TaxTMI 
TaxTMI 
2003 (1) TMI 327
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....s. NOVO LLC, USA for the supply of equipments relating to the ventilators. They also placed purchase orders on M/s. Erkadi International in Bangalore for the supply of items like graphic monitors, cart/trolley, LCD displays etc. 2. Pursuant to an agreement entered into with Ministry of Defence, Govt. of Russia, the Appellants filed an application to the DGFT for the grant of an Advance Licence for the import of certain components. In the application, the Appellants indicated, that the export was not in freely convertible currency. They further provided a flowchart giving different processes that would be undertaken by them on the components supplied before export. They also provided catalogues of the equipments. M/s. Arden Mechatronics were shown as the supporting manufacturer. 3. A licence was issued to M/s. LEND with an export obligation of Rs. 55 crores and restricting imports to the extent of CIF value of 16.29 crores as against 32.59 crores made in the application, with the condition that the technical specification of the components imported should conform to those utilized in the manufacture of the resultant product and should be reflected in the export docum....
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....ial premises of one Shri H.R. Gopinath and further statements and enquiries made reveal that the subject firm was declared as a supporting manufacturer by the partner of M/s. LEND with a view to obtain the Advance Licence under DEEC Scheme and to import Ventilators without payment of duty. Intentionally facts were misrepresented with untrue declaration in an application to JDGFT; as a result of the same advance licence was got issued for the special imports. Shri H.R. Gopinath, partner of M/s. Ardent Mechatronics willingly and knowingly lent the name of his firm and thereafter it was considered that he lent his name to M/s. LEND to wrongly avail the benefit under Advance Licence (DEEC Scheme) which rendered him liable for penalty under Section 112A of the Customs Act. (b) An examination of the import document reports proved beyond doubt that the goods imported were of USA/New Zealand origin manufactured by an UK firm and M/s. NOVO LLC USA were authorized agents for this UK firm in the manufacture of "Puritan Bennet NPB 760 Ventilators". (c) Therefore, the Commissioner found that the point for consideration was whether the "Complete Electronic Ventilato....
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....s against the policy." And thereafter on perusal of Bank Documents, he concluded that it was clearly evident that a letter of credit was established well after the deadline fixed. That the imported goods have not undergone any manufacture or process by the supporting manufacturer and as admitted by the partners of M/s. LEND the supporting manufacturer had no role whatsoever to play in the manufacture of export products and therefore it was established that the goods imported were subsequently exported without any intrinsic value addition and merely FOB value of goods were jacked up to meet the EXIM Policy requirements. (d) He also found as follows......... "Further, I find that the Noticees have misrepresented the fact about the quantum of value addition by including the highly inflated value of software loaded to the EPROMS. This is clearly evident from the fact that the total value of the contract with M/s. Erkadi International/M/s. Moola Technologies is about Rs. 1.75 crores, towards the supply of accessories which included the graphic display monitor, in which the software was loaded. However, the value of such software in the declaration made to JDGFT, at the tim....
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....ra has admitted in his statement that each ventilator would be received in India in two separate boxes and each of these boxes would have the machine sl. no. indicated on it and that one of these boxes contains the main base unit, which has the machine sl. no indicated on it and that all the assemblies would have a sticker affixed on it which indicate the machine sl. no. indicated on it. This is because each of the PCB will work only when fitted to the particular machine sl. no. This arrangement of packing as admitted was arranged by himself with the manufacturer M/s. Mallinckrodt (U.K.) Ltd., and he also admitted that PCB of the ventilator machine comes with inbuilt software in Russian language and that he had placed orders with the foreign supplier M/s. Novo LLC USA (dealer of M/s. Mallinkrodt (U.K.) Ltd., for supply of 'Complete Ventilators'. This amply proves that they are not eligible for the benefit of Notification 51/2000-Cus., dtd. 27-4-2000. In view of the above, they are liable to pay duty under section 28 (1) of the Customs Act, 1962 for the goods imported under Bill of Entry No. 52731 dtd. 6-12-2000 and the duty demandable works out to Rs. 1,40,84,474/- and the interest....
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.... exports is not to be construed in a rigorous manner is evident from the fact that the definition of manufacture in the Export Import Policy also covers a process of assembling, polishing, segregation which in its strict sense would not amount to manufacture of excisable commodity. A.3 That the definition of "Manufacture" in the case of Exports is wide in its application is evident for instance from Rules 12 & 13 of the Central Excise Rules, 1944 as they existed prior to 1-7-2001, which defined a process of manufacture for the purpose of export, as including the process of blending of any goods or making alterations or any other operation thereon. A.4 This position of a liberal interpretation of "Manufacture" in the case of exports is also evident from the Circular 314/30/97-CE dated 6-5-97 issued by the Central Board of Excise & Customs while interpreting the benefit of Notification No. 1/95-C.E. dated 4-1-95 applicable in the case of 100% EOUs. (Pg. 452-453) A.5 In this Circular, the Board clarified that a broader view is called for in interpreting the provisions of the said Notification 1/95-C.E. dated 4-1-95 and that the term "manufa....
