well settled that goods have to be assessed on the basis of their
form at the time of their clearance.
4)
CCE, Nagpur v. Paramount Centrispun Castings Ltd. – 1996 (83) ELT A176(SC) :- The Supreme Court Bench
comprising of Hon’ble Mr. Justice J. S. Verma, Hon’ble Mrs. Justice Sujata V.
Manohar and Hon’ble Justice G. B. Pattanaik on 3.4.1996 has dismissed the Civil
appeal Nos.8215-16 of 1995 filed by Collector of Central Excise, Nagpur against
the CEGAT Order Nmo.E/133-34/95-B, dtd.24.3.1995 and reported in 1995 (77) ELT
705 (Tribunal) (Paramount Centrispun Casting Ltd. v. Collector) referred to
above.
5)
Hindusthan Motors Ltd. v. CCE, Calcutta-II – 2001 (146) ELT 513
(Tri.Kolkatta) = 2001 (96) ECT 768 (T) :- Classification of goods- Condition of
goods in which they leave manufacturer’s factory decides the classification and
not the condition if they ;would have been completed at assesses’s factory.
6)
Vardhman Acrylics Ltd. v. CC, Mumbai – 2002 (146) ELT 604 (Tri.Delhi) :-
Classification of goods – Product is normally classified in the form it is
presented for clearance – Use of the goods is not determinant for
classification.
7) CCE, Hyderabad-III – Sanghi Polyesters Limited – 2003 (155) ELT
381 (Tri.Bang) = 2003 (110) ECR 777 (T) :- Classification of goods – Goods to
be dealt with as they are at the time of classification and not what they could
become after further processing.
8) Goodwill Electronics v. CC, Mumbai – 2004 (163) ELT 64
(Tri.Mumbai) = 2004 (112) ECT 148 (T)
:- Material in running length not treatable as parts – Wave guide to be
assessed in the form in which it is presented for assessment i.e. running
length of 20 meters and not as component/part.
7. In Queensland Alumina Limited v. Chief
Executive Officer of Customs – 2003 (AATA 290) Dr. E. K. Christie, Member of
the Australian Administrative Appeals Tribunal has succinctly described how
classification is to be done under a harmonized system based Tariff. We re-produce his observation below :-
“It is well established in common law that
classifying goods involves a two stage process. The first task is to identify the goods for what they are, as an
objective wharfside task. The second
task, once the goods have been objectively identified, is to then classify the
said goods by deciding which tariff headings describe the goods and applying
the relevant interpretative rules and notes – see Chinese Food and Wnie
Supplies Pty Ltd. v. Collector of Customs (Vic) (1987) 72 ALR 591; Re Gissing
and Collector of Customs (1977) 14 ALR 555.
In addition, the authorities make it clear that, in determining what is
the essential character of goods, it is the state or condition of the goods at
the time of importation that is the determining factor and that it is wrong to
classify goods – or to determine their essential character, by reference to the
purpose of the importer or of the goods themselves, as they would present
themselves to an informed observer : see Times Consultants Pty. Ltd. v.
Collector of Customs (Qld) (1987) 76 ALR 313 at 327”.
We also reproduce below the General Interpretative
Rule (GIR) 2(a) which has been referred to by both sides in the course of their
arguments :-
“Any reference in a heading to an article shall be
taken to include a reference to that article incomplete or unfinished, provided
that, as presented, the incomplete of unfinished articles has the essential
character of the complete or finished articles. It shall also be taken to include a reference to that article
complete or finished (or falling to be classified as complete or finished by
virtue of this rule), presented unassembled or disassembled.”
8. It is clear from the facts of the case that old and used textile
embroidery machines of 1976/1977 make have been procured from 0ne source and
new Jacquard Control Devices have been procured from another source and then
these have been shipped together in one consignment but separately packed. It is not any one’s case that these Jacquard
Control Devices were ever installed on the old textile embroidery machines before
importation or that they have been dismantled after such installation. The facts are clear that the Jacquard
Control Devices have been installed on the textile machines after importation
and customs clearance at the premises of the appellants and only thereafter,
the said machines have become computerized textile machines.
