TaxTMI 
TaxTMI 
1995 (2) TMI 446
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; briefly as follows : The appellants are a DGTD Unit who obtained approval for a Phased Manufacturing Programme (hereinafter referred to PMP) for the manufacture of machining centres in collaboration with M/s. Hitachi Seiki of Japan. Under Phase-1 of approved PMP, the appellants were permitted to import 10 machining centres (2 pieces each of 5 models proposed to be manufactured VA 40, VA 50, HB 630, HB 800 and VA 35) from Hitachi Seiki in CKD condition to give the appellants the opportunity of familiarising themselves with the assembly operations. 7 machining centres were imported in CKD condition in the form of 100% components under OGL on the basis of the lists attested by DGTD and assembly by the appellants and sold to end users/purchasers as imported machines manufactured by Hitachi Seiki. Clearance of all the first 3 machining centres (one VA 40, 2 HB 800) under OGL as 100% components was denied by the Customs authorities vide orders dated 28-6-1984 and 3-9-1984 on the ground that the complete machining centres in CKD condition i.e. capital goods had been imported in the form of 100% components. The appellants obtained a clarification dated 18-7-1984 from the DGTD....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng of location faces to bring the alignment as per test chart 4. Assembly and wiring electrical components and machine wiring 5. Interfacing of CNC control with basic machine. The Department invoked the extended period of limitation alleging that the appellants had suppressed the fact that they were carrying out manufacture on the imported components. A detailed reply was submitted on 19-1-1987 denying all the allegations contained therein and contending that all the imports were of complete machines in CKD form and that the assembly of the same by the processes No. 1 to 5 set out in the show cause notice did not amount to manufacture and that no new commercial product having a separate name, character and identity emerged as a result of the assembly operations, and on 27-1-1987 the Managing Director and General Manager of the appellant company also filed their respective replies. The personal hearing took place on 2-12-1987 and pursuant thereto, the appellants submitted detailed written submissions on 24-12-1987. Due to change in the adjudicating authority a fresh hearing was granted on 11-4-1991 and by letter dated 16-4-1991 fresh detailed written submissions....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent dated 25-6-1982 executed between the appellants and M/s. Hitachi Seiki Company Ltd. and in particular to clauses 1.6, 1.7 and 10 thereof. He takes us through the relevant sale documents between M/s. Hitachi Seiki and the appellants, such as the quotations, purchase order and confirmation, invoice, bill of entry, etc., in which the two types of machining centres have been clearly described as complete machines. He refers to the documents exchanged between the appellants and the end users/purchasers of the machines to establish that what was supplied in each case was an imported Hitachi Seiki machine in CKD form and that no excise duty had been charged on these machines which had discharged the incidence of countervailing duty under T.I. 68, as such machines had already been fully manufactured in Japan and were only assembled by the appellants. He further invites our attention to the order dated 28-6-1984 of the Additional Collector of Customs, holding that a complete machining centre had been imported in CKD condition thereby requiring a specific licence for capital goods, to the appellant's letter dated 16-7-1984 to the DGTD....
