ORDER
Gowri Shankar, Member (T)
1. The facts leading to these appeals are as follows:
2. M.J. Pharmaceuticals (MJ for short), is a manufacturer of medicaments and other pharmaceutical goods. It placed an order with Eli Lilly Exports, Geneva, for supply of 124.889 million international units (IU) of zinc insulin crystals and 180 million litres of sterile beef insulin seed suspension. The total value of the order was US $ 3,12,420.50. A letter of credit was opened on 21.12.1992 for the payment of the goods by Bank of India, Mumbai No. Credit/SUSU/Zurich. On 22nd December, 1992 Eli Lilly Exports told MJ by fax that in view of the “heavy constraints on airfreight due to Christmas time, goods would be shipped through World Courier on 23rd or 24th to arrive at its office on 27th or 28th December. This was followed by a fax on 23rd December, intimating the address of the Mumbai agent of World Courier. These goods were despatched to the appellant by Eli Lilly International Corporation of New York of USA by a courier and arrived at Delhi on the night of 27th December, 1992. The documents presented for the clearance of the consignment at Delhi by a courier who brought them included a airway bill dated 24.12.1994 of World Courier, New York, declared the goods to be medicines of the value of US $ 520.50 and an invoice dated 24.12.1992 of Eli Lilly International Corporation, being “samples of no commercial value” of zinc insulin crystals and sterile beef insulin. On the basis of this document the goods were cleared and granted exemption under notification 159/92. The goods were delivered shortly thereafter to the appellant and it has stated, were received by it on 29th December, 1992. On 1st January, 1993 the appellant wrote to the Commissioner of Customs, Mumbai regarding the consignment. The appellant by this letter narrated the facts related to the shipment, that it was unable to trace the agent of the World Courier at its stated address at Mumbai and that it received the consignment. It has sought to import these goods in order to supply the zinc insulin suspension to the State pharmaceutical corporation of Sri Lanka on offer made by it and that this supply was to be completed by 31st December,1992. This urgency, which was communicated to Eli Lilly, no doubt resulted in sending the consignment through courier. The letter indicated the value of the goods and sought the Commissioner’s help in paying the correct duty by following the prescribed formalities. No reply was received. Another letter was written on 3rd February, 1993 to the Principal Commissioner of Customs by referring to the earlier letter and again asking for their help. On 12th February, 1993 Mr. R.K. Habbu, advocate wrote to Principal Commissioner of Customs. That letter has referred to the discussions that he had held with the Additional Commissioner of Customs at Mumbai. By this letter he sought for permission for filing a bill of entry for warehousing and the goods to be transported to the factory at Baroda, Gujarat for which licence of a bonded warehouse would be obtained, so that the goods could be used to produce and export the goods before 30th April, 1993 zinc insulin suspension to Sri Lanka. Alternatively he requested for approaching the Cental Government for grant of exemption under sub-section (2) of Section 25 of the Act. Further letter was written on 9.3.1993 by MJ pointing out the urgency of the matter and requesting that sample of the goods be taken for tests so that the same could be sent to Baroda for manufacture. It cited another letter written by Habbu on 20.3.1993 to the Chairman of CBEC. Thereafter the appellant removed the goods without further ado to the Baroda factory and utilised part of it for manufacture of insulin zinc suspension. On 22nd May, 1992 the Customs officers came to the factory and seized the remaining imported material and whatever finished goods were in the factory. The department subsequently released the goods against a bond.
3. A show cause notice was issued in November, 1993. This notice alleged that the goods had been deliberately undervalued to effect clearance without paying duty due on them and proposed recovery of duty of Rs.3.20 crores approximately by applying the rate of 345% ad valorem for goods imported through a courier. Confiscation under clause (m) of the Section 111 of the Act for misdeclaration and penalties on MJ; J,.M. Shah, Chairman of the Company; G.M. Mehta, their Manager – Purchase under Section 112 were proposed. These persons submitted their reply to notice and was heard by the Commissioner at Delhi. Thereafter the Commissioner passed the order impugned in these appeals.
