“REPORTABLE”

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8236 OF 2002

Commissioner of Customs, New Delhi …. Appellant

Versus

Sony India Ltd. …. Respondent

J U D G M E N T

V.S. SIRPURKAR, J.

An Order by Customs, Excise & Gold (Control) Appellate Tribunal

(hereinafter called “the Tribunal” for short), allowing the appeal filed by M/s

Sony India Ltd. (the respondent herein), is in challenge at the instance of

the appellant herein.  The said appeal was filed challenging the order-in-

original  dated  30.1.1999,  passed  by  Commissioner  of  Customs,  Inland

Container Depot, Tughlakabad, New Delhi, wherein the said Authority had

confirmed the said differential duty demand of Rs.42,89,75,196/- under the

Proviso to Section 28(1) of the Customs Act, 1962 (hereinafter referred to

as  “the  Act”).   The  penalty  was  also  imposed  amounting  to

Rs.30,19,92,183/-  under  Section  112(a)  read  with  Section  114(a)  with

interest under Section 28 AB of the Act.  By the order of the Commissioner,

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the import of several parts of Colour Television (hereinafter called “CTV”

for short)  made by the appellant for the period from April  1995 to 1997

were  treated  as  import  of  complete  CTV  Sets  for  the  purpose  of

assessment by the Commissioner.

2. Initially,  there was difference of  opinion amongst the two Learned

Members of the Tribunal  on the application of Rule 2(a) of the General

Rules for Interpretation under First Schedule of Import Tariff, on the basis

of  which  the  order-in-original  was  passed.   Accordingly,  the  following

questions were referred to the larger Bench of the Tribunal:-

“Whether the goods in question are components and cannot be treated as complete colour Television sets and hence the duty  demand,  confiscation  of  penalty  are  unsustainable  as held by Ld. Member (J.)?

OR

Whether the issue as to the circumstances under which Rule 2 (a) of the Interpretative Rules can be applied, as to whether the benefit of Notification exempting components only will be available, if the product is considered as complete or finished article by virtue of deemed provision of Rule 2(a), and whether the change effected in Explanatory Notes of HSN will give only prospective application or it  will  be applicable for the earlier period also, requires to be referred to a Larger Bench, as held by Ld. Member (T.)?”

Ultimately, the larger Bench seems to have agreed with the view expressed

by the Ld. Member (Judicial) to the effect that components imported by the

appellant could not be treated as complete CTV Sets.  The larger Bench

also held that the duty demand, direction for confiscation and imposition of

penalty  were  unsustainable  in  law.   Accordingly,  the  order-in-original

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passed by the Commissioner was set aside, allowing the appeal.  It is this

order of the larger Bench of the Tribunal, which is in challenge before us.

3. Shri  Vikas Singh,  Ld.  Additional  Solicitor  General  (ASG) of  India,

painstakingly took us through the impugned order of the Tribunal, as also

to the records including the Show Cause Notice dated 4.3.1997.  The main

plank of the argument is based on that Notice, whereunder the Revenue

asserted the evasion of duty on the part of the respondent on the CKD

(completely knocked down) Kits of  CTVs by misdeclaring them as CTV

components and also proposed their confiscation under Section 111(m) of

the Act.  In addition, the Revenue also asserted that the respondents had

contravened the provisions of the Exim Policy 1992-97 by importing CKD

Kits of the CTVs without an import license and thereby making the goods

liable for confiscation under Section 111(d) of the Act.

4. The  Show  Cause  Notice  further  refers  to  an  exhaustive  list  of

components imported by the respondents which go into the manufacture of

CTVs of  models  KV-2185  GE,  KV-2197  PF  and KV-2167 MT.   Heavy

reliance  is  placed  on  the  First  Purchase  Order  No.  IN-31PI-10  dt.

27.11.1994  placed  by  Sony  India  Pvt.  Ltd.  on  Sony  International

(Singapore) Ltd.  It was on the basis of this order, which was treated to be

an order for 1500 CKD Kits of CTVs for the model KV-2185 GE only.  The

Show Cause Notice also gives not only the quantity actually imported, but

also points out the quantity required for 1500 CTVs.  The list consists of

100 such components and it was the assertion on the part of the Revenue

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that  all  these components were nothing,  but  1500 CTVs,  for  which the

