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CASE NO.: Appeal (civil)  8037-8047 of 2001

PETITIONER: Commissioner of Customs, New Delhi

RESPONDENT: M/s. Phoenix International Ltd. & Anr

DATE OF JUDGMENT: 20/09/2007

BENCH: S. H. Kapadia & B. Sudershan Reddy

JUDGMENT: J U D G M E N T

KAPADIA, J.

1.      These civil appeals are filed by the Department under  Section 130E of Customs Act, 1962 against order passed by  CEGAT dated 22.12.2000 in Final Order No.411-421/2000-D  in Appeal Nos.C/286/98-D and C/302-311 of 2000-D with  E/Co/239, 257-260/2000-D whereby the Tribunal allowed the  appeals of the importers herein (respondents).

2.      The question of law that arises for determination in these  civil appeals is:

Whether shoe uppers, outer soles, insoles and sock  liners imported by M/s. Phoenix Industries Ltd.  (PIND) in the same container could be clubbed so  that it could be considered as import of the shoe  itself in semi knocked down (SKD) condition?   Whether the importer was guilty of mis-declaration  when the importer declared SKD goods as  components?

FACTS

3.      A synthetic shoe, inter alia, consists of vital parts,  namely, synthetic uppers, outer soles, insoles and sock liners  M/s. Phoenix International Ltd. (M/s. PIL) were the holders of  Quantity Based Advance Licence under which it was entitled  to import synthetic shoe uppers, PVC compounds and natural  rubber.  M/s. PIL imported synthetic shoe uppers numbering  5215 pairs on 16.2.96 declaring CIF value at Rs.19,52,401.   On the same day Phoenix Industries Ltd. (M/s. PIND) imported  soles and insoles numbering 5151 pairs worth Rs.7,07,806  (CIF). M/s. PIL had imported synthetic uppers under DEEC  Scheme whereas soles were imported by M/s. PIND under  para 22 of the EXIM Policy 1992-97.  Both the companies  imported respective items as components/parts.  On  preliminary enquiry, Department was satisfied that there was  an attempt to mislead by importing the above items separately  through two different companies as uppers and soles  constituted complete synthetic shoes in SKD form.  In the  preliminary enquiry the Department found that all the cartons  were placed in one container with the marking of "Phoenix"

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without specifying whether the container was meant for M/s.  PIL or M/s. PIND.  Hence, two show cause notices came to be  issued dated 7.5.96 for the period 21.6.95 to 4.11.95 and the  second show cause notice dated 1.7.96 for the month of  February 1996.

