ORDER
N.K. Bajpai, Member (T)
1. Both these appeals were heard together, (although they relate to two different orders passed by two different Additional Collectors of Customs, Bombay) because they involve the question of classification of the same goods imported by the same appellants. As they were both heard together they are being disposed of by this common order.
2. In this appeal the question for consideration is the classification of two products, namely, (a) Vinyl Resin Solution (Powder) CP-50 and (b) Vinyl Resin Solution (Solid) SA-60, supplied by M Andpaco International Corporation, Subsidiary of Andrews Paper & Chemical Co., Inc., U.S.A. Although a number of contentions about the nature and composition of the goods, the test report of the Deputy Chief Chemist, the denial of cross-examination of the Deputy Chief Chemist in the adjudication proceedings were raised, we can decide the present appeal on an contention without having to go into the merits of the matter. The contention is that while alleging mis-declaration of goods attracting the liability of confiscation under Section 111(m) of the Customs Act, 1962, the authorities did not indicate, in the show cause notices, dated 9th April 1991 and 9th May 1991, the heading under which they proposed to classify the goods. The relevant portions of the show cause notices are as under :-
Show cause notice, dated 9th April 1991
“Whereas it appears from the Test Reports received from the Dy. Chief Chemist and the description/markings found on the drums that M Patels Coatings Ind. Ltd. have mis-declared the description of the impugned goods imported by them with a view to evade payment of Customs duty leviable on the goods imported by them and also with a view to escape the provisions of ITC policy relating to requirement of the import licences for the purpose of import of such items. The duty leviable on the item under consideration is much higher than what has been claimed by the party.
Whereas in view of the above the goods under consideration appear to be liable to confiscation under Section 111(m) of the Customs Act, 1962 and M Patel Coating Ind. Pvt. Ltd. appear to be liable to penal action under Section 112 of the Act ibid.”
Show cause notice, dated 9th May, 1991
“Whereas it appears from the test reports received from the Dy. Chief Chemist and the description marking found on the drums that M Patel Coating Ind. (P) Ltd. have mis-declared the description of the impugned goods imported by them with a view to evade the payment of customs duty leviable on the goods imported by them and also with a view to escape the provisions of ITC policy relating requirements of the import licences for the purpose of import of such items. The duty leviable on the item under consideration is much higher than what was claimed by the party.
Whereas in view of the above the goods under consideration appear to be liable to confiscation under Section 111 (m) of the Customs Act, 1962 and M Patel Coating Ind. (P.) Ltd., appear to be liable to penal action under Section 112 of the Customs Act, 1962.”
3. Arguing for the appellants Shri Arun Mehta, the learned Counsel submitted that while an allegation was made in the first show cause notice that the duty leviable on the goods was much higher than what had been claimed by the appellants, the authorities did not indicate in the show cause notice how the duty was higher and under which heading of the tariff the subject goods were classifiable. Similarly, in the second show cause notice, although there was an allegation that the goods had been mis-declared with a view to evade payment of duty leviable and also with a view to escape the provisions of the ITC policy relating to requirements of import licence, the authorities did not indicate the basis of these allegations; nor did they indicate under which heading of the tariff the goods were classifiable. In these circumstances, the appellants were prevented from making a proper defence. He also submitted that in their reply, dated 27th May 1991, they had submitted that the show cause notice was very vague and was based on mere inferences. Subsequently, in the written submissions, dated 29th May 1991, filed after the hearing, they had stated in paragraph 7 as under :-
“7. It was further submitted that the show cause notice is vague inasmuch as on the (one) hand it alleges that our clients had allegedly mis-declared the goods and on the hand it does not set out the classification of the goods as per the Department. The vagueness of the show cause notice makes it impossible for our clients to specifically reply to the same.” (Emphasis added)
4. Shri Arun Mehta, the learned Counsel, referred to the decision of the Bombay High Court in the case of Wimco Limited v. Union of India and Anr. [1980 (6) E.L.T. 235] and the decisions of the Tribunal in the case of Korula Rubber Co. Pvt. Ltd. v. Collector of Central Excise, Bombay [1987 (32) E.L.T. 216] and Srikanta Haldar v. Collector of Central Excise [1991 (53) E.L.T. 425], on the question that the adjudicating authority could not travel beyond the allegations contained in the show cause notice, and submitted that in the light of these decisions, it was necessary to indicate the proposed classification of the goods in the notice itself so that the appellants could have proper opportunity of meeting the case proposed against them.
5. Smt. Ananya Ray, the learned SDR, on the hand, relied on the decision of the Tribunal in the case of Hindustan Equipment Engineering Company v. Collector of Customs, [1988 (37) E.L.T. 146], and referred, in particular, to paragraph 10 of the decision. She submitted that inasmuch as the classification of the goods decided by the adjudicating authority was under the same Chapter, namely, Chapter 39 under which the appellants themselves had claimed the classification, it would not be correct to say that the appellants were handicapped in meeting the allegation made in the show cause notice.