order  was  placed  on  27.11.1994.   There  are  some  other  assertions

regarding some other items, which were once used, but discontinued to be

used, probably with an idea to show that the components mentioned in the

list were nothing, but 1500 CTVs.  It was, however, clarified that the items

at  S.Nos.  93,  94,  95,  97  and  98  could  not  be  considered  to  be  the

components or parts of CTVs.  The assertion in the Show Cause Notice,

therefore,  is  that  though the respondent  was importing the CKD Kits of

CTVs for their assembly in India, which attracted higher customs duty, the

said imports were being shown as the imports of the components of the

CTVs, attracting lesser customs duty and as such, the respondent was

liable to pay not only the differential duty, but also the penalties on account

of the clandestine imports.  A reference was also made in paragraph 8 of

the  Show  Cause  Notice  to  Rule  2(a)  of  the  General  Rules  for  the

Interpretation of the First Schedule to the Customs Tariff Act, 1975 and it

was conveyed that any reference in a heading to an article should be taken

to  include  a  reference  to  that  article  in  complete  or  unfinished,  if  the

incomplete or unfinished article has the essential character of the complete

or finished article.  It was on this basis that the respondent was accused of

misdeclaration of imported goods, as also breach of the Exim Policy.  A

reference in the said Show Cause Notice was made to the reply dated

20.9.1996.  However, relying fully on Rule 2(a), it was asserted that the

respondent was guilty of misdeclaration and confiscation of the imported

CKD Kits.   In  short,  the assertion was that  though the respondent had

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imported the CKD Kits and had placed order therefor, numbering 1500 in

all,  in  that  order,  it  had  paid  a  lesser  duty,  showing  it  as  import  of

components, on which there was lesser duty, and as such, the respondent

had breached the provisions of the Act and had made itself liable for the

confiscation  and imposition  of  differential  duties  and also  the  penalties.

Shri Vikas Singh, Ld. ASG heavily relied on Rule 2(a), which was referred

to by us in the earlier part of the judgment.  In addition to this, the assertion

of  Shri  Singh was that  the  question was considered by this  Court  and

decided in favour of Revenue in a decision reported in (2007) 10 SCC 114

Commissioner of Customs, New Delhi Vs. Phoenix International Ltd.

& Anr.  

5. Shri V. Lakshmi Kumaran, learned counsel appearing on behalf of

the  respondent,  however,  pointed  out  that  the  Tribunal  had  correctly

deduced  that  the  components  imported  by  the  respondent  could  not

amount  to  the  CKD  Kits.   According  to  him,  there  was  no  evidence

available to suggest that the respondent had used these very components

in the manufacture of the CTVs.  He disputed the claim on the part of the

Revenue that these components could and did form the complete CKD Kits

of 1500 CTVs.  He pointed out that these could not have been used, as

they  were  imported  in  the  manufacture  of  CTVs  and  there  was  a

complicated  manufacturing  process  involved,  according  to  which  the

components which were imported, had to be treated and processed before

they could be used for the manufacture of CTVs.  He further points out that

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not only the customs duty was paid on these components, treating them as

components, but the respondent had also paid substantial excise duty on

the manufacture of these CTVs in Crores, which belied the claim of the

Revenue that these were not merely the components, but amounted to the

import  of  CKD  Kits  of  CTVs.   Shri  Lakshmi  Kumaran  also  seriously

disputed the interpretation, put forward by the Revenue on Rule 2(a) and

asserted that Rule 2(a) was not even applicable in the present case.  We

were  taken  through  number  of  entries  and  the  notes  by  the  learned

counsel.  He also relied on number of decisions of this Court, as also the

High  Courts  and  finally  submitted  that  the  decision  in  Phoenix

International Ltd. Case (cited supra) was not applicable to the facts of the

present case, as the said decision turned on its own facts, peculiar to that

case.   It  is  on  this  backdrop  that  we  have  to  consider  the  questions

involved.

6. The Learned ASG opened up his arguments by a proposition that

the issue involved in the present Appeal is covered fully by the judgment of

this court in Phoenix International Ltd. Case (cited supra).  We would first

consider as to whether all the issues are closed in favour of the Revenue in

that  judgment.   This  was  the  case,  where  various  parts  of  the  shoes,

namely shoe uppers, outer soles, insoles and sock liners were imported by

M/s. Phoenix Industries Ltd. (“PIND” for short) in the same container.  It

was the claim of the Revenue that they could be considered as the import

of the shoe in SKD (Semi knocked down) condition.  However, the importer

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had declared them only to be the components.  It was on that basis that the

matters proceeded.  The Court first came to the conclusion that a synthetic

shoe consists of the vital parts, namely, the synthetic shoe uppers, outer

soles,  insoles and sock liners.   M/s Phoenix International  Ltd. (“PIL” for

short) had the license under which it was entitled to import synthetic shoes

uppers, PVC compounds and natural rubber.  However, the importer PIL

had imported 5215 pairs on 16.1.1996 on a declared value, while on the

same day, PIND imported soles and insoles numbering 5151 pairs.  The

Court  noted that  while  PIL  had imported synthetic  uppers under  DEEC

Scheme, the PIND had imported the soles under Exim Policy, 1992-97.

