Case: Commnr. Of Customs (General), N. Delhi Vs. Gujarat Perstorp Electronics Ltd

2. To appreciate the controversy raised in the present appeals, relevant facts as noted in the Order in Original by the Commissioner of Customs may be stated in brief.3. According to the Commissioner of Customs - appellant herein, M/s. Pearl Engineering Polymers Limitedwas registered under the Companies Act, 1956. Mr. Chand Seth was the Chairman-cum-Managing Director of the Company and Mr. Arun Gupta was whole time Director. The Company was engaged in the manufacture of Polyester Chips (High Pressure and Molding Grades) and other Polyethelene Terephthlate (PET) Bottle Grade and Film Grade since 1995. For the purpose of the said products, the Company set up a plant at Kurkumbh, District Pune in the State of Maharashtra. The plant had been set up on the basis of the technical know how. For that the Company entered into a ‘Knowand ‘Basic Engineeringwith M/s. Zimmer AG of Germanyfor short) on May 4, 1993. The agreement was negotiated and signed by Mr. Chand Seth and Mr. Arun Gupta. Both of them thus were aware of the terms and conditions and contents of the agreement. The agreement was approved by the Ministry of Industry and also by the Reserve Bank of India. The primary object of the agreement was to acquire requisite know how for the products of the Company.4. According to the Revenue, Intelligence was gathered by the Officers of Directorate of Revenue Intelligence (DRI), Mumbai that the Company had imported actual goods under the Export Promotional Capital Goods (EPCG) Scheme at the concessional rate of duty and thereafter diverted some of the goods in the local market. It thus appeared that the Company violated conditions of import of capital goods under para 14 of theand Import Policy,as the import of goods was subject to actual user condition till the export obligation was completed. In view of the Intelligence Report, details of the import by Company under EPCG Scheme were collected. As per the details, the Company was issued licence Nos., (a) P/CG/2133135 dated 2.6.94, (b) P/CG/2133262 dated 9.7.94 and (c) P/CG/2133763 dated 30.12.94. After scrutiny of import documents, licences were issued. The goods appeared to be imported in conformity with the items permitted under the licences. The Company also submitted copies of Letter of Credit (L/C), Equipments Supply Agreement between Zimmer and the Company and copy of Proforma Invoice No. 1863 dated 4th May, 1993. Physical inspection of imported goods was also made by visiting the plant site. The plant was in working condition and the capital goods indicated that there was no divergence of capital goods under EPCG Scheme. On verification of EPCG Scheme between Zimmer and the Company, it was noticed that the Company had collected from Zimmer Know how, Basic Engineering Agreement and Technical Assistance Agreement. The Company had imported designs, drawings and plans under the Know how and Basic Engineering Agreement on which appropriate amount of customs duty had not been paid.5. A show cause notice was, therefore, issued on November 16, 1996 to the Company, Mr. Chand Seth, Chairman-cum-Managing Director and Mr. Arun Gupta, whole time Director asking them to show cause as to why custom duty amounting to Rs. 4,18,12,425/- should not be demanded under Section 28(1) of the Customs Act, 1962; an amount of Rs. 20,00,000/- deposited by the Company voluntarily should not be adjusted against the duty demanded; the goods i.e. drawings, designs, plans etc. imported in three consignments having a total assessable value of Rs. 7,98,33,370/- should not be held liable to confiscation under Section 111(m) of the Act and penalty should not be imposed on each of them under Section 112 of the Act.6. Mr. Chand Seth, Chairman-cum-Managing Director of the Company replied to the show cause notice stating therein that he being the Chairman-cum-Managing Director of the Company was not involved in day-to-day functioning of the Company which was taken care by Executives and other employees of the Company. As the Chairman-cum-Managing Director, overall policy decisions were taken by him. He was, hence, not liable to penal action under Section 112 of the Act as he was not involved in the actual import of drawings, designs, plans, etc.7. Mr. Arun Gupta, Director of the Company, in his reply, contended that Know how and FEEP were procured through courier after declaration to Customs Authorities and one of the consignments was sought to be cleared vide Bill of Entry dated December 28, 1993. While the classification in the Bill of Entry was claimed under Chapter Heading 49.06 and exemption under Notification No. 36/93, the Customs Authorities were of the view that Heading No. 49.06 was not applicable. According to him, the books were exempted from customs duty. He, therefore, refuted theclaim for reassessment under Chapter Heading 49.11. According to him, at any rate, the entire value for the consignment which came under Air Way Bill was of Rs. 63.11 lacs (approx) as per Invoice Nos. 1836-02A and 1836-92B dated December 22, 1993 which could not be taken as value of drawings for the reason that the consideration was to be appropriated against several other obligations of