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Mangla Brothers Vs. Collector of Customs - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1984)(15)ELT151TriDel
AppellantMangla Brothers
RespondentCollector of Customs
.....materials' as contended by the appellants, rendering the itc licence to be invalid to cover the goods imported. the impugned goods were, therefore, confiscated but allowed to be redeemed on payment of a fine of rs. 70,000/-.2. it is against this order that the appellants have come up for relief before us both with regard to the charge of under-valuation of the goods as well as for the confiscation of the goods for violation of itc regulations.3. taking the valuation aspect first, shri nankani briefly explained the facts of the case. the appellants imported 83 cartons of audio/video tapes (national model) of two types, namely, 480 pieces of national model e-120 and 4500 pieces of national model e-180. cif value for the consignment was given in the bill of entry as us $ 57,675/-.the.....
1. The present appeal is directed against the Order- n-Original dated 21-10-1982 passed by the Additional Collector of Customs, Bombay. By the said Order, the appellants were found guilty of under-valuation of a consignment of Audio/Video Tapes to the extent of Rs. 1,59,704/-.

Further, it was held that the goods to the extent of Rs. 85,939/- were not covered by the ITC Licence. It was also held that the impugned goods were in the nature of 'Consumer goods' and not 'Raw materials' as contended by the appellants, rendering the ITC licence to be invalid to cover the goods imported. The impugned goods were, therefore, confiscated but allowed to be redeemed on payment of a fine of Rs. 70,000/-.

2. It is against this order that the appellants have come up for relief before us both with regard to the charge of under-valuation of the goods as well as for the confiscation of the goods for violation of ITC Regulations.

3. Taking the valuation aspect first, Shri Nankani briefly explained the facts of the case. The appellants imported 83 cartons of Audio/Video Tapes (National Model) of two types, namely, 480 pieces of National Model E-120 and 4500 pieces of National Model E-180. CIF value for the consignment was given in the bill of entry as US $ 57,675/-.

The value per piece declared by the importers in the bill of entry and the appraised value thereof by the Custom House is as indicated below : -------------------------------------------------------------------------------Video Tape No. of Value declared by Value appraisedModel pieces the appellants by the Custom (per piece) House per piece------------------------------------------------------------------------------ E-120 480 US $ 10.0 US $ 12.5 E-180 4500 US $ 11.75 US $ 15.0------------------------------------------------------------------------------ The order for the goods in question was placed by the appellants on M/s. Jutex Industries Corporation, Hong Kong who got the same shipped from Japan. For enhancing the value of Video Tapes E-180 to US$15.0, the Customs authorities relied on Invoice No. 5040/8!, dated 25-6-1981 issued by M/s. Esquire (Electronics) Ltd., Hong Kong to the National Film Development Corporation Ltd., Bombay. The corresponding bill of entry shows the importation to have been effected by air by Flight No.SRI 163, dated 28-6-1981. As regards Video Tapes, National Model E-120, the value was enhanced to f.o.b. US $ 12,5 on the basis of enquiries made from M/s. National Film Development Corp. Ltd., Bombay and M/s.

Esquire Video Film Services Pvt. Ltd., Bombay.

4. Shri Nnnkani challenged the enhancement of the value of the goods by the Custom House on three grounds. Firstly, the goods imported by the appellants had been directly shipped from Japan whereas in respect of the evidence collected by the Custom House, the goods had been first imported into Hong Kong and from there shipped/consigned to Bombay. It was urged that the goods directly shipped from the country of origin would naturally cost less than the goods of the country of origin supplied via a third country (Hong Kong in the present case). It was also added that in the case of shipments effected through third country (Hong Kong), the foreign supplier had also to incur expenses with regard to documentation, storage facility, interest charges and the like which were not to be incurred in direct shipment from Japan to India. Secondly, the quantities imported were materially different in the case of the appellants and in the case of M/s. National Film Development Corporation Ltd., Bombay. Whereas the appellants had imported 4500 pieces of National E-180 Video Tapes, the National Film Development Corporation had imported only 100 pieces of this brand and type. With regard to National E-120 Video Tapes, the Custom House had merely enhanced the value with reference to enquiries and no authentic information was adduced in support of their case. It was urged that it is a common commercial practice to allow the benefit of lower prices when the quantities imported are in larger bulk. An importer importing 4500 pieces could press for concessional price than one who just imports 100 pieces of the same goods. Thirdly, there was also the factor of time lag during which the goods in question were imported.

