TaxTMI 
TaxTMI 
TaxTMI 
2000 (6) TMI 509
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....or some equipments and grant for others. The cost of the design, construction, supply and delivery of the dredger were supposed to have been discussed by the various authorities of the Govt. of India and only thereafter this contract was executed. As a result, appellants made arrangements for procuring the dredger by obtaining necessary licence to cover the value of the goods. The same was granted vide Licence dated 1-8-1990 for a sum of Rs. 86,63,94,350/- (96,906,208 DGL). They filed a Bill of Entry No. 170 dated 23-4-1991 before the Customs Department, Visakhapatnam for clearance of one number TSHD Trailing Suction Hopper Dredger (TSHD) No. XIV along with the relevant documents including the two invoice, contract etc. The declaration made in the Bill of Entry was "One TSHD XIV of 4,500 Cu.M. Hopper capacity (a self propelled) together with the required accessories, spare parts and the repair implements". They claimed classification under 8905.10 CTA 1985 and claimed the benefit of Notification No. 180/90 dated 31-5-1990. The goods were inspected by the Customs Department including the contract, the invoice and all the materials available on board. The value was arrived at by the ....
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.... The position finding system is an optional accessory which is not an integral component of dredger and is essential only for the purpose of knowing the position of the vessel during operation. Therefore, 'position finding system' cannot be equated with an integral component and is to be termed as optional accessory. Similarly, in respect of 'fenders' which are supplied along with dredger XIV on a request made by M/s. DCI it is observed that fender is only a protective accessory to absorb the shock of impact with Jetty by dredger or in the case of double banking with another vessel. The fenders have been charged separately for an amount of 32,000 DGL and therefore they can be considered as protective accessory. Therefore, the fenders also do not attract the benefits of Accessories (Conditions) Rules, 1963. Further, in respect of loose parts as per schedule they are found to be spare parts which are essential and required for maintenance of dredger. However, even though these spare parts are essential in nature, still they are found to be supplied based on a request made by M/s. DCI and are not compulsorily supplied by M/s. IHC. Therefore, these spares appear to be optional in natur....
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....the collection of separate charges in respect of above 3 items (a), (b) & (c) over and above the basic building price and also by wilfully procuring a tailor-made invoice which is not in conformity with the cost schedule of the contract and also by wilfully misdeclaring in the Bill of Entry that the price shown is inclusive of the cost of spares and accessories and no separate charge is made in respect of spares and accessories. Accordingly, the duty on the above items were worked out to Rs. 5,44,65,058/- as per the work sheet enclosed to the show cause notice on the ground of misstatement and suppression of facts by the appellants. 5.  The appellants vide their reply, dated 26-8-1996 submitted as follows :- (a) They submitted that since the goods were released by the Customs authorities after examining the contract, other related documents and goods, the customs department is aware of the goods imported by M/s. DCI and hence M/s. DCI have not removed anything clandestinely without the knowledge of the Customs authorities. (b) They submitted that there is no suppression of facts for invoking the proviso to Section 28 of the Cu....
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....s sought for there was no modification of the terms of the consultant whose opinion does not change the position of law. As regards the change that the spare parts with the price list was not kept on board at the time of inspection of the dredger by the customs authorities does not in any way prove the case of the Department. (l) They denied that M/s. DCI have procured a tailor made invoice which is not in continuity with the cost schedule of the contract. (m) They contended that no basis for invoking the provisions of Section 111(o) or 111(m) have been shown. (n) They submitted that no provisions of Sec. 111(o) are totally inapplicable to this case. (o) They submitted that there is no mens-rea established for invoking Section 112(a) in this case for confiscation or levy of penalty. (q) Finally they submitted that the question of levy of duty does not arise as far as the goods are on board the dredger and have not crossed the frontier and when the dredger is exempted from payment of duty, the spare parts on board the vessel are also exempted from duty. They f....
