TMI Blog2007 (9) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in the same container could be clubbed so that it could be considered as import of the shoe itself in semi-knocked down (SKD) condition? Whether the importer was guilty of mis-declaration when the importer declared SKD goods as components? FACTS 3. A synthetic shoe, inter alia, consists of vital parts, namely, synthetic uppers, outer soles, 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 comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IM Policy 1992-97. In that connection, the Department alleged that a loan of Rs. 11.7 crores was advanced by M/s. PIL to M/s. PIND, interest free, during the year ending 31-3-95 and a loan of Rs. 7.7 crores was also advanced to the same company, interest free, during the financial year 31-3-94. For that purpose reliance was placed on the balance-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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant-exporter; that in 1991 M/s. Welcome Leather Industries Pvt. Ltd. decided to sell the company which was acquired by M/s. PIL; that in 1992 M/s. PIL started manufacturing shoe uppers and, therefore, though both the companies, namely, M/s. PIL and M/s. PIND were under the same management having common majority of directors and shareholders, they 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 1-3-1994 and, therefore, the importer disputed the contention of the Department that because of rule 2(a) of the General Rules of the Interpretation the items imported should be construed as SKD packs of sports shoes, therefore, according to the importer rule 2(a) was not applicable. Further, according to the importer, Notification No. 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PIND attracted duty at the rate applicable to fully-finished footwear, the said exemption notification 45/94-Cus. dated 1-3-94 was not applicable to the facts of this case. 7. In conclusion, the Commissioner passed the following order : "The goods valued at Rs. 78,79,968/- in respect of show cause notice dated 1-7-96 representing the imports 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 paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit of concessional rate of duty under Notification No. 45/94-Cus. dated 1-3-94. That, the entire funding and manufacturing functions were undertaken only by M/s. PIL which had entered into Buy-Back Arrangement with Reebok International Ltd. and, therefore, there was a close relationship between Reebok International Ltd., M/s. PIL and M/s. 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 recogniti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der tariff Heading 64.04. In this connection, learned counsel also submitted that rule 2(a) of the General Rules of Interpretation was not applicable in this case, particularly, when "parts" of footwear came specifically under tariff Heading 64.06. In this connection, reliance was placed on rule 1 of the General Rules of Interpretation which stated 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 impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igin, whether in SKD/CKD condition or ready to assemble sets or in finished form Not permitted to be imported except against a licence or in accordance with a Public Notice Issued in this behalf." 11. 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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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