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TMI Blog2007 (9) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... oles, insoles and sock liners M/s. Phoenix International Ltd. (M/s. PIL) were the holders of Quantity Based Advance Licence under which it was entitled to import synthetic shoe uppers, PVC compounds and natural rubber. M/s. PIL imported synthetic shoe uppers numbering 5215 pairs on 16-2-96 declaring CIF value at Rs. 19,52,401. On the same day Phoenix Industries Ltd. (M/s. PIND) imported soles and insoles numbering 5151 pairs worth Rs. 7,07,806 (CIF). M/s. PIL had imported synthetic uppers under DEEC Scheme whereas soles were imported by M/s. PIND under para 22 of the EX1M Policy 1992-97. Both the companies imported respective items as components/parts. On preliminary enquiry, Department was satisfied that there was an attempt to mislead by importing the above items separately through two different companies as uppers and soles constituted complete synthetic shoes in SKD form. In the preliminary enquiry the Department found that all the cartons were placed in one container with the marking of "Phoenix" without specifying whether the container was meant for M/s. PIL or M/s. PIND. Hence, two show cause notices came to be issued dated 7-5-96 for the period 21-6-95 to 4-11-95 and the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce-sheets of M/s. PIL. Under the above circumstances, the Department alleged, vide the show cause notices, that M/s. PIL was the importer of all the components, namely, synthetic shoe uppers, outer soles, insoles and sock liners; that, as per Rule 2(a) of the General Rules of Interpretation of the First Schedule to the Customs Tariff Act, 1975 (for short, "General Rules of Interpretation") the goods imported were not parts/components but were SKD goods, liable to be assessed as complete finished goods under tariff Heading 6404.19 of the First Schedule of the Customs Act, 1975 and liable to basic customs duty at 50% ad valorem and countervailing duty at 15% ad valorem. Vide two show cause notices violation of para 156(A) of the EXIM Policy 1992-97, was also alleged. In that connection, the Department alleged that M/s. PIL was fully aware that import of the above parts of "Reebok" synthetic shoes in the name of one company may give rise to suspicion and, therefore, the imports were made through the aforestated subterfuge. Further, according to the show cause notices, the value given in their import invoices did not represent the correct transaction value since a single consignment m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey were separate independent companies in all respects. According to the reply, the two companies were separately assessed under Income-tax Act, Sales Tax Act and Central Excise Duty. The factories of the two companies were located at different places. About 500 employees were working in respective companies. According to the reply filed before the Commissioner, M/s. PIND was engaged in the manufacture of leather shoes, synthetic shoes, semi-leather shoes, outer soles etc. M/s. PIND were registered as a leather industry. According to the reply, goods manufactured by M/s. PIND including footwear were sold in the domestic market. According to the reply, in certain cases footwear was got manufactured by M/s. PIL on job work basis. According to the reply, in some cases M/s. PIND acted as job workers for M/s. PIL. At the same time, in other cases, M/s. PIL were as job workers for M/s. PIND. According to the reply, M/s. PIL handled, during the above period, overseas sales whereas domestic sales were done by M/s. PIND under the authorization of M/s. PIL. As regards the import in question, it was stated that 5251 pairs of outer soles, insoles and sock liners were imported by M/s. PIND fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45/94-Cus. dated 1-3-1994 gave exemption to the items mentioned in Table A annexed thereto which referred to sole, insole and sock liner and consequently M/s. PIND was entitled to the benefit of the said notification. In this connection, it was stated that goods falling under Table A were not governed by Actual User condition. According to the importer the said notification was applicable to the aforestated four items which were used in the leather industry. According to the importer, so long as the aforestated items, namely, outer soles, insoles and sock liners were imported as "parts" by M/s. PIND, exemption under the above notification was applicable. On the question of valuation it was stated that the foreign Supplier in Bangkok was unrelated to M/s. PIL and M/s. PIND; that Reebok International Ltd. had no shares in the foreign Supplier company; that the said foreign Supplier was not the sole Supplier of Reebok International Ltd. and, therefore, the transaction value of the aforestated four parts should be accepted in terms of rule 4 of the Customs Valuation Rules. Therefore, it was not open to the Department to invoke rule 8 of the Customs Valuation Rules. Accordingly, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the name of M/s. Phoenix Industries Ltd. attracted confiscation. However, since the goods are not available, no order confiscating the goods can be passed. I confirm the differential duty of Rs. 16,78,891/- in respect of imports made by M/s. Phoenix International Ltd. and Phoenix Industries Ltd. under two bills of entry covered under show cause notice dated 7-5-96 under Section 28(1) of the Customs Act, 1962. The duty is payable by M/s. Phoenix International Ltd., Noida. I also confirm the differential duty of Rs. 29,14,933/- under the proviso to Section 28(1) of the Customs Act, 1962 in respect of imports made in the name of M/s. Phoenix Industries Ltd. during the period 21-6-95 to 4-11-95 covered under show cause notice dated 1-7-96. This amount is also payable by M/s. Phoenix International Ltd. Thus, the total amount of duty payable by M/s. Phoenix International Ltd. is Rs. 45,93,824/-. I also impose upon M/s. Phoenix International Ltd. a penalty of Rs. 10,00,000/- (Rupees Ten Lacs only) under Section 112(a) of the Customs Act, 1962. Any bank guarantee or deposit made by M/s. Phoenix International at the time of provisional release of goods or during the pendency of thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PIND which attracted rule 8 of the Customs Valuation Rules. For the aforestated reasons it was urged that the impugned decision of the Tribunal deserves to be set aside. 9. Mr. V. Lakshmikumaran, learned counsel appearing on behalf of the respondents, submitted that the Commissioner had erred in treating M/s. PIND as a dummy of M/s. PIL. In this connection, it was urged that the two companies are separate independent entities. They were incorporated on different dates. They are in different business. The domestic market was handled by M/s. PIND whereas export market was looked after by M/s. PIL. M/s. PIL was the holding company whereas M/s. PIND was a subsidiary company. Both the companies had separate balance-sheets. They were registered separately under Central Excise Act. M/s. PIL had fulfilled its export obligations and in recognition thereof an advance licence was issued in its favour inter alia to import shoe uppers and that even in the DEEC the name of M/s. PIND was also shown as Supporting Manufacturer. It was further contended that para 156(A) of EXIM Policy 1992-97 was not applicable to synthetic shoes. It was applicable to products like bicycles, ceiling fans etc. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the classification shall be determined according to the words used in the headings. Learned counsel urged that rule 2(a) of the General Rules of Interpretation in any event cannot be used to interpret Notification No. 45/94-Cus. dated 1-3-94. It was further contended that under Notification No. 45/94-Cus. dated 1-3-94 insoles and outer soles fell under Table 'A' annexed to the said notification. That, items falling under Table 'A' when imported into India for use in the leather industry were entitled to the benefit of concessional rate of duty and, therefore, the Commissioner had erred in holding that insoles and outer soles were not entitled to the benefit of concessional rate of duty as they were used in the manufacture of synthetic shoes which did not come under Leather Industry. Learned counsel submitted that M/s. PIND had imported soles, insoles and sock liners under para 22 of the EXIM Policy 1992-97 and, therefore, it was entitled to the benefit of the Notification No. 45/94-Cus. dated 1-3-94. Lastly, it was urged that in the present case the Commissioner had erred in invoking rule 8 of the Customs Valuation Rules. In this connection, it was urged that in this case the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 intenti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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