CASE NO.: Appeal (civil) 8568-8569 of 2001 PETITIONER: Commissioner of Customs (General), N. Delhi RESPONDENT: M/s. Gujarat Perstorp Electronics Ltd. DATE OF JUDGMENT: 05/08/2005 BENCH: Ruma Pal,Arijit Pasayat & C.K. Thakker JUDGMENT:
J U D G M E N T
WITH
CIVIL APPEAL Nos. 8565-8567 OF 2001
Commissioner of Customs
(Air Cargo) & Others . Appellants
Versus
M/s Pearl Engineering Polymers
Ltd. & Ors. . Respondents
C.K. Thakker, J.
These appeals are directed against a common judgment and order
dated December 19, 2000 passed by the Customs, Excise and Gold (Control)
Appellate Tribunal (hereinafter referred to as ‘CEGAT’). By the said order,
CEGAT disposed of five appeals filed by M/s. Pearl Engineering Polymers
Limited (‘Company’ for short) and by its Directors as also by the
Commissioner of Customs, New Delhi. CEGAT, by the order impugned in
the present appeals, allowed three appeals filed by the Company and its two
Directors and dismissed two appeals filed by the Commissioner of Customs.
CEGAT set aside the Order in Original passed by the Commissioner of
Customs, New Delhi on December 30, 1997.
To appreciate the controversy raised in the present appeals, relevant
facts as noted in the Order in Original by the Commissioner of Customs may
be stated in brief.
According to the Commissioner of Customs appellant herein, M/s.
Pearl Engineering Polymers Limited (‘Company’) was registered under the
Companies Act, 1956. Mr. Chand Seth was the Chairman-cum-Managing
Director of the Company and Mr. Arun Gupta was whole time Director. The
Company was engaged in the manufacture of Polyester Chips (High
Pressure and Molding Grades) and other Polyethelene Terephthlate (PET)
Bottle Grade and Film Grade since 1995. For the purpose of the said
products, the Company set up a plant at Kurkumbh, District Pune in the
State of Maharashtra. The plant had been set up on the basis of the technical
know how. For that the Company entered into a ‘Know how’ and ‘Basic
Engineering Agreement’ with M/s. Zimmer AG of Germany (‘Zimmer’ for
short) on May 4, 1993. The agreement was negotiated and signed by Mr.
Chand Seth and Mr. Arun Gupta. Both of them thus were aware of the terms
and conditions and contents of the agreement. The agreement was approved
by the Ministry of Industry and also by the Reserve Bank of India. The
primary object of the agreement was to acquire requisite know how for the
products of the company.
According to the Revenue, Intelligence was gathered by the Officers
of Directorate of Revenue Intelligence (DRI), Mumbai that the Company
had imported actual goods under the Export Promotional Capital Goods
(EPCG) Scheme at the concessional rate of duty and thereafter diverted
some of the goods in the local market. It thus appeared that the Company
violated conditions of import of capital goods under Para 14 of the “Export
and Import Policy, 1992-97” as the import of goods was subject to actual
user condition till the export obligation was completed. In view of the
Intelligence Report, details of the import by Company under EPCG Scheme
were collected. As per the details, the Company was issued licence Nos.
(a) p/CG/2133135 dated 2.6.94, (b) p/CG/2133262 dated 9.7.94 and (c)
P/CG/2133763 dated 30.12.94. After scrutiny of import documents, licences
were issued. The goods appeared to be imported in conformity with the
items permitted under the licences. The Company also submitted copies of
Letter of Credit (L/C), Equipments Supply Agreement between Zimmer and
the Company and copy of Proforma Invoice No. 1863 dated 4th May, 1993.
Physical inspection of imported goods was also made by visiting the plant
site. The plant was in working condition and the capital goods indicated that
there was no divergence of capital goods under EPCG Scheme. On
verification of EPCG Scheme between Zimmer and the Company, it was
noticed that the Company had collected from Zimmer Know how, Basic
Engineering Agreement and Technical Assistance Agreement. The
Company had imported designs, drawings and plans under the Know how
and Basic Engineering Agreement on which appropriate amount of customs
duty had not been paid.
