1. The question for decision in this appeal is correctness of demand of duty and imposition of penalty by the Collector of Central Excise, Jaipur on the appellants by his order dated 16th May, 1983. The appellants are a small scale industrial Unit registered with Director of Industries, Rajasthan as also with the Development Commissioner, Government of India. They are engaged in the manufacturing of Wrist-watches. The Development Commissioner (SSI), Ministry of Industry, G.O.I. by a Communication dated 25-7-1979 addresed to the Director of Industries, Rajasthan approved phased production programme in respect of the appellants. By this communication, appellants' unit was to manufacture/assemble hand-woven 17 jewels full lever, non-automatic wrist watches. The production programme was for 20,000 watches in the first year, 30,000 watches for second year, 40,000 watches for 3rd year and 50,000 watches each for 4th to 7th year. The communication inter alia permitted the appellants to import components in CKD condition except for prohibited items based on year to year programme permissible to unit for import. The first consignment of components of wrist watches was received by the appellants in Dec, 1979 and reached their factory on 28-12-1979. The appellants claimed to have commenced assembling of watches from the last week of December, 1979.
The appellants imported components of wrist watches including watch cases and dials. They imported in all 27 consignments, all of which arrived by post at Jaipur F.P.O. All the consignments were cleared by Customs against valid import licences and they were assessed to concessional rate of duty in terms of Notification No. 240-Cus., dated 30-12-1978. Under this Notification, Wrist watch parts falling under sub-heading (2) of Heading 91.01/11 are exempt from so much of that portion of duty of Customs as is in excess of 50% ad valorem, provided that these were imported for manufacture of wrist watches in accordance with production programme duly approved by the Ministry of Industry, Director General of Technical Development. Later, the Collector of Central Excise, Jaipur issued a Show Cause Notice dated 19-4-1982 alleging that the appellants had in collusion with suppliers imported and cleared Watch movements, a banned item, instead of Wrist Watch parts and components by mis-declaring the contents of the post parcels, that the goods imported and cleared were not used in accordance with the phased production programme approved by the Development Commissioner (SSI) vide his letters dated 25-7-1979 and 28-9-1979. The Show Cause Notice lists out as many as 17 charges, which would be dealt with at appropriate places. The appellants filed reply denying the allegations, The Collector by his order dated 16-5-1983 negatived appellants pleas both on merit and on time-bar and held that though goods were described in invoices as parts/components what was actually imported was watch movements a banned item. That watch movements were not covered by the Import licences produced and that watch movements were not in CKD/SKD condition. The appellants have not fulfilled the condition of approved production programme which was material condition for concession under the Notification No. 240-Cus., dated 30-12-1978.
Import of wrist watch parts and cases were in excess. The claim for differential duty was not time-barred. Dials imported by the appellants in excess of the quantity covered by the licences did not qualify concession under the Notification. He accordingly ordered the appellants to pay differential duty amounting to Rs. 5,17,104.16 (Rs. 3,68,761.28 plus Rs. 1,48,342.88) and also imposed a penalty of Rs. 1,00,000/- under Section 112 of the Customs Act, 1962. Aggrieved the appellants have filed the present appeal to the Tribunal.
2. In the grounds of appeal, the appellants have mainly challenged the Collector's findings that the imported goods were complete Watch Movements and not wrist watch parts in CKD/SKD condition. They have also challenged the inference drawn from the Examination Reports. The Collectors' findings are said to be on the basis of surmises and conjecture. The rinding that the goods imported were not used in accordance with approved phased programme is also challenged. They urged that they had complied with the conditions of the notification and had rightly availed of concession under the same. The demand of differential duty and imposition of penalty are unjustified, time-barred and illegal.
3. At the hearing of the appeal, Shri N.C. Sogani, Consultant for the appellants reiterated the grounds urged in the Memo. of appeal. In particular, he also urged that in this case the clearances of the goods were made by the Customs after full examination and verification, therefore, the Collector of Central Excise for reviewing assessment could have recourse only to Section 130 of the Customs Act, 1962 (as it then existed) and the demand of differential duty and imposition of penalty made long after 6 months and one year time-limit stipulated under Sections 28(1) and 130 respectively of the Customs Act is not only time-barred but also unjustified and illegal. For the purpose, Shri Sogani, learned Consultant relied on two decisions :Jain Shudh Vanaspati Ltd. and Anr. v. Union of India and Ors.- 1982 E.L.T. 43 Delhi and (ii) Central Board of Excise & Customs in . M/s. Aleuin Tapes- Order-in-appeal No. 134/1982, dated 5-3-1982 ; 1982 E.L.T. 418 (CBE&C).
4. On behalf of the respondent,. Shri K. Chandermouli, Senior Departmental Representative had no particular submission to make beyond making a general statement that he supported the impugned order as correct both on facts and law.