4.      In the show cause notices it was alleged that the parts  imported in the name of two companies were synthetic shoes  of "Reebok" brand in SKD form; that the import orders for  synthetic uppers, outer soles and insoles had been placed by  the two companies on the same Supplier in Bangkok; that the  import orders carried the same number; that, both the import  orders were signed by Mr. Bhupinder Nagpal, General  Manager of M/s. PIL; that the import invoices filed by the two  companies referred to the same invoice (proforma) dated  2.11.95; and that the import orders for synthetic shoe uppers,  outer soles and insoles were placed by Mr. Bhupinder Nagpal  on behalf of the said two companies.  According to the show  cause notices consumer items were placed in the negative list  vide para 156(A) of the EXIM Policy 1992-97 and under the  said para of consumer goods in SKD condition or Ready to  assemble condition, were required to be imported under  specific import licence; that synthetic shoes constituted a  consumer item and, therefore, required specific import licence;  that, in the present case goods in SKD condition or Ready to  Assemble condition were imported without specific import  licence despite knowledge on the part of M/s. PIL that all the  components of "Reebok" shoes like synthetic shoe uppers,  outer soles, insoles and sock liners were meant to be  assembled either by them or in their behalf and later supplied  to M/s. Reebok International Ltd. or M/s. Reebok India.  In  this connection, the Department placed reliance on the  manufacturing agreement between M/s. PIL and M/s. Reebok  International Ltd.  In the show cause notices it was further  alleged that M/s. PIL were the owners of M/s. PIND.  In the  circumstances, the show cause notices stated that M/s. PIL  had resorted to the above subterfuge of importing uppers of  "Reebok" shoes in their own name and the remaining three  components in the name of M/s. PIND in order to bypass  restriction imposed by para 156(A) of the EXIM Policy 1992- 97.  In that connection, the Department alleged that a loan of  Rs.11.7 crores was advanced by M/s. PIL to M/s. PIND,  interest free, during the year ending 31.3.95 and a loan of  Rs.7.7 crores was also advanced to the same company,  interest free, during the financial year 31.3.94.  For that  purpose reliance was placed on the balance-sheets of M/s.  PIL.  Under the above circumstances, the Department alleged,  vide the show cause notices, that M/s. PIL was the importer of  all the components, namely, synthetic shoe uppers, outer  soles, insoles and sock liners; that, as per rule 2(a) of the  General Rules of Interpretation of the First Schedule to the  Customs Tariff Act, 1975 (for short, "General Rules of  interpretation") the goods imported were not  parts/components but were SKD goods, liable to be assessed  as complete finished goods under tariff Heading 6404.19 of the  First Schedule of the Customs Act, 1975 and liable to basic  customs duty at 50% ad valorem and countervailing duty at  15% ad valorem.  Vide two show cause notices violation of  para 156(A) of the EXIM Policy 1992-97, was also alleged.  In  that connection, the Department alleged that M/s. PIL was  fully aware that import of the above parts of "Reebok"  synthetic shoes in the name of one company may give rise to  suspicion and, therefore, the imports were made through the  aforestated subterfuge.  Further, according to the show cause  notices, the value given in their import invoices did not

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represent the correct transaction value since a single  consignment meant for one importer, namely, M/s. PIL was  deliberately split up into two parts and, accordingly, valuation  had to be done by invoking rule 8 of the Customs Valuation  (Determination of Price of Imported Goods) Rules, 1988 (for  short, "Customs Valuation Rules").  In this connection, the  case of the Department was that there were no imports of  "Reebok" components in India by any other company and,  therefore, value of comparable goods was not available and,  therefore, the Department had no option but to invoke rule 8  of the Customs Valuation Rules.  Accordingly, the CIF value  was claimed at Rs.1,566.39 per pair under rule 8 of the  Customs Valuation Rules.  In the circumstances, vide the  show cause notices the importer was called upon to answer  why the benefit of Notification No.45/94-Cus dated 1.3.94  should not be disallowed; why consignments of the two  companies should not be clubbed for purposes of assessment  under EXIM Policy 1992-97 and Customs Act, 1962; why CIF  value of shoes should not be taken at Rs.1566.39 per pair;  why synthetic shoe uppers, outer soles, insoles and sock liners  be not valued at Rs.82,25,114(CIF); why the said items should  not be confiscated under Section 111(d)(l)(m) of the Customs  Act, 1962; why the aforestated four items should not be  assessed to duty under tariff Heading 6404.19 of Schedule I to  Customs Tariff Act, 1975 as synthetic shoes in SKD form  liable to basic customs duty at 50% plus CVD at 15% ad  valorem; why benefit under DEEC should not be denied and  lastly why penalty under Section 112(A) of Customs Act, 1962  should not be imposed for contravention.

