Case: Commnr. Of Customs, New Delhi Vs. M/S. Phoenix International Ltd.

four components did constitute synthetic shoe in SKD condition and in order to circumvent 156(A) the entire device was arranged by the importer to evade duty. Further, we find that in the reply to the show cause notices there were no details supplied by the importer regarding the number of units under M/s. PIL. The statement of Bhupinder Nagpal in the preliminary enquiry shows that there were three units in Noida under M/s. PIL. One Unit is in B-1C Sector 10 manufacturing "Phoenix" brand of shoes for exports. There was one more Unit in A-4, Sector 5 manufacturing "Reebok" brand of shoes for exports. It also undertook manufacturing of shoes for domestic sales on job work basis at Sector A-37, Sector 60 for M/s. PIND. The third unit was M/s. PIL. No details of the turnover have been furnished. No details of the number of employees have been furnished. The bifurcation of the turnover between manufacture of synthetic shoes exported and shoes sold in the domestic market was not given. The functional connectivity of the three units was not given. No reason have been given as to why M/s. PIL did not import all the four items particularly when M/s. PIL, as stated herein below, has been in complete charge of manufacturing. The obvious reason behind the said bifurcation was to obtain the benefit of the Notification No.45/94-Cus dated 1.3.94. However, the clinching circumstance is that M/s. PIL was not only manufacturing export quality synthetic shoes but it also manufactured as job-worker of M/s. PIND domestic quality synthetic shoes. Soles, insoles and sock liners were imported by M/s. PIND and supplied as raw-material to M/s. PIL who manufactured the synthetic shoes which were routed through M/s. PIND to M/s. Reebok India for sale in the domestic market. In the circumstances, the complete manufacturing activity was in the hands of M/s. PIL. They manufactured synthetic shoes sold in the export market and they also manufactured synthetic shoes which were sold in the domestic market. The shoe uppers constituted an important part of the footwear. That part was imported under the advance licence by M/s. PIL. The same company got the outer soles, insoles and sock liners in the name of M/s. PIND. It is M/s. PIL which ultimately manufactured synthetic shoes. Therefore, the entire manufacturing activity was carried out by M/s. PIL. Therefore, it is clear that the above device of importation of one item by M/s. PIL and three items by M/s. PIND was a subterfuge/fictitious arrangement intended to deceive the Department and fraud on para 156(A) of the EXIM Policy 1992-97. The above circumstances have not at all been considered by the Tribunal. In cases of the present nature, the Tribunal should look at the entire composite picture in order to ascertain the real intention behind the arrangement on which the importer relies. Lastly, the shoe uppers were imported by M/s. PIL whereas soles, insoles and sock liners were imported by M/s. PIND and given to M/s. PIL who along with 28 other items (peripherals), procured domestically, manufactured the finished product, viz., synthetic shoes. The entire device was undertaken to show that what was imported were parts and not the footwear in the SKD condition. Therefore, M/s. PIL was the only real importer of all the four items and, in the circumstances, the Department was right in clubbing.12. It was urged vehemently even if the said four items were clubbed together it would not result in the manufacture of the synthetic shoes as an intricate process is required to be adopted before the finished product stood emerged. As stated above, if the transaction of M/s. PIND and M/s. PIL are looked at separately then the question of subterfuge cannot be examined. In the present case, interest-free loans had been advanced by M/s. PIL to M/s. PIND. The real importer was only M/s. PIL. The manufacturer was also M/s. PIL. The entire transaction was completed by M/s. PIL. No reason has been given as to why M/s. PIL could not have imported the outer soles, insoles and sock liners under para 22 of the EXIM Policy 1992-97 by payment of duty at the concessional rate under Notification No.45/94-Cus dated 1.3.94. The obvious intention was to bypass the EXIM Policy 1992-97 and claim benefit of exemption Notification No.45/94-Cus dated 1.3.94. Lastly, as stated above, all four items plus 28 other items (peripherals), domestically procured, were used in the manufacturing process undertaken by M/s. PIL either on its own account (in case of export) or as job-worker (incase of domestic sales) which led to the emergence of the final product. Therefore, the importer was liable to be assessed under tariff Heading 64.04 and consequently not entitled to the benefit of exemption Notification No.45/94-Cus dated 1.3.94. Lastly, soles and insoles as also sock liners were imported by M/s. PIL in the name of M/s. PIND; that M/s. PIL had an agreement with Reebok International Ltd. which had its subsidiary in India, viz., Reebok India to whom synthetic shoes were sold