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Shama Engine Valves Ltd. Vs. Collector of Customs - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Mumbai
Decided On
Reported in(1984)(18)ELT533Tri(Mum.)bai
AppellantShama Engine Valves Ltd.
RespondentCollector of Customs
Excerpt:
.....customs authorities took objection to the import of the consignment of steel under consideration. shri mehta emphasised that although this definition appeared for the first time in the itc policy for 1982-83, such a definition had been implicitly in force all along. it was to be found in other authoritative publications such as the isi specifications to which we have referred earlier. if the material imported, which was technically stainless steel, was not considered as liable for objection during the earlier pertods, it should not be considered as liable for objection during the 1982-83 period.5. shri mehta also drew our attention to notification no.153/82-customs, dated 18-5-82, under which there was partial exemption from customs duty for bars or rods of alloy steel used for the.....
Judgment:
1. This appeal is against the order dated 21-8-82 (issued on 11/14-10-82) of the Additional Collector of Customs, Bombay in which he confiscated the consignment of steelbars imported by the appellants, subject to a fine of Rs, 1,00,000/- in lieu of confiscation. This was in consequence of having held that at the relevant time such goods were canalised and should have been imported through the concerned canalising agency, viz. SAIL and not directly by the importers as they had done.

2. Appearing before us for the appellants, Shri D.N. Mehta submitted that the appellants were manufacturers of engine valves from about 1965 onwards. For this purpose, they had to import alloy steel of a particular composition. They were regularly issued import licences for this purpose. The steel which they imported had chromium content of about 20.6% According to the 1S1 Specification for steel for valves for Internal Combustion Engines (IS : 7494 : 1981) the steel to be used had to contain 20 to 20% chromium 3. Action has been taken against the appellants on the ground that the steel imported by them was stainless steel. According to IS Standard Glossarv of terms relating to Iron & Steel. [IS : 1956 (Part I)-1976] Stainless Steel was defined as an alloy steel containing about 12 per cent or over of chromium with or without nickel together with other elements, and characterized by its high resistance to corrosive media.

Therefore, according to the ISI, an alloy steel containing over 12% chromium would be stainless steel, and equally alloy steel required for the manufacture of engine valves would be stainless steel. In other words, the material which they had been importing for the last several years was stainless steel as defined by the I.S.I. Nevertheless they had been getting licences specifically for the manufacture of the end product "Engine Valves", in which the description was "Iron and Steel items and Ferro Alloys". No objection had been raised by the department on the ground that the material was stainless steel until 1981 when such a consignment was imported by them. On that occasion, a question was raised whether the material should have been obtained through SAIL as it was stainless steel and therefore canalised. However, the Customs authorities ultimately withdrew their objection and not only allowed release of the consignment but also issued a detention certificate. It was the appellants' understanding that a reference had been made on that occasion to SAIL, who confirmed that the material was not to be treated as canalised.

4. The present case related to an importation made in August 1982 against two import licences issued for periods prior to 1982-83 and subsequently revalidated. At the time of revalidation an endorsement had been added that import of banned and canalised items would not be allowed during the revalidated period. Appendix 8 of the ITC policy for 1982-83 contained a list of canalised goods, one of which was bars etc.

of stainless/heat resisting steel. This was not a new provision and there was a similar provision in the ITC policy relating to previous licensing periods. However, the ITC policy for 1982-83 for the first time incorporated a specific definition of stainless steel. This was in para 219(v), where it was laid down that any steel containing over 12% of chromium would be considered as stainless/heat resisting steel. It was because of this newly-introduced definition that the customs authorities took objection to the import of the consignment of steel under consideration. Shri Mehta emphasised that although this definition appeared for the first time in the ITC policy for 1982-83, such a definition had been implicitly in force all along. It was to be found in other authoritative publications such as the ISI specifications to which we have referred earlier. If the material imported, which was technically stainless steel, was not considered as liable for objection during the earlier pertods, it should not be considered as liable for objection during the 1982-83 period.

5. Shri Mehta also drew our attention to Notification No.153/82-Customs, dated 18-5-82, under which there was partial exemption from Customs duty for bars or rods of alloy steel used for the manufacture of engine valves. He pointed out that the Customs authorities had allowed the appellants the benefit of the lower rate of duty under this notification on their executing the necessary bond.

Subsequently, an end-use certificate to the effect that the steel had been used for manufacturing engine valves had been furnished to the Customs authorities, though they were yet to cancel the bond. Shri Mehta submitted that when the Customs authorities recognised the material as alloy steel for the purpose of the exemption notification it was inconsistent on their part to hold that it was not alloy steel for the purpose of the import licence.

6. Finally, Shri Mehta submitted that even if the Customs authorities found that the goods had to be considered as stainless steel in terms of the ITC policy for 1982-83 and therefore as a canalised item, the confiscation of the goods with a fine of Rs, 1,00,000/- was not justified, He submitted that since the goods were required for an essential purpose (according to him this particular steel was needed for the manufacture of engine valves for supply to the Indian Railways and the appellants had been regularly receiving licences for the import of such steel, there was no question of their not being allowed a supply of such material. If such steel was to be treated as canalised, they would certainly have been given a release order for supply of the steel from SAIL imports. They would only have had to pay a commission of about 4% of the value to SAIL, which they would readily have done.