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....ture of parts and accessories of the ventilator. The items included filters, power cords, humidifier system, humidifier chamber, adapter etc. These items were also assembled on to the Base Unit. B.4 The next process involved replacing the EPROMs loaded with the Russian software that were contained in the components imported and replacement with the EPROMs that were loaded with the English language version of the software in the Controller PCB. B.5 The next process involved the testing of the electrical and pneumatic parameters as per the system specifications in which the consumables like oxygen gas, purified air etc., were used as also a system testing which consisted of verification of the modes of ventilation, Set Alarm conditions, pressure volume etc. These tests were carried out using general purpose, and custom-built test equipment like digital multimeter, oscilloscope etc. B.6 In the next process, (the assembly of locally procured material was done in which the communication panel of the Base Unit was removed from the Base Unit and connector, cutouts were made using drilling machines. The cutouts were then connected with the cable....
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....e whether we should assemble the various assemblies and sub-assemblies and test it before export for which I informed and it was agreed between us that for the additional activity of assembly and testing we would be paid an amount of Rs. 15,000/- per ventilator. To compensate us for the manpower required, wear and tear of testing equipment, and cost of consumables. As per this oral agreement, I deputed my service engineers Mr. S.N. Prasad and Mr. I. David for the said work of assembly and testing carried out at No. 5, Anjanadri Complex, I Floor, I Phase, Girinagar, Bangalore-85. I have also visited the said premises when my people were working there to oversee the arrangements and I have witnessed the entire process involved. To your specific question I state that the imported items consisted of 22, comprising Base Unit Assembly, Assemblies for Oxygen Regulator, Oxygen Regulator Pressure Transducer, Oxygen Solenoid and Populated PCB sub-assemblies for controller, pressure solenoid, battery backup and UI Display. The rest of the items were in the nature of accessories. The activity involved was to assemble the assemblies and sub-assemblies together by employing a simple screwdriver ....
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....TERMS 1999) terms the set of medical equipment, hereinafter known as "equipment" according to Appendix No. 1 to the present contract." The Appendix at page 23 of the paper book is captioned "Puritan Bennet NPB Ventilator", and under this caption it gives the description of the goods in the form in which they are shipped. (The contract with Nova LLC is at Annexure 3 of the paper book.) Lucky Exports applied on 14 October, 2000 to the DGFT for an advance licence for physical exports. (Annexure 5 of the paper book.) Therein they declared Ardent Mechatronics as their supporting manufacturer, and declared a value addition of 68.717 per cent. The largest component of the value addition claimed was software valued at over a crore and a half in rupees (page 35 of the paper book). The appellant M/s. Lucky Exports imported medical equipment (ventilators) from USA under advance licence claiming the benefits of customs notification 54/2000. The goods were described in the bill of entry as components of ventilating system. They declared to the DGFT that they were using the imported goods in the manufacture of ventilating systems in India, and named Ardent Mechatronics, Bangalore, as their....
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....py showed Rs. 2000/-. Shri Gopinath stated on 30-1-2001 that he had no role but to lend the name of his firm; that he had no technical/financial role; that the agreement on stamp paper was signed early December 2000 but backdated to October; that the agreement on plain paper was got signed by him in the third week of December 2000 by Shri Mukesh Kumar (Export Manager) of Lucky Exports who said that it was required for submission to the DGFT. A comparison of the goods imported and the goods exported showed that the imported goods were exported to Russia in their original packing, with the addition of cartons containing the locally purchased items. No "tangible processing of manufacturing process" as stipulated by the DGFT's Circular No. 50 (RE-99) was carried out on the goods. The activity that was admittedly carried out was a trial installation on locally procured trolley, and test run, under the supervision of Ashok Murthy. (The calibration that is claimed by the appellants as a manufacturing activity is something that must be done each time a precision instrument is used.) The second consignment is said to have been taken to Delhi for manufacture. The second consignment arr....
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....over the value of the Indian debt, and Indo-Russian trade plummeted. The need to revive trade led to the February 1992 rupee-rouble trade agreement. The debt was re-calculated at Rs. 314 billion using an exchange rate of Rs. 20 per rouble. It was payable to the extent of USD 1 billion over a period of 12 years at this rate, and the remaining amount over the following 33 years. Every year the RBI credits the Russian Central Bank with Rs. 30 billion, which is then used to buy Indian goods. The Policy Circular No. 50 (RE-99)/99-2000 cited above clarified that "the rupee debt payment scheme was envisaged to increase export of Indian goods to Russia."] An argument is being taken that the goods were anyway in the exempted category. However the exemption is not applicable if the goods are only routed through the country, as clarified by the Supreme Court in the case of MJ Exports reported in 2001 (132) E.L.T. 514 (S.C.), which is relied upon by the Commissioner in para 156 of his order. The role of Shri Ashok Murthy Shri Ashok Murthy was partner in Moola Technologies, the dealer for Mallinkrodt in India. He was also Partner in Erkadi International, from which firm he suppli....