5. The appellants are transferees of Import Licences, issued in favour of Export Houses. The original Import licences or copies thereof (except one) have not been filed before us. What is filed at page 23-29 of the Paper Book are copies of the release advices sent by post by the Assistant Collector of Customs, Bombay to the Assistant Collector of Customs, Foreign Post Office, G.P.O., Jaipur and copies thereof to the appellants. From the Order-in-Original passed by the Collector of Central Excise, Jaipur (Paras 19, 22 and in particular 23), it appears and it is also not disputed by the Respondent that the Import Licences covered only Watch Parts/Components. From para 22 of the Collector's orders, it also appears that Watch Movements were not covered by the Import Licences. In para 19 of the Order, Collector has held that though the description of the goods given in the relevant invoices is watch parts/components, the Examination reports show that what was actually imported were Watch Movements. It is, therefore, first to be seen whether the appellants imported watch movements and not watch parts, components allowed by the licences.
6. It is to be remembered that clearances of the parcels were made by the Customs after physical verification of the contents thereof.
Parcels were opened and goods examined. The appellants have filed copies of these invoices and the Examination Reports by the Customs. We have gone through the photostat copies of all the invoices. Invoice dated November 6, 1979 described the goods as Lever Watch Movements in complete knocked down condition (205 and 500 sets) the Examination Report endorses, the examination after opening and says that the goods are watch parts and movements (components). The descriptions in Invoice dated December 28, 1979 is 220 pieces components of watch movements.
Invoice dated January 24, 1980, describe 3500 sets of components of watch movements, besides 400 pieces of watch cases, 500 pieces of watch dials and 1000 sets of watch hands. On the Invoice dated February 25, 1980, the description is 3,900 sets of components of watch parts. In Invoice dated February 27, 1980, the description is 1,000 sets of components of watch parts. There appear similar descriptions in other invoices also. No invoice describes the goods as complete watch movements but describe them only as components of watch parts or watch cases or watch dials. The appellants have, however, claimed that the goods were in CKD/SKD condition.
7. For the Import Licences, goods being in CKD/SKD condition was not material though it was material for the concessional rate of duty under Notification No. 240-Cus., dated 30-12-1978, as amended, which will be dealt with later. The Collector of Central Excise in paras 19, 20 and 21 of his order concluded that what was actually imported was watch movements because examination reports did not indicate that watch movements were in CKD/SKD condition and had it been so, the examination reports would have said so and the party would have made entries to.
this effect in their Appendix 18 register. Now this in our opinion is not the proper-; way of evaluating evidence. The Customs as already pointed out, allowed the clearances of the goods after physical verification after opening the parcels. Had imported goods not tallied with the Import Licences their clearances would not have been permitted and the examination reports would have indicated the discrepancies between the Import Licences, and the goods. There is no allegation that there was collusion between the Customs' Examining Officers (Inspectors) and the appellants. Having regard to this the absence of a clear. Note on the Examination Reports stating that the goods were in CKD/SKD condition would not militate against the appellants. As for Collector's inference from the absence of mention of the goods being in CKD/SKD condition in Appendix Register, we do not think that a negative evidence of this kind would be conclusive to prove the condition of the goods. In any case in the view we take about time-bar, this cannot be at all considered important.
As for the allegations that the appellants mis-declared the goods in collusion with the Suppliers, there is no evidence to that effect.
8. We may at this stage refer to Delhi High Court decision in Jain Shudh Vanaspati Ltd. and Anr. V: Union of India and Ors., 1982 E.L.T.43 (Delhi), as under "Considering Section 47 of the Customs Act in the light of the legislative history, we are-clear that the Section attaches finality to the satisfaction of the Officer that the goods are not prohibited. The finality cannot be disturbed unless the Department successfully shows that there was fraud or deliberate suppression." The Department's case that the appellants imported complete Watch Movements which was a prohibited item could be accepted only when the Department successfully shows that there was fraud or deliberate suppression. That evidence is lacking in the case. Having regard to pronouncement of Delhi High Court, finality must attach to the satisfaction of the Officer at the time goods were cleared. We do not think that the Department has been able to make out its case against the appellants of clearing the goods not covered by the Import Licences or in fraud or in deliberate suppression. Penalty, therefore, imposed against the appellants is set aside.
9. Coming now to the question of concessional rate of duty under the notification, the concession is available when the proper officer is satisfied that Wrist Watch parts (including semi-knocked down packs and completely knocked down packs) are imported for the manufacture of wrist watches in accordance with the production programme duly approved by the Ministry of Industry, Director General of Technical Development and are in fact so used for such manufacture. The appellants have urged that they have in fact used the imported parts for manufacture of watches. From reading of the Collector's order, it does not appear that he held that the appellants had not in fact used the goods imported for manufacture of watches. From the reading of paras 25 & 26 of the order, it appears that the Collectors' finding was that the appellants did not stick to the approved production programme to which we have already referred to in para 1 above. In this connection, the appellants have filed photostat copies of communication No. 13(15)73 ENGG (MMI)/Vol.
II, Government of India, Office of the Development Commissioner, Small Scale Industries addressed to the Director of Industries and other authorities. This communication states that certain confusion is being created in interpreting the meaning of yearly phased manufacturing programme being approved by this office for the assembly/manufacturing of wrist watches in the small scale sector. The communication further clarifies that the meaning of 'phase' is the completion of that much quantity approved for the particular phase and not necessarily the twelve months of the calendar/financial year. Those authorities were further requested that the word 'year' may be substituted by the word 'phase' wherever it occurred in the approval letters issued by that office. In view of this letter, Collector's interpretation in para 26 of the Order relying on Section 3(66) of the General Clauses Act that 'year' would mean a British Calendar year loses force. Moreover, it is also not shown that the appellants have not otherwise fulfilled the approved production programme.