5.      In reply to the show cause notices, it was stated, that the  aforestated two companies were separate independent  companies; that M/s. PIND was incorporated as private  limited company in 1992 in the name of M/s. Welcome  Leather Industries Pvt. Ltd.; that M/s. PIL was incorporated as  a private limited company in 1987; that M/s. PIL could not  begin its commercial activities for four years and it started its  business in 1991 as merchant exporter; that in 1991 M/s.  Welcome Leather Industries Pvt. Ltd. decided to sell the  company which was acquired by M/s. PIL;  that in 1992 M/s.  PIL started manufacturing shoe uppers and, therefore, though  both the companies, namely, M/s. PIL and M/s. PIND were  under the same management having common majority of  directors and shareholders, they were separate independent  companies in all respects.  According to the reply, the two  companies were separately assessed under Income Tax Act,  Sales Tax Act and Central Excise Duty.  The factories of the  two companies were located at different places.  About 500  employees were working in respective companies.  According  to the reply filed before the Commissioner, M/s. PIND was  engaged in the manufacture of leather shoes, synthetic shoes,  semi-leather shoes, outer soles etc.  M/s. PIND were registered  as a leather industry.  According to the reply, goods  manufactured by M/s. PIND including footwear were sold in  the domestic market.  According to the reply, in certain cases  footwear was got manufactured by M/s. PIL on job work basis.   According to the reply, in some cases M/s. PIND acted as job  workers for M/s. PIL.  At the same time, in other cases, M/s.  PIL were as job workers for M/s. PIND.  According to the reply,  M/s. PIL handled, during the above period, overseas sales  whereas domestic sales were done by M/s. PIND under the  authorization of M/s. PIL.  As regards the import in question,  it was stated that 5251 pairs of outer soles, insoles and sock  liners were imported by M/s. PIND from the foreign Supplier in  Bangkok.  The importer denied that M/s. PIND was a dummy

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unit of M/s. PIL as alleged by the Department.  In reply, M/s.  PIND objected to the clubbing of imports as is claimed in the  show cause notices.  In reply, it was stated that M/s. PIND  was 100% fully owned subsidiary of M/s. PIL and, therefore, it  was not a dummy company as alleged by the Department.  In  the alternative, it was submitted that even for the sake of  argument imports of two companies were clubbed, yet there  was no violation of Foreign Trade (Development and  Regulation) Act, 1992.  In reply, M/s. PIND stated that the  concept of "SKD" did not exist in respect of synthetic shoes;  that, in respect of shoes it was not possible to unassemble the  product into parts and, therefore, para 156(A) of the EXIM  Policy 1992-97 had no application to the facts of the present  case.  In this connection, it was further stated that in making  of shoes a complicated industrial process involving costly  machine, workers, technical knowhow etc. was involved and  that the finished goods cannot be manufactured without  further processing and, therefore, it is a misnomer to call  synthetic shoe uppers, soles, insoles and sock liners as SKD  packs of complete shoes.  Reliance was placed also in para  7(12) read with 156(A) of the EXIM Policy 1992-97 in respect  of the contention that "consumer goods" has been defined in  para 7(12) refers to goods like ceiling fans, cycles etc.; that  para 7(12) refers to "consumer goods" which can directly  satisfy human needs without further processing and since  synthetic shoes were not capable of being assembled without  further processing they did not attract para 156(A) of the EXIM  Policy 1992-97.  On the question of applicability of rule 2(a) of  the General Rules of interpretation, the importer stated that  the said rule was meant only for classification of goods under  the Schedule to the Customs Tariff Act, 1975; that, the said  rule cannot be used for interpretation of EXIM Policy 1992-97  or the exemption notification No.45/94-Cus dated 1.3.1994  and, therefore, the importer disputed the contention of the  Department that because of rule 2(a) of the General Rules of  the Interpretation the items imported should be construed as  SKD packs of sports shoes, therefore, according to the  importer rule 2(a) was not applicable.  Further, according to  the importer, Notification No.45/94-Cus dated 1.3.1994 gave  exemption to the items mentioned in Table A annexed thereto  which referred to sole, insole and sock liner and consequently  M/s. PIND was entitled to the benefit of the said notification.   In this connection, it was stated that goods falling under Table  A were not governed by Actual User condition.  According to  the importer the said notification was applicable to the  aforestated four items which were used in the leather  industry.  According to the importer, so long as the aforestated  items, namely, outer soles, insoles and sock liners were  imported as "parts" by M/s. PIND, exemption under the above  notification was applicable.  On the question of valuation it  was stated that the foreign Supplier in Bangkok was unrelated  to M/s. PIL and M/s. PIND; that Reebok International Ltd. had  no shares in the foreign Supplier company; that the said  foreign Supplier was not the sole Supplier of Reebok  International Ltd. and, therefore, the transaction value of the  aforestated four parts should be accepted in terms of rule 4 of  the Customs Valuation Rules.  Therefore, it was not open to  the Department to invoke rule 8 of the Customs Valuation  Rules.  Accordingly, it was prayed by the importer that the  show cause notices be dropped.  The reply of M/s. PIL and the  reply of M/s. PIND are almost identical.   

