# COMMISSIONER OF CUSTOMS, NEW DELHI v. SONY INDIA LTD

- **Citation:** [2008] 13 S.C.R. 873
- **Court:** Supreme Court of India
- **Decided:** 2008-09-23
- **Case number:** Civil Appeal No. 8236 of 2002
- **Bench:** Ashok Bhan, V.S. Sirpurkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-customs-new-delhi-v-sony-india-ltd-23651
- **Pages:** 27

## Headnote

Customs Act, 1962; Ss. 111(d), 111(m), 112(a), 114(a)
and 28ABIGeneral Rules for interpretation under First Schedule of Import Tariff; r. 2(a)IExemption Notification No. 79165- c
Gus.dated 31.3.1995:
Evasion of customs duty by assessee - Allegedly by
misdeclaring goods imported as component of color Televi-
,,,.
sion (CTV) instead of declaring them as completely knocked
_/
~
down Kits of CTV in contravention to provisions of Exim Policy D
'
- Held: Advanced licenses issued by Authority for import of
components of CTV duty free in terms of exemption notification No. 79165 - Some of the components so imported fall in
restricted list and need to be processed further before using
them in manufacture of CTV - CTV so manufactured partly E
used for house consumption on payment of excise duty and
partly exported in terms of Duty Entitlement Exemption Gertificate Scheme by effecting an entry in Pass Book - R.2(a)
would be attracted only if all the components which constitute
--..
a final product would be presented at the same time for cusF
tom clearance - On facts, r.2(a) not attracted - Hence, tribunal rightly set aside order of appellate Commissioner confirming differential amount of duty, confiscation of goods and
imposition of penalty on components of CTV imported.
Exim Policy 1992-97 - Provisions under - Compliance G
of.
Words and Phrases:
.. •
873
H
I 874
SUPREME COURT REPORTS
(2008] 13 S.C.R.
\,.
....
A
'as presented' - Meaning of, in the context of Rule 2(a)
of the General Rules for interpretation under first schedule to
'
import tariff.
Respondent-assessee, is a subsidiary of a foreign
company manufacturing Color Television (CTV) and au-
~
ii'-
B dio products in India. The company obtained advanced
Licenses from the authorities concerned for import of
various components of CTV duty free by availing benefit
of exemption Notification No. 79/65-Cus. dated 31.3.1995.
c
A Duty Entitl~ment Exemption Certificate (DEEC) Pass
Book has also been maintained by the asssessee and in
terms thereof it imported various components of CTV. A
show-cause Notice was issued by the Revenue demanding additional duties on the imported components treating them as complete CTV. Later, the demand of differenD tial amount of duty was confirmed by the authorities after
,. "'
confiscating the goods and penalty was also imposed.
Appeal filed thereagainst by the assessee was allowed
by a larger Bench of the Tribunal. Hence the present appeal.
E
Revenue contended that respondent evaded payment of duty on the CKD (completely knocked down) kits
of CTVs by misdeclaring them as CTV components; that
the assessee had contravened the provisions of the Exim
F
Policy 1992-97 by importing CKD kits of the CTVs without having an import license and thereby making the
goods liable for confiscation under Section 111(d) of the
Act; and that though the respondent had imported the
CKD Kits and had placed order therefor, numbering 1500
in all, in that order, it had paid a lesser duty, showing it as
G import of components, on which there was lesser duty,
and as such, the respondent had breached the provisions
of the Customs Act, 1962.
Respondent-assessee submitted that the Tribunal
H had correctly deduced that the components imported by
~ ~
COMMINR. OF CUSTOMS,· NEW DELHI v. SONY
875
' INDIA LTD.
.
the respondent could not amount to the CKD Kits; that A
there was no evidence available to suggest thai,the respondent had used these very components in the manufacture' of the CTVs.; that these components could not
~ ~
form the complete CKD Kits of CTVs.; that these components could· not have been used in its present form and
B
there was a complicated manufacturing processJ_nvolved;
that not onJy the customs duty was paid on these components, treating them as components, but the substantial excise duty was paid on CTVs so manufactured, which
belied the claim of the Revenue that these were not merely c
the components, but amounted to the import of CKD Kits
of CTVs.; and that Rule 2(a)

## Text

_Characters 0–39,961 of 55,888. This is a partial read: ask again with offset=39961 for what follows._

j
"
[2008] 13 S.C R. 873
COMMISSIONER OF CUSTOMS, NEW DELHI
A
v.
SONY INDIA LTD.
(Civil Appeal No. 8236 of 2002)
-I
}
SEPTEMBER 23, 2008
8
[ASHOK BHAN AND V.S. SIRPURKAR, JJ.]
