TaxTMI 
TaxTMI 
2005 (8) TMI 657
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....any and its two Directors and dismissed two appeals filed by the Commissioner of Customs. CEGAT set aside the Order in Original passed by the Commissioner of Customs, New Delhi on December 30, 1997. 2. To appreciate the controversy raised in the present appeals, relevant facts as noted in the Order in Original by the Commissioner of Customs may be stated in brief. 3. According to the Commissioner of Customs - appellant herein, M/s. Pearl Engineering Polymers Limited ('Company') was registered under the Companies Act, 1956. Mr. Chand Seth was the Chairman-cum-Managing Director of the Company and Mr. Arun Gupta was whole time Director. The Company was engaged in the manufacture of Polyester Chips (High Pressure and Molding Grades) and other Polyethelene Terephthlate (PET) Bottle Grade and Film Grade since 1995. For the purpose of the said products, the Company set up a plant at Kurkumbh, District Pune in the State of Maharashtra. The plant had been set up on the basis of the technical know how. For that the Company entered into a 'Know how' and 'Basic Engineering Agreement' with M/s. Zimmer AG of Germany ('Zimmer' for short) on May 4, 1993. The agreement was negotiated an....
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.... 20,00,000/- deposited by the Company voluntarily should not be adjusted against the duty demanded; the goods i.e. drawings, designs, plans etc. imported in three consignments having a total assessable value of Rs. 7,98,33,370/- should not be held liable to confiscation under Section 111(m) of the Act and penalty should not be imposed on each of them under Section 112 of the Act. 6. Mr. Chand Seth, Chairman-cum-Managing Director of the Company replied to the show cause notice stating therein that he being the Chairman-cum-Managing Director of the Company was not involved in day-to-day functioning of the Company which was taken care by Executives and other employees of the Company. As the Chairman-cum-Managing Director, overall policy decisions were taken by him. He was, hence, not liable to penal action under Section 112 of the Act as he was not involved in the actual import of drawings, designs, plans, etc. 7. Mr. Arun Gupta, Director of the Company, in his reply, contended that Know how and FEEP were procured through courier after declaration to Customs Authorities and one of the consignments was sought to be cleared vide Bill of Entry dated December 28, 1993. While t....
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.... the fact that FEEP could be classified under Chapter Heading 49.11, in view of they being "Book" were covered by Exemption Notifications and there was no liability of the Company to pay custom duty. Reference was also made to HSN notes and it was submitted that Drawings, Designs and Plans could be classified as Printed Books by virtue of Interpretation Rules of 1988. The entire FEEP, therefore, could be exempted and there was no substance in the allegation of the department that the Company was liable to pay custom duty. Objections were also raised as to limitation and on valuation. 9. The case of the department, on the other hand, was that FEEP and Drawings, Designs and Plans ought to be classified under Chapter Heading 49.11. As they could neither be covered by 4911.10 (Trade Advertising Material, Commercial Catalogues and the like) nor by 4911.11 (Pictures, Designs and Photographs), the relevant entry was sub-heading 4911.99 (Others) and was liable to pay customs duty at 25%. 10. The Commissioner of Customs considered the averments of the department and the reply submitted by the Company and by Mr. Gupta. According to the Commissioner, an agreement was entered into ....
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....r of Customs, five appeals came to be registered before CEGAT. One appeal was preferred by the Company against the decision of the Commissioner holding that the goods were liable to payment of custom duty and not covered by Chapter Heading 4901. Two appeals were filed by Mr. Chand Seth, Chairman-cum-Managing Director and Mr. Arun Gupta, Director against payment of penalty of Rs. 50,00,000/- and Rs. 25,00,000/- respectively. Two cross appeals were filed by the Department against quantum of penalty imposed on Mr. Chand Seth and Mr. Arun Gupta contending that the penalty imposed by the Commissioner of Customs was inadequate and was required to be enhanced. 13. CEGAT took up for consideration all the appeals. It observed that an identical question come for consideration before a Larger Bench of CEGAT in Parasrampuria Synthetics Ltd. v. Commissioner of Customs, New Delhi, 2000 (119) E.L.T. 211 = (2000) 38 RLT 846 (LB). It noted that the Larger Bench was faced with the issue as to whether the law laid down by a two-member Bench in Tractors & Farm Equipment Ltd. v. Collector of Customs, 1993 (68) E.L.T. 234 was correct or decisions of Coordinate Benches in Mitutronics v. Collector o....