6.      By order dated 12.4.99, the Commissioner held that the  imports made by M/s. PIND of soles, insoles and sock liners  should be treated as imports by M/s. PIL, however, in view of

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the elaborate manufacturing process undertaken in the factory  to produce a complete footwear it was not possible to hold that  complete footwear in SKD condition or Ready to Assemble  condition was imported so as to contravene para 156(A) of the  EXIM Policy 1992-97; at the same time, the Commissioner  held that since the four items had to be clubbed and since the  entire operations were undertaken by M/s. PIL and since the  four items were essential components of synthetic shoes, rule  2(a) of General Rules of Interpretation stood attract.  The  Commissioner took the view, in this connection, that rule 2(a)  provides for a legal fiction to be applied to the imported goods.   It provides for the rate of duty applicable to components to be  applied as if the components were finished articles.  That,  since the imports were of items which were essential parts of  synthetic shoes the said imports were imports of synthetic  shoes in an unassembled form.  Hence, it was held that all  imports attracted duty in the present case at the rate  applicable to the footwear and not at the rate applicable to  components/parts.  Accordingly, the Commissioner held that  no duty was demandable in respect of synthetic uppers,  imported by M/s. PIL during the period 21.6.1995 to  4.11.1995.  However, for imports of soles, insoles and sock  liners made by M/s. PIND, exemption under notification  45/94-Cus dated 1.3.94 was not admissible and consequently  all the three components imported by M/s. PIND would attract  duty at the rate applicable to fully-finished footwear under  tariff Heading 64.04.  That, there was no exemption for  footwear under the said notification as it was available only to  parts of footwear.  That, since all the components imported by  M/s. PIND attracted duty at the rate applicable to fully- finished footwear, the said exemption notification 45/94-Cus  dated 1.3.94 was not applicable to the facts of this case.   

7.      In conclusion, the Commissioner passed the following  order: "The goods valued at Rs.78,79,968/- in respect of  show cause notice dated 1.7.96 representing the  imports made in the name of M/s. Phoenix  Industries Ltd. attracted confiscation.  However,  since the goods are not available, no order  confiscating the goods can be passed.  I confirm the  differential duty of Rs.16,78,891/- in respect of  imports made by M/s. Phoenix International Ltd.  and Phoenix Industries Ltd. under two bills of entry  covered under show cause notice dated 7.5.96  under Section 28(1) of the Customs Act, 1962.  The  duty is payable by M/s. Phoenix International Ltd.,  Noida.  I also confirm the differential duty of  Rs.29,14,933/- under the proviso to Section 28(1) of  the Customs Act, 1962 in respect of imports made  in the name of M/s. Phoenix Industries Ltd. during  the period 21.6.95 to 4.11.95 covered under show  cause notice dated 1.7.96.  This amount is also  payable by M/s. Phoenix International Ltd.  Thus,  the total amount of duty payable by M/s. Phoenix  International Ltd. is Rs.45,93,824/-.  I also impose  upon M/s.Phoenix International Ltd. a penalty of  Rs.10,00,000/- (Rupees Ten Lacs only) under  Section 112(a) of the Customs Act, 1962.  Any bank  guarantee or deposit made by M/s.Phoenix  International at the time of provisional release of  goods or during the pendency of these proceedings  will be adjusted towards payment of duty demanded  and penalty imposed."