Zimmer under the agreement. The consignment came after full declaration to the Customs Authorities and there was bona fide belief on the part of the Company that the drawings were fully exempted under Chapter Heading 49.06. At any rate, books were exempted under various notifications. There was thus no intention to evade payment of customs duty. The plea taken on valuation of drawings at DM 1,30,000/- in the letter dated September 30, 1997 was without prejudice to the basic contention that the entire consignment was exempted asand not liable to payment of duty. No penalty, therefore, could be imposed either on the Company or on the officers.8. Personal hearing was afforded to the Company on October 1, 1997. Advocates of the Company appeared. Mr. Chand Seth, Chairman-cum-Managing Director, Mr. Arun Gupta, Director and K. Srinivas, Consultant contested the matter. Time was sought for filing written arguments which was granted and written submissions were filed on 10th October, 1997 raising several contentions on the basis of various clauses in the agreement and on the merits of the matter. Reliance was also placed on certain decisions of this Court as well as of CEGAT. The main argument on behalf of the Company was that the supply was of printed books which was covered by Chapter Heading 49.01. Since they were exempted under Notification No.dated March 30, 1993 and Notification No.dated March 1994, the Company was not at all liable to pay custom duty. The Company also contended that the notifications were omnibus notifications and even if goods were covered by Chapter Heading 49.06 or 49.11, full exemption was granted. Thus, notwithstanding the fact that FEEP could be classified under Chapter Heading 49.11, in view of they beingwere covered by Exemption Notifications and there was no liability of the Company to pay customs duty. Reference was also made to HSN notes and it was submitted that Drawings, Designs and Plans could be classified as Printed Books by virtue of Interpretation Rules of 1988. The entire FEEP, therefore, could be exempted and there was no substance in the allegation of the department that the Company was liable to pay customs duty. Objections were also raised as to limitation and on valuation.9. The case of the department, on the other hand, was that FEEP and Drawings, Designs and Plans ought to be classified under Chapter Heading 49.11. As they could neither be covered by 4911.10 (Trade Advertising Material, Commercial Catalogues and the like) nor by 4911.11 (Pictures, Designs and Photographs), the relevant entry was Sub-heading 4911.99 (Others) and was liable to pay customs duty at 25%.10. The Commissioner of Customs considered the averments of the department and the reply submitted by the Company and by Mr. Gupta. According to the Commissioner, an agreement was entered into between Zimmer and the Company and the said fact was admitted by the Company. In consideration of supply of FEEP, an amount of BM 34,00,000/- equivalent to Rs. 7,98,33,370/- was to be paid by the Company to Zimmer. Out of the said amount, DM 26,00,000/- was to be paid for FEEP and DM 8,00,000/- was for Know how. Considering the decisions cited before him, the Commissioner held that the goods imported under Know how pertained to processes and were in the shape of manuals, brochures or leaflets. According to him, printed books and manuals both were classified under Sub-heading 4901.99 but were distinguishable. Exemption Notifications referred by the Company applied to Printed Books under Chapter Heading 49 but did not apply to the goods in question. He, therefore, held that the technical documents imported by the Company as part of Know how were notbut were manuals/brochures classifiable under Chapter Sub-heading 4901.99 and were not exempted under the Exemption Notifications. The Company was, therefore, liable to pay duty thereon.11. Accordingly, the following order wasIn view of the findings hereinabove:(a) I confirm duty demand of Rs. 4,18,12,425/-.(b) I order adjustment of the amount of Rs. 30 lakhs deposited by M/s. Pearl Engineering Polymer Ltd., voluntarily, towards the above confirmed demand of duty and direct that the remaining amount be paid forthwith.(c) I hold that the goods are liable to confiscation under Section 111(m) of the Customs Act, 1962. However, since the goods are not available, I refrain from ordering confiscation.(d) I impose under Section 112 of the Customs Act, 1962 a penalty of Rs. 1 crore (Rupee one crore) on M/s. Pearl Engineering Polymer Ltd.(e) I impose penalty of Rs. 50 lakhs (Rupees fifty lakhs) on Shri Chand Seth, Chairman-cum-Managing Director of M/s. Pearl Engineering Polymer Ltd., under Section 112 of the Customs Act.