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....CC 593. Considering the aforesaid two decisions, there appears some conflict in the ratio laid down in both the cases. Hence, these appeals are referred to a Larger Bench. Registry to place the papers before Hon'ble the Chief Justice of India for appropriate direction in this regard to place it before an appropriate Bench." 15. That is how the matters were placed before us for final hearing. We have heard learned Counsel for the parties. 16. At the time of hearing of appeals, the learned Counsel for the appellant stated that three questions arise for consideration of this Court : (i) Whether the goods imported by the Company in the form FEEP (Front End Engineering Package) comprising of technical documentation, designs and drawings are classifiable under Chapter sub-heading 4911.99 of the Customs Tariff? (ii) Whether the goods imported by the appellant in the form of know-how containing latest up-to-date technical data and information including secret technical knowledge relating to the processes and their employment to the design, operation and maintenance of the plant, are classifiable under Chapter sub-heading 4901.....
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....d by confirming the order passed by CEGAT. 19. In the alternative, it was submitted that since CEGAT allowed the appeals filed by the Company, Chairman-cum-Managing Director and Director relying upon a Larger Bench decision in Parasrampuria Synthetics Ltd. holding that the goods imported by it could be said to be "Books" and hence were exempted from payment of excise duty, other points though argued and pressed into service at the time of hearing were not considered. It was, therefore, submitted that in case this Court holds that the contention raised by the Department is well founded and the order passed by CEGAT are liable to be set aside, the matters may be remitted to CEGAT directing it to consider all the points and to decide them in accordance with law. 20. The question for consideration before us is whether the goods and materials imported by the Company in the form of FEEP comprising of Equipments, Drawings, Designs and Plans are classifiable under Chapter Heading 49.01 or 49.06 of Schedule I of the Customs Tariff Act, 1975 and the Company is entitled to the benefit under Notification Nos. 107/93-Cus. and 38/94-Cus. or they are classifiable under Chapter Heading....
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....e like 25% 4911.91 - Pictures, designs and photographs 25% 4911.99 - Other 25% 23. The relevant notifications are Notification Nos. 107/93-Cus., dated March 30, 1993 and 38/94-Cus; dated March 1, 1994. The relevant part of Notification No. 107/93-Cus. reads as follows : "Exemption to specified goods of Chapters 49 and 97 In exercise of the powers conferred by sub-section (1) of Section 25 of the Customs Act, 1962 (52 of 1962) and in supersession of the notification of the Government of India in the Ministry of finance (Department of Revenue) No. 36/93 - Customs, dated the 28th February, 1993, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in Column (3) of the Table hereto annexed and falling within the Chapter or under the heading No. of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), as specified in the corresponding entry in Column (2) of the said Table, when imported into India, from the whole of the duty of customs leviable thereon which is specified in the said First Schedule. TABLE S. No. Chapter of Heading No. Des....
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....mn (3) of the Table hereto annexed, and falling within Chapter, heading No. or sub-heading No. of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) as are specified in the corresponding entry in Column (2) of the said Table, when imported into India, from so much of the duty of customs leviable thereon which is specified in the said First Schedule, as is in excess of the amount calculated at the rate specified in the corresponding entry in Column (4) of the said Table, subject to the condition, if any laid down in the corresponding entry in Column (5) of the said Table. S. No. Chapter or heading No. of sub heading No. Description of Rate goods Conditions 9. ............ ............ ............ 10. 49. Printed books (including covers for printed books) and printed manuals including those in loose-leaf form with binder) Nil 11.-16 ............ ............ ............ 26. It is also appropriate at this stage to refer to Harmonized System of Nomenclature (HSN). The relevant part reads thus; "49.01 - PRINTED BOOKS, BROCHURES, LEAFLETS AND SIMILAR PRINTED MATTER, WHETHER OR NOT IN SINGLE SHEETS. 4901.10 - In single sheets, whether or not ....