Therefore,  the  Department  was  satisfied  that  there  was  an  attempt  to

mislead  by  importing  the  above  items  separately  through  two  different

companies, but in fact, it amounted to the import of the complete synthetic

shoes in SKD form.  The Court also noted that all the cartoons were placed

in one container with the marking of “Phoenix” without specifying whether

the container was meant for PIL or PIND.  The Court also noted that in the

Show Cause Notice, it was claimed that the import orders had been placed

by the above two companies with the same supplier in Bangkok and that

both  the  import  orders  were  signed  by  Mr.  Bhupinder  Nagpal,  General

Manager of PIL.  It was also alleged in the Show Cause Notice that import

invoices filed by the two companies referred to the same proforma invoice

dt. 2.11.1995, which was placed by Mr. Bhupinder Nagpal on behalf of both

the  companies.   The  Court  also further  noted that  in  the  Show Cause

Notice, it was specifically pointed out that the consumer items were placed

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in the negative list vide Para 156(A) of Exim Policy, 1992-97 and under the

said  Para,  the  consumer  goods  in  SKD  form  or  ready-to-assemble

condition were required to be imported under specific import license and

that the synthetic shoe amounted to a consumer item and as such, had

required specific import license and, therefore, it was further alleged in the

Show Cause Notice that the importer had imported the goods in SKD form

or ready-to-assemble condition without specific import license.  The Court

further noted that in the Show Cause Notice, it was further alleged that the

PIL  had  resorted  to  the  above  subterfuge  by  importing  the  uppers  of

“Reebok” shoes in their own name and the remaining three components in

the name of PIND in order to bypass restriction imposed by Para 156(A) of

Exim Policy.  The Court also noted that the Department had alleged in the

Show Cause Notice that a loan of Rs.11.7 crores was advanced by PIL to

PIND which was interest free loan during the year ending 31.3.1995 and a

loan of Rs.7.7 crores was also advanced to the same company, which was

also interest free during the financial year ending 31.3.1994.  The Court

noted that it was under these circumstances it was alleged that the good

imported were not parts or the components, but, were SKD goods, liable to

be assessed as complete finished goods under Tariff Sub-heading 6404.19

of the First Schedule of the Customs Tariff Act, 1975 and was liable to the

higher duty ad valorem and countervailing duty at 15% ad valorem.  The

Court further referred to the replies sent by PIND and PIL and came to the

conclusion that in that case, the intention would play important role, since it

was  the  case  of  duty-evasion  on  imports.   The  Court  came  to  the

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conclusion  that  it  was  clear  that  the  entire  device  of  bifurcation  was

arranged in order to bypass the restrictions imposed vide Para 156(A) of

the Exim Policy and the importer had found out the device for evading the

import duty.  The Court further wondered as to why the three units of PIL

did  not  import  all  the  four  items  when  it  was  in  complete  charge  of

manufacturing  the  said  shoes.   The  Court,  therefore,  came  to  the

conclusion that the bifurcation was unnatural and it was cleared that if the

imports of two companies,  namely, PIND and PIL were clubbed, it  was

nothing, but the import of the shoes, which was in the negative list.  The

Court wrote the finding that:

“Therefore, it is clear that the above device of importation of one  item  by  PIL  and  three  items  by  PIND  was  a subterfuge/fictitious  arrangement  intended  to  deceive  the Department and fraud on Para 156(A) of Exim Policy, 1992- 97.”

It was under these circumstances that the Court came to the conclusion

that the imports made by the two companies were fraudulent and with the

sole objective to deceive the Department.

7. Though, the Ld. ASG heavily relied on this case to draw a parallel

with  the  present  case,  we  are  of  the  clear  opinion  that  the  principles

emerging out of the decision of  Phoenix International Ltd. Case (cited

supra)  would have to be restricted to the facts  in  that  case.   Unlike in

Phoenix International Ltd. Case (cited supra), there is no allegation of

fraud against the present assessee.  There is a complete absence of any

such device or “subterfuge” in the present case, nor is there any allegation

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of the sort.  Again the further point of differentiation is that in that case, the

Court  was  dealing  with  the  consumer  goods  like  shoes  and  that  was

included in the negative list, whereas, the CKD in the present case (if at all

it is to be CKD which was imported), was not in the negative list, it was in

the restricted list.  In our opinion, the other differentiating feature and the

most important one, in our opinion, is that while the parts imported by the

assessee in this case could be independently used as the spare parts or

sold in the market, that was not the case in  Phoenix International Ltd.