X X X X Extracts X X X X
X X X X Extracts X X X X
....He submits that the components of certain machines in CKD condition arrived from Japan, and complex operations such as interfacing, machining, scraping, etc., admittedly took place in the appellant's factory and, as a result of manufacture by the appellants, a complete machine was sold by the appellants to various end users/purchasers. The test of manufacture has been satisfied in this case as a new commercial commodity having a different name, character and identity emerged as a result of the processes carried out by the appellants. Learned DR submits that the machining centre becomes marketable only on assembly and the item as imported was not in a marketable status. He submits that the DGTD clarification is only in respect of the components of sub-units in CKD condition as evident from the appellant's letter dated 16-7-1984 and the DGTD reply dated 18-7-1984 and that from the orders dated June 1984 and September 1984 of the Additional Collector of Customs and the Tribunal Orders (supra) it is clearly revealed that the appellants had consistently maintained that what they imported was components. He cites the following c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rms of Article 10.1, WIL was to place the order with SEIKI sufficiently in advance in respect of its requirements of CKD machines, its sub-assemblies including CNC controls and manufactured or bought out components, and parts, according to WIL's Phased Manufacturing Programme. The agreement was submitted to the Government of India for approval on 24-9-1982 in terms of Article 18 and the Government by letter dated 26-2-1983 indicated certain modifications which were incorporated in the main agreement. Article 1.7 was modified to read as "the net sales price shall mean the net ex-factory sale price of the machining centres exclusive of excise duties minus cost of the standard bought out components and the landed cost of imported components, irrespective of the source of procurement including ocean freight, insurance, customs duties etc.". 8. The two letters of the DGTD regarding attestation of list of components of machining centres are reproduced below : "Letter No. DT-1/5(17)/83/163 dated 3rd February 1984 from the Development Officer, DGTD, New Delhi addressed to M/s. WIL, Pune Subject : Attestation of list of components of machining centres, in terms of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and in the letter dated 18-3-1984 to Mahindra and Mahindra Ltd., it was set out that complete machine would be supplied to the appellants by their principals viz. M/s. Hitachi Seiki Company Ltd., Japan in CKD condition and would be supplied to Mahindra and Mahindra Ltd. after reassembly and running/trial at the appellant's works at Chinchiwad (pages 88 to 92 of the paper book). The appellants' order acceptance dated 24-3-1984 describes the machine as "Horizontal Machining Centre - Model HB 630 - imported" (page 93). The quotation of 30-3-1984 (page 98) shows Mahindra and Mahindra as the end users and describes the goods as "component part such as assemblies/sub-assemblies for manufacture of Horizontal Machining Centre - Model HB 630 - 1 set". The same description is contained in the appellants' purchase order dated 10-7-1984 and the invoice dated 25-10-1984 (pages 100 to 107). The bill of lading describes the item as "Hitachi Seiki Model HB 630 Machining Centre (page 110); while the bill of entry describes them as component parts of Horizontal Machining Centre Type HB 630 (page 108-109). The same is in the case of the sale documents between the appellants and M/s. Larson and Toubr....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... AM 85 We draw your kind attention to our letter No. MD/0901/AM-15/440 dated 7th July 1984 and the subsequent discussions the undersigned had with you this morning when he had explained the difficulty being faced in clearing the consignment containing 100% components for manufacture of Machining Centres. We brought to your kind notice that the components being imported are for the manufacture of Machining Centres. We are holding the Industrial licence for the manufacture of Machining Centres and the same was duly endorsed on our industrial licence. However, subsequently, as per the liberalised policy announced by the Government the items machine tools has been categorised in the broad category of metal cutting machines and the manufacturer has the flexibility to take up the manufacture of any item covered in this broad category within the total licensed capacity. As per its phased manufacturing programme approved by the Government we will be manufacturing both horizontal and vertical five machining centres. We also explained to your goodself that as per the approval given by the first phase of our manufacturing programme will be importing two numbers of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cedure as per Chapter 20 of the current Import Policy and other conditions as laid down in the policy." 