Customs Act, 1962; Ss. 111(d), 111(m), 112(a), 114(a)
and 28ABIGeneral Rules for interpretation under First Schedule of Import Tariff; r. 2(a)IExemption Notification No. 79165- c
Gus.dated 31.3.1995:
Evasion of customs duty by assessee - Allegedly by
misdeclaring goods imported as component of color Televi-
,,,.
sion (CTV) instead of declaring them as completely knocked
_/
~
down Kits of CTV in contravention to provisions of Exim Policy D
'
- Held: Advanced licenses issued by Authority for import of
components of CTV duty free in terms of exemption notification No. 79165 - Some of the components so imported fall in
restricted list and need to be processed further before using
them in manufacture of CTV - CTV so manufactured partly E
used for house consumption on payment of excise duty and
partly exported in terms of Duty Entitlement Exemption Gertificate Scheme by effecting an entry in Pass Book - R.2(a)
would be attracted only if all the components which constitute
--..
a final product would be presented at the same time for cusF
tom clearance - On facts, r.2(a) not attracted - Hence, tribunal rightly set aside order of appellate Commissioner confirming differential amount of duty, confiscation of goods and
imposition of penalty on components of CTV imported.
Exim Policy 1992-97 - Provisions under - Compliance G
of.
Words and Phrases:
.. •
873
H
I 874
SUPREME COURT REPORTS
(2008] 13 S.C.R.
\,.
....
A
'as presented' - Meaning of, in the context of Rule 2(a)
of the General Rules for interpretation under first schedule to
'
import tariff.
Respondent-assessee, is a subsidiary of a foreign
company manufacturing Color Television (CTV) and au-
~
ii'-
B dio products in India. The company obtained advanced
Licenses from the authorities concerned for import of
various components of CTV duty free by availing benefit
of exemption Notification No. 79/65-Cus. dated 31.3.1995.
c
A Duty Entitl~ment Exemption Certificate (DEEC) Pass
Book has also been maintained by the asssessee and in
terms thereof it imported various components of CTV. A
show-cause Notice was issued by the Revenue demanding additional duties on the imported components treating them as complete CTV. Later, the demand of differenD tial amount of duty was confirmed by the authorities after
,. "'
confiscating the goods and penalty was also imposed.
Appeal filed thereagainst by the assessee was allowed
by a larger Bench of the Tribunal. Hence the present appeal.
E
Revenue contended that respondent evaded payment of duty on the CKD (completely knocked down) kits
of CTVs by misdeclaring them as CTV components; that
the assessee had contravened the provisions of the Exim
F
Policy 1992-97 by importing CKD kits of the CTVs without having an import license and thereby making the
goods liable for confiscation under Section 111(d) of the
Act; and that though the respondent had imported the
CKD Kits and had placed order therefor, numbering 1500
in all, in that order, it had paid a lesser duty, showing it as
G import of components, on which there was lesser duty,
and as such, the respondent had breached the provisions
of the Customs Act, 1962.
Respondent-assessee submitted that the Tribunal
H had correctly deduced that the components imported by
~ ~
COMMINR. OF CUSTOMS,· NEW DELHI v. SONY
875
' INDIA LTD.
.
the respondent could not amount to the CKD Kits; that A
there was no evidence available to suggest thai,the respondent had used these very components in the manufacture' of the CTVs.; that these components could not
~ ~
form the complete CKD Kits of CTVs.; that these components could· not have been used in its present form and
B
there was a complicated manufacturing processJ_nvolved;
that not onJy the customs duty was paid on these components, treating them as components, but the substantial excise duty was paid on CTVs so manufactured, which
belied the claim of the Revenue that these were not merely c
the components, but amounted to the import of CKD Kits
of CTVs.; and that Rule 2(a) was not attracted.
Dismissing the appeal, the Court
<
-
•
HELD: 1.1 The advanced licenses were issued by D
the Director General of Foreign Trade (DGFT) to the re-
. spondent for import of components of CTV duty free by
availing the benefit of notification 79/65-Cus dt. 31.3.1995.
A Duty Entitlement Exemption Certificate (DEEC) passbook was also maintained and it was on this basis that
over a period of 22 months, 94 Bills of entry were filed by E
the assessee for importing the various components, concerning the present case. (Para - SA) [889-D-E]
1.2 The components were assessed under different
tariff headings by applying Section Note 2 to Section XVI.
F
It is an admitted position that the composed PCBs which
were in the restricted list, were further processed to convert them into Motherboard, which was to be used in the
assembly line for the manufacture of CTVs. (Para - 88)
[889-F-G]
G
2.1 There is a clear finding given by the Commissioner that before 25.3.1996, there was no breach of Exim
Policy by the respondent. Therefore, it is clear that every- .
thing depended upon the applicability of Rule 2(a) of the
General Rules and it was solely on that basis that the H
876
SUPREME COURT REPORTS
[2008] 13 S.C.R.
A breach of Exim Policy also was alleged for the period prior
to 25.3.1996 vvhen Rule 2(a) came to the anvil. There was
no appeal filed by the Revenue against the finding of the
Commissioner. Thus, finding of the Commissioner had
become final. (Para - BC) [890-C-E]
1 ,..