Case (cited supra), at least there is no finding to that effect in  Phoenix

International Ltd. Case (cited supra).  It was very fairly admitted by the

Ld. ASG that the parts imported could be independently utilized or sold in

the  open  market,  which  was  not  the  case  with  the  parts  involved  in

Phoenix International Ltd. Case (cited supra).  The Ld. ASG also very

fairly admitted that there was a specific fraud alleged and proved on the

basis of which the Court came to the conclusion that this was nothing, but a

device  to  deceive  the  Revenue.   We  cannot  also  ignore  the  factual

panorama in Phoenix International Ltd. Case (cited supra) where all the

parts imported both by PIL and PIND came in one and the same container

on one and the same day, which was not the case here, as the parts in the

present  case  came  during  22  months  on  different  dates  in  94

consignments.  A feeble attempt was tried to be made by the Ld. ASG to

suggest  that  all  these  imports  were  based  on  a  single  order  dated

27.11.1994, in which the figure of 1500 is found to be ordered.  However, it

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was pointed out by Mr. V. Lakshmi Kumaran that in the present case, there

is no specific finding that all  the parts imported could manufacture 1500

CTVs. It was also pointed out by the Ld. Counsel for the respondent that

much  more  number  of  CTVs  were  manufactured  on  the  basis  of  the

imports.  On the backdrop of all this, we would have to conclude that the

Phoenix International Ltd. Case (cited supra) must be restricted to the

facts  involved  therein,  which  cannot  be  matched  with  the  facts  in  the

present case.  In the Phoenix International Ltd. Case (cited supra), it was

clear  that  the  imports  of  the  components  perfectly  matched  with  the

number  of  shoes,  which  could  be  prepared  from  those  imported

components.  There is a finding to that effect in the decision of  Phoenix

International Ltd. Case (cited supra).  However, on that backdrop, when

we see the list of components as mentioned in the Show Cause Notice, it is

clear that out of the 100 imported components, the number does not match

with the components required for manufacture of 1500 CTVs in case of at

least  21 items.   This  is  another  distinguishing  feature.   In  our  opinion,

therefore, the arguments of the Ld. ASG that the  Phoenix International

Ltd. Case (cited supra) decides the question involved here in favour of

Revenue, must be rejected.

8. Ld.  ASG  drew  our  attention  to  the  order  passed  by  the

Commissioner, who had held that there was a violation of Exim Policy for

period  after  25.3.1996.   It  was  pointed  out  that  the  Commissioner  had

relied on Rule 2(a) and on that basis, he held that the said violation was

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after 25.3.1996.  As per Rule 2(a), the components imported had to be

treated as CTVs, which attracted the higher duty as also the penalty, since

the  duty was paid  only  on  the  basis  of  the  fact  that  it  was a  duty  on

components only.   

8A. It must be better to see some facts.  It must be remembered here

that the respondent had clarified that in the first year of operation with the

respondent  Sony  India  Ltd.,  a  wholly  owned  subsidiary  of  Sony

Corporation, Japan, after liberalization in 1991 wanted to set up a large

manufacturing facility for consumer goods like CTVs and audio products.

They  had  clarified  in  their  application  before  the  Foreign  Investment

Promotion Board (“FIPB” in short) that in the first year of operation, there

will  be  no  indigenization  and  there  will  be  a  gradual  increase  in

indigenization.  It was on that basis that the respondent obtained industrial

license from the  Secretariat  of  Industrial  Approval  (“SIA”  for  short)  and

applied for import license for CRT and PCB, since the same were in the

restricted list.  All  the other components were freely importable in India.

The respondent obviously used Sony Singapore as their indenting agent

because Sony Singapore had a close proximity with the approved vendors

of  Sony Corporation situated in  countries  like Japan,  Taiwan,  Thailand,

Indonesia,  Malaysia,  China  etc.   All  these  vendors  supplied  the

components  on  the  basis  of  Minimum  Order  Quantity  (MOQ)  for  the

optimum utilization of containers, as also for the reduction in the transport

costs,  standardizing  the  manufacture  and  dispatch  procedures.   The

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advanced licenses were issued by the Director General of Foreign Trade

(DGFT)  for  import  of  components  duty  free  by  availing  the  benefit  of

notification  79/65-Cus  dt.  31.3.1995.  A  Duty  Entitlement  Exemption

Certificate (DEEC) passbook was also maintained and it was on this basis

that over a period of 22 months, 94 Bills of entry were filed for importing the

various components, concerning the present case.   

