ORDER
J.H. Joglekar, Member (T)
1. The appellants in this case filed Bill of Entry for clearance of goods described as “Printed PVC (PVC Leather Clothes)” for home consumption claiming coverage of Advance Licence under the DEEC Scheme. The licence listed “Printed PVC” as an eligible item of import. A sample of the goods was examined by the assessing officer. On examination it appeared to the Officers that the goods had acquired essential characteristics of shoe uppers and could not continue to be identified as PVC cloth. Show cause notice dated 25-6-1998 was issued alleging that in terms of Rule 2 (a) of the General Rules for Interpretation of the First Schedule of the Customs Tariff Act, 1975, the goods were classifiable as parts of footwear under Heading 6406. It was alleged that the declaration made on the Bill of Entry was wrong, making the goods liable for confiscation under Section 111(m) of the Customs Act. The show cause notice proposed reclassification of the goods, confiscation thereof and imposition of penalty. The importers then filed a reply and also referred to a clarifications from the DGFT. The joint Director General of Foreign Trade speaking for the DGFT vide his letter dated 25-8-1998 addressed to the Commissioner of Customs, referred to the dispute between the importer and the Customs House. Paragraphs 2 and 3 of the letter read as under ;
“2. The matter has been examined in the Special Advance Licence Committee on the basis of sample produced. The Committee observed that what is allowed for import is “PVC Leather Cloth” and just by printing and embossing thereon and importing in cut lengths, the basic character of PVC’ Leather Cloth does not change. Moreover, just because import has been made in cut length and imported material would be converted into footwear components, it cannot be treated as footwear components.
3. In view of this you are advised to take appropriate action. Specimen of sample (2 pieces) are sent herewith.”
The importers cited this letter before the Commissioner. The Commissioner asked the importers to produce before him all individual component parts which went into a complete shoe upper as also a complete shoe. He heard the importers, saw the articles brought by the importers and observed as follows:
“I have examined the samples of the goods as also seen the letter No. 1/84/160/AM-DES-V/399, dated 25-08-1998 issued by DGFT. The list of items attached to the Advance Licence permit import of Printed PVC, technical characteristics of which are given as PVC Leather Cloth. The objection in the show cause notice is that the items as per the sample is having printing and embossing and hence have acquired the characteristics of a part of shoe upper/ footwear component. The party has stated that the goods are only PVC Leather Cloth, and the embossing or giving of design or being cut to length would not alter that. An examination of goods imported reveals that the item is not just PVC Leather Cloth, but is something more than that. Each piece is cut to specific length. The said specific length is that of a shoe upper and each piece has 3 patters on it, printed/embossed, and when cut, each of the three pieces is distinguishable and identifiable as a part of a shoe upper. Therefore, it becomes identifiable as part of shoe upper and being a part of shoe upper, it merits classification under Heading 64.06, sub-heading 64.06.10 specifically covers. Uppers and parts thereof, other than stiffeners”.
He passed the impugned order confiscating goods under Section 111(m) of the Customs Act, 1962, permitting redemption of the goods on payment of a fine of Rs. 10 lakhs and imposing a penalty of Rs. 50,000/- in terms of Section 112(a) of the Act. Against this order, the present appeal was filed along with application for stay. The Tribunal in their order dated 9-3-1999 waived the pre deposit of penalty and stayed its recovery and posted the appeal for early hearing.
2. We have heard Shri V.M. Doiphode, Advocate for the importers and Shri A.K. Chatterjee, SDR for the revenue.
3. Shri Doiphode, referred to the wording of the show cause notice and suggested that in terms of the wording no case was made out against the importers. We have seen the charges made in the show cause notice, the relevant line reads as under : (page 2 of the SCN second paragraph, sub-para b).
“(b) The goods are covered by the Advance licence No. 5000013, dated 8-6-1995.”
Admittedly this line seems to give a wrong impression but then we see the point in the rejoinder made by Shri Chatterjee that if the Commissioner was to accept the fact that the goods were covered by the Advance Licence the very proceedings would much on this argument.
3. Shri Doiphode also claimed quoting from the show cause notice that it required cutting to make the goods clearly distinguishable as shoe uppers. In this respect he refers to the following sentence in the show cause notice :
“Necessary embossing and printing is complete and it requires only cutting for them to be clearly distinguishable as shoe uppers.”
We find that the very next line is as under :
“Though uncut, they have already acquired the essential characteristics of shoe upper and hence they have lost their identity as PVC leather cloth.”
We therefore, do not wish to dwell too long on this point.