by M/s. PIL through M/s. PIND and, therefore, the Department was right in invoking rule 8 of the Customs Valuation Rules. Unfortunately, none of these aspects have been considered by the Tribunal.13. We, therefore, set aside the impugned judgment of the Tribunal. We hold that the respondents were guilty of violating para 156(A) of the EXIM Policy 1992-97; that the respondents were liable to be assessed under tariff Heading 64.04 and, accordingly, they were liable to pay duty of customs at 50% + CVD at 15% ad valorem; that the respondents were not entitled to the benefit of concessional rate of duty under Notification No.45/94-Cus dated 1.3.94 and that the Department was right in invoking rule 8 of the Customs Valuation Rules. Accordingly, we remit only the question of re-quantification of differential duty, redemption fine and penalties, payable by the respondents herein, to the Commissioner of Customs, Inland Container Depot, Tughalkabad, New Delhi, who will decide the said issue in accordance with law.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]10. We find merit in the present civil appeals filed by the Department. For the sake of convenience we reproduce para 22 and 156(A) of the EXIM Policy 1992-97 which read asVImportsFreeImportability22. Capital goods, raw materials, intermediates, components, consumables, spares, parts, accessories, instruments and other goods may be imported without any restriction except to the extent such imports are regulated by the Negative List of Imports or any other provision of this Policy or any other law for the time being inII156. RESTRICTED ITEMSA. CONSUMER GOODSSl.No. Description of ItemsNature of restrictionAll consumer goods, howsoever described, of industrial, agricultural mineral or animal origin, whether in SKD/CKD condition or ready to assemble sets or in finished formNot permitted to be imported except against a licence or in accordance with a Public Notice Issued in this behalf.In the case of excise duty, the taxable event is "manufacture". In the present case, however, we are concerned with the levy of customs duty. That duty is levied on the "act" of importation. Therefore, intention plays an important role in matters in which there is an allegation of duty evasion. In the present case, the Department has alleged that a device was evolved by the importer showing import of shoe uppers by M/s. PIL whereas outer soles, insoles and sock liners imported by M/s. PIND. A subterfuge was, therefore, created to show that two independent companies had imported separate parts of the footwear in order to bypass para 156(A) of the EXIM Policy 1992-97. Under the said paragraph, importation of synthetic shoes in SKD condition could only be made against specific import licence. M/s. PIL was aware of the restrictions. It was the only real importer of all the four items. M/s. PIL had funded M/s. PIND with interest free loans running into Rs.18 crores (approximately). M/s. PIND was the factory of M/s. PIL (See the DEEC certificate). When there is an allegation of subterfuge, the court has to examine the circumstances surrounding the import to ascertain whether the importer had entered into fictitious arrangement to evade customs duty. The intention behind the act of importation has to be probed. In this case, the most clinching circumstance is that there is manufacture of the finished products, namely, "synthetic shoe" for domestic and export markets. M/s. PIL manufactured export quality synthetic shoes on their own account whereas those sold in the domestic market by M/s. PIND was also manufactured by M/s PIL for M/s PIND. Further, in his statement, B. Nagpal, on behalf of the importer, has categorically stated that synthetic uppers (imported by M/s PIL), soles, insoles and sock liners (imported by M/s PIND) did constitute complete shoe in SKD condition. Therefore, when we come to the question of "intention" in the present case it becomes clear that the entire device of bifurcation was arranged in order to bypass the restriction imposed vide para 156(A) of the EXIM Policy. The reply of B. Nagpal indicates that, according to the importer, the said four components did constitute synthetic shoe in SKD condition and in order to circumvent 156(A) the entire device was arranged by the importer to evade duty. Further, we find that in the reply to the show cause notices there were no details supplied by the importer regarding the number of units under M/s. PIL. The statement of Bhupinder Nagpal in the preliminary enquiry shows that there were three units in Noida under M/s. PIL. One Unit is in B-1C Sector 10 manufacturing "Phoenix" brand of shoes for exports. There was one more Unit in A-4, Sector 5 manufacturing "Reebok" brand of shoes for exports. It also undertook manufacturing of shoes for domestic sales on job work basis at Sector A-37, Sector 60 for M/s. PIND. The third unit was M/s. PIL. No details of the turnover have been furnished. No details of the number of employees have been furnished. The bifurcation of the turnover between manufacture of synthetic shoes exported and