B
2.2 Rule 2(a) was relied upon by the revenue, because
such reliance alone could justify their stand that the imported components(CTV) wou!c! have to be treated as CTVs
and as such, it would attract more duty. There is no diffic
culty in holding that the imports were perfectly in order and
under the proper import license. (Para - BC) [890-F-G]
2.3 The sine qua non for the application of Rule 2(a)
is that any imported article, which is "as presented", must
have the essential character of the complete or finished
D article." This condition cannot be ignored and this Court
' ..
cannot allow the reading only of the second. part of the
Rule for application of the Rule. The Rule must apply as a
whole. A mere PCB or a CRT, components of CTV, under
any circumstances, cannot be held to have essential charE acter of the CTV. It is only when this first condition is satisfied that the remaining clause would have to be read and
thereby, the words "that article" used in the later part would
have to pass the test of the opening words of the clause
"as presented, the incomplete or unfinished article has the
essential character of the complete or finished article".
y
F Once this condition is satisfied then the further clause is
activated, suggesting that even when such article is in disassembled or unassembled condition, it would still be taken
to be a complete article. Therefore, essentially the second
part would come into play provided the component parts
G intended to make up the finished product are all presented
tor customs clearance at the same time which is not the
case here. (Para - 9) [891-F-H; 892-A-B]
2.4 The principles emerging out of the decision in
H Phoenix International Ltd. case would have to be re-
)
.J
COMMINR. OF CUSTOMS, NEW DELHI v. SONY
877
INDIA LTD.
stricted to the facts in that case. Unlike in Phoenix InterA
national Ltd. case, there is no allegation of fraud ~gainst
the present assessee. There is a complete absence of any
such device or "subterfuge" in the present case, nor is there
- '
any allegation of the sort. Again the further point of differentiation is that in that case, the Court was dealing with the B
consumer goods like shoes and that was included in the
negative list, whereas, the CKD in the present case (if at all it
is to be CKD which was imported), was not in the negative
list, it was in the restricted list. The other differentiating feature and the most important one is that while the parts im- c
· ported by the assessee in this case could be independently
used as the spare parts or sold in the market, that was not
the case in Phoenix International Ltd. In that case, all the'
parts imported by the assessees came in one and the same
-
container on one and the same day, which was not the case
...
D
here. In the present case, as suggested by ASG for the
Revenue, all these imports were based on a single order
in which the figure of 1500 is found to be ordered. However, it was rightly pointed out on behalf of the assessee
that there is no specific finding that all the parts imported
E
could manufacture 1500 CTVs. and that much more number of CTVs were manufactu-red on the basis of the imports. Further, it is clear from the Show Cause Notice that
out of the 100 imported components, the number does
not match with the components required for manufacture
of 1500 CTVs in case of at least 21 items. This is another F
distinguishing feature. (Para - 7) [887-B-H; 888-A-D]
Commissioner of Customs, New Delhi vs. Phoenix International Ltd. & Anr. (2007) 10 SCC 114 - explained & distinguished.
G
2.5 It is a settled position in law that the goods would
have to be assessed in the form in which they are imported and presented to the customs and not on the basis of the finished goods manufactured after subjecting
them to some process after the import is made. (Para -
H
878
SUPREME COURT REPORTS
[2008] 13 S.C.R.
A 11) [892-F-G]
Vareli Weaves Pvt. Ltd. v. Union of India (1996) 83 ELT
255 (SC) and Dunlop India and Madras Rubber Factory Ltd.
v. UOI (1982) 13 ELT 1566 (SC) - relied on.
B
2.6 Rule 2(a) would mean that Rule 2(a) would be applicable only and only if all the components which are intended
to make a final product would have to be presented at the
same time for customs clearance. Such is not the case in
the present situation where the goods have been brought
c in 94 different consignments. (Para - 12) [893-D-E]
D
Union of India v. Tarachand Gupta & Sons (1971) 1 SCC
487; Girdhari Lal Bhansidhar v. Union of India (1964) 7 SCR
62 and Sharp Business Machines v. CCE, Bangalore (1991)
1 sec 154 - relied on.
2.7 Nothing found to take a view that the goods were
in unassembled or dis-assembled condition and they
should be taken to be the complete CTVs, particularly
when there is no finding recorded anywhere on facts that
all these goods could make 1500 CTVs. However, since
E the goods brought in different consignments separately
on the basis of valid import licences, it would not attract
the import duty as if they were the finished goods, is accepted. (Para - 14) [895-C-E]
F
2.8 Since the concerned HSN Explanatory Note to
Rule 2(a) was applicable to the goods in question, there
would be no question of treating them to be in
unassembled or disassembled condition since a complicated process had to be exercised before it could be used
G for the assembly of the CTVs. (Para - 15) [896-8-C]
2.9 The Tribunal has correctly held that the HSN Explanatory Notes to Rule 2 (a) had to be applied while considering the relevant Tariff Entry; that after considering
the whole process that the process involved in the user
H of the components is the complex manufacturing process
1
-
-
;
COMMINR. OF CUSTOMS, NEW DELHI v. SONY
879
!NOIA LTD.
during which many components are subjected to workA
ing operation requiring sophisticated machinery and
skilled operators. Further it has correctly assessed the
effect of the amendment of HSN Explanatory Notes which
came on 14.3.1997. Further, this Court is in agreement with
the finding that even applying the amended HSN ExplanaB
tory Notes the position would be no different. (Para - 15)
[896-E-H; 897-A-B]
CCE v. Woodcraft (1995) 3 SCC 454 - relied on.