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....the artist), put up with numbered pages and forming a whole suitable for binding. (4) A pictorial supplement accompanying and subsidiary to a bound volume containing the relative text." 27. A question similar to one with which we are concerned came up for consideration before the authorities in Parasrampuria Synthetics Ltd. The Central Excise Authorities held that Drawings, Designs and Plans imported by the Company could not be said to be "Books" within the meaning of Chapter Heading 49.01 but would be covered under sub-heading 4911.99 and hence were liable to custom duty. The demand made by the authority, therefore, came to be confirmed by the Commissioner of Customs. Being aggrieved by the order passed by Commissioner, the Company approached CEGAT. A two member Bench felt that there were conflicting decisions on the point which could appropriately be resolved by a Larger Bench and accordingly by an order dated March 14, 2000, the matter was ordered to be placed before the President for constituting a Larger Bench. As already observed earlier, the Larger Bench in 2000 (119) E.L.T. 211 decided the question in favour of assessee and against the Departm....
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....gineering Ltd. considered the question and decided in favour of the assessee. The observations of the High Court of Gujarat had been approved by this Court in Scientific Engineering House Ltd. The Division Bench of this Court in Parasrampuria Synthetics Ltd. misinterpreted and misapplied the ratio laid down in that case and erroneously held that the decision in Scientific Engineering House Ltd. does not support the Company. On the contrary, the observations in that case supported the case of the Department. It was urged by the learned Counsel for the assessee that the decision of the Division Bench in Parasrampuria Synthetics Ltd. is also not in conformity with the decision of three Judge Bench in Associated Cement Companies Ltd. v. Commissioner of Customs, (2001) 4 SCC 593. It was, therefore, submitted that the appeals deserve to be dismissed. 30. So far as CEGAT is concerned, in our opinion, the learned counsel for the assessee is right in submitting that the point is finally concluded in favour of assessee and against the Department in Parasrampuria Synthetics Ltd. The Larger Bench observed that in several cases, Drawings, Designs and Plans were held to be covered under Ch....
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....that is, used for the purpose of enabling the assessee to carry on his business or profession and earn income therefrom, are "plant" within the meaning of Section 32. Now, the word "book" has not been defined in the Act and it is not a term of art. It is an ordinary English word of everyday use and it must, therefore, be assigned its natural meaning as understood in common parlance subject, of course, to the context in which it is used here." 34. In popular sense, "book" means a collection of a number of leaves or sheets of paper or of other substance, blank, written or printed, of any size, shape and value, held together along one of the edges so as to form a material whole and protected on the front and back with a cover of more or less durable material. The Court also referred to dictionary meaning. It was observed that one must refer not only to the physical, but also functional characteristic of "book". It must be functionally useful for the purpose of assessee's business or profession. To put it differently, it must be a tool of his trade - an article which must be part of the apparatus with which his business or profession was carried on. It must have utility value ena....
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....r that they are not detachable letters in the ordinary sense, but have been so inserted in the sheets that they are in substance permanent parts of the volumes, unless, indeed, they should be cut out or removed by some forcible effect." 36. A similar question came up for consideration before this Court in Scientific Engineering House Ltd. referred to above. In that case, the assessee entered into collaboration agreement for manufacture of scientific instruments. The collaborator was to supply technical know-how by drawings, designs, charts, plants, etc. The question was whether those documents in the form of "documentation service" under the agreement could be said to be 'book' and 'plant' within the meaning of the Income Tax Act and whether the assessee was entitled to claim depreciation? The Court considered two questions; viz. (i) whether the 'documentation service' agreed to be and actually rendered by the foreign collaborator to the assessee was incidental to other services as a result whereof the assessee acquired technical know-how requisite for the purpose of manufacturing its products; and (ii) whether the expenditure could be said to be of a capital nature brought i....