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....Shri U. Chakravarthy, representative of M/s. DCI at Netherlands wherein it was specifically mentioned, among other things, to furnish invoice as per the Proforma given by M/s. DCI and also not to keep spare part list indicating individual prices on board. Accordingly M/s. IHC had sent an Invoice showing the total price of dredger at 47,180,000 DGL inclusive of accessories, spare parts and maintenance/repair implements and no separate charge is made for supply of above items which were furnished at the time of clearance of goods. This Invoice was furnished to the Customs authorities by suppressing the fact that separate charges were paid for the supply of spare parts, accessories, parts, etc. at the time of clearance of the goods. In addition to the loose parts valued 2,366,980 DGL the appellants had also imported fenders valued 32,554 DGL which is a protective accessory to absorb the impact of shock of dredger with Jetty (Office Memos, DCI dated 10-5-1990 and 31-5-1991) on payment along with the dredger XIV. These were cleared without payment of duty claiming benefit of Accessories (Conditions) Rules, 1963. The spares list indicated valued 2,366,980 DGL and the contract indicated t....
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....nd optional equipment like position finding equipment etc. are also included in the value of the dredger. The Commissioner has noted that it is also explicit from the Inter-Office Memos, DCI dated 10-5-1990 and 31-5-1991 that fenders valued at 32,554 DGL which is a protective accessory to absorb the impact of shock of the dredger had been charged separately and cleared in terms of Accessories (Conditions) Rules, 1963. (f) The Commissioner has further found that the Office Note No. TD/SB/035, dated 3-2-1989 indicated that M/s. IHC Netherlands had initially recommended spares worth Rs. 5,824,280 DGL for the first dreder - XII and 4,898,300 DGL for in respect of second Dredger XIV. However, the amount provided for in the grant-in-aid for spare parts come to 2,366,980 DGL for each dredger. The appellants had pruned down the requirement to be in line with the grant-in-aid available as per the contract to the extent of 2,566.980 DGL for each dredger. Therefore, from this circumstantial evidence he has concluded that DCI in connivance with the supplier had suppressed the information relating to payment of separate charges in respect of position finding equip....
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....eason that they had misdeclared the value of the goods by suppressing the fact that separate charges were paid to the loose parts/position finding equipment and fenders and hence attracted provisions under Section 111(m) and 111(d) of the Customs Act, 1962. He held that for having contravened the Accessories (Conditions) Rules, 1963 they attracted provisions under Section 111(o) of the Customs Act, 1962. He examined all the judgments cited and distinguished the same as not having any applicability to the facts of the case and therefore held in conclusion that appellants had suppressed the fact of payment separate charges for position finding equipment, loose parts and fenders and had evaded Customs Duty amounting to Rs. 5,44,65,058/-. However, after thorough examination with regard to penalty, he did not impose the same for detailed reasons given therein. 9. We have heard Sr. Advocate Shri Habibulla Basha assisted by R. Sudhakar, Advoate for appellants and Shri V.T. Gopalan, Addl. Solicitor General of India and Shri S. Kannan, ld. DR. 10.  Ld. Senior Counsel, while strenuously arguing for appellant, took us through the entire records of the case and submitted that the e....
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....iation by Government of Netherlands & Government of India by Ministry of Surface Transport and the transaction was quite transparent and clear. 12.  Ld. Sr. Counsel further contended that the position finding equipment is an essential equipment of dredger and it has been classified under sub-heading 8905.10 of the Customs Tariff and as its classification has not been changed, therefore, the benefit of the notification in question cannot be denied. He further submitted the spares, for which, benefit of notification is being denied, is also classifiable under the same sub-heading 8905.10 and hence, Revenue has not made out a case for demanding short levy in the matter. He submitted that the Customs had inspected all the item including all the documents and annexures before approving the classification under sub-heading 8505.10 and they have not given any appropriate reason for short levy and no levy can be raised in the absence of revision of the approved classification. He contends that although there was separate shipment of spares but they are entitled to the benefit of the notification. It was not supplied free and its price had been built in the contract. He pointed out to....