The appellants' goods were imported in January, 1982 (Invoice dated 15-12-81). The invoice of M/s. Esquire (Electronics) Ltd., relied upon by the respondent, shows the shipment in June, 1981 (Invoice dated 25-6-81).

5. Regarding the point raised by Shri Sunder Rajan earlier that he had received reliable information from his Collector that the prices of the goods in question had not come down but were stable at the relevant time, Shri Nankani submitted that this was a very vague assertion and did not in any way affect the imports of the appellants' goods. Shri Nankani also tried to prove the bona fide character of the appellants, transactions with reference to quotations exchanged between M/s. Anita International, Osaka (Japan) and M/s. Juiex Industries Corporation of Hong Kong, the latter being the supplier of the goods to the appellants. It was pointed out that M/s. Anita International had supplied E-120 Tapes to M/s. Jutex at US $ 9.55 per piece and E-180 Tapes at US $ 11.21 per piece. In other words, M/s. Jutex made a gain of 45 cents per piece and 54 cents per piece, approximately, with regard to E-120 and L-180 Tapes respectively, from M/s. Anita International of Japan. This represented a margin of profit of just 5% between the Hong Kong supplier and the Japanese supplier. Shri Nankani submitted that he had put forth this argument to show that in the chain of transactions, nothing abnormal had happened and the whole transaction had been conducted in the ordinary course of commercial business. He urged that the lower authorities had levelled a serious charge of under-valuation on the basis of one invoice for a small lot and that too which was shipped from a third country and not from Japan.

According to him, the evidence of the Department was vague and the case was sought to be established with reference to suspicions and surmises.

He, therefore, pleaded that the charge of undervaluation was totally unfounded and the appellants' goods ought to have been assessed to duty on the value declared in the relevant documents of import.

6. Shri Sunder Rajan, the learned representative of the respondent strongly defended the action of the lower authorities. While conceding that the invoice of National Film Development Corporation was for a small lot and consigned from a third country, he maintained that the value declared by the appellants was lower than the normal price. He introduced a fresh document in support of his contention. The document is a letter dated 14-8-81 from M/s. Malhar Corporation, 906 Coopertown Road Bryn Mawr, PA 19010 USA, addressed to Shri A.V. Ramanan, National Film Development Corporation, Bombay. In the said letter at Sl. No. 4, F.O.B. Unit price for T-120 Video Cassette Tapes has been given as US $ 15.53 for quantity slab of 20,000 units, $15.40 for quantity slab of 25000 units and $ 15.17 for quantity slab of 30000 units. Shri Sunder Rajan submitted that from this document it could be seen that the price for T-120 video cassette tapes, which according to him, corresponded to E-120 tapes imported by the appellants, was such higher than the value declared by the appellants for their goods. Shri Sunder Rajan also produced for our perusal and record a photostat copy of a letter dated 21-9-82 sent by Shri A.K. Pande, First Secretary, Commission of India, Hong Kong addressed to Shri G.S. Tampi, Deputy Collector of Customs, Bombay. Along with this letter, Shri Pande has enclosed three telexes.