8B. The components were assessed under different tariff  headings by

applying Section Note 2 to Section XVI.  It is an admitted position that the

PCBs which were in the restricted list, were further processed to convert

them into Motherboard, which was to be used in the assembly line for the

manufacture  of  CTVs.   It  is  the  case  of  the  respondent  that  they

manufactured  CTVs  at  their  Plant  and  they  were  cleared  for  home

consumption on payment of excise duty and a percentage of them were

also  exported  under  bond.   There  is  also  no  complaint  about  the

indigenization and it is the case of the respondent that they cleared 52,640

and 1,26,009 units of CTVs and paid an excise duty of more than Rs.49

crores.   As  promised,  the  respondent  also  made  the  exports  and  the

entries to that effect were made in the DEEC Pass book.   

8C The concerned Show Cause Notice dated 4.3.1997 was restricted

only to the 94 consignments of the components of CTVs imported by the

respondent  and it  was proposed to club all  these 94 consignments.   A

detailed reply was filed and it was asserted by the respondent that there

was no violation of Exim Policy, since the goods were not in CKD/SKD

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condition.  It was then asserted by the respondent that Rule 2(a) could not

have been invoked, as it was tried to be done, since the import took place

over a period of 22 months in 94 lots in containers containing different parts

sourced from different countries.  As has already been stated earlier, the

Commissioner applied Rule 2(a) for the period subsequent to 25.3.1996.

There is a clear finding given by the Commissioner that before 25.3.1996,

there was no breach of Exim Policy by the respondent.  Therefore, it  is

clear that everything depended upon the applicability of Rule 2(a) and it

was solely on that basis that the breach of Exim Policy also was alleged for

the period prior to 25.3.1996 when the said Rule came to the anvil.  It must

be noted here that against the finding of the Commissioner that there was

no breach of Exim Policy by the respondent prior to 25.3.1996, there is no

appeal filed by the Revenue and that finding had become final.  Therefore,

all  the difference, which was made, was owing to Rule 2(a).  We have

already clarified that it  is for this sole purpose that Rule 2(a) was relied

upon by the Department,  because such reliance alone could justify  the

Department’s stand that the components would have to be treated as CTVs

and as such, it would attract more duty.  There is no difficulty in holding that

the imports were perfectly in order and under the proper import license.  At

this juncture, we must also appreciate the finding of the Commissioner that

the goods imported were sourced from different countries and the imported

components were not in CKD form, at least prior to 25.3.1996.   

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9. It  is then only due to Rule 2(a) that these components are being

treated as the CTVs and that is the main plank of the argument of Mr. kas

Singh, Ld. ASG.  We would, therefore, consider the implication of Rule 2

(a).  Rule 2(a) is as under:-

“Any reference in  a  heading to  an article  shall  be taken to include a reference to  that  article  incomplete  or  unfinished, provide that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. 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 dis- assembled.”

The Ld. ASG, therefore,  suggests that  the articles though were not the

CTVs in CKD form and were incomplete or unfinished ones, they had the

essential character of complete   or finished   CTVs and applying this Rule,

every such component, would have to be taken as an import of CTV.  The

Ld. ASG heavily relied on the second part of the Rule, starting from words

“It  was  also  to  be  taken  to  new  reference………….”   He  says  that

every component whether it is complete or finished and which is presented

in unassembled or dis-assembled condition, would have to be taken as the

finished article, like CTVs in this case.  In our opinion, this argument is

completely illogical and again that is not the import of the language of the

Rule.  If the argument of the Ld. ASG has to be accepted, then we would

have to concentrate only on the later part of the Rule, ignoring the first part

of the Rule and such dissection, in our opinion, is not possible.  The sine

qua non for the application of this Rule is that any imported article, which is

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“as  presented”,  must  have  the  essential  character  of  the  complete  or

finished article.”  This condition cannot be ignored and we cannot allow the

reading only of the second part beginning with words “It was also to be

taken to new reference………..” for application of the Rule.  The Rule must

apply as a whole.  Ld. ASG was not able to point out as to how the first

condition can be satisfied in the present case.  A mere PCB or a CRT, in

our opinion, under any circumstances, cannot be held to have essential

character of the CTV.  It is only when this first condition is satisfied that the

remaining  clause  would  have  to  be  read  and  thereby,  the  words  “that

article” used in the later part would have to pass the test of the opening

words of the clause “as presented, the incomplete or unfinished article has

the  essential  character  of  the  complete  or  finished  article”.   Once  this

condition is satisfied then the further clause is activated, suggesting that

even when such article is  in disassembled or  unassembled condition,  it

would still  be taken to be a complete article.  Therefore, essentially the

second part would come into play provided the component parts intended

to make up the finished product are all presented for customs clearance at

the same time which is not the case here.