(f) I also impose a penalty of Rs. 25 lakhs (Rupees twenty-five lakhs) on Mr. Arun Gupta, Director of M/s. Pearl Engineering Polymers Ltd., under Section 112 of the Customs Act, 1962.55. The penalties shall be paid forthwith.Being aggrieved by the Order in Original passed by the Commissioner of Customs, five appeals came to be registered before CEGAT. One appeal was preferred by the Company against the decision of the Commissioner holding that the goods were liable to payment of custom duty and not covered by Chapter Heading 4901. Two appeals were filed by Mr. Chand Seth, Chairman-cum-Managing Director and Mr. Arun Gupta, Director against payment of penalty of Rs. 50,00,000/- and Rs. 25,00,000/- respectively. Two cross-appeals were filed by the Department against quantum of penalty imposed on Mr. Chand Seth and Mr. Arun Gupta contending that the penalty imposed by the Commissioner of Customs was inadequate and was required to be enhanced.13. CEGAT took up for consideration all the appeals. It observed that an identical question came for consideration before a Larger Bench of CEGAT in Parasrampuria Synthetics Ltd. v. Commissioner of Customs, New Delhi, (2000) 119 ELT 211=(2000) 38 RLT 846 (LB). It noted that the Larger Bench was faced with the issue as to whether the law laid down by a two-member Bench in Tractors and Farm Equipment Ltd. v. Collector of Customs, (1993) 68 ELT 234, was correct or decisions of Coordinate Benches in Mitutronics v. Collector of Customs, (1990) 46 ELT 500; Roto Inks (P) Ltd. v. Collector of Customs, (1990) 47 ELT 398; Tata Consultacy Service v. Collector of Customs, (1991) 53 ELT 454; Collector of Customs, Madras v. Tata Elxsi India Ltd., (1995) 78 ELT 370; Laakshmi Cement v. Collector of Customs, New Delhi, (1996) 84 ELT 271, were correct. CEGAT proceeded to state that after a survey on the entire case law, the Larger Bench in Parasrampuria Synthetics Ltd. took the view that the law laid down by two-member Bench in Tractors and Farm Equipment Ltd. did not lay down correct law and accordingly overruled it. The decisions in other cases were correct and the said view was affirmed. In those decisions, it was held that printed materials could be said to becovered under Chapter Heading 49.01 and were entitled to full exemption and consequently no duty was leviable on the goods imported. CEGAT noted that the decision of the Larger Bench was binding on it. Accordingly, the appeals filed by the Company as well as by the Chairman-cum-Managing Director and the Director were allowed by setting aside the order passed by the Commissioner imposing duty and penalty. Resultantly, two appeals filed by the Department for enhancement of penalty on Chairman-cum-Managing Director and Director were dismissed.14. Against the order passed by CEGAT, the department has filed these appeals. One of the appeals came up for preliminary hearing before a three-Judge Bench on December 14, 2001. Delay was condoned and appeal was admitted. Notice was also issued for interim relief. In the meantime, stay was granted against refund of amount if not already refunded. The interim order was thereafter continued and hearing was expedited. On May 1, 2003, the appeals were placed for hearing before a two-Judge Bench and the following order wasthe learned Counsel for the parties.Learned Counsel for the appellant submits that the question involved in these appeals is covered by the decision rendered by this Court in Commissioner of Customs, New Delhi v. Parasrampuria Synthetics Ltd., VI (2001) SLT 378=(2001) 9 SCC 74 , which reveals that thejudgment on which the reliance was placed was set aside. As against this, Dr. A.M. Singhvi, learned Senior Counsel appearing on behalf of the respondent relied upon the decision rendered by this Court in A.C.C. v. Commercial Tax Officer, (2001) 4 SCC 593. Considering the aforesaid two decisions, there appears some conflict in the ratio laid down in both the cases. Hence, these appeals are referred to a Larger Bench.Registry to place the papers beforethe Chief Justice of India for appropriate direction in this regard to place it before an appropriate

Court's reasoning:
So far as CEGAT is concerned, in our opinion, the learned Counsel for the assessee is right in submitting that the point is finally concluded in favour of assessee and against the department in Parasrampuria Synthetics Ltd. The Larger Bench observed that in several cases, Drawings, Designs and Plans were held to be covered under Chapter 49 and would fall under Heading 49.01 (printed books, brochures, leaflets and similar printed matter whether or not in single sheets); 49.06 (Plans and drawing etc. for architecture, engineering, industrial, commercial, topographical or similar purposes, being originals drawn by hand; had-written texts; photographic reproductions on sensitized paper and carbon copies of the foregoing); and 49.11 (other printed matter, including printed pictures and photographs) and not under 4911.99 (other). The Larger Bench also noted that in some cases, a contrary view was taken. But relying on the majority of the decisions, it was held that the relevant heading was 49.01 of Schedule I of the Act.In our opinion, the Counsel is right in submitting that when the expressionis not defined in the Act, natural and ordinary meaning of the said expression must be kept in view. According to him, nowhere it is provided that all the time characteristics or ingredients as highlighted by the learned Attorney General in Parasrampuria Synthetics Ltd. and referred to by this Court in paragraph 10 must be considered essential or sine qua non. He, therefore, submitted that a wrong test was applied by this Court in Parasrampuria Synthetics Ltd. and Scientific Engineering House Ltd. was erroneously distinguished. The