2.10 Rule 2(a) would apply only when the imported arC
ticles presented unassembled or disassembled can be put
together by means of simple fixing device or by riveting or
welding, but not when complicated process would be required for the user of those parts. (Para - 16) [897-H; 898-A]
Simplex Mills v. Union of India (2005) 181 ELT 345 (SC) o
- relied on.
Modi Xerox Ltd. v. CCE, New Delhi (1998) 103 ELT 109
- referred to.
2.11 On facts, Rule 2(a) would not be applicable to E
the present case since there is no question of the goods
having the essential character of CTVs. In that view, the
question of applicability of Section 2(a) on this account need
not be gone into in this judgment. Hence, Tribunal's judgment needs no interference. (Paras - 17 & 19) [899-A-C]
Susha Electronics Industries v. CC (1989) 39 ELT 585;
Trident Television Pvt. Ltd. v. CC (1990) 45 ELT 24; Vishal
Electronics Pvt. Ltd. v. CC, Bombay (1998) 102ELT188 and
Sharp Business Machines v. CCE, Bangalore (1991) 1 SCC
F
154 - approved.
G
Case Law Reference
(2001) 10 sec 114
(1996) 83 ELT 255 (SC)
Distinguished Para - 4
Relied on
Para - 11
(1982) 13 ELT 1566 (SC) Relied on
Para - 11
H
880
SUPREME COURT REPORTS
[2008] 13 S.C.R.
A
(1971) 1 sec 487
Relied on
Para - 13
(1964) 7 SCR 62
Relied on
Para-13
(1991) 1 sec 154
Relied on
Para-13
(1995) 3 sec 454
Relied on
Para-15
"I -
8
(2005) 181 ELT 345 (SC) Relied on
Para - 17
(1998) 103 ELT 109
Referred to
Para - 16
(1989) 39 ELT 585
Approved
Para-18
(1990) 45 ELT 24
Approved
Para - 18
c
(1998) 102 ELT 188
Approved
Para - 18
(1991) 1 sec 154
Approved
Para - 18
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 8236
of 2002
D
'
From the final Order No. 237/2002-8 dated 28/5/2002 of
the Customs, Excise & Gold (Control) Appellate Tribunal, New
Delhi in Appeal No. C/122/99-8
Vikas Singh, A.S.G., S.K. 8agaria, Gaurav Agrawal,
E
Shweta Garg, Udita Singh, Shiva Lakshmi Singh, Amrita
Narayan (for 8.V. 8alaram Das), V. Lakshmi Kumaran, Alok
Yadav (for M.P. Devanath), Nikhil Nayyar, Amit Gupta and Anil
Kaushik (for Shiv Prakash Panday) for the appearing parties.
F
The Judgment of the Court was delivered by
V.S. SIRPURKAR, J. An Order by Customs, Excise &
Gold (Control) Appellate Tribunal (hereinafter called "the Tribunal" for short), allowing the appeal filed by M/s Sony India Ltd.
(the respondent herein), is in challenge at the instance of the
G appellant herein. The said appeal was filed challenging the order-in-original dated 30.1.1999, passed by Commissioner of
Customs, Inland Container Depot, Tughlakabad, New Delhi,
.... ~
wherein the said Authority had confirmed the said differential
duty demand of Rs.42,89,75,196/- under the Proviso to SecH tion 28(1) of the Customs Act, 1962 (hereinafter referred to as
_ ..
COMMINR. OF CUSTOMS, NEW DELHI v. SONY
881
INDIA LTD. [V.S. SIRPURKAR, J.]
"the Act"). The penalty was also imposed amounting to A
Rs.30, 19,92, 183/- under Section 112{a) read with Sectiori 114{a)
with interest under Sectfon 28 AB of the Act. By the order of the
Commissioner, the import of several parts of Colour Television
"'.>
t
(hereinafter called "CTV" for short) made by the appellant for
the period from April 1995 to 1997 were treated as import of B
complete CTV Sets for the purpose of assessment by the Commissioner.
2. Initially, there was difference of opinion amongst the two
Learned Members of the Tribunal on the ~pplication of Rule 2(a)
of the General Rules for Interpretation under First Schedule of c
Import Tariff, on the basis of which the order-in-original was
passed. Accordingly, the following questions were referred to
the larger Bench of the Tribunal:-
•
-i
"Whether the goods in question are components and D
cannot be treated as complete colour Televi.sion sets and
hence the duty demand, confiscation of penalty are
unsustainable as held by Ld. Member (J.)?
OR
Whether the issue as to the circumstances under which
E
Rule 2(a) of the·lhterpretative Rules can be applied, as fo
whelher the benefit of Notification exempting components
- only will be available,_ if the product is considered as
- complete or finished article by virtue of deemed provision
F
of Rule 2(a), and whether the change effected in
Explanatory Notes of HSN will give only prospective
application or it will be applicable-for the earlier period
also, requires to be referred to a Larger Bench, as held by
Ld. Member (T.)?"
\
G
Ultimately, the larger Bench seems to have agreed with
the view expressed by the Ld. Member (Judicial) to the effect
--.
that components imported by the appellant could n :>t be treated
as complete CTV Sets. The larger Bench also held that the duty
demand, direction for confiscation and i!llposition of penalty H
882
SUPREME COURT REPORTS
(2008] 13 S.C.R.