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....aving any precedence over documentary evidence. The documents would lost its evidentiary value as it is fabricated one. The appellants had acted at the behest of their Consultant Shri Appa Rao and the documents i.e. the invoice is a prepared one for Customs evasion purpose. Hence, there is clear suppression for attracting larger period and for confirming the demands in the matter. Referring to the Accessories (Condition) Rules, learned Addl. Solicitor General contended that it applies only to compulsory spares supplied along with the dredger and where no separate charge is collected. In the present case, the impugned items do not come within the ambit of Accessories (Condition) Rules and separate accessories are chargeable to duty. Learned Addl. Solicitor General further took us though the records and the show cause notice and the annexures therein and pointed out that each item had been classified on merits. It is clear from the said classification adopted that they were not under the same heading as in the Notification. The valuation had been arrived at on the basis of separate heading of classification of each item as they were not integral part of the dredger and therefore, it ....
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....llants had erased certain words to bring all the parts within the ambit of the Accessories (Conditions) Rules. There is enough material to show that they are separate parts which are for maintenance purpose and they are not given free. It was planned by the appellants to import the items in such a manner as to claim the benefit of the Notification, which is not available and the items are dutiable. He points out that invoice dated 7-9-1990 was prepared by the supplier in terms of the advice given by the Consultant and the telex issued accordingly by the appellants to the supplier. The raiding officers would know about the suppression only after the documents were seized and the statements recorded. He points out that the cause schedule worked out also clearly indicates that it did not include the value of the position finding equipment and the dredger had been valued at 41,460,000 DGL and the excluded items were valued at 6,000,000 DGL. He points out that the contract cannot be considered as final for the purpose of valuation neither it can be considered as technical literature nor to decide the details of spares. He submitted that the spares value had been included in the value of....
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....even G.G. Rao clearly indicated that position finding equipment is essential for the dredger in terms of the Interpretative Rule, Section Note and Chapter Note, the position finding equipment is required to be classified only along with the dredger and so also the essential components, parts and spare parts. He pointed out that the show-cause notice has restricted only with regard to payment of separate charges for position finding equipment, loose parts/spare parts. He submitted that there was no connivance or intention to evade duty as two Governments were involved in the matter and there was nothing required to be done for the purpose of evasion of duty in the matter. He submitted that there was no need to file two Bills of Entry as contended and as the contract was single one, which had met approval of the Ministry of Finance and the licence had been issued by the authorities for total price, the contract had envisaged supply of parts and dredger and therefore, they were to be treated as parts of dredger. He submitted that the Notification was clearly applicable to position finding equipment as it is part and parcel of dredger and dredger cannot work without this item. So also ....
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....ontract reveal that the price for the entire equipment including the impugned items which are in this appeal totalling to 47,460,000 Dutch Guilders, DGL. The contract was executed only after the negotiation was entered into by the Ministry of Surface Transport and Ministry of Finance in consultation with the Government of Netherlands, who had offered concessional loan for some equipment and grant for others. The cost of design, construction, supply and delivery of the dredger was discussed in detail by various authorities of the Government of India and only thereafter the contract was signed. On a perusal of the contract these facts are clear and there is no ambiguity in terms of the contract, the price entered into, the value and mode of payment which is required to be made in the matter. The details of contract entered in the matter has been placed before us for perusal and on a perusal thereof, we confirm that there is no alteration or changes brought into, the contract after the import and the same was entered into after due negotiation and the price was negotiated price. The correspondence between the appellants Chairman and the Development Adviser (Ports), Ministry of Surface....