proper way on the part of the Court was to consider the test laid down in Scientific Engineering House Ltd. and to come to a conclusion whether on the facts and in the circumstances of the case, Drawings, Designs and Plans in the case on hand could be said to beBy not doing so, a clear error of law had been committed and the decision deserves to be overruled.53. It was also submitted that so far as factual aspect is concerned, CEGAT was right in holding that Drawings, Designs and Plans imported by the assessee were covered by Tariff Heading 49.01 and were also entitled to exemption under Notification No. 107/93-Cus and 38/94-Cus. Alternatively, it was submitted that if this Court is of the view that CEGAT has not entered into the said question in view of the Larger Bench decision, the matter may be remitted to CEGAT directing it to consider the case afresh by applying correct test and to take an appropriate decision.54.The learned Counsel for the Revenue submitted that Elecon Engineers Ltd. and Scientific Engineering Housing Ltd. were rendered in different context. The basic issue was — whetherwere covered by the entryunder the Income TaxAct. Those decisions, therefore, have no relevance to the issue in question since the entries are different.It was also submitted that since the article in question was to be used by the assessee and was prepared according to his requirement, it had no utility to others. Hence, it cannot be said to be ain general sense. It was argued that this Court has considered the factual position in Parasrampuria Synthetics Ltd. and held that the article was not a book.It would not, therefore, be appropriate to hold otherwise in the present case.55. In our opinion, all these questions have to be considered and decided by the CEGAT in the fact-situation of the case in hand. As already noted by us, some of the tests applied in Parasrampuria Synthetics Ltd. were not relevant and appropriate. The CEGAT will now consider the ratio in Parasrampuria Synthetics Ltd. in the light of the observations made by us in this judgment and decide the issue raised in the instant case.In this connection, we may refer to a three-Judge Bench decision of this Court in Collector of Central Excise, Shillong v. Wood Craft Products Ltd., (1995) 3 SCC 454 =(1995) 77 ELT 23 (SC). The Court, in that case, considered the question whetherwas classifiable under Sub-heading 4408.90 or Sub-heading 4410.90? HSN Explanatory Notes was considered by this Court and it wasare of the view that the Tribunal as well as the High Court fell into the error of overlooking the fact that the structure of the Central Excise Tariff is based on the internationally accepted nomenclature found in the HSN and, therefore, any dispute relating to tariff classification must, as far as possible, be resolved with reference to the nomenclature indicated by the HSN unless there be an express different intention indicated by the Central Excise Tariff Act, 1985 itself. The definition of a term in the ISI Glossary, which has a different purpose, cannot in case of a conflict, override the clear indication of the meaning of an identical expression in the same context in the HSN. In the HSN, block board is included within the meaning of the expressionin the same context of classification of block board. Since the Central Excise Tariff Act, 1985 is enacted on the basis and pattern of the HSN, the same expression used in the Act must, as far as practicable, be construed to have the meaning which is expressly given to it in the HSN when there is no indication in the Indian Tariff of a different intention.In Indian Metals and Ferro Alloys Ltd., Cuttack v. Collector of Central Excise, Bhubaneshwar, 1991 Suppl. (1) SCC 125,  this Court held that residuary item can be referred to and such item can be applied only when goods are shown to be not falling under any other specific item. If they are covered by a specific item, residuary item has no application.The Courtmore aspect of the issue should be adverted to before we conclude. The assessee is relying upon a specific entry in the tariff schedule while the department seeks to bring the goods to charge under the residuary Item 68. It is a settled principle that unless the department can establish that the goods in question can, by no conceivable process of reasoning, be brought under any of the specific items mentioned in the tariff, resort cannot be had to the residuary[See also Bharat Forge and Press Industries v. Commissioner of Central Excise, (1990) 1 SCC 532 : (1990) 45 ELT 525 (SC)].61. In our considered opinion, all these contentions raised by the assessee have to be dealt with and decided in the light of relevant statutory provisions of the Act and the Rules as also on the basis of decided cases on the point. As CEGAT has disposed of all the appeals merely on the basis of Larger Bench decision in Parasrampuria Synthetics Ltd. and has not considered rival contentions on merits nor recorded findings thereon, it would be appropriate and in the fitness of things to remit the matters to CEGAT, now to Customs, Excise and Service Tax Appellate Tribunal (CESTAT) to decide them on all points in accordance with law in the light of observations made in this judgment.