10. Coming to concessional rate of duty, it is true that the concessional rate of duty under the Notification was available only on fulfilment of certain conditions. In view of this, it was open to the authorities to have made provisional assessment of duty under Section 18 of the Customs Act, 1962. This was however, not done. The Show Cause Notice served on the appellants inter alia relies on Section 28 of the Customs Act, 1962. Under Section 28(1)(b) which should be applicable in the case of the appellants for duty which has not been levied or which has been short levied, a show cause notice demanding duty could be served within 6 months from, the relevant date. If such non-levy or short levy were due to collusion or by any wilful mis-statement or suppression of facts, this period of 6 months could be extended upto 5 years. We have already said that there is no suppression, collusion or mis-statement on the part of the appellants or proof of the same for suppliers of the goods. Therefore, the period of 5 years would not be applicable. The period applicable would be 6 months under Section 28(1)(b).
11. Now the question is what would be the relevant date for the purpose. Sub-section (3) of Section 28 of the Customs Act specifies, four situations for computing the relevant date. Clause (b) of Sub-section (3) which talks of provisional assessment under Section 18 of the Act and the relevant date being the date of adjustment of duty after the final assessment thereof, is clearly not applicable to the present case because no provisional assessment was made. Clauses (a) & (c) of Sub-section (3) of Section 28 are also not applicable. The only clause applicable would be Clause (d) 'in other cases, the date of payment of duty'. The Customs authorities themselves having not made provisional assessment under Section 18, cannot now say that limitation for differential duty should run only after the appellants have satisfied the Customs authorities that they have fulfilled the conditions of Notification, we cannot invest the concept of deemed provisional assessment. Thus viewed, computing limitation of months from the date of payment of duty, Show Cause Notice dated 19-4-1982 when all the clearances were made by the end of 1980 would appear clearly barred by limitation.
12. In the view we take, it is not necessary for us to determine whether the appellants have fulfilled the conditions of the Notification No. 240-Cus., dated 30-12-1978 or not to claim eligibility of concessional rate of duty.
13. As a result of aforesaid discussion, we would set aside the penalty and hold that the claim for differential duty is barred by limitation.
We therefore, set aside the impugned order and allow the appeal.
14. While I agree with the conclusion of my learned Brothers on setting aside the penalty, I am constrained to come to a different conclusion on the question of time-bar and demand for duty.
15. I shall first deal with the question of time-bar. The concessional assessment under Notification No. 240/78 was contingent on satisfaction of a post-importation condition, namely, that the components are used in accordance with the approved phased programme. As such, the assessment and clearance at the time of importation could not legally be done finally. Even though the assessing officer did not provisionally assess the goods by taking a bond, this could not make the assessment final, since a concession was being claimed and the stipulated conditions had to be necessarily fulfilled by both parties.
The assessment would become final only when the actual use for the prescribed purpose was established by the appellant to the satisfaction of the proper officer. In fact, Counsel has pointed to certain verification in the Appendix 18 register by the Customs Officers but adduced no evidence regarding compliance with the mandatory end-use condition. On the contrary, the Collector has, inter alia, gone into this and concluded that the condition has not been fulfilled. The verification in the register by the Customs Officers, post-assessment and clearance, only goes to show that the assessment had not been finalised, in which case the Customs Officer would have had no locus standii for further verification as the goods were out of customs charge. If no bond for provisional assessment was taken at the time of assessment and Section 18 invoked, the error was procedural and by mutual mistake.
16. In this view of the matter, a mistake in procedure cannot vitiate the law and the demand is not time-barred. Correspondingly, wilful mis-statement or suppression with intent to evade payment of duty, either at the import stage or after examination and clearance of the consignments, will not arise. There is also force in Shri Sogani's plea that the consignor gave the required postal declaration prescribed under Section 82 and the clearance was effected after due examination and authorisation by the proper officer of customs so mis-declaration by the, appellant does not arise. The Collector's finding that assembled watch movements were unaiithorisedly imported and fraudulently cleared, has thus been successfully rebutted by the appellant, in my-opinion also, and I would, therefore, set aside the penalty imposed.
17. As regards the demand for duty, however, it is my considered view that the Collector should provide a fresh opportunity to the appellant to adduce satisfactory proof regarding compliance with the conditions of Notification No. 240/78 regarding actual use of the subject goods and to pass a fresh order in this regard.
18. The appellant has also challenged the finding in respect of 10250 watch hand sets and 3000 pieces of part No. 136 which are mentioned in the show cause notice, for which the Collector has given no reason why they are not entitled to the concession and not covered by the import licence and the action against which is illegal. This also needs to be met by the Collector, after a further scrutiny of the facts. With these observations, I would set aside the impugned order and refer the case back to the Collector for a fresh finding regarding the demand for differential duty.