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....bmitted the following arguments and differentiated the Titan Medical Systems case of the Supreme Court on the ground that in that case there was no fact of separate packing of the Indian Components and she relied upon various decision as extracted herein above to submit that the Hon'ble Apex Court decision in the case of Titan should not be followed and applied in this case. Under the Customs Act, the customs duty leviable on raw materials is exempted vide Notification No. 51/2000 dated 27-4-2000. To avail the exemption, an importer of raw material is required to fulfil the conditions specified in the exemption Notification. Some of the relevant conditions specified in the exemption, which has to be fulfilled on import of raw materials are as under - (i) The Notification enables importing of raw materials, components, intermediates, consumables, catalyst, computer software and parts required for manufacture of resultant product. It is therefore clear that the raw materials/parts should be used in the manufacture of a specified resultant product and if this is not done it amounts to contravention of the conditions in the exemption Notification. (ii) ....
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.... product, the Department is entitled to demand differential duty. The Customs Department has initiated action for contravention of the conditions specified in the exemption Notification. The show-cause notice does not relate to initiating action for contravention of conditions mentioned in the advance license. For such contravention, the action will have to be taken in accordance with the provisions of Foreign Trade (Development and Regulation) Act, 1992. The show-cause notice clearly refers to Sections 111 (m) and (o) of the Customs Act. In this regard the relevant portion of para 27 reads as under - "NOW THEREFORE, M/s. Lucky Exports, New Delhi, the partners of the said firm Shri Aashish Oberoi, and Shri Diwakar Mishra are hereby called upon to show-cause to the Commissioner of Customs, CR Bldg., Queen's Road, Bangalore, within 30 days of the receipt of this notice as to why, (a) the goods imported under Bills of Entry No. 52731 dt. 6-12-2000 and 03581 dt. 30-1-2001, totally valued at Rs. 5,87,92,657/- should not be held liable for confiscation u/s 111(m)/Sec. 111(o) of the Customs Act, 1962. It is therefore clear that the importer has been called upon to show-ca....
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....dvantage of his own wrong. Sec. 111 (o) states that the following goods shall be liable for confiscation. "Any goods exempted subject to any condition from duty or any prohibition in respect of the import thereof under this Act or any other law for the time being in force, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer" It therefore provides that where a condition imposed under any other law for filing of exemption is not fulfilled, the Customs Authority are entitled to confiscate the goods. The only plea available for the importer/exporter in such a case is to contend that the non-observance of the condition was sanctioned by the proper officer. If such a plea is not taken the Department is entitled to confiscate the goods where it is a condition imposed under the Customs Act or any other law in force. This provision has been relied upon in the case of Madan Lal Anand v. UOI [1990 (45) E.L.T. 204 (S.C.) = AIR 1990 SC 176] wherein it is stated as under- "In view of Clause (o) of Sec. 111, if any goods exempted from payment of duty is imported without observing the conditions subject to wh....
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....g out manufacturing activity in a specified place, and on inspection, it is found that no such manufacturing activity is taking place. In similar circumstances, the larger bench of CEGAT has held in the case of Vulcan Engineers Ltd. v. Collector of Customs [1992 (62) E.L.T. 636] that where the imported goods are not utilized for the manufacture of resultant product, the same would amount to contravention of the exemption Notification. In the said case, the Tribunal found that the manufacturing activity should have taken place at the place specified in the declaration. When the manufacturing activity is not carried out in the specified place, it would amount to a clear violation of the exemption Notification. In the present case, the contravention is of much more serious in nature. The importer has not carried out any manufacturing activity at all. The importer is importing finished goods and exporting the same without carrying out any manufacturing activity in India. This judgment clearly establishes that the facts involved in the present case would amount to contravention of the conditions specified in the exemption Notification. In this matter, the importer is relying upon the....
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....-compliance of the conditions mentioned in the exemption Notification after obtaining a advance license. One of the pre-requisite for availing of the customs duty exemption is that a importer should have an advance license. After obtaining an advance license, the importer is also required to constantly adhere to the conditions mentioned in the exemption Notification. If there is any such contravention, the Customs Department is entitled to initiate action. The facts of the present case is identical to the decision of the Jagadish Cancer Research Institute [2001 (132) E.L.T. 257]. In the said case, the exemption Notification provides that the Director General of Health & Family Welfare is required to issue a certificate that the hospital is eligible to import medical equipments. One such certificate is issued, Customs Department allows import of the medical equipment giving exemption from payment of customs duty. After the import of medical equipments, the importer is required to fulfil the conditions mentioned in the exemption Notification. In such a case the Supreme Court has held that the Customs Department can monitor the compliance of these conditions and demand customs duty in....