6. We have carefully considered the appeal and the submissions made by both sides at the hearing. We do not consider that for the purpose of deciding the appeal it is necessary for us to consider the contentions raised before us or to go into the merits of the matter at all. Following the decisions of the Bombay High Court and those of the Tribunal, we are of the view that the failure to indicate the proposed classification in the show cause notice has resulted in violation of the principles of natural justice because the appellants, not knowing the classification which the adjudicating authority has finally decided in the order, could not have rebutted the charge of mis-declaration made against them. The question of mis-declaration would arise against a correct declaration and consequently the resultant classification of the goods under the Customs Tariff. In this view of the matter, we set aside the impugned order and direct that the matter may be referred back to the adjudicating authority for fresh adjudication after indicating the proposed classification and after receiving the reply of the appellants. They would also be given an opportunity of being heard in the matter before an order is finally passed.
7. The facts being similar in this case, we are only reproducing the relevant portion of the show cause notice, dated 6-8-1991 :-
“They claim classification of the said item under Customs Tariff heading 3904.90 and duty at the rate of Rs. 4000/- per M.T. (Basic) duty + Rs. 4000/-M.T. (Auxiliary Duty) + Rs. 20,000/- per M.T. + 5% C.V.D. Party also claimed clearance of all goods under OGL Appendix-6 Item No. 1 of IEP-90-91.
Whereas the Customs House, Bombay ordered first check examination with a view to ascertain the exact nature, characteristic and composition of the goods under consideration. Accordingly, examination was carried out and samples ‘ were forwarded to Dy. Chief Chemist, Bombay for chemical analysis and test.
…Whereas it appears from the test report received from the Dy. Chief Chemist and the description/marking found on the drums that M Patels Coatings Ind. (P.) Ltd. have mis-declared the description of the impugned goods of assessable value of Rs. 68,652/- imported by them, with a view to evade payment of customs duty leviable on the goods imported by them. The actual rate of duty applicable on the goods is 100 (Basic) + 50% (Auxiliary) + 40% CVD + 5% of CVD. The total duty is Rs. 175572/- while admitted duty by the party is Rs. 11164/-. Therefore it appears that party has tried to evade payment of Customs duty equivalent to Rs. 163708/- by way of mis-declaration of goods.”
8. As will be seen from the above, the authorities did not indicate the proposed classification of the goods although they indicated the rate of duty which they proposed to levy. The arguments which were made in the two cases being similar, we consider that by merely indicating the rate of duty, the appellants could not have met the charge. The following portion from the impugned order makes the position very clear :-
“The Ld. Advocate initially had requested for cross-examination of Dy. C.C. but this request was given up. The Advocate submitted that the SCN has been issued on a misconception that the classification of the goods in question was sought under heading 3904.90 of the Customs Tariff while the relevant B/E shows the classification claimed was under heading 3904.40. There appears to be a typographical mistake while typing the SCN. The correct heading in the SCN should have been written as 3904.40. The second submission was regarding not indicating the correct classification in the SCN. The correct classification need not be mentioned in the SCN as the basic allegation in the SCN is regarding mis-declaration and ITC violation angle and once the mis-declaration is proved the correct classification depending on the findings will be done by group.”
9. It is clear from the above that the adjudicating authority considers that even in those cases in which an importer’s classification is not acceptable, it is not necessary to indicate the proposed classification in the show cause notice and the matter is to be decided by the Appraising Group. This, to say the least, is a gross mis-conception of the law. We, therefore, set aside the impugned order and remand the matter to the Additional Collector for fresh adjudication as in the first appeal.
10. In coming to the conclusion that it was necessary for the authorities to indicate the classification in the show cause notice, we would like to mention that the decision of the Tribunal in Hindustan Equipment Engineering Company’s case (supra) cited by the learned SDR is distinguishable on the facts of the present case. In that case, the connected question of the import licence was also involved, and it is in that context that the Tribunal had rejected the contention of the appellants. In the present case, the facts are different and we find ourselves unable to accept the learned SDR’s argument that since the chapter under which the goods were declared and under which the authorities decided to classify was the same, there was no need to indicate the proposed classification in the show cause notice. The appellants in both these cases were charged with mis-declaration and it was necessary to indicate what was the correct declaration after the goods were tested so that the appellants could rebut the allegations. In these circumstances, both the impugned orders are set aside and the appeal are allowed by remand.