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CONTENTIONS 8.      Mr. Vikas Singh, learned Addl. Solicitor General,  submitted that after clubbing all the four components the  Commissioner had erred in holding that the clubbed items did  not constitute synthetic shoes in SKD condition.  That, at the  relevant time Para 156(A) warranted all consumer goods in  SKD condition to be imported under specific import licence  and therefore, the word "SKD" had to be construed in the  manner in which the trade dealing in such matter would  interpret.  That the Commissioner should have held that the  imports were in SKD condition and since imports of SKD  shoes was a restricted item, the advance licences under which  M/s. PIL had made the imports were not applicable to the  goods in question.  Learned counsel submitted that the  Commissioner had erred in holding that the process of  manufacturing support shoes was quite elaborate and,  therefore, the four items imported did not constitute synthetic  shoes in SKD form.  Learned counsel submitted that the  Commissioner had erred in holding that there was no violation  of Para 156(A) of the EXIM Policy.  In this connection, learned  counsel urged that importation of sports shoes in SKD  condition could only be made against special import licence  and in order to circumvent the restriction in the EXIM Policy  1992-97 the above device was evolved to bifurcate and import  the items separately in the names of two different importers,  i.e., shoe uppers were imported by M/s. PIL against advance  licence whereas soles, insoles and sock liners were imported  by M/s. PIND on payment of concessional rate of duty under  para 22 of the EXIM Policy 1992-97 read with Notification  No.45/94-Cus dated 1.3.94.  Learned counsel further urged  that on clubbing tariff Heading 64.06 invoked by the importer,  was not applicable and, therefore the importer was liable to  pay basic customs duty at 50% + CVD at 15% ad valorem  under tariff Heading 64.04.  That, the said device of  bifurcation was to get the benefit of concessional rate of duty  under Notification No.45/94-Cus dated 1.3.94.  That, the  entire funding and manufacturing functions were undertaken  only by M/s. PIL which had entered into Buy-Back  Arrangement with Reebok International Ltd. and, therefore,  there was a close relationship between Reebok International  Ltd., M/s. PIL and M/s. PIND which attracted rule 8 of the  Customs Valuation Rules.  For the aforestated reasons it was  urged that the impugned decision of the Tribunal deserves to  be set aside.   

9.      Mr. V. Lakshmikumaran, learned counsel appearing on  behalf of the respondents, submitted that the Commissioner  had erred in treating M/s. PIND as a dummy of M/s. PIL.  In  this connection, it was urged that the two companies are  separate independent entities.  They were incorporated on  different dates.  They are in different business.  The domestic  market was handled by M/s. PIND whereas export market was  looked after by M/s. PIL.  M/s. PIL was the holding company  whereas M/s. PIND was a subsidiary company.  Both the  companies had separate balance-sheets.  They were registered  separately under Central Excise Act.  M/s. PIL had fulfilled its  export obligations and in recognition thereof an advance  licence was issued in its favour inter alia to import shoe  uppers and that even in the DEEC the name of M/s. PIND was  also shown as Supporting Manufacturer.  It was further  contended that para 156(A) of EXIM Policy 1992-97 was not  applicable to synthetic shoes.  It was applicable to products  like bicycles, ceiling fans etc.  In this connection, learned  counsel urged that it is over-simplification to say that if these  four parts are clipped together it would constitute a sports