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....ow-how and are fundamental to the assessee's manufacturing business are 'plant'. we agree and approve the said view".   (emphasis supplied) 42. It is, no doubt, true that in Parasrampuria Synthetics Ltd., a two Judge Bench of this Court reversed the decision of CEGAT and held that Drawings, Designs and Plans imported by the assessee from Zimmer under an agreement for transfer of technology for setting up a plant to manufacture specified goods could not be said to be 'book' and hence was not covered by Chapter Heading 49.01 nor exempted under notification of 1975. It is also true that the Court considered both the decisions, viz., Scientific Engineering House Ltd. decided by this Court and Elecon Engineering Co. Ltd. decided by the High Court of Gujarat. 43. Regarding Scientific Engineering House Ltd., a two Judge Bench said; "While there is some factual divergence as noticed above but the factum of the drawings etc. not forming part of a book within the exemption notification stands accepted in Scientific Engg. as would be evident from the emphasized portion in para 13 noticed above. In this view of the matter, the aforesaid decision of this Court in Scientif....
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.... of Sections 32 and 43(3) of the Income Tax Act. Merely by reason of the factum of certain writings on various sheets of paper, one cannot ascribe the documentation to be a "book". The word "book" has not been defined in the Act but the "book" in common acceptation is a literary composition from which one may extend or advance his or her knowledge and learning." 44. As to Elecon Engineering Co. Ltd., it was stated; "Incidentally, the decision of the High Court of Gujarat in the case of CIT v. Elecon Engg. Co. Ltd. has been strongly relied upon by the Tribunal and it has also been recorded in the order impugned that the decision was subsequently approved by this Court. While it is true that Elecon Engg. stands approved by this Court but para 14 in the decision in Scientific Engg. would make the situation clear enough to indicate that the same does not convey what the learned Tribunal wanted to convey." 45. The learned Counsel for the assessee, however, is right in submitting that a Bench of two Judges proceeded on the basis of submission on behalf of the Revenue by the learned Attorney General wherein he contended that a book must certain features. This is clear if one ....
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....k' is not defined in the Act, natural and ordinary meaning of the said expression must be kept in view. According to him, nowhere it is provided that all the nine characteristics or ingredients as highlighted by the learned Attorney General in Parasrampuria Synthetics Ltd. and referred to by this Court in paragraph 10 must be considered essential or sine qua non. He, therefore, submitted that a wrong test was applied by this Court in Parasrampuria Synthetics Ltd. and Scientific Engineering House Ltd. was erroneously distinguished. The proper way on the part of the Court was to consider the test laid down in Scientific Engineering House Ltd. and to come to a conclusion whether on the facts and in the circumstances of the case, Drawings, Designs and Plans in the case on hand could be said to be 'book'. By not doing so, a clear error of law had been committed and the decision deserves to be overruled. 51. It was also submitted that so far as factual aspect is concerned, CEGAT was right in holding that Drawings, Designs and Plans imported by the assessee were covered by Tariff Heading 49.01 and were also entitled to exemption under Notifications No. 107/93-Cus. and 38/94-Cus. Alt....
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....nd in the HSN and, therefore, any dispute relating to tariff classification must, as far as possible, be resolved with reference to the nomenclature indicated by the HSN unless there be an express different intention indicated by the Central Excise Tariff Act, 1985 itself. The definition of a term in the ISI Glossary, which has a different purpose, cannot in case of a conflict, override the clear indication of the meaning of an identical expression in the same context in the HSN. In the HSN, block board is included within the meaning of the expression "similar laminated wood" in the same context of classification of block board. Since the Central Excise Tariff Act, 1985 is enacted on the basis and pattern of the HSN, the same expression used in the Act must, as far as practicable, be construed to have the meaning which is expressly given to it in the HSN when there is no indication in the Indian tariff of a different intention." 56. The ratio laid down in Wood Craft Products Ltd. was followed and reiterated in Collector of Central Excise, Hyderabad v. Bakelite Hylam Ltd., 1997 (91) E.L.T. 13 (S.C.) = (1997) 10 SCC 350 and in Collector of Customs, Bombay v. Business Forms Ltd.....