A were unsustainable in law. Accordingly, the order-in-original
passed by the Commissioner was set aside, allowing the appeal. It is this order of the larger Bench of the Tribunal, which is
in challenge before us.
3. Shri Vikas Singh, Ld. Additional Solicitor General (ASG)
8
of India, painstakingly took us through the impugned order of
the Tribunal, as also to the records including the Show Cause
Notice dated 4.3.1997. The main plank of the argument is based
on that Notice, whereunder the Revenue asserted the evasion
of duty on the part of the respondent on the CKD (completely
C knocked down) Kits of CTVs by misdeclaring them as CTV components and also proposed their confiscation under Section
111 (m) of the Act. In addition, the Revenue also asserted that
the respondents had contravened the provisions of the Exim
Policy 1992-97 by importing CKD Kits of the CTVs without an
D import license and thereby making the goods liable for confiscation under Section 111 (d) of the Act.
4. The Show Cause Notice further refers to an exhaustive
list of components imported by the respondents which go into
the manufacture of CTVs of models KV-2185 GE, KV-2197 PF
E and KV-2167 MT. Heavy reliance is placed on the First Purchase Order No. IN-31Pl-10 dt. 27.11.1994 placed by Sony India Pvt. Ltd. on Sony International (Singapore) Ltd. It was on the
basis of this order, which was treated to be an order for 1500
CKD Kits of CTVs for the model KV-2185 GE only. The Show
F
Cause Notice also gives not only the quantity actually imported,
but also points out the quantity required for 1500 CTVs. The list
consists of 100 such components and it was the assertion on
the part of the Revenue that all these components were nothing,
but 1500 CTVs, for which the order was placed on 27.11.1994.
G There are some other assertions regarding some other items,
which were once used, but discontinued to be used, probably
with an idea to show that the components mentioned in the list
were nothing, but 1500 CTVs. It was, however, clarified that the
items at S.Nos. 93, 94, 95, 97 and 98 could not be considered
H to be the components or parts of CTVs. The ass.ertion in the
COMMINR. OF CUSTOMS, NEW DELHI v. SONY
883
...
INDIA LTD. [VS. SIRPURKAR, J)
Show Cause Notice, therefore, is that though the respondent A
was importing the CKD Kits of CTVs for their assembly in India, which attracted higher customs duty, the said imports were
being shown as the imports of the components of the CTVs,
attracting lesser customs duty and as such, the respondent was
liable to pay not only the differential duty, but also the penalties 8
on account of the clandestine imports. A reference was also
made in paragraph 8 of the Show Cause Notice to Rule 2(a) of
the General Rules for the Interpretation of the First Schedule to
the Customs Tariff Act, 1975 and it was conveyed that any reference in a heading to an article should be taken to include a
reference to that article in complete or unfinished, if the in com- c
plete or unfinished article has the essential character of the complete or finished article. It was on this basis that the respondent
was accused of misdeclaration of imported goods, as also
..
1
breach of the Exim Policy. A reference in the said Show Cause 0
Notice was made to the reply dated 20.9.1996. However, relying fully on Rule 2(a), it was asserted that the respondent was
guilty of misdeclaration and confiscation of the imported CKD
Kits. In short, the assertion was that though the respondent had
imported the CKD Kits and had placed order therefor, numberE
ing 1500 in all, in that order, it had paid a lesser duty, showing it
as import of components, on which there was lesser duty, and
as such, the respondent had breached the provisions _of the Act
and had made itself liable for the confiscation and imposition of
-...
differential duties and also the penalties. Shri Vikas Singh, Ld.
ASG heavily relied on Rule 2(a), which was referred to by us in
F
the earlier part of the judgment. In addition to this, the assertion
of Shri Singh was that the question was considered by this Court
and decided in favour of Revenue in a decision reported in
(2007) 10 SCC 114 Commissioner of Customs, New Delhi
Vs. Phoenix International Ltd. & Anr.
G
5. Shri V. Lakshmi Kumaran, learned counsel appearing
."
on behalf of the respondent, however, pointed out that the Tribunal had correctly deduced that the components imported by the
respondent could not amount to the CKD Kits. According to him,
H
884
SUPREME COURT REPORTS
(2008] 13 S.C.R.
..
A
therewas no evidence available to suggest that the respondent
had used these very components in the manufacture of the CTVs.
He disputed the claim on the part of the Revenue that these
components could and did form the complete CKD Kits of 1500
CTVs. He pointed out that these could not have been used, as
B they were imported in the manufacture of CTVs and there was
a complicated manufacturing process involved, according to
which the components which were imported, had to be treated
and processed before they could be used for the manufacture
of CTVs. He further points out that not only the customs duty
c was paid on these components, treating them as components,
but the respondent had also paid substantial excise duty on the
manufacture of these CTVs in Crores, which belied the claim of
the Revenue that these were not merely the components, but
amounted to the import of CKD Kits of CTVs. Shri Lakshmi
D Kumaran also seriously disputed the interpretation, put forward
by the Revenue on Rule 2{a) and asserted that Rule 2(a) was
•
~
not even applicable in the present case. We were taken through
number of entries and the notes by the learned counsel. He also
relied on number of decisions of this Court, as also the High
E
Courts and finally submitted that the decision in Phoenix International Ltd. Case (cited supra) was not applicable to the facts
of the present case, as the said decision turned on its own facts,
peculiar to that case. It is on this backdrop that we have to consider the questions involved.