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....gger the delivery of the 2nd dredger as per requirement without any increase in price. An itemwise specification of the financial arrangements will be presented in the draft side letter, that will be made available by Netherlands authority. 2.  It has also been decided by the Government to pass on the concessionality of the loan facility to the DCI in the sense that DCI would take a direct loan from the Dutch Government and bear the foreign exchange risk. The Government would stand guarantee and the benefit of the technical assistance provided would also be available to the Project authorities. 3. I am to request that immediate action may be taken to place the order for the two dredgers on M/s. IHC Holland and to enter into the necessary contract agreement for the same with the said firm, in accordance with the aforesaid decision of the Government. Six copies of the contract agreement signed with the firm may be forwarded to this Ministry at an early date for onward transmission to the Ministry of Finance (Dept. of Economic Affairs) for further necessary action. Another copy of the contract agreement may also be sent for record in the Ministry. 4. This sanction i....
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....price for each of these items. The invoice prepared by the ICH Holland is dated 6th February, 1990 which includes the cost of one 4500 Cu.M. trailing suction hopper dredger which includes also the price of floating shore lines, shore discharge connection, self-emptying system and stationary dredging system, position-finding equipment, items mentioned and priced in the specification addendum. All these details have been incorporated in the contract and the various other documents including the insurance documents clearly reflect the price arrived at in terms of the negotiation entered into by the two Governments. The Bill of Entry which has been filed in the present case clearly describes the item as one 4500 Cu.M. trailing suction hopper dredger capacity together with required accessories, spare parts, maintenance/repair implements and the price value has been brought out in terms of the contract and the annexures give the details of all the items which are imported. The department called for all the contract documents including the specification and details and after due verification of the Bill of Entry carried out in respect of imported items in contract and the inspection repor....
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....s of entering into contract wherein both the Governments have already negotiated the price for dredger which included the position finding equipment, fenders, loose parts and there is no change in the contract. This letter is of later and post-contractual period. He has only given his opinion as to how the customs authorities would come in the way at the time of clearing the same by raising several objections. Therefore, he merely suggested that the words "initial" and "price" on the front cover of the spare parts list should be erased, since those words suggested and gave an impression that spares are separately charged thwarting their efforts to rope them all under the Accessories (Condition) Rules, 1963. There is nothing from which it would show that pre-planning was made by the appellants with the Government of Dutch in collusion with Government of India to fabricate the documents. The Contract had been executed after due negotiation and price had been fixed after payment structure and mode of payment had also been drawn out very clearly. Since the appellants approached the adviser as to how they should proceed for Customs clearance, he only opined the manner in which the Custo....
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....brought out to hold that these three items are required to be classified in a heading other than the heading for dredger; which has been classified under sub-heading 8905.10 and by granting the benefit of Notification in question. There is a serious lacuna on the part of Revenue in not re-opening the classification for the purpose of levy of duty since the items were examined in great detail before the Bill of Entry was finalised in light of the contract, technical details and inspection. Therefore, it is a concluded matter and that the classification of all the three items stands accepted under Heading 8905.10 and that they are part and parcel of dredger and entitled to the benefit of Notification. The Revenue ought to have re-opened the classification for the purpose of denying the benefit of Notification as the Notification applies to dredger and parts thereof. The Revenue has not indicated as to in which heading the various spare parts, loose parts, fenders and position finding equipment are required to be classified. 17. Learned Additional Solicitor General indicated that the annexures to show-cause notice has given the headings under which the parts are required to be c....
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....admission made by them, in fact, Sri G.G. Rao categorically stated that position finding equipment is an essential part of the dredger. The show-cause notice has proceeded only on the ground of collection of separate charges in respect of three items as seen from the summary of para 12 of the show cause notice. As held, there is no separate payment made nor collection of separate charges in respect of three items and the entire price was negotiated and the payment was for the inbuilt contract price for supply of dredger which included fenders, loose parts. Therefore, they cannot be treated as separate items other than dredger for which the department ought to have re-opened the classification which has not been done in the show cause notice and hence, the question of upholding the charge in the present case does not arise. 19. Furthermore, it was argued before us that the charge is misconstrued by the Commissioner as he has proceeded to draw the issue on the ground that the appellants had claimed benefit of Accessories (Conditions) Rules and had suppressed the facts and taken the benefit. On a perusal of the show cause notice, there is no allegation made in this light except ....