COMMISSIONER OF CUSTOMS NEW DELHI Vs. PHOENIX INTERNATIONAL LTD

JUDGEMENT

(1.) THESE civil appeals are filed by the Department under Section 130E of Customs Act, 1962 against order passed by CEGAT dated 22.12.2000 in Final Order No.411-421/2000-D in Appeal Nos.C/286/98-D and C/302-311 of 2000-D with E/Co/239, 257-260/2000-D whereby the Tribunal allowed the appeals of the importers herein (respondents).

(2.) THE question of law that arises for determination in these civil appeals is: Whether shoe uppers, outer soles, insoles and sock liners imported by M/s. Phoenix Industries Ltd. (PIND) in the same container could be clubbed so that it could be considered as import of the shoe itself in semi knocked down (SKD) condition? Whether the importer was guilty of mis-declaration when the importer declared SKD goods as components?

(3.) IN reply to the show cause notices, it was stated, that the aforestated two companies were separate independent companies; that M/s. PIND was incorporated as private limited company in 1992 in the name of M/s. Welcome Leather INdustries Pvt. Ltd.; that M/s. PIL was incorporated as a private limited company in 1987; that M/s. PIL could not begin its commercial activities for four years and it started its business in 1991 as merchant exporter; that in 1991 M/s. Welcome Leather INdustries Pvt. Ltd. decided to sell the company which was acquired by M/s. PIL; that in 1992 M/s. PIL started manufacturing shoe uppers and, therefore, though both the companies, namely, M/s. PIL and M/s. PIND were under the same management having common majority of directors and shareholders, they were separate independent companies in all respects. According to the reply, the two companies were separately assessed under INcome Tax Act, Sales Tax Act and Central Excise Duty. The factories of the two companies were located at different places. About 500 employees were working in respective companies. According to the reply filed before the Commissioner, M/s. PIND was engaged in the manufacture of leather shoes, synthetic shoes, semi-leather shoes, outer soles etc. M/s. PIND were registered as a leather industry. According to the reply, goods manufactured by M/s. PIND including footwear were sold in the domestic market. According to the reply, in certain cases footwear was got manufactured by M/s. PIL on job work basis. According to the reply, in some cases M/s. PIND acted as job workers for M/s. PIL. At the same time, in other cases, M/s. PIL were as job workers for M/s. PIND. According to the reply, M/s. PIL handled, during the above period, overseas sales whereas domestic sales were done by M/s. PIND under the authorization of M/s. PIL. As regards the import in question, it was stated that 5251 pairs of outer soles, insoles and sock liners were imported by M/s. PIND from the foreign Supplier in Bangkok. The importer denied that M/s. PIND was a dummy unit of M/s. PIL as alleged by the Department. IN reply, M/s. PIND objected to the clubbing of imports as is claimed in the show cause notices. IN reply, it was stated that M/s. PIND was 100% fully owned subsidiary of M/s. PIL and, therefore, it was not a dummy company as alleged by the Department. IN the alternative, it was submitted that even for the sake of argument imports of two companies were clubbed, yet there was no violation of Foreign Trade (Development and Regulation) Act, 1992. IN reply, M/s. PIND stated that the concept of "SKD" did not exist in respect of synthetic shoes; that, in respect of shoes it was not possible to unassemble the product into parts and, therefore, para 156(A) of the EXIM Policy 1992-97 had no application to the facts of the present case. IN this connection, it was further stated that in making of shoes a complicated industrial process involving costly machine, workers, technical knowhow etc. was involved and that the finished goods cannot be manufactured without further processing and, therefore, it is a misnomer to call synthetic shoe uppers, soles, insoles and sock liners as SKD packs of complete shoes. Reliance was placed also in para 7(12) read with 156(A) of the EXIM Policy 1992-97 in respect of the contention that "consumer goods" has been defined in para 7(12) refers to goods like ceiling fans, cycles etc.; that para 7(12) refers to "consumer goods" which can directly satisfy human needs without further processing and since synthetic shoes were not capable of being assembled without further processing they did not attract para 156(A) of the EXIM Policy 1992-97. On the question of applicability of rule 2(a) of the General Rules of interpretation, the importer stated that the said rule was meant only for classification of goods under the Schedule to the Customs Tariff Act, 1975; that, the said rule cannot be used for interpretation of EXIM Policy 1992-97 or the exemption notification No.45/94-Cus dated 1.3.1994 and, therefore, the importer disputed the contention of the Department that because of rule 2(a) of the General Rules of the INterpretation the items imported should be construed as SKD packs of sports shoes, therefore, according to the importer rule 2(a) was not applicable. Further, according to the importer, Notification No.45/94-Cus dated 1.3.1994 gave exemption to the items mentioned in Table A annexed thereto which referred to sole, insole and sock liner and consequently M/s. PIND was entitled to the benefit of the said notification. IN this connection, it was stated that goods falling under Table A were not governed by Actual User condition. According to the importer the said notification was applicable to the aforestated four items which were used in the leather industry. According to the importer, so long as the aforestated items, namely, outer soles, insoles and sock liners were imported as "parts" by M/s. PIND, exemption under the above notification was applicable. On the question of valuation it was stated that the foreign Supplier in Bangkok was unrelated to M/s. PIL and M/s. PIND; that Reebok INternational Ltd. had no shares in the foreign Supplier company; that the said foreign Supplier was not the sole Supplier of Reebok INternational Ltd. and, therefore, the transaction value of the aforestated four parts should be accepted in terms of rule 4 of the Customs Valuation Rules. Therefore, it was not open to the Department to invoke rule 8 of the Customs Valuation Rules. Accordingly, it was prayed by the importer that the show cause notices be dropped. The reply of M/s. PIL and the reply of M/s. PIND are almost identical.