G.P. Agarwal, Member (J)
11. After having the advantage of going through the erudite Order prepared by my learned br, Shri N.K. Bajpai, I would like to add as follows :-
11.1 A. No. C/2126/91-C – In this case the appellants claimed the classification of the imported goods, namely, Cellulose Acetate Ester (Vinyl Resin Solution-Powder-CP-50) and Cellulose Acetate Ester (Vinyl Resin solution-solid BA-60) under heading 3904.90 which on test, according to the Department, found to be Cellulose Acetate Promionate type of resin and Acrylate Copolymer. Consequently, a Show Cause Notice was issued to the appellants alleging that they have mis-declared the description of the impugned goods with a view to evade the payment of customs duty leviable on the goods imported by them and also with a view to escape the provisions of ITC policy, adding that the duty leviable on the item under consideration is much higher than what was claimed by the party. The appellants contested the Show Cause Notice and in paragraph seven of their written submissions dated 29th May, 1991 specifically submitted that “The Show Cause Notice is vague inasmuch as on the one hand it alleges that our clients have allegedly mis-declared the goods and on the hand it does not set out the classification of the goods as per the Department. The vagueness of the Show Cause Notice makes it impossible for our client to specifically reply to the same.” But curiously enough, the Additional Collector of Customs, Bombay, without adverting himself to this defence of the appellants and without making known to the appellants as to under what Heading the Department proposes the classification of the subject goods decided the question of classification holding that the subject solution CP-50 is classified under Heading 3912.90 and Solution SA-60 under Heading 3906.90 of CTA 1975 and ordered for the payment of the appropriate duty accordingly. Here in my considered opinion, he violated the principles of natural justice. Needless to say that, Chapter 39 contains various headings providing different rate of duties. In the Show Cause Notice, as aforesaid, it was simply stated that the duty leviable on the item under consideration is much higher than what was claimed by the party. This is a vague allegation in view of the fact, that there are headings also under Chapter 39 which provide much higher duty than heading 3904.90. Likewise, in Appeal No. C/4059/91-C the Additional Collector of Customs, Group 2B, went tangent, obviously under gross mis-conception of the law when he observed that, “the correct classification need not be mentioned in the Show Cause Notice as the basic allegation in the Show Cause Notice is regarding mis-declaration and ITC violation angle and once the mis-declaration is proved the correct classification depending on the findings will be done by group.” It is to be remembered here that when the goods are confiscated with an option to redeem the same on payment of redemption fine, as in the present case, the appropriate duty is also required to be paid by the importer at the time of redemption, and further that while fixing the amount of redemption fine and personal penalty the quantum of the duty, which admittedly depends upon the correct classification, which the importer intend to evade is a major consideration, and therefore, it was incumbent upon the Additional Collector to decide the question of classification and then to decide the quantum of redemption fine and the amount of personal penalty. Leaving the question of correct classification and the appropriate duty in abeyance and deciding the question of mis-declaration and ITC violation in isolation not only violates the spirit of the law but causes harassment to the importers and also multiplicity of proceedings. It is in this background, that the case of Hindustan Equipment Engg. Co. v. Collector of Customs [1988 (37) E.L.T. 146], is distinguishable on the facts of the case. In that case there was importation of a consignment of 12 cases of Synchroniser Cones and the importer presented the licence which stood in the name of M Krishna & Co. for clearance. However, from the correspondence on the record, the Department tentatively formed an opinion that although the importer had declared that no indenting agent’s commission is payable, the price of US $ 3.69 CIF per piece is subject to M Krishna & Co.’s receiving the commission of US 20 Cents per piece and further that, the subject goods were not covered under the licence produced by the importer therein. As a sequel thereof, a Show Cause Notice was issued to the importer calling upon them to show cause as to why the imported goods be not confiscated and penalty be not imposed. In reply, while adjuring their guilt the importers contended that the value declared by them be accepted and the goods be assessed under Heading 84.63(1) of the Customs Tariff and not under Heading 87.04/06 as contended by the Department. It is in this background that this Tribunal observed that the contention of the importer that Heading No. 87.04/06(1) of the CTA, was not mentioned in the Show Cause Notice and, therefore, the imported goods cannot be classified under the said Heading has no force for, from the Show Cause Notice it appears that the appellants claimed the clearance of the goods also under licence dated 21-1-1988 which was not found valid to cover the Motor Vehicle parts, since the said licence was for importing spares of machinery and instrument. All these facts were mentioned in the Show Cause Notice. During the adjudication proceedings also, the importer pleaded that the import was covered under the said licence because the imported goods are classifiable under Heading 84.63. Under these circumstances, the Department had to decide the controversy raised by the appellants. This is not the case here, as aforesaid.
12. In the result, both the impugned Orders are set aside and the appeals are allowed by remand, as proposed by my learned brother.