9. Based on these facts, it is not difficult
to identify the goods for what they are.
As noted in the aforecited decision of the Australian Tribunal, the
classification of the goods has to be done with reference to the state or
condition of the goods at the time of importation and not by reference to the
purpose of the importer or of the purchaser.
The Australian Tribunal further goes on to say that regard must be had
to the characteristics of the goods themselves as they would present themselves
to an informed observer. The learned
consultant for Revenue has also emphasized the word ‘as presented’ in GIR 2(a). We have no doubt in our mind that as
presented the goods were a collection of old and used textile embroidery
machines which were yet to be computerized along with new Jacquard Control
Devices. As such, the machines were not
computerized as presented at the time of importation but they have been
subsequently computerized after importation at the premises of the
appellants. The classification and
essential character of the goods under import has to be determined with
reference to the state or condition of the goods at the time of importation and
not with reference to the purpose for which the goods have been imported or the
use to which such goods are put to after importation.
10. The 12 embroidery machines were old and were
used as mechanical embroidery machines for more than 20 years by the supplier
M/s Moojin and these machines were not fitted with any computer devices were on
the other had manufacture and supplied by M/s Micro Engineering Co. Ltd. These have been fitted only subsequent to
import and clearance from the customs to make the mechanical embroidery machines
computerized. It is significant that
Shri. A. K. Kulkarni, Chief Engineer working with the appellants has in his
statement before the customs has categorically stated that he had been the
imported machines prior to import in Korea and that these were mechanical
machines and were not re-conditioned.
He has also stated that these machines have been imported with 5,000
pieces/rolls of design cards which are used only in mechanical machines, not in
computerized machines.
11.
At the time of import, the
consignment is thus seen to be consisting of the 12 old and used mechanical
embroidery machines along with 12 brand new Jacquard Control Devices. At no point of time before the old
mechanical embroidery machines. As such, these goods can not be called
computerized embroidery machines in dis-assembled condition as declared. A plea has been made on behalf of the appellants in the course of
hearing to consider the goods as computerized embroidery machines in
unassembled condition. In this context
we have examined the text of GIR 2(a).
The first part of this rule says that any reference in a heading to an
article shall be taken to include a reference to that article incomplete or
unfinished, provided that, as presented, the incomplete or finished article has
the essential character of the complete or finished article. The second part of the rule says that it
shall also be taken to include a reference to that article complete or
finished, presented unassembled or disassembled. We are concerned in this case with the second part of this
rule. We have already ruled out the
possibility of classifying the imported goods as disassembled computerized
embroidery machines as there was no prior assembly of disassembly before
import. Next point ot be considered is
whether the goods as presented can be considered as computerized embroidery
machines unassembled. The H. S.
Explanatory Note to Rule 2(a) reads as follows :-
1.
The second part of Rule 2(a) provides that complete or finished articles
presented unassembled or disassembled are to be classified in the same headings
as the assembled article. When goods
are so presented, it is usually for reasons such as requirements or convenience
of packing, handling or transport.
2.
This Rule also applies to incomplete or unfinished articles presented
unassembled or disassembled provided that they are to be treated as complete or
finished articles by virtue of the first part of this Rule.
3.
For the purpose of this Rule ”articles presented unassembled or
disassembled” means articles the components of which are to be assembled either
by means of fixing devices (screws, nuts, bolts, etc.) or by riveting or
welding, for example, provided only assembly operations are involved.
No account is to be taken in that regard of the
complexity of the assembly method.
However, the components shall not be subjected to any further working
operation for completion into the finished state.Unassembled components of a
article which are in excess of the number required for that article when
complete are to be classified separately.
4.