F
6. The Learned ASG opened up his arguments by a proposition that the issue involved in the present Appeal Ts covered
fuHy by the judgment of this court in Phoenix International Ltd.
Case (cited supra). We would first consider as to whether all
the issues are closed in favour of the Revenue in that judgment.
G This was the case, where various parts of the shoes, namely
shoe uppers, outer soles, insoles and sock liners were imported
by M/s. Phoenix Industries Ltd. ("PINO" for short) in the same
container. It was the claim of the Revenue that they could be
y•
considered as the import of the shoe in SKD (Semi knocked
H
down) condition. However, the importer had declared them only
COMMINR. OF CUSTOMS, NEW DELHI v. SONY
885
-<
!NOIA LTD. [V.S. SIRPURKAR, J]
\
to be the components. It was on that basis that the matters proA
~
ceeded. The Court first came to the conclusion that a synthetic
shoe consists of the vital parts, namely, the synthetic shoe uppers, outer soles, ins()les and sock liners. M/s Phoenix lnterna-
-<
tional Ltd. ("Pl L" for short) had the license under which it was
-
entitled to import synthetic shoes uppers, PVC compounds and
B
natural rubber. However, the importer PIL had imported 5215
pairs on 16.1.1996 on a declared value, while on the same day,
PINO imported soles and insoles numbering 5151 pairs. The
Court noted that while PIL had imported synthetic uppers under
DEEG Scheme, the PINO had imported the soles under Exim c
Policy, 1992-97. Therefore, the Department-was satisfied that
...
there was an attempt to mislead by importing the above items
separately through two. different companies, but in fact, it
amounted to the import of the complete synthetic shoes in SKD
form. The Court also noted that all the cartoons were placed in
D
~
on~ container with the marking of "Phoenix" without specifying
whether the container was meant for PIL or PINO. The Court
also noted that in the Show Cause Notice, it was claimed that
'
the import orders had been placed by the above two compa-
~
nies with the same supplier in Bangkok and that both the import
orders were signed by Mr. Bhupinder Nagpal, General ManE
. ager of PIL. rt was also alleged in the Show Cause Notice that
import invoices filed by the two companies referred to the same
proforma invoice dt. 2.11.1995, which was placed by Mr.
Bhupinder Nagpal on behalf of both the companies. The Court
·'"'(
also further noted that in the Show Cause Notice, it was specifi- · F
cally pointed out that the c0nsumer ifems were placed in the
negative list vide Para 156(A) of Exim Policy, 1992-97 and un-
.der the said Para, the consumer gooc:j;; .. in SKD form or readyto-assemble condition were required to be imported under specific import.license and that the synthetic shoe amounted to a G
consumer item and as such, had required specific import Ii-
·-.
cense and, therefore, it was further alleged in the Show Cause
Notice that the importer had imported the goods in SKD form
or ready-to-assemble condition without specific import license.
The Court further noted that in the Show Cause Notice, it was
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[2008] 13 S.C.R.
,..
A further alleged that the PIL had resorted to the above subte·rfuge by importing the uppers of "Reebok" shoes in their own
name and the remaining three components in the name of PINO
in order to bypass restriction imposed by Para 156(A) of Exim
Policy. The Court also noted that the Department had alleged in
....
B the Show Cause Notice that a loan of Rs.11. 7 crores was advanced by PIL to PINO which was interest free loan during the
year ending 31.3.1995 and a loan of Rs.7.7 crores was also
advanced to the same company, which was also interest free
during the financial year ending 31.3.1994. The Court noted that
c it was under these circumstances it was alleged that the good
imported were not parts or the components, but, were SKD
goods, liable to be assessed as complete finished goods under Tariff Sub-heading 6404.19 of the First Schedule of the
Customs Tariff Act, 1975 and was liable to the higher duty ad
D valorem and countervailing duty at 15% ad valorem. The Court
further referred to the replies sent by PINO and PIL and came to
•
the conclusion that in that case, the intention would play importan! role, since it was the case of duty-evasion on imports. The
Court came to the conclusion that it was clear that the entire
E
device of bifurcation was arranged in order to bypass the restrictions imposed vide Para 156(A) of the Exim Policy and the
importer had found out the device for evading the import duty.
The Court further wondered as to why the three units of PIL did
not import all the four items when it was in complete charge of
manufacturing the said shoes. The Court, therefore, came to
., .
F the conclusion that the bifurcation was unnatural and it was
cleared that if the imports of two companies, namely, PINO and
PIL were clubbed, it was nothing, but the import of the shoes,
which was in the negative list. The Court wrote the finding that:
G
"Therefore, it is clear that the above device of importation
of one item by PIL and three items by PINO was a
subterfuge/fictitious arrangement intended to deceive the
Department and fraud on Para 156(A) of Exim Policy,
~·
1992-97."
