2008 (9) TMI 19 - SC - Customs

Imports of color TV parts must be classified under relevant headings and Section XVI; Rule 2(a) cannot reclassify them

SC held that imports of several parts of colour television cannot be treated as imports of complete CTV sets; classification must follow the relevant ... Whether import of several parts of Colour Television (CTV) can be treated as import of complete CTV Sets – held that classification shall be done according to headings & relevant sector or chapter Notes - If no clear picture emerges then only can one resort to the subsequent rules - invocation of Rule 2(a) of the Interpretative Rules, are prohibited for certain categories of goods covered in Section XVI like the goods of CTVs - Demand, interest & penalty are not justified Issues: (i) Whether the imported parts/components of Colour Televisions (CTVs) could be treated as imports of complete CTV sets under Rule 2(a) of the Interpretative Rules to the First Schedule to the Customs Tariff (thereby attracting differential duty, confiscation and penalty); (ii) Whether the 94 separate consignments imported over 22 months could be clubbed together for applying Rule 2(a) and for finding breach of Exim Policy and related confiscation/penalty.Issue (i): Whether the imported components had the 'essential character' of complete CTVs so as to be treated as complete/finished articles under Rule 2(a).Analysis: The Court examined Rule 2(a) as a whole and held that its application requires that the incomplete/unfinished article, 'as presented', possess the essential character of the finished article. The second part of Rule 2(a) (treating disassembled/unassembled presentation as complete) activates only if the opening condition is satisfied. The facts showed the components (e.g., PCBs, CRTs) were imported in separate consignments over time, could be independently used or sold, and required complex further processing before they could form finished CTVs. The Court distinguished Phoenix International Ltd. on its factual findings (single/containerized presentation, evidence of subterfuge and matching component counts), and relied on authorities holding goods must be assessed in the form presented to customs and that Rule 2(a) requires simultaneous presentation of components intended to make the finished product.Conclusion: Rule 2(a) did not apply; the imported components did not have the essential character of complete CTVs and therefore were not to be treated as imports of complete CTV sets. This conclusion is in favour of the assessee.Issue (ii): Whether the 94 consignments over 22 months could be clubbed together to treat the imports as CKD/SKD CTVs and thus amount to breach of Exim Policy justifying confiscation and penalty.Analysis: The Court applied settled principles that goods must be classified as presented to customs and that clubbing consignments brought on different dates from different sources is impermissible absent circumstances satisfying Rule 2(a). The Commissioner had earlier found no breach prior to 25.3.1996 and Revenue did not challenge that finding for that period. The Tribunals factual finding that components were imported in many consignments, sourced from different countries, and required complex manufacturing operations was accepted. HSN Explanatory Notes (pre-1997) were considered and held to support the conclusion that the imports were not 'presented unassembled or disassembled' in the sense required by Rule 2(a).Conclusion: The 94 consignments could not be clubbed together to treat them as CKD/SKD imports for the purposes of Exim Policy breach, confiscation or imposition of differential duty and penalty. This conclusion is in favour of the assessee.Final Conclusion: The Tribunal's order allowing the assessee's appeal and setting aside the Commissioner's order demanding differential duty, directing confiscation and imposing penalty is correct and is hereby affirmed; the Revenue's appeal is dismissed.Ratio Decidendi: Rule 2(a) of the Interpretative Rules applies only where the incomplete or unfinished article, as presented to customs (i.e., simultaneously and in the form imported), possesses the essential character of the finished article; absent such simultaneous presentation and essential-character satisfaction, components must be classified and assessed in the form presented and cannot be treated as complete articles for higher duty, confiscation or penalty purposes.