According to Shri Pande, two of these telexes indicated the price which the Japanese suppliers had been offering to Hong Kong parties for various tapes of Japanese origin. The third quotation is in Hong Kong dollars which is for Japanese tapes as offered in Hong Kong. In the said letter Shri Pande has stated : "There has been steep fall in the prices of video cassette tapes in the last three months. This has been partly due to the weakness of Yen and partly due to the glut in the production of these cassette tapes in Japan". Shri Sunder Rajan submitted that the telexes enclosed with the letter of Shri Pande showed higher values for the goods imported by the appellants. Further, Shri Sunder Rajan submitted that fall in the prices of video cassette tapes had taken place much later, a fact which had been controverted by the appellants. Shri Sunder Rajan, also introduced for the first time the argument that the appellants had opened their Letter of Credit for the goods in question in March, 1981, and the Department had replied on an invoice dated 25-6-81. There was, therefore, a nexus between these two dates which, according to Shri Sunder Rajan, supported the stand taken by the Custom House. Shri Sunder Rajan concluded by submitting that proving a case of under-valuation was an uphill task but the Custom House had been able to make out a sound case of under-valuation against the appellants with reference to documentary evidence which could not be brushed aside lightly.

7. We have heard both the parties at great length. We agree with the learned advocate for the appellants that the Department has not been able to put forth any strong grounds in support of their case. The lower authorities have relied on the invoice dated 25-6-81 issued by M/s. Esquire (Electronics) Ltd. We observe that this invoice covers only 100 pieces of National Video Cassette Tapes E-180. There is a lot of force in the argument advanced by Shri Nankani that it is extremely unfair to the appellants to appraise their price for National Cassette Tapes E-180 with reference to the value charged for a consignment of 100 pieces as against the consignment of the appellants where 4500 units of the same article have been imported. With regard to the National Tapes E-120, we find that some enquiries seem to have been made with parties in Bombay, but there is no firm offer, not to speak of an actual importation, at a price other than the one shown in the appellants' invoice. We also agree with Shri Nankani that comparison of prices indicated in the invoice dated 25-6-81 is unrealistic because the appellants have imported goods directly from Japan whereas the invoice dated 25-6-81 covers goods which were first imported in Hong Kong and thereafter imported into India. It is quite natural that when some goods come via a third country, their value is bound to be higher for various reasons which were mentioned by Shri Nankani in the course of his arguments. As regards the respondent's reliance on Malhar Corporation, U.S.A.'s letter dated 14-8-81, we agree with Shri Nankani that this document has insignificant evidential value. It is neither an indent nor an invoice. It can at best be treated as a letter of offer to interested parties for supply of the goods mentioned in the said letter. Furthermore, we are dealing with goods imported from Japan. The letter from Malhar Corporation refers to shipments from U.S.A. Shri Sunder Rajan is not able to tell us whether the Custom House has come across even a single importation of the goods mentioned in Malhar Corporation letter at the prices indicated therein at any port in India. As regards the quotations (vide annexures to the letter dated 21-9-82 sent by the Commission for India, Hong Kong to the Deputy Collector of Customs, Bombay) we do not think they support the Department's case in any way. They are telex messages exchanged between parties and the quotations contained in the said telex messages have not been correlated with any actual importations made into India at prices mentioned in these messages. Taking the documentary evidence as a whole, we are of the view that the Department has been unable to satisfy us that the appellants resorted to under-valuation. While we are inclined to agree with Shri Sunder Rajan that proving a case of under-valuation is difficult, we have to go by the evidence and the same produced by the Department is not sufficient to pin down a serious charge like under-valuation raised against the appellants.

8. Before parting with discussion of valuation aspect, we would like to make a reference to Shri Sunder Rajan's argument that the appellants had opened their Letter of Credit on 30-3-1981. Shri Sunder Rajan had also contended that prices at that point of time were much higher than those declared in the bill of entry for the goods. We observe that the relevance of the date of opening of the letter of credit, in this context was not raised before the lower authorities. We are, therefore, unable to attach any importance to the date of the opening of the letter of credit in the context of the present proceedings.

9. In the light of the discussion of the case in preceding paragraphs, we are of the view that the Department has failed to substantiate the charge of under-valuation against the appellants. We, therefore, direct that the goods shall be re-assessed to duty on the basis of value declared by the appellants in the bill of entry.

