TaxTMI 
TaxTMI 
2003 (1) TMI 327
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....ents 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 documents. 4. The first consignment was impo....
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....ements 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 Ventilator System" had been manufactured by M/s. LEND or not in the ....
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....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 time of obtaining licence was shown at Rs. 1.66 crores for software alone. For....
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....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 thereon and for the goods imported under Bill of Entry 03581 dtd. 30-1-2001, the....
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....f 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 "manufacture" for the purpose of export is wider in meaning than that used in the Central Excise Act, 1944; that....
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....fier 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 cables to transmit the analog signals from the controller PCB of the Base Unit to the display monitor. After testing the signa....
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....en 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 technology. A major component of the work involved for us was in calibrating and testing the ventilator and its communication with the displa....
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....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 supporting manufacturer who would do this work for them. They declared a value addition of 68.71 per cent. Subsequently they exported "complete ventilating systems" to Russia and r....
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.... 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 arrived after investigations into the first had begun. The fact that it was taken away to Delhi though Ardent Mechatronics, declared as the supporting manufacturer, was in Bangalore, shows that Ardent M....
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....uble. 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 supplied display monitors to Lucky Exports. He arranged the association of Shri Gopinath with the import-export activities of Lucky Exports. He sent persons from Moola Technologies to unpack and inspect the goods at premises arranged by Shri Gopinath,....
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....n 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) Part (a) of the exemption Notification requires that the importer should specify the name and address of the factories where resultant products of export are manufactured. If the manufacturing activity does not take place in these factories, it would result i....
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....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-cause for contravention of the Customs Act, Rules and Notification and no action has been initiated under the provisions of the Foreign Trade (Development and Regulation) Act, 1992. The action that is initiated is relatable only to the provisions of the Customs Act, and as s....
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.... 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 which the exemption has been made, it will be a case of smuggling within the meaning of Sec. 2(e) of the COFEPOSA Act" That being so, non-compliance of a condition subject to which exemption is granted, would convert the act of importing goods into smuggling. The Hon'ble Supreme Cou....
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....rted 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 judgment of the Hon'ble Supreme Court in the case of Titan Medical Systems Pvt. Ltd. In the said case the Supreme Court has observed as under : "To be noted that the licensing authority having taken no steps to cancel the licence. The licensing authority have not claimed that there was any misrepre....
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.... 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 case there is contravention of the conditions specified in the exemption Notification. This is so notwithstanding the fact that the Director General of Health & Family Welfare is also competent to initiate the action to cancel the certificate earlier granted. The Supreme Court has held that the Customs Department o....