4. During the proceedings we saw the samples produced by Shri Doiphode and also samples in possession of Shri Chatterjee. The sample is about 20″ x 14″. It is a PVC sheet bonded with textile fabric. The PVC sheet is embossed resulting in a regular pattern where some portions are raised and some portions are depressed. The pattern is recognisable on visual examination as that of shoe upper. The logo of the importer is also visible. The sheet consists of the impressions of 3 shoe uppers each part bearing the logo, the figure “270” and also the wording “MOD 355”. The printing is in two colours viz. black and dark blue. In the sample shown to us by Shri Chatterjee the pattern and colour appeared to be different but the overall dimensions of the sheets were the same, the 3 impressions of shoe uppers were the same and the embossing resulting in elevated areas and depressed areas is also the same. Different model Nos. are printed on different samples.
5. The contest is centered around the sheets. As per the appellants these PVC sheets would continue to be remain as PVC sheets even then-they are printed and are embossed. In support of this argument, certain judgments have been cited.
6. In the case of Caprihans India Ltd. v. C.C.E. – 1996 (85) E.L.T. 315 the CEGAT was dealing with the effect of printing/embossing/designing of duty paid leather cloth. Before the Tribunal it was claimed that these processes did not change the character or use of the goods, that the goods continued to be known in the market as fabrics and that no further duty was payable. The Tribunal accepted that the classification of the goods did not change after printing; but held that these goods were separately identifiable; and upheld the levy of duty on the value addition. Shri Doiphode draws support from this judgment to maintain that the character of the PVC cloth in the present case did not undergo any change because of printing and embossing. He also relies upon the Supreme Court judgment in the case of C.C.E. v. Leatherite Industries Ltd. -1996 (87) E.L.T. 606. The ratio of this judgment is that where paper was printed by rotogranure method, it continued to be classified as paper, since the relevant notification recognised converted type of paper also.
7. We have carefully considered the ratio of this judgment. We have also seen the Interpretation Rule 2(a). The operations undertaken on the goods in dispute are not of simple printing. Although the first cited judgment, speaks of printing and of embossing, paragraph 2 thereof, in setting out the facts, refers only to the process of design printing. We are, therefore, not very clear about the characteristics of PVC cloth, which was before the Tribunal in that case. It is correct that a number of processes can be undertaken on a product in spite of which the identity of the product would remain unchanged. Thus, grey fabric, even if bleached printed, dyed or subjected to any other such processes continues to qualify as fabric. There, however, comes a process which changes the identity of the basic product. In Central Excise terminology such process of material importance is termed as a process of manufacture and becomes the turning point in changing the identity and resultantly the tariff classification of a particular commodity. In the sample before us it is not an act of embossing for the purpose of creating an article or commodity with greater appeal to a buyer of PVC cloth. Embossing as per Fairchild Dictionary of Textiles, 6th Edition is as under :
“Embossing: A calendering process which produces a raised design or pattern in relief.”
There are several ways of embossing. In certain cases the design is created by action of hot rollers. Velvet is embossed by tearing the pile at different levels. Different patterns can thus be created which would add to the appeal of the fabric. In several cases, embossing is not permanent. Where crepe is embossed, the Fairchild Dictionary informs us, the embossed effect is removed when the fabric is laundered. Where fabric is embossed with a purpose to enhance its beauty and appeal, then certainly its identity as would continue, to remain that of the fabric before being embossed. But where the embossing is done with a different purpose, then the resultant product ceases to be an embossed fabric but becomes another product. In the Leatherite Industries judgment it is held that where the paper is printed it would continue to remain paper. But where such printing is with an object to turn it into another commodity then the resultant product cannot remain paper. For example if the paper is printed with the die of a currency note, by an approved agency, it becomes currency and cannot be called as merely printed paper.
8. The sample before us is a result of a process of embossing with a specific purpose, and that is to give contours on the PVC which contours when cut out and teamed with other articles, convert into a shoe upper. On examination of the sample, we are of the opinion that the Collector’s finding on applying Rule 2(a) of the Interpretative Rules was correct.
9. It is not material that the sheets consist of embossed design of 3 shoe uppers. It is also not material that it has to be cut, before it is converted into a shoe upper. If it were to be cut in 3 parts at the time of importation it requires to be cut again, along with the contours before it is used as a shoe upper. Merely because the sheets consists of 3 parts, they do not cease to be identifiable as shoe uppers.