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shoe.  Learned counsel invited our attention to the order of the  Commissioner which indicates complicated procedure involved  in the manufacture of a sports shoe.  Therefore, it is urged on  behalf of the respondents that in the present case there was  no import of footwear in the SKD condition and, therefore,  para 156(A) of the EXIM Policy 1992-97 was not applicable.   Learned counsel urged that even according to the  Commissioner there was no import of sports shoe in SKD  condition and, therefore, there was no violation of para 156(A)  of the EXIM Policy 1992-97.  Learned counsel urged that this  finding of the Commissioner has been confirmed by the  Tribunal, therefore, this Court should not interfere with the  concurring finding.  Learned counsel next urged that M/s.  PIND was an independent Unit.  It had imported outer soles,  insoles and sock liners under para 22 of the EXIM Policy  1992-97.  It had paid duty at the concessional rate.  Learned  counsel submitted that in the present case we are concerned  with tariff Heading 64.04 (footwear) as against tariff Heading  64.06 (parts of footwear).  Learned counsel submitted that  apart from the four parts, namely, shoe uppers, outer soles,  insoles and sock liners, there are 28 other parts domestically  procured and consumed/used in the manufacture of a sports  shoe.  He submitted that the process of manufacture was an  intricate process.  It was urged that if an error was to creep in  the manufacture of the sports shoe the manufacturer would  be liable for damages to be paid to the sportsman to whom  injury may take place on account of defect in the manufacture  of the footwear.  Accordingly, it was urged that the four parts,  referred to above, did not constitute a sports shoe (footwear)  and the Commissioner had erred in denying the benefit of  concessional rate of duty on the ground that what was  imported was in essence a complete footwear falling under  tariff Heading 64.04.  In this connection, learned counsel also  submitted that rule 2(a) of the General Rules of Interpretation  was not applicable in this case, particularly, when "parts" of  footwear came specifically under tariff Heading 64.06.  In this  connection, reliance was placed on rule 1 of the General Rules  of Interpretation which stated that the classification shall be  determined according to the words used in the headings.   Learned counsel urged that rule 2(a) of the General Rules of  Interpretation in any event cannot be used to interpret  Notification No.45/94-Cus dated 1.3.94.  It was further  contended that under Notification No.45/94-Cus dated 1.3.94  insoles and outer soles fell under Table ’A’ annexed to the said  notification.  That, items falling under Table ’A’ when imported  into India for use in the leather industry were entitled to the  benefit of concessional rate of duty and, therefore, the  Commissioner had erred in holding that insoles and outer  soles were not entitled to the benefit of concessional rate of  duty as they were used in the manufacture of synthetic shoes  which did not come under Leather Industry.  Learned counsel  submitted that M/s. PIND had imported soles, insoles and  sock liners under para 22 of the EXIM Policy 1992-97 and,  therefore, it was entitled to the benefit of the Notification  No.45/94-Cus dated 1.3.94.  Lastly, it was urged that in the  present case the Commissioner had erred in invoking rule 8 of  the Customs Valuation Rules.  In this connection, it was urged  that in this case the importer had imported the aforestated  items for the sale price.  That the import was made by two  independent companies.  That the transaction was at arm’s  length; that there was no additional consideration and,  therefore, rule 4 of the Customs Valuation Rules was alone  applicable and there was no basis whatsoever for the  Department to invoke rule 8 of the Customs Valuation Rules.   Accordingly, learned counsel submitted that the Tribunal was

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right in holding that the aforestated items were imported  separately by two independent companies and that there was  no evidence to show that the footwear in SKD condition was  imported and, therefore, in the present case importer was  entitled to the benefit of Notification No.45/94-Cus dated  1.3.94 read with tariff Heading 64.06 (parts of footwear) and,  therefore, the said items were not liable to duty at the rate of  50% and 15% basic and CVD, ad valorem.

FINDINGS 10.     We find merit in the present civil appeals filed by the  Department.  For the sake of convenience we reproduce para  22 and 156(A) of the EXIM Policy 1992-97 which read as  follow:   

"Chapter V Imports Free  Importability 22.     Capital goods, raw materials,  intermediates, components, consumables,  spares, parts, accessories, instruments  and other goods may be imported  without any restriction except to the  extent such imports are regulated by the  Negative List of Imports or any other  provision of this Policy or any other law  for the time being in force."

"PART II

156.    RESTRICTED ITEMS

A. CONSUMER GOODS

Sl.No. Description of Items Nature of  restriction All consumer goods,  howsoever described, of  industrial, agricultural mineral  or animal origin, whether in  SKD/CKD condition or ready  to assemble sets or in finished  form Not permitted to be  imported except against  a licence or in  accordance with a  Public Notice Issued in  this behalf.

