1. The facts of the case briefly stated, are that M/s. Kadodra Paper Industries (P) Ltd., Surat, imported at Bombay Port a consignment of 125.420 MT of Kraft Waste Paper of c.i.f. value Rs. 4,19,592. They presented a bill of entry for clearance of the goods through the customs in which they claimed duty free assessment of the goods under Heading No. 47.01 of the First Schedule (herein-fter "the Schedule") to the Customs Tariff Act, 1975, read with Customs Notification No.219/84, dated 10-8-1984. They also claimed clearance of the goods under Open General Licence (OGL)6, List 8, Part I, Item 261 of the Import Trade Control Policy April-March 1985-88. On examination, 90% of the bales were found by the customs authorities to consist of new paper bags with foreign markings : The bales themselves bore the marking "Libexim IRAQ S.R...." Since empty paper bags are assessable duty under Heading 48.01/21(1) of the Schedule at 100% (basic duty) + 40% (auxiliary duty) + 32.5% +5% thereof as additional duty + 1/8% cess as against the duty free assessment claimed, and further since the goods being covered by Item 121-Appendix 2 Part B of April-March 1985-88 policy required a valid import licence, the customs authorities considered that the goods were liable to confiscation under Section 111(d) and (m) of the Customs Act, 1962 and the importer liable to penalty under Section 112 ibid. It appeared to the Customs authorities that the importer sought to evade customs duty to the extent of Rs. 8,45,393/- and that the import of the goods to the extent of Rs. 3,77,633/-was unauthorised being without the authority of a valid import licence. It appears the importer waived in writing the issue of a show cause notice under Section 124 of the Customs Act as also personal hearing. The importers, in a letter dated 25-7-1986, submitted that they had placed order for Kraft Waste for use as raw material for the manufacture of Kraft paper, that the cement bags could also be utilised as such raw material and that they were prepared to mutilate the goods before clearnace. By his order dated 18-8-1986 (now under challenge before us in the present appeal), the Collector confiscated the goods under Section 111(d) and (m) of the Customs Act but gave an option to the importers under Section 125 to redeem the goods on payment of a fine of Rs. 3,00,000/-. He also imposed a penalty of Rs. 50,000/- on the importers under Section 112 of the Act.
2. We have heard Shri S.B. Patil, Consultant, for the appellants and Shri K.C. Sachar, D.R., for the respondent.
3. ustoms Notification No. 219/84 exempts waste paper and waste paper board specified in the table annexed to the notification and falling within Chapter 47 of "the Schedule" when imported for the manufacture of pulp for use in paper or paper board making from the whole of the basic duty of customs (i.e. duty leviable under "the Schedule") and the whole of the additional duty leviable under Section 3 of the Customs Tariff Act, 1975. The exemption is subject to execution of a bond for payment of the differential amount of duty on the goods not accounted for as having been used for the stipulated purpose. Shri Patil drew our attention to Serial No. 3 of the table of the notification reading : "Kraft and corrugated cutting/waste/boxes/bags of all varieties including sack kraft waste" and urged that even boxes and bags were covered by the entry so long as they could be considered as waste paper or waste paper board. Having regard to the markings found on the bags (extracted earlier), he submitted that there was no possibility at all of the bags being used after clearance for packing of cement. It was standard practice in international trade to supply empty spare kraft paper bags along with consignments of bagged cement as evidenced by Customs Notification No.81/78, dated 5-4-1978 which exempted from duty such spare bags to the extent of 3 % of the total number of bags containing cement. In the present case, it was apparent from the markings on the bags that the bags were supplied by a Danish supplier to a party in Iraq and shipped from Kuwait evidently having been discarded as scrap material, as certified by the Kuwaiti supplier. On the other hand, Shri Sachar, D.R., urged that the notification did not exempt unused or serviceable bags but only bags which could be considered as waste paper, i.e., unserviceable. He also submitted that the offer of mutilation of the goods showed the guilty mind of the appellants. The confiscation, fine and penalty were justified.
4. Having carefully considered the submissions of both sides, we are of the opinion that the apellants' submissions have a good deal of force.
The notification, in terms, specifies bags. Of course, they must fit in with the description "waste paper or waste paper board". In the present case, we have noted this various markings on the bags from which it is obvious that these bags' could not have been imported for use as bags for packing of cement. Apart from this consideration, the notification does not lay down that the bags should be imported in a torn or mutilated condition. And, it is to prevent misuse of the duty concession that the notification evidently prescribes execution of an end-use bond as a condition for availment of the concession. The fact that the notification includes such items as telephone and trade directories, milk cartons, old and over issue newspapers/magazines/catalogues etc., shows that it is not envisaged that the bags covered by it need be in a torn or mutilated condition for, in that event, there would be little need for an end-use bond.
5. In the result, we are of the view that the goods are eligible for the benefit of the duty concession. They are also eligible to be cleared under O.G.L. In the result, the Collector's order is set aside.
The goods are directed to be assessed in terms of Notification No.219/84 subject to execution or the requisite bond. The penalty paid shall be refunded to the appellants. Insofar as the appellants have offered to have the goods mutilated even at this stage, we see no objection to this offer being acted upon by the Collector of Customs.