10. Shri Doiphode argued that the goods had to be seen in the form in which they are imported, and the form is of a PVC sheet and not shoe uppers which would come into existence only after the sheets are cut. He drew strength for this argument from the Supreme Court judgement in the case of Vareli Weaves P. Ltd. v. U.O.I. – 1996 (83) E.L.T. 255. In the judgement the Court had ruled that duty was leviable in the state in which they were imported and could not be determined on the state into which they would be converted. The case related to import of POY where the authorities had sought to levy countervailing duty at final denier stage after texturising subsequent to importation. We find that the present goods do not derive any benefit from the judgement. The goods before us are in the stage where they are clearly recognisable as parts of shoe uppers. We have also seen the judgment of Supreme Court in the case of C.C.E., Hyderabad v. Bakelite Hylam Ltd. – 1997 (91) E.L.T. 13 on which reliance was placed by Shri Chatterjee. In the judgement the Supreme Court held that Industrial laminated sheets and glass epoxy laminated sheets could be considered as an electrical insulators, even when they had to undergo the processes of cutting and punching holes for fitment as insulators. Shri Chatterjee uses this judgment to state that even if the PVC shoe uppers are not cut into 3 parts, the identity of shoe uppers still exists.
11. On examination of the samples and the case law, we find that the Commissioner was correct in holding that the goods meritted classification under sub-heading 64.06.10.
12. We have taken cognisance of Mr. Doiphode’s submissions that in interpreting the import policy, reliance cannot be placed on the law relating to classification. We also note the submission that as far as the import control policy is concerned, the opinion of the DGFT should be given higher status and importance than the opinion of the Customs.
13. We have seen the CEGAT judgment in the case of Universal Commercial Corporation v. C.C., Delhi – 1994 (69) E.L.T. 150. In paragraph 62, the Tribunal Member on reference in its judgment held that the fiction available in Rule 2 (a) of the Interpretative Rules could not be applied for the interpretation of the import policy. In this judgment, the Tribunal was engaged in determining whether parts of air conditioning appliances were “consumer goods” or not. The fiction of consumer goods was not relatable to any product in the Customs Tariff, and therefore, there was little scope of conflict between these two. In the present case, the licence in possession of the importers was granted by the DGFT. The licence permitted the importers to import among articles, printed PVC. The licence had conferred the right on the importers which could not be challenged by the Customs as long as the importers had imported the printed PVC. The duty free import under an advance licence is not covered under a notification issued by the DGFT but would fall under a notification issued under the Customs Act. In this case relevant Notification was 79/95-Cus., dated 31-5-1995. The notification permitted duty free imports subject to certain conditions. The first condition was that all materials imported were covered by the certificate issued by the DGFT. These conditions require the Customs to examine the physical identity of the materials imported and to compare it with the nomenclature given in the certificates. The examination by the Customs would necessarily, be in terms of the definition in the Customs Tariff. Where the tariff gives the parameters and the description of a particular commodity then that description and those parameters would be taken into account by the Customs during this comparison. If the licence covered printed PVC and if the goods were such as not to fall under that description as described by the Tariff entry, then the first condition of the notification was not fulfilled. Applying the Rules of Interpretation in classifying the product, where the classification of the product does not agree with the description in the licence, then the Customs would be entitled to hold that the condition of the notification is not satisfied. It does not amount to interpretation of the import policy but is limited to verification of the material terms for import used in the notification.
14. We now come to the opinion given by Special Advance Licensing Committee extracted earlier, from the letter of the Joint DGFT. Shri Chatterjee here raised some doubt as to the identity of the samples which were shown to the committee and raised some doubt on the acceptability of the communication. We do not consider this objection seriously because the description in the opinion of the sample before us is not materially different. The issue is whether this opinion is directory or not where the Customs are considering the availability of the benefit of exemption notification.
15. Shri Doiphode cited Calcutta High Court judgment in the case of Sandip Agarwal v. C.C. – 1992 (62) E.L.T. 528. We have perused paragraph 29 of the judgement. The clarification obtained by Customs authorities from the office of the C.C.I. & E, was not given importance by the High Court on the ground that it was signed by the DCCI & E and it was not claimed to be on behalf of the C.C.I. & E. The Court however, acknowledged that DCCI & E was competent to give clarification on any provision of the Policy Import and procedure or any itemwise entry in consultation with the concerned technical authority or the Headquarter Clarification Committee. We have also seen the extracts of the Export and Import Policy (AM 1997-2002). In paragraph 4.13 it, is stated as follows :
“4.13 If any question or doubt arises in respect of the interpretation of any provision contained in this Policy, the said question or doubt shall be referred to the Director General of Foreign Trade whose decision thereon shall be final and binding.
If any question or doubt arises whether a licence has been issued in accordance with this Policy or if any question or doubt arises touching upon the scope and content of a licence, the same shall be referred to the Director General of Foreign Trade for a decision.”
This paragraph states that the DGFT is the final authority so far as the interpretation of the provisions of the Policies is concerned. Here it is not doubted that the DGFT was competent to issue the licences or that he was not competent to include printed PVC as an importable article. The issue here is of the identity of the product and the resultant classification thereof. In fact the acceptance of the fact that the issue involves classification is apparent from the cited letter of the Jt. DGFT which shows the subject as “classification regarding import of printed PVC leather cloth”. In the matters of classification, it should not be doubted that the last word is with the Customs. This preposition is well set out in the Delhi High Court judgment in the case of Export Apparels Product Ltd. v. U.O.I. – 1997 (91) E.L.T. 307.