11.     In the case of excise duty, the taxable event is  "manufacture".  In the present case, however, we are  concerned with the levy of customs duty.  That duty is levied  on the "act" of importation.  Therefore, intention plays an  important role in matters in which there is an allegation of  duty evasion.  In the present case, the Department has alleged  that a device was evolved by the importer showing import of  shoe uppers by M/s. PIL whereas outer soles, insoles and sock  liners imported by M/s. PIND.  A subterfuge was, therefore,  created to show that two independent companies had  imported separate parts of the footwear in order to bypass  para 156(A) of the EXIM Policy 1992-97.  Under the said  paragraph, importation of synthetic shoes in SKD condition

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could only be made against specific import licence.  M/s. PIL  was aware of the restrictions.  It was the only real importer of  all the four items. M/s. PIL had funded M/s. PIND with  interest free loans running into Rs.18 crores (approximately).   M/s. PIND was the factory of M/s. PIL (See the DEEC  certificate).  When there is an allegation of subterfuge, the  court has to examine the circumstances surrounding the  import to ascertain whether the importer had entered into  fictitious arrangement to evade customs duty.  The intention  behind the act of importation has to be probed.  In this case,  the most clinching circumstance is that there is manufacture  of the finished products, namely, "synthetic shoe" for domestic  and export markets.  M/s. PIL manufactured export quality  synthetic shoes on their own account whereas those sold in  the domestic market by M/s. PIND was also manufactured by  M/s PIL for M/s PIND.  Further, in his statement, B. Nagpal,  on behalf of the importer, has categorically stated that  synthetic uppers (imported by M/s PIL), soles, insoles and  sock liners (imported by M/s PIND) did constitute complete  shoe in SKD condition. Therefore, when we come to the  question of "intention" in the present case it becomes clear  that the entire device of bifurcation was arranged in order to  bypass the restriction imposed vide para 156(A) of the EXIM  Policy. The reply of B. Nagpal indicates that, according to the  importer, the said four components did constitute synthetic  shoe in SKD condition and in order to circumvent 156(A) the  entire device was arranged by the importer to evade duty.  Further, we find that in the reply to the show cause notices  there were no details supplied by the importer regarding the  number of units under M/s. PIL.  The statement of Bhupinder  Nagpal in the preliminary enquiry shows that there were three  units in Noida under M/s. PIL.  One Unit is in B-1C Sector 10  manufacturing "Phoenix" brand of shoes for exports.  There  was one more Unit in A-4, Sector 5 manufacturing "Reebok"  brand of shoes for exports.  It also undertook manufacturing  of shoes for domestic sales on job work basis at Sector A-37,  Sector 60 for M/s. PIND.  The third unit was M/s. PIL.  No  details of the turnover have been furnished.  No details of the  number of employees have been furnished.  The bifurcation of  the turnover between manufacture of synthetic shoes exported  and shoes sold in the domestic market was not given.  The  functional connectivity of the three units was not given.  No  reason have been given as to why M/s. PIL did not import all  the four items particularly when M/s. PIL, as stated  hereinbelow, has been in complete charge of manufacturing.   The obvious reason behind the said bifurcation was to obtain  the benefit of the Notification No.45/94-Cus dated 1.3.94.   However, the clinching circumstance is that M/s. PIL was not  only manufacturing export quality synthetic shoes but it also  manufactured as job-worker of M/s. PIND domestic quality  synthetic shoes.  Soles, insoles and sock liners were imported  by M/s. PIND and supplied as raw-material to M/s. PIL who  manufactured the synthetic shoes which were routed through  M/s. PIND to M/s. Reebok India for sale in the domestic  market.  In the circumstances, the complete manufacturing  activity was in the hands of M/s. PIL.  They manufactured  synthetic shoes sold in the export market and they also  manufactured synthetic shoes which were sold in the domestic  market.  The shoe uppers constituted an important part of the  footwear.  That part was imported under the advance licence  by M/s. PIL.  The same company got the outer soles, insoles  and sock liners in the name of M/s. PIND.  It is M/s. PIL  which ultimately manufactured synthetic shoes.  Therefore,  the entire manufacturing activity was carried out by M/s. PIL.   Therefore, it is clear that the above device of importation of