4. Notice also proposed to deny exemption available under notification 159/92. Thereafter the Commissioner passed the order impugned in these appeals. By that order he did not accept the contention that the appellant had made attempt after receiving the goods to pay duty due on them declaring the letters to the Customs authorities i.e., Bombay as ‘eye wash’. He said that correct rate of duty applicable was 345% for the imports by courier. He held that benefit of notification 208/81 was not available to the goods. He, however noted that the imported goods, including those which were seized and subsequently released were utilised for manufacture of insulin injectible vials, which had been exported to Sri Lanka and that drawback of duty under Section 75 would be available, which can be claimed by making proper application after payment of duty. He ordered confiscation of goods ordered appropriation of bank guarantee which has been furnished, and imposed Rs. 5 lakhs as fine, imposed penalties of Rs. 5 lakhs on the company and Rs. 1 lakh on G.M. Mehta and J.M. Shah. Hence these three appeals by the Company, Mehta and Shah.
5. It cannot be denied that there had been false declaration at the time of clearance upon the value of the goods, that these are samples of no commercial value. Airway bill issued by the World courier showed the declared value to be US $ 420.50. Invoice dated 24.12.1992 of Eli Lilly International Corporation described the goods as samples of no commercial value. There being a misdeclaration of the goods. The question is, whether such misdeclaration has taken place at the behest and with the connivance of the appellant. The claim that the appellant wrote to the Commissioner of Customs on three occasions and met the Additional Commissioner of Customs and Principal Commissioner of Customs is not denied by the Commissioner. The Commissioner dismisses it as ‘eye wash’. He held that there is no record to prove that this letter was received in the Custom House on 1.1.1993 or soon about that time. He finds that the letter to the Principal Commissioner of Customs was written on 12.2.1993 and the third letter on 19.3.1993. He concludes from these that MJ while attempting to demonstrate that are keen to pay duty, were in fact not wishing to comply with Customs formalities by making actual payment of duty. This attitude is merely dismissive. The goods were cleared at Delhi on the night of 27th December, 1992 and would have been received by the appellant shortly thereafter. Its letter dated 1st January, 1993 to the Commissioner of Customs is acknowledged by him and it intimates the full facts in this letter. It does not indicate that the goods were cleared at Delhi. The second paragraph of that letter seem to suggest that it expected the goods to come to Mumbai. It was therefore not unreasonable for the Company to write to Mumbai. No particular action appears to have been taken by the Commissioner of Customs or the Principal Commissioner of Customs of these letters. The letter dated 12th February, 1993 of Mr. Habbu, its Advocate, is clear and indeed suggests two alternatives for disposing of the problem. This attitude of the appellant, promptly bringing to the notice of the department, the fact of the receipt of the goods and non payment of duty on them, and offer to pay duty is not in keeping with the effort to evade the customs duty. It is not unreasonable to speculate that if the appellant had not brought to the notice of the department the department would never be woken up. The appellant certainly would have taken a chance on it and would have done so as the Commissioner suggests.
6. The departmental representative sought to support the Commissioner’s view by saying that these efforts were undertaken for MJ to make payment to the supplier. This again is not realistic. The letter of credit had already been issued, providing for payment to be made against transaction of documents. It any event the fact that the appellant wrote to the department the first letter within a couple of days from the receipt of the goods shows its attitude, and is a fact on record. We do not know what prevented the department from taking action involving such a large amount of duty straightaway. We would in fact think that the seizure that was subsequently made was the result of this correspondence written by the appellant.
7. The Commissioner cites statements of Ajay Khanna, and Sadhana Khanna of TKJ Marketing Group. The Commissioner finds knowledge of the undervaluation by MJ. Ajay Khanna in his statement had said inter alia that while he was not aware of the value of the goods or that it was not samples, MJ was aware of this. Sadhana Khanna’s statement does not seem to refer to knowledge on the part of MJ. Now the question that arises, how Ajay Khanna would be able to say what MJ knew. No basis is indicated in his statement for this claim. Of course, MJ certainly would know that the consignment was of the commercial consignment, since it had ordered for it. But the question is whether he knew that the goods were to be declared as consignment of samples of no commercial value and the value misdeclared in order to avail of the benefit of the notification 159/92 exempting from duty of specified goods not exceeding value of Rs. 5,000/- imported by a registered courier services.