A show cause notice was, therefore, issued on November 16, 1996 to
the Company, Mr. Chand Seth, Chairman-cum-Managing Director and Mr.
Arun Gupta, whole time Director asking them to show cause as to why
custom duty amounting to Rs.4,18,12,425/- should not be demanded under
Section 28(1) of the Customs Act, 1962; an amount of Rs.20,00,000/-
deposited by the Company voluntarily should not be adjusted against the
duty demanded; the goods i.e. drawings, designs, plans etc. imported in
three consignments having a total assessable value of Rs.7,98,33,370/-
should not be held liable to confiscation under Section 111(m) of the Act
and penalty should not be imposed on each of them under Section 112 of the
Act.
Mr. Chand Seth, Chairman-cum-Managing Director of the Company
replied to the show cause notice stating therein that he being the Chairman-
cum-Managing Director of the Company was not involved in day-to-day
functioning of the Company which was taken care by Executives and other
employees of the Company. As the Chairman-cum-Managing Director,
overall policy decisions were taken by him. He was, hence, not liable to
penal action under Section 112 of the Act as he was not involved in the
actual import of drawings, designs, plans, etc.
Mr. Arun Gupta, Director of the Company, in his reply, contended
that Know how and FEEP were procured through courier after declaration
to Customs Authorities and one of the consignments was sought to be
cleared vide Bill of Entry dated December 28, 1993. While the
classification in the Bill of Entry was claimed under Chapter Heading 4906
and exemption under Notification No. 36/93, the Customs Authorities were
of the view that Heading No. 4906 was not applicable. According to him,
the books were exempted from custom duty. He, therefore, refuted the
custom’s claim for reassessment under Chapter Heading 4911. According to
him, at any rate, the entire value for the consignment which came under Air
Way Bill was of Rs. 63.11 lacs (approx) as per Invoice Nos. 1836-02A and
1836-92B dated December 22, 1993 which could not be taken as value of
drawings for the reason that the consideration was to be appropriated against
several other obligations of Zimmer under the agreement. The consignment
came after full declaration to the Custom Authorities and there was bona
fide belief on the part of the company that the drawings were fully exempted
under Chapter Heading 4906. At any rate, books were exempted under
various notifications. There was thus no intention to evade payment of
custom duty. The plea taken on valuation of drawings at DM 1,30,000/- in
the letter dated September 30, 1997 was without prejudice to the basic
contention that the entire consignment was exempted as ‘books’ and not
liable to payment of duty. No penalty, therefore, could be imposed either on
the Company or on the officers.
Personal hearing was afforded to the Company on October 01, 1997.
Advocates for the Company appeared. Mr. Chand Seth, Chairman-cum-
Managing Director, Mr. Arun Gupta, Director and K. Srinivas, Consultant
contested the matter. Time was sought for filing written arguments which
was granted and written submissions were filed on 10th October, 1997
raising several contentions on the basis of various clauses in the agreement
and on the merits of the matter. Reliance was also placed on certain
decisions of this Court as well as of CEGAT. The main argument on behalf
of the Company was that the supply was of printed books which was
covered by Chapter Heading 49.01. Since they were exempted under
Notification No. 107/’93-Cus dated March 30, 1993 and Notification No.
38/’94-Cus dated March 1994, the Company was not at all liable to pay
custom duty. The Company also contended that the notifications were
omnibus notifications and even if goods were covered by Chapter Heading
49.06 or 49.11, full exemption was granted. Thus, notwithstanding the fact
that FEEP could be classified under Chapter Heading 49.11, in view of they
being “Book” were covered by Exemption Notifications and there was no
liability of the Company to pay custom duty. Reference was also made to
HSN notes and it was submitted that Drawings, Designs and Plans could be
classified as Printed Books by virtue of Interpretation Rules of 1988. The
entire FEEP, therefore, could be exempted and there was no substance in the
allegation of the department that the Company was liable to pay custom
duty. Objections were also raised as to limitation and on valuation.
The case of the department, on the other hand, was that FEEP and
Drawings, Designs and Plans ought to be classified under Chapter Heading
49.11. As they could neither be covered by 4911.10 (Trade Advertising
Material, Commercial Catalogues and the like) nor by 4911.11 (Pictures,
Designs and Photographs), the relevant entry was sub-heading 4911.99
(Others) and was liable to pay customs duty at 25%.