shoes sold in the domestic market was not given. The functional connectivity of the three units was not given. No reason have been given as to why M/s. PIL did not import all the four items particularly when M/s. PIL, as stated herein below, has been in complete charge of manufacturing. The obvious reason behind the said bifurcation was to obtain the benefit of the Notification No.45/94-Cus dated 1.3.94. However, the clinching circumstance is that M/s. PIL was not only manufacturing export quality synthetic shoes but it also manufactured as job-worker of M/s. PIND domestic quality synthetic shoes. Soles, insoles and sock liners were imported by M/s. PIND and supplied as raw-material to M/s. PIL who manufactured the synthetic shoes which were routed through M/s. PIND to M/s. Reebok India for sale in the domestic market. In the circumstances, the complete manufacturing activity was in the hands of M/s. PIL. They manufactured synthetic shoes sold in the export market and they also manufactured synthetic shoes which were sold in the domestic market. The shoe uppers constituted an important part of the footwear. That part was imported under the advance licence by M/s. PIL. The same company got the outer soles, insoles and sock liners in the name of M/s. PIND. It is M/s. PIL which ultimately manufactured synthetic shoes. Therefore, the entire manufacturing activity was carried out by M/s. PIL. Therefore, it is clear that the above device of importation of one item by M/s. PIL and three items by M/s. PIND was a subterfuge/fictitious arrangement intended to deceive the Department and fraud on para 156(A) of the EXIM Policy 1992-97. The above circumstances have not at all been considered by the Tribunal. In cases of the present nature, the Tribunal should look at the entire composite picture in order to ascertain the real intention behind the arrangement on which the importer relies. Lastly, the shoe uppers were imported by M/s. PIL whereas soles, insoles and sock liners were imported by M/s. PIND and given to M/s. PIL who along with 28 other items (peripherals), procured domestically, manufactured the finished product, viz., synthetic shoes. The entire device was undertaken to show that what was imported were parts and not the footwear in the SKD condition. Therefore, M/s. PIL was the only real importer of all the four items and, in the circumstances, the Department was right in clubbing.12. It was urged vehemently even if the said four items were clubbed together it would not result in the manufacture of the synthetic shoes as an intricate process is required to be adopted before the finished product stood emerged. As stated above, if the transaction of M/s. PIND and M/s. PIL are looked at separately then the question of subterfuge cannot be examined. In the present case, interest-free loans had been advanced by M/s. PIL to M/s. PIND. The real importer was only M/s. PIL. The manufacturer was also M/s. PIL. The entire transaction was completed by M/s. PIL. No reason has been given as to why M/s. PIL could not have imported the outer soles, insoles and sock liners under para 22 of the EXIM Policy 1992-97 by payment of duty at the concessional rate under Notification No.45/94-Cus dated 1.3.94. The obvious intention was to bypass the EXIM Policy 1992-97 and claim benefit of exemption Notification No.45/94-Cus dated 1.3.94. Lastly, as stated above, all four items plus 28 other items (peripherals), domestically procured, were used in the manufacturing process undertaken by M/s. PIL either on its own account (in case of export) or as job-worker (incase of domestic sales) which led to the emergence of the final product. Therefore, the importer was liable to be assessed under tariff Heading 64.04 and consequently not entitled to the benefit of exemption Notification No.45/94-Cus dated 1.3.94. Lastly, soles and insoles as also sock liners were imported by M/s. PIL in the name of M/s. PIND; that M/s. PIL had an agreement with Reebok International Ltd. which had its subsidiary in India, viz., Reebok India to whom synthetic shoes were sold by M/s. PIL through M/s. PIND and, therefore, the Department was right in invoking rule 8 of the Customs Valuation Rules. Unfortunately, none of these aspects have been considered by the Tribunal.13. We, therefore, set aside the impugned judgment of the Tribunal. We hold that the respondents were guilty of violating para 156(A) of the EXIM Policy 1992-97; that the respondents were liable to be assessed under tariff Heading 64.04 and, accordingly, they were liable to pay duty of customs at 50% + CVD at 15% ad valorem; that the respondents were not entitled to the benefit of concessional rate of duty under Notification No.45/94-Cus dated 1.3.94 and that the Department was right in invoking rule 8 of the Customs Valuation Rules. Accordingly, we remit only the question of re-quantification of differential duty, redemption fine and penalties, payable by the respondents herein, to the Commissioner of Customs, Inland Container Depot, Tughalkabad, New Delhi, who will decide the said issue in accordance with law.