H
It was under these circumstances that the Court came to
COMMINR. OF CUSTOMS, NEW DELHI v. SONY
887
~
INDIA LTD. [VS. SIRPURKAR, J.]
the conclusion that the imports made by the two companies were A
fraudulent and with the sole objective to deceive the Department.
7. Though, the Ld. ASG heavily relied on this case to draw
,..
a parallel with the present case, we are of the clear opinion that
the principles emerging out of the decision of Phoenix lnternaB
tional Ltd. Case (cited supra) would have to be restricted to the
facts in that case. Unlike in Phoenix International Ltd. Case
(cited supra), there is no allegation of fraud against the present
assessee. There is a complete absence of any such device or
"subterfuge" in the present case, nor is there any allegation of c
the sort. Again the further point of differentiation is that in that
case, the Court was dealing with the consumer goods like shoes
and that was included in the negative list, whereas, the CKD in
the present case (if at all it is to be CKD which was imported),
"
was not in the. negative list, it was in the restricted list. In our D
opinion, the other differentiating feature and the most important
one, in our opinion, is that while the parts imported by the assessee in this case could be independently used as the spare
parts or sold in the market, that was not the case in Phoenix
International Ltd. Case (cited supra), at least there is no findE
ing to that effect in Phoenix International Ltd. Case (cited supra). It was very fairly admitted by the Ld. ASG that the parts
imported could be independently utilized or sold in the open
market, which was not the case with the parts involved in Phoe-
~'f
nix International Ltd. Case (cited supra). The Ld. ASG also very
F
fairly admitted that there was a specific fraud alleged and proved
on the basis of which the Court came to the conclusion that this
was nothing, but a device to deceive the Revenue. We cannot
also ignore the factual panorama in Phoenix International Ltd.
Case (cited supra) where all the parts imported both by PIL and G
PINO came in one and the same container on one and the same
day, which was not the case here, as the parts in the present
• '1
case came during 22 months on different dates in 94 consignments. A feeble attempt was tried to be made by the Ld. ASG to
suggest that all these imports were based on a single order
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SUPREME COURT REPORTS
[2008] 13 S.C.R.
A dated 27.11.1994, in which the figure of 1500 is found to be
ordered. However, it was pointed out by Mr. V. Lakshmi Kumaran
that in the present case, there is no specific finding that all the
parts imported could manufacture 1500 CTVs. It was also
pointed out by the Ld. Counsel for the respondent that much
B more number of CTVs were manufactured on the basis of the
imports. On the backdrop of all this, we would have to conclude
that the Phoenix International Ltd. Case (cited supra) must be
restricted to the facts involved therein, which cannot be matched
with the facts in the present case. In the Phoenix International
C Ltd. Case (cited supra), it was clear that the imports of the components perfectly matched with the number of shoes, which
could be prepared from those imported components. There is
a finding to that effect in the decision of Phoenix International
Ltd. Case (cited supra). However, on that backdrop, when we
0 see the list of components as mentioned in the Show Cause
Notice, it is clear that out of the 100 imported components, the
number does not match with the components required for manufacture of 1500 CTVs in case of at least 21 items. This is another distinguishing feature. In our opinion, therefore, the arguments of the Ld. ASG that the Phoenix fntemational Ltd. Case
E (cited supra) decides the question involved here in favour of
Revenue, must be rejected.
8. Ld. ASG drew our attention to the order passed by the·
Commissioner, who had held that there was a violation of Exim
F
Policy for period after 25.3.1996. It was pointed out that the
Commissioner had relied on Rule 2(a) and on that basis, he
held that the said violation was after 25.3.1996. As per Rule
2(a), the components imported had to be treated as CTVs, which
attracted the higher duty as also the penalty, since the duty was
G paid only on the basis of the fact that it was a duty on components only.
'
BA. It would be better to see some facts. It must be rey •
membered here that the respondent had clarified that in the first
year of operation with the respondent Sony India Ltd., a wholly
H owned subsidiary of Sony Corporation, Japan, after liberaliza-
I~
.........
COMMINR. OF CUSTOMS, NEW DELHI v. SONY
889
INDIA LTD. [V.S. SIRPURKAR, J.]
tion in 1991 wanted to set up a large manufacturing facility for A
consumer goods like CTVs and audio products. They had clarified in their application before the Foreign Investment Promotion Board ("FIPB" in short) that in the first year of operation,
there will be no indigenization and there will be a gradual increase in indigcnization. It was on that basis that the re~ponB
dent obtained industrial license from the Secretariat of Industrial Approval ("SIA" for short) and applied for import license for
CRT and PCB, since the same were in the restricted list. All the
other components were freely importable in India. The respondent obviously used Sony Singapore as their indenting agent c
because Sony Singapore had a close proximity with the approved vendors of Sony Corporation situated in countries like
Japan, Taiwan, Thailand, Indonesia, Malaysia, China etc. All
these vendors supplied the components on the basis of Minimum Order Quantity (MOO) for the optimum utilization of conD
tainers, as also for the reduction in the transport costs, standardizing the manufacture and dispatch procedures. The advanced licenses were issued by the Director General of Foreign Trade (DGFT) for import of components duty free by availing the benefit of notification 79/65-Cus dt. 31.3.1995. A Duty
Entitlement Exemption Certificate (DEEG) passbook was also
E
maintained and it was on this basis that over a period of 22
months, 94 Bills of entry were filed for importing the various
components, concerning the present case.