The Commissioner of Customs considered the averments of the
department and the reply submitted by the Company and by Mr. Gupta.
According to the Commissioner, an agreement was entered into between
Zimmer and the Company and the said fact was admitted by the Company.
In consideration of supply of FEEP, an amount of BM 34,00,000/-
equivalent to Rs.7,98,33,370/- was to be paid by the Company to Zimmer.
Out of the said amount, DM 26,00,000/- was to be paid for FEEP and DM
8,00,000/- was for Know how. Considering the decisions cited before him,
the Commissioner held that the goods imported under Know how pertained
to processes and were in the shape of manuals, brochures or leaflets.
According to him, printed books and manuals both were classified under
sub-heading 4901.99 but were distinguishable. Exemption Notifications
referred by the Company applied to Printed Books under Chapter Heading
49 but did not apply to the goods in question. He, therefore, held that the
technical documents imported by the Company as part of Know how were
not ‘Books’ but were manuals/brochures classifiable under Chapter sub-
heading 4901.99 and were not exempted under the Exemption Notifications.
The Company was, therefore, liable to pay duty thereon.
Accordingly, the following order was passed :
ORDER
“54. In view of the findings hereinabove:-
a) I confirm duty demand of Rs.4,18,12,425/-.
b) I order adjustment of the amount of Rs.30 lakhs
deposited by M/s. Pearl Engineering Polymer Ltd., voluntarily,
towards the above confirmed demand of duty and direct that
the remaining amount be paid forthwith.
c) I hold that the goods are liable to confiscation under
Section 111(m) of the Customs Act, 1962. However, since the
goods are not available, I refrain from ordering confiscation.
d) I impose under Section 112 of the Customs Act, 1962 a
penalty of Rs.1 crore (Rupee one crore) on M/s. Pearl
Engineering Polymer Ltd.,
e) I impose penalty of Rs.50 lakhs (Rupees fifty lakhs) on
Shri Chand Seth, Chairman-cum-Managing Director of M/s.
Pearl Engineering Polymer Ltd., under Section 112 of the
Customs Act.
f) I also impose a penalty of Rs.25 lakhs (Rupees twenty
five lakhs) on Shri Arun Gupta, Director of M/s. Pearl
Engineering Polymers Ltd., under Section 112 of the Customs
Act, 1962.
55. The penalties shall be paid forthwith.”
Being aggrieved by the Order in Original passed by the Commissioner
of Customs, five appeals came to be registered before CEGAT. One appeal
was preferred by the Company against the decision of the Commissioner
holding that the goods were liable to payment of custom duty and not
covered by Chapter Heading 4901. Two appeals were filed by Mr. Chand
Seth, Chairman-cum-Managing Director and Mr. Arun Gupta, Director
against payment of penalty of Rs.50,00,000/- and Rs.25,00,000/-
respectively. Two cross appeals were filed by the Department against
quantum of penalty imposed on Mr. Chand Seth and Mr. Arun Gupta
contending that the penalty imposed by the Commissioner of Customs was
inadequate and was required to be enhanced.
CEGAT took up for consideration all the appeals. It observed that an
identical question come for consideration before a Larger Bench of CEGAT
in Parasrampuria Synthetics Ltd. vs. Commissioner of Customs, New Delhi,
(2000) 119 ELT 211 : (2000) 38 RLT 846 (LB). It noted that the Larger
Bench was faced with the issue as to whether the law laid down by a two-
member Bench in Tractors & Farm Equipment Ltd. vs. Collector of
Customs, (1993) 68 ELT 234 was correct or decisions of Coordinate
Benches in Mitutronics vs. Collector of Customs, (1990) 46 ELT 500, Roto
Inks (P) Ltd. vs. Collector of Customs, (1990) 47 ELT 398, Tata
Consultancy Service vs. Collector of Customs, (1991) 53 ELT 454, Collector
of Customs, Madras vs. Tata Elxsi India Ltd., (1995) 78 ELT 370, Laakshmi
Cement vs. Collector of Customs, New Delhi, (1996) 84 ELT 271, were
correct. CEGAT proceeded to state that after a survey on the entire case
law, the Larger Bench in Parasrampuria Synthetics Ltd. took the view that
the law laid down by two-member Bench in Tractors & Farm Equipment
Ltd. did not lay down correct law and accordingly overruled it. The
decisions in other cases were correct and the said view was affirmed. In
those decisions, it was held that printed materials could be said to be
“Books” covered under Chapter Heading 4901 and were entitled to full
exemption and consequently no duty was leviable on the goods imported.