Cases covered by this Rule are cited in the General Explanatory Notes to
Sections or Chapters (e.g. Section XVI and Chapters 44, 86, 87 and 89).
5.
In view of the scope of the headings of Sections I to VI, this part of
the Rule does not normally apply to goods of these Sections.”
The General Explanatory Note to Section XVI reads
as under :-
“For convenience of transport many machines and
apparatus are transported in a unassembled state. Although in effect the goods are a collection of parts, they are
classified as being the machine in question and not in any separate heading for
parts. The same applies to an
incomplete machine having the features of the complete machines, presented
unassembled (see also in this connection the General Explanatory notes of
Chapter 84 & 85). However,
unassembled components in excess of the number required for a complete machine
or for an incomplete machine having the characteristics of a complete machine,
are classified in their own appropriate heading.”
A perusal of GIR 2(a) and the related Explanatory
Notes makes it clear that when a complete or finished article is presented
unassembled, the same has to be classified in the heading as applicable to the
assembled article. It also further
indicates that the article must be complete or finished but presentation in
unassembled condition is only for reasons such as requirements or convenience
of packing, heading or transport. It is
also clear that articles presented unassembled or disassembled means articles
the components of which are to be assembled either by means of fixing devices
(screws, nuts, bolts etc) or by riveting or welding and further that the
components shall not be subjected to any further working operation for completion
into the finished state.
12. By the very nature of things, in the
instant case, we have the old and used mechanical embroidery machines with
5,000 pieces/rolls of design cards which are only used in mechanical machines
and not in computerized machines and then we have the brand new Jacquard
Control Devices manufactured and supplied from another source merely shipped
along with the old machines in separate packings. It is not as if complete
computerized embroidery machines were manufactured and it was shipped in
unassembled condition for convenience of packing, handling or transport. What has been shipped is a set of over
twenty years old and used mechanical embroidery machines along with brand new
Jacquard Control Devices. Hence, as
presented, in our view, they do not merits to be classified as complete
computerized embroidery machines. It is
not material that subsequently after importation and clearance to the
appellants premises some of the un-usable parts required for mechanical working
of the old embroidery machines have been removed and the brand new Jacquard
Control Devices have been integrated to produce new entitles namely
computerized embroidery machines. Such
integration, of the imported items obtained from different sources, after importation
and subsequent use can not have a bearing on the classification which has to be
done at the point of import looking the goods as presented at that time. The items under import have to be,
therefore, classified separately and not as computerized embroidery
machines.
13. In
view of our findings as above, we are of the view that the appellants are not
entitled to exemption under Notification No.11/97 dated.1.3.1997 which applies
to any computerized embroidery machines.
14. Had the appellants succeeded in getting
the imported goods classified as computerized embroidery machines under a
single heading, then the issue of valuation would not have been relevant since
the total value declared by them has not been disputed. However, in view of our finding that the old
mechanical embroidery machines and the new Jacquard Control Devices etc. are to
be separately classified, we are of the few that the break-up of valuation
adopted by the Adjudicating Commissioner on the basis of the documents submitted
by the appellants themselves requires to be upheld for the purpose of charging
duty separately on different goods. We
order accordingly.
15. As regards the penalty, we are of the
view that in the circumstances of the case including the fact of detailed
examination by the panel of experts before allowing provisional clearance, the
same is not justified. No doubt, the
appellants had not declared the Jacquard Control Devices in the import
documents but then, they were of the impression that the entire set of goods
merited classification as a single article i.e. computerized embroidery
machines. Even the majority of the
panel of experts entertained such a view, though incorrectly as held by us. Considering the complexity of the
classification issue involved, we think it is a fit case to set aside the
penalties, by extending the benefit of doubt to the appellants.
16. The appeals are thus rejected as far
as the classification and valuation issues are concerned but are partly allowed
by setting aside the penalties.
(Pronounced
in Court on 11.6.2004)
* * * * *