16. The ld. Single Judge of the Madras High Court in the case of South India Surgical Co. P. Ltd. v. A.C.C., Madras – 1999 (107) E.L.T. 13 acknowledged the dualty in holding that whereas the DGFT had the final say as to the licence, his opinion did not bind the Customs Department in the matter of classification of goods, for assessment to duty. This was put in the following manner in paragraph 9 of the judgment.
“9. As rightly contended by the learned Counsel appearing for the respondent the import policy gives Chief Controller of Imports and Exports a final say as to the licence and the item for which licence granted. But for the purpose of levy of duty it will not preclude the Customs Department from examining the nature of the commodity imported; under a particular licence and accordingly assess the goods to duty so imported. Hence, wrong classification made by the lower authorities or other authority like Director General of Health Service do not bring out the distinction between two items. Accordingly, the clarification issued by the said authorities do not advance the case of the petitioner. It is also clear that the Government have taken public interest into consideration while issuing the notification under Section 25(1) of the Customs Act and the government has to protect the local manufacturer. Merely because the Government or some other authority had given relief in similar case to some other persons, on that basis, it is not open to the petitioner to claim the same relief when it is ultimately found that the earlier relief granted by them are incorrect. The respondent is justified in holding that the goods imported by the petitioner do not qualify for exemption from import duty under Entry 44 of the Exemption Notification.”
On examining the subject letter, we do not find it to be an opinion or a clarification by the DGFT but that it merely conveys the finding of a Committee established under the Policy.
17. We thus, find that the Commissioner was right in holding that the goods were not covered by the Advance Licence and that duty was payable on the goods.
18. We now come to the orders of confiscation of the goods under provisions of Section 111(m) of the Act and imposition of penalty on the importers, under the provisions of Section 112(a) of the Customs Act, 1962. Shri Doiphode claimed that the importer was and is still under the belief and of the opinion that the goods imported qualified for the description “Printed PVC”. He submits that this opinion and belief of the importer is shared by the Committee established by the DGFT also. In such situation he submits that the action of the Commissioner inflicting the confiscation and imposition of penalty do not sustain. He relies upon the Tribunal judgment in the case of Straw Products Ltd. v. C.C.E., Indore – 1996 (87) E.L.T. 115. In this judgment it was held that where the assessee had claimed classification under a particular heading, under a bona fide belief and where the Department had chosen to classify the goods under another Heading; no penalty was leviable. Shri Chatterjee states that penalty is imposed for rendering any goods liable to confiscation and that the guilty mind was not an essential requirement. He draws support from State of Maharasthra v. Mayor Lani George – AIR 1965 S.C. 722 and states that the ratio of the judgment is not altered by subsequent judgments. We take note of the latter judgment of the Supreme Court in the case of Akbar Badruddin Jiwani v. C.C. – 1990 (47) E.L.T. 161 (S.C). In this case dispute was whether the goods imported by the appellant were marble or culcarious stones. The Court held that the goods were calcarious stone covered by Open General Licence and therefore, held that imposition of fine and penalty were not required. Thereafter the Hon’ble Court proceeded to speak about the situation in which fines and penalties were attracted. The Court observed that the burden was on the Customs Department to show that the importer had acted dishonestly or contumaciously or with the deliberate or distinct object of breaching the law. The Court observed that in the cited case the Tribunal had observed that the importer had acted on a bonafide belief that the goods were importable under the OGL. The court found fault with the Tribunal in not showing leniency in the context of fine and penalty. The Court quoted with approval the earlier judgment in the case of Hindustan Steels Ltd. v. State of Orissa [1978 (2) E.L.T. 0159) (S.C.)], which ruled that where there was a breach of the provisions arising from bonafide belief, then the offender was not liable to penal action. This judgment is dated later than the one cited by Shri Chatterjee and is more related to the facts before us. The importers at all times had claimed that the goods were printed PVC. This belief was shared by the Committee set up to advise the DGFT and therefore. In this case it cannot be held that the importers had acted contumaciously or in any mala fide manner. We also take note of the Supreme Court’s mind in the case of Badruddin Jiwani’s case as given in paragraph 60 that where any products were imported in the bona fide belief the imposition of heavy fine was not warranted. Therefore, on perusal of the facts and the cited judgment in case of Jiwani’s we reduce the quantum of fine from Rs. 10 lakhs to Rs. 1 lakh and remit totally the penalty imposed upon the importers.
19. But for the above modifications, the appeal is dismissed.