CEGAT noted that the decision of the Larger Bench was binding on it.
Accordingly, the appeals filed by the Company as well as by the Chairman-
cum-Managing Director and the Director were allowed by setting aside the
order passed by the Commissioner imposing duty and penalty. Resultantly,
two appeals filed by the Department for enhancement of penalty on
Chairman-cum-Managing Director and Director were dismissed.
Against the order passed by CEGAT, the department has filed these
appeals. One of the appeals came up for preliminary hearing before a three
Judge Bench on December 14, 2001. Delay was condoned and appeal was
admitted. Notice was also issued for interim relief. In the meantime, stay
was granted against refund of amount if not already refunded. The interim
order was thereafter continued and hearing was expedited. On May 01,
2003, the appeals were placed for hearing before a two Judge Bench and the
following order was passed :
“Heard the learned counsel for the parties.
Learned counsel for the appellant submits that the
question involved in these appeals is covered by the
decision rendered by this Court in Commissioner of
Customs, New Delhi vs. Parasrampuria Synthetics Ltd.,
(2001) 9 SCC 74 which reveals that the tribunal’s
judgment on which the reliance was placed was set
aside. As against this, Dr. A.M. Singhvi, learned senior
counsel appearing on behalf of the respondent relied
upon the decision rendered by this Court in A.C.C. vs.
Commercial Tax Officer, (2001) 4 SCC 593.
Considering the aforesaid two decisions, there
appears some conflict in the ratio laid down in both the
cases. Hence, these appeals are referred to a larger
Bench.
Registry to place the papers before Hon’ble the
Chief Justice of India for appropriate direction in this
regard to place it before an appropriate Bench.”
That is how the matters were placed before us for final hearing. We
have heard learned counsel for the parties.
At the time of hearing of appeals, the learned counsel for the appellant
stated that three questions arise for consideration of this Court :
(i) Whether the goods imported by the Company in the form
FEEP (Front End Engineering Package) comprising of
technical documentation, designs and drawings are classifiable
under Chapter sub-heading 4911.99 of the Customs Tariff?
(ii) Whether the goods imported by the appellant in the form
of know-how containing latest up-to-date technical data and
information including secret technical knowledge relating to
the processes and their employment to the design, operation
and maintenance of the plant, are classifiable under Chapter
sub-heading 4901.99 of the Customs Tariff?
(iii) Whether goods, as described in (a) & (b) above, can be
considered as “Printed Book” classifiable under Chapter 49 of
the Customs Tariff in order to avail the benefit of Notification
Nos. 107/93-Cus and 38/94-Cus?”
It was urged that CEGAT had allowed appeals filed by the Company,
Chairman-cum-Managing Director and Director and dismissed the appeals
filed by the Department solely on the ground that the point was covered by a
Larger Bench decision of CEGAT in Parasrampuria Synthetics Ltd. It was
submitted that the decision of the Larger Bench of CEGAT in
Parasrampuria Synthetics Ltd. was challenged by the Department in this
Court and this Court in Commissioner of Customs, New Delhi vs.
Parasrampuria Synthetics Ltd., (2001) 9 SCC 74 : (2001) 133 ELT 9 (SC),
set it aside allowing the appeal filed by the Department. Since the decision
of the Larger Bench of CEGAT cannot be said to be a good law in view of
the decision of this Court referred to above, all the appeals deserve to be
allowed by setting aside the order passed by CEGAT.