8. On the basis of these documents, and conduct of the parties it is not possible for us to conclude that MJ had asked the supplier to misdeclare the value of the goods or their nature. Presumably investigations by the department have not brought forth any evidence in this regard. The evidence relied upon in the proceedings is insufficient to conclude that MJ knowingly facilitated the misdeclaration. The probable reason for this seems to be that in view of the heavy rush on account of Christmas at courier cargo, which Eli Lilly had referred to, the supplier decided to take a short cut; and misdeclared the goods as samples of no commercial value. There is in fact a letter from the Eli Lilly, USA indicating that the value of US $ 420.50 is motivated by the fact that laws of that country do not permit exports of courier goods valued at US $ 500. The Commissioner of Customs at Bombay in fact has not acted on it but merely asked the appellant to approach the Commissioner of Customs at Delhi. It is what the letter dated 13.3.1993 of the Principal Commissioner of Customs to the appellant says. We would have thought that in view of the involvement of such a large amount of duty on goods already cleared, the Commissioner of Customs, Mumbai would have thought it appropriate to atleast inform his colleague at Delhi to follow up the matter.
9. That the benefit of notification 159/92 is clearly not available to the goods was accepted by the counsel for the appellant. He, however, claims that benefit of notification 208/81 has been wrongly denied by the Commissioner. This notification exempts from duty goods specified in the schedule annexed to it from the whole of the customs and additional duty of customs leviable on it. List ‘A’ of the schedule is for life saving drugs or medicines. Entry 84 of this list specifies “mono component insulin” and entry 97 “pork insulin zinc suspension injection”. The Commissioner has held this notification not to apply for the reason that it applies to life saving drugs and equipments, and therefore does not apply to raw materials used for the manufacture of medicines, and has further reasoned that zinc insulin crystals and insulin beef seed suspension which were imported are not mono component insulin.
10. The words used in the heading of schedule are “life saving drugs and medicines”. We think it is erroneous to conclude that merely from the heading of the said schedule only finished medicaments are exempted in this list and not goods out of which these medicaments could be made. Heading itself is misleading. The list includes many goods which are obviously not drugs or medicaments at all – for example ‘immunoassay kit for blood fibrinogen degradation product for direct estimation for diagnostic test in D.I.C’ – entry 57, ‘cesium tubes’ – entry 150, ‘Elisa diagnostic tests’ – entry 155. These are neither drugs nor medicines but diagnostic chemicals. Even among the medicaments the list contains number of goods without specifying their form – Cyclosporine (entry 137); Diphtheria anti-toxin serum (entry 149); Iopamido (entry 134); Pilocarpine (entry 138); Bovine albumin (entry 154); Flutamide (entry 184), etc., are all examples of this. Therefore mono component insulin specified in serial 84 would include insulin in any form. There was no basis for denial of exemption contained in notification 208/80.
11. It is alternatively contended that if it is held that notification 208/81 is not available to it, benefit of notification 45/79 would be available. This notification inter alia exempts goods specified in table annexed to it falling within Chapter 29 or 30 of the tariff from duty provided that the goods are imported for manufacture of life saving drugs and medicines falling in notification 208/81. This contention also has to be accepted. That insulin is a hormone, specified in the pharmacopoeia is not disputed hence classifiable in heading 29.37 of the tariff, the heading for hormones, natural or reproduced by synthesis; derivatives thereof, used primarily as hormones; other steroids used primarily as hormones. The goods that were manufactured out of the imported insulin and exported to Sri Lanka is a mono component insulin injectable. Mono component insulin figures in entry 84 of Part A of the schedule to notification 208/81. The benefit of notification 49/79 would therefore be available to the imported goods.
12. In the result therefore the goods would not be liable to duty.
13. The appeals are allowed and the impugned order set aside.