Thus they did not stand to gain anything substantial by making the import directly and in such circumstances there should have been no occasion for penal action. At most they could have been given a warning. In support of this contention, Shri Mehta cited a number of decisions of various High Courts, wherein it had been held that in case of bonafide doubt there was no justification for imposing fines and that discretion given to an adjudicating authority should be exercised in good faith for fulfilling the purpose of the statute. Shri Mehta further pointed out that the Additional Collector himself had recorded that a lenient view was to be taken. However, after recording this he had confiscated the goods with a fine of Rs. 1,00,000/- which amounted to 30% of the value and certainly could not be called lenient. Shri Mehta therefore submitted that the confiscation and fine should be set aside and if their appeal was not allowed in toto the release could be with a warning.

7. Replying to Shri Mehta, Shri Jain pointed out that both the import licences against which the importations had been made were issued during the earlier licensing periods and had been revalidated with a specific condition that import of canalised items would not be allowed during the revalidated period. The imports had actually been made during 1982-83 and were accordingly governed by the ITC policy then in force. In Appendix 8 of that policy, Item 63 laid down that among other things, bars and rods of stainless/heat resisting steels of all grades were canalised through SAIL. Further, para 2l9(v) in chapter 21, ' Clarification and interpretation of the policy", it was specifically stated that any steel containing 12% or more chromium with or without other alloying elements would be covered under the description Stainless/heat resisting steel. In view of this specific provision in the relevant ITC policy, the goods imported by the appellants were clearly stainless steel and were canalised items which could only be imported through the proscribed canalising agency, viz. SAIL.

8. As regards Shri Mehta's argument that the incorporation of the definition of stainless steel in the ITC policy for 1982-83 made no real difference since the same definition was available earlier in the Indian Standard Specifications, Shri Jain submitted that if the definition was not applied earlier, this might have been due to the fact of the provisions of the earlier ITC policy having been overlooked. This did not mean that when the position had been made clear beyond doubt by incorporating the definition in the policy for 1982-83, the position should be ignored and the appellants allowed to import goods which were canalised and could be imported only through SAIL.

9. As regards the earlier import in 1981, to which Shri Mehta had referred, Shri Jain stated that he did not have the relevant facts. In the absence of the records, he could only say that the Additional Collector had taken this factor into account.

10. We have carefully considered the arguments advanced by both sides.

It is quite clear that stainless steels are a class of alloy steels. It is also clear that according to the understanding in, India as exemplified by ISI specification, IS: 1956 : 1976, an alloy containing over 12% of chromium is considered as Stainless Steel. There is therefore substance in Shri Mehta's contention that what the appellants had been importing all along was stainless steel. It is also not disputed that even during the previous licensing periods, the import of stainless steel bars was canalised but import had nevertheless been allowed by the Customs authorities. In fact an objection on this ground was raised in 1981 but subsequently withdrawn. Again, it is not denied that the Customs authorities had allowed even in this very case the benefit of exemption Notification No. 153/82 dated 18-5-1982, for alloy steels used in the manufacture of engine valves. In other words, despite the well-known definition of stainless steel which was clearly applicable to goods such as those imported on this occasion, the Customs authorities had been treating them as alloy steel.

11. There is no doubt that since the goods fell within the scope of stainless steel which were canalised through SAIL in terms of Appendix 8 in the ITC policy for 1982-83, they were, on a correct interpretation of the ITC policy, permitted to be imported only through SAIL and not directly by the importers. Thus, technically there was a contravention of the Import Control Regulations by the appellants. Nevertheless, for the reasons given by Shri Mehta and set out earlier in this order, there was a very strong case in equity against taking penal action against the importers. It is not necessary to repeat the various arguments advanced by Shri Mehta. However, certain relevant facts may be noted. The steel was being imported for the manufacture of an essential industrial component which in this case was to be supplied to the Indian Railways, and it was stated by Shri Mehta that the material had in fact been used for that purpose and an end-use certificate had been furnished. There was no question or allegation that the material was diverted for highly profitable or non-essential purpose which could be the case with stainless steel sheets etc. The licences with the description "Iron and Steel and Ferro Alloys" were issued to the importers specifically for the manufacture of their end-product and that end-product was also specified as "Engine Valves". Clearly, therefore it was the intention of the lincensing authorities that the Actual Users be allowed to import this material for the manufacture of their end-product. It is equally clear that the Customs authorities had been allowing importation of such material earlier even though under the licensing policy for the earlier periods, stainless steel was a canalised item. Even during the period under consideration the Customs Authorities treated the goods as "alloy steel" for the purpose of the exemption notification. In the light of all these facts, and the judicial decisions referred to by Shri Mehta, we find that there is considerable weight in his contention that penal action should not have been taken in this case and that at most a warning could have been given. As already observed, even the Additional Collector recorded that a lenient view was being taken, but went on to impose a fine of Rs. 1,00,000/- which in the circumstances cannot be considered at all lenient.

12. In the result, we hold that the Additional Collector was right in treat ing the goods as a canalised item in terms of Appendix 8 of the ITC Policy for 1982-83. He was however not justified in confiscating the goods subject to a fine of Rs. 1,00,000/-. We accordingly set aside the confiscation of the goods. The fine of Rs. 1,00,000/- which we were informed had been paid by the appellant should be refunded to them. The Additional Collector's order is modified to this extent only.


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