The learned counsel for the respondent-Company, on the other hand,
submitted that the view taken by Larger Bench of CEGAT in Parasrampuria
Synthetics Ltd. was correct and in accordance with law. It, therefore, could
not have been interfered with by this Court as has been done in an appeal
against the decision and the decision of this Court in Commissioner of
Customs, New Delhi vs. Parasrampuria Synthetics Ltd. does not lay down
correct law and deserves to be overruled. It was also submitted that in that
case, this Court did not consider in their proper perspective several decisions
particularly decisions in Commissioner of Income Tax, Gujarat vs. Elecon
Engineering Company Ltd., (1974) 96 ITR 672 (Guj) and of this Court in
Scientific Engineering House Ltd. vs. CIT (1986) 1 SCC 11. It was
submitted that though the point was directly covered by an earlier decision
of this Court, a two Judge Bench attempted to distinguish the said case and
came to incorrect conclusion. It was also submitted that earlier when these
appeals were placed for hearing, a two Judge Bench was prima facie
satisfied that Parasrampuria Synthetics Ltd. was not correctly decided and
hence the matter was referred to a three Judge Bench. It was, therefore,
submitted that the appeals deserve to be dismissed by confirming the order
passed by CEGAT.
In the alternative, it was submitted that since CEGAT allowed the
appeals filed by the Company, Chairman-cum-Managing Director and
Director relying upon a Larger Bench decision in Parasrampuria Synthetics
Ltd. holding that the goods imported by it could be said to be “Books” and
hence were exempted from payment of excise duty, other points though
argued and pressed into service at the time of hearing were not considered.
It was, therefore, submitted that in case this Court holds that the contention
raised by the Department is well founded and the order passed by CEGAT
are liable to be set aside, the matters may be remitted to CEGAT directing it
to consider all the points and to decide them in accordance with law.
The question for consideration before us is whether the goods and
materials imported by the Company in the form of FEEP comprising of
Equipments, Drawings, Designs and Plans are classifiable under Chapter
Heading 49.01 or 49.06 of Schedule I of the Customs Tariff Act, 1975 and
the Company is entitled to the benefit under notification Nos. 107/93-Cus
and 38/94-Cus or they are classifiable under Chapter Heading 4911.99 as
contended by the department.
Before we deal with the actual question, it may be appropriate to refer
to the relevant provisions of law. Section 2 of the Customs Tariff Act, 1975
declares the rates at which the custom duty is levied under the Customs Act,
1962 as specified in the First and the Second Schedule to the Act. Chapter
49 of Schedule I deals with “Printed books, newspapers, pictures and other
products of the printing industry, manuscripts, typescripts and plans and
reads as under :
CHAPTER 49
Printed books, newspapers, pictures and other products of
the printing industry; manuscripts, typescripts and plans
Notes:
1 . .... 2. .. . . 3. .. . . 4. Heading No. 49.01 also covers:
(a) A collection of printed reproductions of, for
example, works of art or drawings, with a relative text,
put up with numbered pages in a form suitable for
binding into one or more volumes;
(b) A pictorial supplement accompanying, and
subsidiary to, a bound volume; and
(c) Printed parts of books or booklets, in the form of
assembled or separate sheets or signatures,
constituting the whole or apart of a complete work and
designed for binding.
5. . .. ..
6. . .. .
The relevant headings and sub-headings read thus :
“49.01 Printed books, brochures, leaflets and similar
printed matter, whether or not in single sheets
4901.10 In single sheets, whether or not folded
25%
4901.91 Dictionaries and encyclopedias, and serial
instaments thereof 25%
4901.99 Other 25%
49.06 4906.00 Plans and drawings for architectural,
engineering, industrial, commercial,
topographical or similar purposes, being
originals drawn by hand; hand-written
texts photographic reproductions on
sensitized paper and carbon copies
of the foregoing 25%
49.11 Other printed matters, including printed pictures and
photographs
49.11.10 Trade advertising material, commercial
catalogues and the like 25%
4911.91 Pictures, designs and photographs 25%
4911.99 Other 25%
The relevant notifications are notification Nos. 107/93-Cus., dated
March 30, 1993 and 38/94-Cus; dated March 1, 1994. The relevant part of
notification NO. 107/93-Cus reads as follows;
“Exemption to specified goods of Chapters 49 and 97
In exercise of the powers conferred by sub-section
(1) of section 25 of the Customs Act, 1962 (52 of 1962)
and in supersession of the notification of the
Government of India in the Ministry of finance
(Department of Revenue) No. 36/93 Customs, dated
the 28th February, 1993, the Central Government, being
satisfied that it is necessary in the public interest so to
do, hereby exempts goods specified in column (3) of the
Table hereto annexed and falling within the Chapter or
under the heading No. of the First Schedule to the
Customs Tariff Act, 1975 (51 of 1975), as specified in
the corresponding entry in column (2) of the said Table,
when imported into India, from the whole of the duty of
customs leviable thereon which is specified in the said
First Schedule.