10. In  Phoenix International Ltd. & Anr. (supra) these conditions in

Rule 2(a) were fully satisfied inasmuch as the spare parts of the shoes

could formulate into a full pair of shoes.  Though the learned Judges did

not refer to that specifically in their judgment, the facts clearly suggest that

Rule 2(a) was fully applicable in that case.  This is one more reason why

16

the decision in  Phoenix International Ltd. & Anr. is different on facts

from the present case.

11. Again the meaning of terms “as presented” in Rule 2(a) would

clearly imply that the same refers to presentation of the incomplete or

unfinished or unassembled or dis-assambled articles to the customs

for  assessment  and  classification  purpose.   It  is  also  a  settled

position in law that the goods would have to be assessed in the form

in which they are imported and presented to the customs and not on

the basis of the finished goods manufactured after subjecting them to

some process after the import is made.  In the reported decision in

Vareli Weaves Pvt. Ltd. v. Union of India [1996 (83) ELT 255 (SC)]

the question was as to whether the countervailing duty was liable to

be left on the imports made by the assessee at a stage they would

reach subsequent to their import after undergoing a process.  It was

contended that such goods could be subjected to duty only in the

State in which they were imported.  It was held that the countervailing

duty must be levied on goods in the State in which they are when

they  are  imported.   This  was  on  the  basis  of  Section  3  of  the

Customs Tariff Act.  Though there is no reference to Rule 2(a), in our

opinion,  the  same  Rule  should  apply  subject  ofcourse  to  the

applicability of the Rule.  We have already held that the Rule is not

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applicable.   Similar  view was taken in  Dunlop India and Madras

Rubber Factory Ltd. v. UOI [1982 (13) ELT 1566 (SC).   

12. Shri Lakshmikumaran  argues on the basis of a German Court

decision on which the Tribunal also relied upon.  According to the

learned counsel in that decision Rule 2(a) was considered and the

Court took the view that the article is to be considered to be imported

in unassembled or disassembled where the component parts, that is

the parts which may be identified as components intended to make

up the finished product  are all  presented for customs clearance at

the same time.  The interpretation that we have given to Rule 2(a)

would mean that Rule 2(a) would be applicable only and only if all the

components which are intended to make a final product would have

to be presented at the same time for customs clearance.   Such is

not  the  case in  the present  situation  where the goods have been

brought in 94 different consignments.    

13. In Union of India v. Tarachand Gupta & Sons [(1971) 1 SCC

487] the question was whether in respect of the goods covered by

Entries  294  and  295  of  Schedule  I,  the  import  could  have  been

treated under  Entry  294.   The Court  held that  when the Collector

examines the goods imported under a licence in respect of goods

covered by Entry 295, he has to ascertain as to whether the goods

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are parts and accessories and not whether the goods though parts

and  accessories  are  so  comprehensive  that  if  put  together  would

constitute  motocycle  and  scooters  in  CKD  condition.   The  court

further held that it cannot be said that if the goods were so covered

by Entry 295 that when lumped together they would constitute other

articles, namely, motor-cycles and scooters in CKD condition.  Such

a  process,  if  adopted  by  the  Collector,  would  mean  that  he  was

inserting  in  Entry  295,  a  restriction  which  was not  there  and  that

would tantamount to making a new entry in place of Entry 295.  The

Court explained the term “CKD” in para 11 and observed in para 12

that merely because the goods imported, if assembled, would make

motor-cycles and scooters in CKD condition, it would not mean that

there was breach of Entry 294 if the imports under Entry 295 was a

valid  import.   What  is  important  for  the  present  case  are  the

observation in para 13 to the following effect:

“Therefore, the mere fact that the goods imported by them were  so  complete  that  when  put  together  would  make them motor-cycles and scooters in CKD condition, would not  amount to a breach of  the licence or of  Entry 295. Were that to be so, the position would be anomalous as aptly  described  by  the  High  Court.   Suppose  that  an importer  were  to  import  equal  number  of  various  parts from  different  countries  under  different  indents  and  at different  times,  and  the  goods  were  to  reach  here  in different consignments and on different dates instead of two  consignments  from  the  same  country  as  in  the present case.  If the contention urged before us were to

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be correct, the Collector can treat them together and say that  they would constitute  motor-cycles and scooters in CKD condition.  Such an approach would mean that there is in Entry 295 a limitation against importation of all parts and  accessories  of  motor-cycles  and  scooters.   Under that  contention,  even if  the importer  had sold away the first consignment or part of it, it would still b e possible for the Collector to say that had the importer desired it was possible  for  him  to  assemble  all  the  parts  and  make motor-cycles and scooters in CKD condition…..”