10. We now take up the question of the alleged contravention of I.T.C.Regulations on the part of the appellants. The Additional Collector has discussed at great length as to how the appellants' goods have been imported against the provisions of Import Trade Control Regulations. He has held the same as ineligible for release under AM 1982 Policy, the item figuring in Appendix 3-serial No. 689(26). He has further held that even if clearance of the goods is claimed under AM 1981 Policy, which was the alternative prayer of the appellants, the same could not be allowed as the goods imported were 'consumer goods' and not 'raw materials'-the latter alone being eligible under this provision. This, in a nutshell, is the Department's charge against the appellants with regard to infringement of I.T.C. restrictions.

11. In order to appreciate the Department's case regarding contravention of I.T.C. restrictions, it has become necessary to give a finding whether the blank video tapes imported by the appellants can be considered as 'raw materials' (in the manufacture of video tape recorder) or as consumer articles, the view adopted by the Additional Collector. Expressions 'raw material' and 'consumer goods' are well understood in the commercial world. However, since the case against the appellants from the ITC angle hinges on the distinction between these two expressions, we have referred to some standard books to find out how these have been defined therein. The expression 'raw material' has been defined in the manner in some of the standard works as indicated below : "Any material or commodity in its natural or semi-manufactured state, which is capable of being used for manufacture of any other kind of finished products which could be prepared out of such material is a raw material." "Raw material, as commonly understood, is used in process of manufacture. Printing machinery will certainly not come under the category of raw material." "Any material in its natural form suitable for being manufactured or process into a finished form." It is quite clear from the definition of the expression 'raw material' quoted from the standard books that to be treated as a 'raw material', the material or commodity should be in its natural or semi-manufactured state and should be capable of being used for manufacture of finished products. It also follows that 'raw material' cannot be consumed directly and cannot be sold off the shelf by a store or a shop and consumed directly by the purchaser.

As regards the expression 'consumer goods', the New Webster's Dictionary of the English Language defines it as follows : "Goods, such as clothing and food, which are made for the consumer and are not intended to be used in further production." From the above definitions of the expressions 'raw material' and 'consumer goods' it is clear that the contention of the appellants to treat the blank cassette tapes as raw material is not at all tenable.

For all practical purposes these are finished products, can be sold off-the-shelf of a shop for consumers who wish to tape any visuals either from a V.C.R. belonging to them or from a professional studio.

We find no substance in the appellants' argument that these tapes when they are imported cannot be used as such. On the same analogy tea leaves, which are undisputably consumer goods, cannot be used as such.

These have to be boiled and mixed with sugar and milk before these can be consumed. Even when these tapes are imported by a manufacturer of video cassette recorders, the tapes would be treated as finished components and not as 'raw material'. In the present case the goods have been imported by export houses whose main activities have nothing to do with the manufacture of VCRs. Further, these export houses are under no obligation to sell those tapes only to manufacturers of VCRs. These tapes can, therefore, be passed on to dealers of electronics goods for direct sale to consumers. We are, therefore, clearly of the view that by no stretch of imagination, the blank cassette tapes imported by the appellants can qualify to be treated as 'raw material' ; these are clearly consumer goods as understood in the commercial parlance. The learned Additional Collector has, therefore, rightly treated the blank cassette tapes as contravening the provisions of I.T.C. Policy as these are 'consumer goods' and not 'raw material'. The charge of mis-declaration under Section 111 (m) of the Customs Act, 1962 stands, therefore, established against the appellants, the confiscation of the goods under the said Section is also justified.

12. In the light of the above discussion of the case with regard to valuation of the goods and infringement of the ITC Regulations, we order as follows.

13. For the purposes of valuation, the goods shall be assessed with reference to the value declared by the appellants in the relevant import documents and not with reference to the enhanced appraised value. Consequential relief in this behalf flowing from this direction should be made available to the appellants.

14. The confiscation of the impugned goods for infringement of I.T.C.Regulations is upheld. We observe that the Additional Collector has already taken a lenient view in fixing the redemption fine of Rs. 70.000/-. We do not see any reason to give any further relief to the appellants in this behalf.

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