TABLE
S.No. Chapter of Heading No. Description of Goods
1. 49 Printed books (including covers for printed books)
2. 49.02 Periodicals (including newspapers).
3. 49.04 Music manuscripts.
4. 49.05 Maps.
5. 49.05 Charts
6. 49.06 Plans, drawings and designs
7. 97.04 Postage stamps, used or if unused not of current
or new issue in the country to which they are
destined.
8. 97.05 Metals
[Notification No. 107/93-Cus., dated 30.3.1993]
The other notification is notification No. 38/94-Cus., 1st March, 1994.
It is “General Exemption No. 193B”. The relevant part thereof reads as
under:
“Effective rates for specified goods falling within
Chapters 40, 41, 43, 44, 47, 48, 49 and 97
In exercise of the powers conferred by sub-section (1) of
section 25 of the Customs Act, 1962 (52 of 1962), the
Central Government, being satisfied that it is necessary in
the public interest so to do, hereby exempts goods of the
description specified in column (3) of the Table hereto
annexed, and falling within Chapters, heading Nos. or
sub-heading Nos. of the First Schedule to the Customs
Tariff Act, 1975 (51 of 1975) as are specified in the
corresponding entry in column (2) of the said Table, when
imported into India, from so much of the duty of customs
leviable thereon which is specified in the said First
Schedule, as is in excess of the amount calculated at the
rate specified in the corresponding entry in column (4) of
the said Table, subject to the conditions, if any, laid down
in the corresponding entry in column (5) of the said
Table.
S.No. Chapter/heading No. Description of Rate Condition
Sub-heading No. goods
1 11 . .. .
12. 49 Printed books (including
covers for printed books) Nil
13. 19 .. . ..
[Notification No. 38/94-Cus., dated 1.3.1994]
Notification No. 25/95Cus. dated 16th March, 1995 is also important.
The relevant part of which reads thus;
“19. EFFECTIVE RATES OF DUTY FOR GOODS
OF VARIOUS CHAPTERS/HEADINGS
GENERAL EXEMPTION NO. 121
Effective rates of duty for specified goods of
Chapters 40, 41, 44, 47, 48 and 49. In exercise of the
powers conferred by sub-section (1) of Section 25 of the
Customs Act, 1962 (52 of 1962), the Central
Government, being satisfied that it is necessary in the
public interest so to do, hereby exempts goods specified
in column (3) of the Table hereto annexed, and falling
within Chapter, heading No. or sub-heading No. of the
First Schedule to the Customs Tariff Act, 1975 (51 of
1975) as are specified in the corresponding entry in
column (2) of the said Table, when imported into India,
from so much of the duty of customs leviable thereon
which is specified in the said First Schedule, as is in
excess of the amount calculated at the rate specified in
the corresponding entry in column (4) of the said Table,
subject to the condition, if any laid down in the
corresponding entry in column (5) of the said Table.
S.No. Chapter or heading Description of Rate Conditions
No. of sub heading No. goods
9. . . .. .
10. 49. Printed books (including covers NIL
for printed books) and printed
manuals including those in
loose-leaf form with binder)
11. 16. . ..
It is also appropriate at this stage to refer to Harmonized System of
Nomenclature (HSN). The relevant part reads thus;
“49.01 – PRINTED BOOKS, BROCHURES,
LEAFLETS AND SIMILAR PRINTED MATTER,
WHETHER OR NOT IN SINGLE SHEETS.