Relying on this case and referring further to the case of Girdhari Lal

Bhansidhar v.  Union  of  India [(1964)  7  SCR  62] which  was

distinguished in Tara Chand’s case, the learned counsel also drew

our attention to the judgment in Sharp Business Machines v . CCE,

Bangalore [(1991) 1 SCC 154] as also the judgment of the Division

Bench of the Calcutta High Court in the case of  Union of India v.

HCL Ltd. (unreported order).   On this basis the learned counsel

says that the imports made in 94 consignments could not have been

clubbed together for the purposes of holding that there was a breach

by the importer  of  the Exim Policy.   The complaint  of  the learned

ASG was that all these judgments do not refer to Rule 2(a) as Rule 2

(a) was not on the anvil when these judgments were delivered.  That

may be  true  but  the  principles  of  law emerging would  still  apply.

Therefore, the clubbing of all 94 consignments of different dates was

not permissible.  

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14. We have already held that in this case the goods brought were

not having the essential character of CTVs.  We do not find anything

to take a view that the goods were in unassembled or dis-assembled

condition  and  they  should  be  taken  to  be  the  complete  CTVs,

particularly when there is no finding recorded  anywhere on facts that

all  these goods could make 1500 CTVs.  However, we accept the

argument  that  the  goods  brought  in  different  consignments

separately on the basis of valid import licences would not attract the

import  duty as if  they were the finished goods.  We have already

referred to this aspect vis-à-vis the facts in  Phoenix International’s

case where the goods were brought in one and the single congignment

and  they  were all  brought  together  though they  were  imported  by  two

companies, i.e., PIND and PIL fraudulently.

15. Shri Lakshmikumaran, learned counsel for the respondent also drew

our attention to the HSN Explanatory Notes as it stood prior to 1997 which

is as under:

“(VII) 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 simple fixing devices (screws, nuts, bolt, etc.) or by riveting or welding, for example,  provided  only  simple  assembly  operations  are involved.”

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Learned counsel further points out that in a decision in CCE v. Woodcraft

[(1995) 3 SCC 454] this Court took the view that HSN Explanatory Notes

should be referred to for  understanding the true scope and meaning of

expressions used in the Customs Tariff.   He further points  out that  the

Revenue did not dispute the fact that complicated processing of imported

parts had to be done before they could be fit in the assembly of CTVs.

Shri Vikas Singh, learned ASG also did not dispute this fact  during the

debate before us that a complicated process had to be exercised before

these components could be brought  in  use for  CTVs.  There is also a

specific  finding  by  the  Tribunal  on  this  issue.   In  that  view  since  the

concerned Explanatory Note was applicable, there would be no question of

treating these notes to be in unassembled or disassembled condition since

a complicated process had to be exercised and then before it  could be

used for the assembly of the CTVs.  Ofcourse this Explanatory Note was

further amended by adding the words “no account is to be taken in that

regard  of  the  complexity  of  the  assembly  method.   However,  the

components would not be subjected to any further working operation for

completion into  the finished stage”.   It  is  an admitted position that  this

amendment was not there and therefore, the complexity of the assembly

method would have to be taken into consideration atleast in case of the

present  goods  since  the  concerned  period  is  pre  1997  period.   The

Tribunal has correctly held that the HSN Explanatory Notes to Rule 2

(a) had to be applied while considering the relevant Tariff Entry.  It

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has also correctly held after considering the whole process that the

process  involved  in  the  user  of  the  components  is  the  complex

manufacturing  process  during  which  many  components  are

subjected  to  working  operation  requiring  sophisticated  machinery

and skilled operators.  Further it has correctly assessed the effect of

the  amendment  of  HSN  Explanatory  Notes  which  came  on

14.3.1997.  We approve of the finding given by the Tribunal in para

25 of its order which takes into account the fact that there was no

amendment to Clause (v) while this  is amended to the effect  that

complexity of the assembly method was made irrelevant.  However, it

was made clear that the components would not be subjected to any

further working operation for completion in the finished state.  The

Tribunal has referred in details to the manufacturing process to show

that  some of the components require further  working operation for

completing the manufacturing process and further that CTV is not a

machine which is presented in assembly for the sake of convenience

of packing, handling or transport.  We are, therefore, in agreement

with the finding that even applying the amended HSN Explanatory

Notes the position would be no different.

16. Our attention was invited to a very interesting decision reported

in Modi Xerox Ltd. v. CCE, New Delhi (1998 (103) ELT 109] which

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was confirmed by this Court in 2001 (ELT) A 91 (it must be noted

that the decisions in     Woodcraft Products   is specifically confirmed in

this decision).   In this case, the Tribunal  had relied on  Tara Chand’s

case as also the CC v. Mitsuny Electronics Works [1987 (13) ELT

345 (Cal. HC)] which we have made reference in the earlier part of

this  judgment.   The  Tribunal  had  held  that  the  fax  machine  in

completely knocked down condition imported by the appellant being

not a fax machine but part thereof,  the benefit  of exemption under

notification  No.59/88/Cus.  Dated 1.3.1988  would  not  be  available.