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one item by M/s. PIL and three items by M/s. PIND was a  subterfuge/fictitious arrangement intended to deceive the  Department and fraud on para 156(A) of the EXIM Policy  1992-97.  The above circumstances have not at all been  considered by the Tribunal.  In cases of the present nature,  the Tribunal should look at the entire composite picture in  order to ascertain the real intention behind the arrangement  on which the importer relies.  Lastly, the shoe uppers were  imported by M/s. PIL whereas soles, insoles and sock liners  were imported by M/s. PIND and given to M/s. PIL who along  with 28 other items (peripherals), procured domestically,  manufactured the finished product, viz., synthetic shoes.  The  entire device was undertaken to show that what was imported  were parts and not the footwear in the SKD condition.   Therefore, M/s. PIL was the only real importer of all the four  items and, in the circumstances, the Department was right in  clubbing.   

12.     It was urged vehemently even if the said four items were  clubbed together it would not result in the manufacture of the  synthetic shoes as an intricate process is required to be  adopted before the finished product stood emerged.  As stated  above, if the transaction of M/s. PIND and M/s. PIL are looked  at separately then the question of subterfuge cannot be  examined.  In the present case, interest-free loans had been  advanced by M/s. PIL to M/s. PIND.  The real importer was  only M/s. PIL.  The manufacturer was also M/s. PIL.  The  entire transaction was completed by M/s. PIL.  No reason has  been given as to why M/s. PIL could not have imported the  outer soles, insoles and sock liners under para 22 of the EXIM  Policy 1992-97 by payment of duty at the concessional rate  under Notification No.45/94-Cus dated 1.3.94.  The obvious  intention was to bypass the EXIM Policy 1992-97 and claim  benefit of exemption Notification No.45/94-Cus dated 1.3.94.   Lastly, as stated above, all four items plus 28 other items  (peripherals), domestically procured, were used in the  manufacturing process undertaken by M/s. PIL either on its  own account (in case of export) or as job-worker (incase of  domestic sales) which led to the emergence of the final  product.  Therefore, the importer was liable to be assessed  under tariff Heading 64.04 and consequently not entitled to  the benefit of exemption Notification No.45/94-Cus dated  1.3.94.  Lastly, soles and insoles as also sock liners were  imported by M/s. PIL in the name of M/s. PIND; that M/s. PIL  had an agreement with Reebok International Ltd. which had  its subsidiary in India, viz., Reebok India to whom synthetic  shoes were sold by M/s. PIL through M/s. PIND and,  therefore, the Department was right in invoking rule 8 of the  Customs Valuation Rules.  Unfortunately, none of these  aspects have been considered by the Tribunal.   

13.     We, therefore, set aside the impugned judgment of the  Tribunal.  We hold that the respondents were guilty of  violating para 156(A) of the EXIM Policy 1992-97; that the  respondents were liable to be assessed under tariff Heading  64.04 and, accordingly, they were liable to pay duty of  customs at 50% + CVD at 15% ad valorem; that the  respondents were not entitled to the benefit of concessional  rate of duty under Notification No.45/94-Cus dated 1.3.94 and  that the Department was right in invoking rule 8 of the  Customs Valuation Rules.  Accordingly, we remit only the  question of re-quantification of differential duty, redemption  fine and penalties, payable by the respondents herein, to the  Commissioner of Customs, Inland Container Depot,  Tughalkabad, New Delhi, who will decide the said issue in

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accordance with law.   

14.     Accordingly, the present civil appeals filed by the  Department stand allowed with no order as to costs.