4901.10- In single sheets, whether or not folded
– Other
4901.91 – Dictionaries and encyclopedias, and serial
instalments thereof
4901.99 Other
This heading covers virtually all publications and printed reading
matter, illustrated or not with the exception of publicity matter
and products more specifically covered by other headings of the
chapter (particularly) heading 49.02, 49.03 or 49.95. It includes:
(A) Books and booklets consisting essentially of textual
matter of any kind and printed in any language or
characters, including Braille or shorthand. They include
literary works of all kinds, text books and technical
publications: books of reference such as dictionaries,
encyclopaedias and directories; catalogues for museums
and public libraries (but not trade catalogues); liturgical
books such as prayer books and hymn books (other than
music hymn books of heading 49.04); children’s books
(other than children’s picture, drawing or colouring
books of heading 49.03). Such books may be bound (in
paper or with soft or stiff covers) in one or more
volumes, or may be in the form of printed sheets
comprising the whole or a part of the complete work and
designed for binding.
Dust covers, clasps, book-marks and other minor
accessories supplied with the books are regarded s
forming part of the book.
(B) Brochures, pamphlets and leaflets, whether consisting
of several sheets of reading matter fastened together (e.g.,
stapled), or of unfastened sheets, or even of single sheets.
These include publications such as : shorter scientific
theses and monographs, instruction notices, etc., issued
by government departments or other bodies, tracts, hymn
sheets. Etc.
(C) Textual matter in the form of sheets for binding in loose-
leaf binders.
The heading also covers :
(1) Newspapers, journals and periodicals bound otherwise
than in paper, and sets of newspapers, journals or
periodicals comprising more than one number under a
single cover, whether or not containing advertising
material.
(2) Bound picture books (other than children’s picture books
of heading 49.03).
(3) A collection of printed reproductions of works of art,
drawings, etc. with a relative text (for example, a
biography of the artist), put up with numbered pages and
forming a whole suitable for binding.
(4) A pictorial supplement accompanying and subsidiary to a
bound volume containing the relative text.
A question similar to one with which we are concerned came up for
consideration before the authorities in Parasrampuria Synthetics Ltd. The
Central Excise Authorities held that Drawings, Designs and Plans imported
by the Company could not be said to be “Books” within the meaning of
Chapter Heading 49.01 but would be covered under sub-heading 4911.99
and hence were liable to custom duty. The demand made by the authority,
therefore, came to be confirmed by the Commissioner of Customs. Being
aggrieved by the order passed by Commissioner, the Company approached
CEGAT. A two member Bench felt that there were conflicting decisions on
the point which could appropriately be resolved by a Larger Bench and
accordingly by an order dated March 14, 2000, the matter was ordered to be
placed before the President for constituting a Larger Bench. As already
observed earlier, the Larger Bench in (2000) 119 ELT 211 decided the
question in favour of assessee and against the Department. Resultantly, the
appeals were allowed by holding that printed materials imported by the
Company could be said to be “Books” falling within Tariff Heading
49.01 and were entitled to exemption as ‘Printed books’.
It was conceded by the Department before us is that no doubt in
Parasrampuria Synthetics Ltd., the Larger Bench of CEGAT decided the
question of law in favour of assessee and against the Department, but the
Department had taken the mater further and this Court reversed the decision
of the Larger Bench in (2001) 9 SCC 74 : (2001) 123 ELT (SC). It was,
therefore, submitted that the decision of CEGAT impugned in these appeals
deserves to be quashed and set aside by allowing the appeals of the
Department. It was submitted that two appeals have been filed by the
Department for enhancement of penalty imposed by the Commissioner of
Customs since the penalty was inadequate and required to be enhanced. In
view of the fact, however, that CEGAT allowed the appeals of the assessee
and quashed the Order in Original passed by the Commissioner of Customs,
the appeals filed by the Department were dismissed. In the light of the
decision of this Court in Parasrampuria Synthetics Ltd. the decision of
CEGAT deserves to be reversed. In that case, both the appeals filed by the
Department for enhancement of penalty should be allowed. In the
alternative, they may be remitted to CEGAT for fresh consideration on
merits for passing an appropriate order in accordance with law.