11. It is significant to note that the appellants were issued a show cause notice dated 8-3-1985 (page 235) alleging import of complete machine "Hitachi Seiki Model HB 630" in CKD condition with 100% components and standard and additional accessories in single consignment and further alleging that the imported machine tools are capital goods requiring specific licence for import. This notice was adjudicated by the Additional Collector of Customs, Bombay. By his order dated 9-10-1985 the importers had contended before the adjudicating authority that what they had imported was a complete machine but subsequently in view of the order of the Customs Department in respect of other models of machining centres, the DGTD treated the import as a component part and not as that of complete machines. The adjudication order proceeds on the basis that a complete machine in CKD condition was imported and this, in our view, strongly supports the appellants' claim that what they had imported were complete machines in CKD condition. In the light of the documentary evidence discussed abo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....surface of individual assemblies after doing partial dismantling of the machine. In addition to this machining, hand scraping is required to be carried out on these faces to get necessary accuracies as per test chart - B. Interfacing of CNC Control with the basic machine - Wiring the machine as per the electrical wiring diagram. - Switching on the CNC, Servo drives and spindle drive in the proper sequence and ensure that the axes move in the commanded direction. - Tuning of servo and spindle drives for high speed operation and optimisation servo amplifier gain to machine dynamics. - Checking of all limit switches, proximity switches, push buttons, solenoids, contactors and motors for proper operation. - Checking of operation sequence of Auto Tool Changer, Auto Pallet Changer and other accessories for proper operation. - Checking of mechanical and electrical interlocks to ensure that all operations are done in correct sequence and any malfunction of electrical or mechanical items does not result in faulty operation. - Checking of safety conditions to avoid injury to op....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st attached thereto 420 numbers of Video Cassettes falling under entry at Sl. No. 689 (26) in Appendix III of Licensing Policy April 1981 - March 1982). After introduction into the market of the VCR, produced by the appellants, it was realised that for successful marketing of the VCRs, it was necessary to have as ready stock about 20 numbers of Video Cassette Tapes per VCR. This amounted to additional imports of Video Cassette Tapes. This was taken up with the DGTD & Import Licensing Authority and as per the advice received from them, the appellants obtained an additional list attached to the aforesaid Import Licence for importation of 5000 sets of Video Magnetic Tapes against Entry No. 580 (35) Appendix V and video cassettes without tape against Entry 580(36) of Appendix V of the Import Policy for April 1981 - March 1982. According to the advice received and according to the additional list that was attached to the licence, the appellants had to import their requirements of video cassette tapes in a disassembled form i.e. video magnetic tape as one constituent and the video cassettes without tape being the other constituent respectively, falling under Entry 580 (35) and 580 (36) i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the decision of the Madras High Court in the case of T.I. Cycles of India v. UOI reported in 1983 E.L.T. 681 wherein it was held that assembling of cycle parts does not amount to manufacture as envisaged by Section 2(f) of the CESA as no new marketable commodity is produced or brought into existence when cycle parts are assembled by the buyer, who imports cycles in CKD condition. At this juncture, the learned JCDR sought to distinguish the facts of the case (supra) from those of the present appeals. She contended that the High Court considered trade practice in cycles which is the reverse of that in video cassette tapes, as the practice in trade relating to cycles was to import them in CKD condition which practice was not established in the present case. We do not see how this would make any difference, as the test of manufacture has not been satisfied in this case. We fail to see how assembly of magnetic tape and plastic covers amounts to manufacture. The arguments advanced by the learned JCDR do not clinch the issue." 12.2 The case law cited by the learned DR is distinguishable on facts. In the case of Tata Iron and Steel Co. Ltd. v. Union of India reported in 1988 (33....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ic and cannot be sustained. Can a buyer purchasing a motor car say that he has not purchased a motor car but he has only purchased tyres, wheels, distributors, etc." The Court also held in para 23 of the judgment that a new plant had been set up and rejected the submission of the assessee that the acquisition and induction of the cranes were only a part of the programme for revamping the old plant that it was not a new plant. In the present case, however, what was imported by the appellants were complete machining centres in CKD form, cleared on payment of appropriate customs duty as complete machines and not as parts or components of machining centres. 12.3 The judgment of the Hon'ble Supreme Court in the case of Narne Tulaman - 1988 (38) E.L.T. 566 (SC), does not come to the aid of the respondents as the Court was seized of the issue whether assembling of duty paid components of weigh bridge amounts to manufacture when both the parts and the final product were separately and specifically dutiable, and answered this issue in the affirmative and the issue whether assembling of complete machine imported in CKD co....