8B. The .components were assessed under different tariff F
headings by applying Section Note 2 to Section XVI. It is an
admitted position that the PCBs which were in the restricted
list, were further processed to convert them into Motherboard,
which was to be used in the assembly line for the manufacture
of CTVs. It is the case of the respondent that they manufactured G
CTVs at their Plant and they were cleared for home consumption on payment of excise duty and a percentage of them were
also exported under bor:id. There is also no complaint about the
indigenization. and it is the case of the respondent that they
cleared 52,640 and 1,26,009 units of CTVs and paid an excise H
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SUPREME COURT REPORTS
[2008] 13 S.C.R.
A
duty of more than Rs.49 crores. As promised, the respondent
also made the exports and the entries to that effect were made
in the DEEC Pass book.
BC. The concerned Show Cause Notice dated 4.3.1997
8
was restricted only to the 94 consignments of the components
of CTVs imported by the respondent and it was proposed to
club all these 94 consignments. A detailed reply was filed arid it
was asserted by the r9spondent that there was no violation of
Exim Policy, since the goods were not in CKD/SKD condition.
It was then asserted by the respondent that Rule 2(a) could not
C have been invoked, as it was tried to be done, since the import
took place over a period of 22 months in 94 lots in containers
containing different parts sourced from different countries. As
has already been stated earlier, the Commissioner applied Rule
2(a) for the period subsequent to 25.3.1996. There is a clear
D finding given by the Commissioner that before 25.3.1996, there
was no breach of Exim Policy by the respondent. Therefore, it
is clear that everything depended upon the applicability of Rule
2(a) and it was solely on that basis that the breach of Exim Policy
also was alleged for the period prior to 25.3.1996 when the
E said Rule came to the anvil. It must be noted here that against
the finding of the Commissioner that there was no breach of
Exim Policy by the respondent prior to 25.3.1996, there is no
appeal filed by the Revenue and that finding had become final.
Therefore, all the difference, which was made, was owing to
F
Rule 2(a). We have already clarified that it is for this sole purpose that Rule 2(a) was relied upon by the Department, because such reliance alone could justify the Department's stand
that the components would have to be treated as CTVs and as
such, it would attract more duty. There is no difficulty in holding
G that the imports were perfectly in order and under the proper
:mport license. At this juncture, we must also appreciate the finding of the Commissioner that the goods imported were sourced
from different countries and the imported components were not
in CKD form, at least prior to 25.3.1996.
H
9. It is then only due to Rule 2(a) that these components
COMMINR. OF CUSTOMS, NEW DELHI v. SONY
891
INDIA LTD. [V.S. SIRPURKAR, J.]
are being treated as the CTVs and that is the main plank of the A
argument of Mr. kas Singh, Ld. ASG. We would, therefore, consider the implication of Rule 2(a). Rule 2(a) is as under:-
"Any reference in a heading to an article shall be taken to
include ci reference to that article incomplete or unfinished,
provide that, as presented, the incomplete or unfinished 8
article has the essential character of the complete or
finished art!-;le. It shall also be taken to include a refe~ence
to that article complete or finished (or falling to be classified
as complete or finished by virtue of this rule), presented
unassembled or dis-assembled."
C
The Ld. ASG, therefore, suggests that the articles though
were not the CTVs in CKD form and were incomplete or unfinished ones, they had the essential character of complete or finished CTVs and applying this Rule, every such component, would
D
have to be taken as an import of CTV. The Ld. ASG heavily
relied on the second part of the Rule, starting from words "It was
also to be taken to new reference ............. " He says that every
component whether it is complete or finished and which is presented in unassembled or dis-assembled condition, would have
to be taken as the finished article, like CTVs in this case. In our E
opinion, this argument is completely illogical and again that is
not the import of the language of the Rule. If the argument of the
Ld. ASG has to be accepted, then we would have to concen-
--..
trate only on the later part of the Rule, ignoring the first part of
the Rule and such dissection, in our opinion, is not possible.
F
The sine qua non for the application of this Rule is that any imported article, which is "as presented", must have the essential
character of the complete or finished article." This condition
cannot be ignored and we cannot allow the reading only of the
second part beginning with words "It was also to be taken to
G
new reference ........... " for application of the Rule. The Rule must
·-.
apply as a whole. Ld. ASG was not able to point out as to how
the first condition can be satisfied in the present case. A mere
PCB or a CRT, in our opinion, under any circumstances, cannot
be held to have essential character of the CTV. It is only when
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[2008] 13 S.C.R.
A this fi:st condition is satisfied that the remaining clause would
have to be read and thereby, the words "that art.cle" used in the
later part would have to pass the test of the opening words of
the clause "as presented, the incomplete or unfinished article
has the essential character of the complete or finished article".
B Once this condition is satisfied then the further clause is activated, suggesting that even when such article is in disassembled or unassembled condition, it would still be taken to be
a complete article.