Very interestingly, it was claimed by the importer that it had imported

the fax machine and not the components obviously because the duty

payable on the components was more.  The Tribunal came to the

conclusion that in view of Section Note 2 to Section XVI Rule 2(a)

would not apply and confirmed the import of goods as components.

While interpreting Explanatory Note to Rule 2(a),  the Tribunal had

held  that  this  Rule  would  apply  only  when  the  imported  articles

presented in unassembled or disassembled can be put together by

means of simple fixing device or riveting or welding.  It came to the

conclusion that fax machines were not the type of goods which were

normally  traded  or  transported  in  knocked  down  condition  and

therefore, the imports  were that of the components and not of fax

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machines.  Shri Lakshmikumaran also invites our attention to the fact

that Chapter 64 dealing with footwear does not have a note similar to

Note 2 in Section XVI.  Thus this position would render support to the

proposition  that  Rule  2(a)  would  apply  only  when  the  imported

articles presented unassembled or disassembled can be put together

by means of simple fixing device or by riveting or welding.  We have

already  pointed  out  in  the  earlier  part  of  our  judgment  that  the

complicated process would be required for the user of those parts.

17. Lastly,  we  must  take  stock  of  the  argument  of  Shri

Lakshmikumaran that Section Interpretative Rule 2(a) would not be

applicable at all in this case.  For this he invited our attention to Rule

1 of Interpretative Rules as also to the decision in Simplex Mills v.

Union of India [2005 (181) ELT 345 (SC)] wherein this Court had

held in para 11 as under:

“11. The rules for the interpretation of the Schedule to the  Central  Excise  Tariff  Act,  1985  have  been  framed pursuant  to  the  powers  under  Section  2  of  that  Act. According to Rule 1 titles of sections and chapters in the Schedule are provided for ease of reference only. But for legal  purposes,  classification  “shall  be  determined according to the terms of the headings and any relevant sector or chapter Notes”.  If neither the heading nor the notes  suffice  to  clarify  the  scope  of  a  heading,  then it must  be  construed  according  to  the  other  following provisions contained in the Rules.  Rule-I gives primacy to the Section and Chapter  Notes along with terms of  the headings.  They should be first applied.  If no clear picture

25

emerges  then  only  can  one  resort  to  the  subsequent rules.”

Relying on this the further contention of the counsel is that Section

Note 2 of Section XVI provides mandate for classification of the parts

of  machines  falling  under  Section  XVI.   In  terms  of  Rule  1  of

Interpretative Rules, invocation of Rule 2(a) for certain categories of

goods covered in Section XVI like the goods of CTVs are prohibited.

For  this  the learned counsel  relied on the decision in  Modi  Xerox

(supra).  In that view the learned counsel says that Rule 2(a) would

not be applicable at all.  This question needs no consideration here

particularly in view of the interpretation that we have given to Rule 2

(a).   On facts,  we have already found that  Rule 2(a) would not  be

applicable to the present case since there is no question of the goods

having the essential character of CTVs.  In that view, the question of

applicability of Section 2(a) on this account need not be gone into in

this judgment.

18. We also approve of the reliance by the Tribunal on the reported

decision  in  Susha  Electronics  Industries v.  CC [1989  (39)  ELT

585], Trident Television Pvt. Ltd. v. CC [(1990) 45 ELT 24], Vishal

Electronics Pvt. Ltd. v.  CC, Bombay [1998 (102 ELT 188],  Sharp

26

Business  Machines (supra)  and  the  judgment  of  the  Calcutta

High Court in HCL Ltd. (supra).

19. Accordingly,  we  are  of  the  clear  opinion  that  the  Tribunal’s

judgment needs no interference.  We accordingly confirm the same

and dismiss the present appeal. In view of the important question of

interpretation involved in the matter, we do not propose to inflict any

costs.

…….…………………………..J. (Ashok Bhan)

………………………………J. (V.S. Sirpurkar)

New Delhi;

September 23, 2008

Digital  Performa

Case  No. : CA 8236 of 2002

Date of Decision : 23.9.2008

Cause Title :  Commissioner of Customs, New Delhi

Versus

   Sony India Limited

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Coram :   Hon’ble Mr. Justice Ashok Bhan     Hon’ble Mr. Justice V.S. Sirpurkar      

Judgment delivered by :   Hon’ble Mr. Justice V.S. Sirpurkar

Nature of Judgment :  Reportable

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