The submission on behalf of the Company and Chairman-cum-
Managing Director and Director was that the decision of this Court in
Parasrampuria Synthetics Ltd. does not lay down correct law. It was
submitted that Designs, Drawings and Plans imported by the Company are
covered under Chapter Heading 49.01 as they could be said to be ‘Books’
and could not fall under sub-heading 4911.99. CEGAT in several cases had
taken a similar view. The Larger Bench also upheld the reasoning in and
conclusion arrived at in those cases. It was also submitted that a similar
point came for consideration before this Court in Scientific Engineering
House Ltd. and this Court in the light of the provisions of the Income Tax
Act, 1961, held that drawings and designs would come within the term
‘book’ and hence, would be said to be ‘plant’. It was also submitted that the
High Court of Gujarat in Elecon Engineering Ltd. considered the question
and decided in favour of the assessee. The observations of the High Court of
Gujarat had been approved by this Court in Scientific Engineering House
Ltd. The Division Bench of this Court in Parasrampuria Synthetics Ltd.
misinterpreted and misapplied the ratio laid down in that case and
erroneously held that the decision in Scientific Engineering House Ltd.
does not support the Company. On the contrary, the observations in that
case supported the case of the Department. It was urged by the learned
counsel for the assessee that the decision of the Division Bench in
Parasrampuria Synthetics Ltd. is also not in conformity with the decision
of three Judge Bench in Associated Cement Companies Ltd. vs.
Commissioner of Customs, (2001) 4 SCC 593. It was, therefore, submitted
that the appeals deserve to be dismissed.
So far as CEGAT is concerned, in our opinion, the learned counsel for
the assessee is right in submitting that the point is finally concluded in
favour of assessee and against the Department in Parasrampuria Synthetics
Ltd. The Larger Bench observed that in several cases, Drawings, Designs
and Plans were held to be covered under Chapter 49 and would fall under
Heading 49.01 (Printed books, brochures, leaflets and similar printed matter
whether or not in single sheets); 49.06 (Plans and drawing etc for
architecture, engineering, industrial, commercial, topographical or similar
purposes, being originals drawn by hand; had-written texts; photographic
reproductions on sensitized paper and carbon copies of the foregoing); and
49.11 (other printed matter, including printed pictures and photographs) and
not under 4911.99 (other). The Larger Bench also noted that in some cases,
a contrary view was taken. But relying on the majority of the decisions, it
was held that the relevant heading was 49.01 of Schedule I of the Act.
No doubt this Court in an appeal against the order passed by the
Larger Bench reversed the decision of CEGAT. The question, however, is
whether the order passed by a two Judge Bench in Parasrampuria Synthetics
Ltd. lays down correct law on the point.
Now, let us consider some decisions on this aspect.
In Elecon Engineer Co. Ltd., the High Court Gujarat was called upon
to consider the question whether ‘drawings and patterns’ acquired by the
assessee from foreign company relating to ‘know-how’ which formed basis
of business of the assessee could be said to be “books” within the meaning
of sub-section (3) of Section 43 of the Income Tax Act, 1961 and hence,
“plant” as defined in the said sub-section and whether the assessee could
claim depreciation on the said purchase? The High Court noted that sub-
section (3) of Section 43 expressly declared that “book” used for the purpose
of business or profession of the assessee was covered by the inclusive
definition of the word “plant”. The question, however, was whether
drawings and patterns could be said to be “book”? The Court observed that
the word “book” had not been defined in the Act. It was not a term of art. It
was an ordinary English word of every day use and must, therefore, be
assigned its natural meaning as understood in the common parlance, subject,
of course, to the context in which it was used. The Court stated;
“We will first consider the question whether drawings and
patterns acquired by the assessee are “books”, for the
inclusive definition of the word “plant” in section 43 (3)
of the Act expressly declares that “books” used for the
purposes of the business or profession of the assessee,
that is, used for the purpose of enabling the assessee to
carry on his business or profession and earn income
therefrom, are “plant” within the meaning of section 32.
Now, the word “book” has not been defined in the Act
and it is not a term of art. It is an ordinary English word
of everyday use and it must, therefore, be assigned its
natural meaning as understood in common parlance
subject, of course, to the context in which it is used here.”
In popular sense, “book” means a collection of a number of leaves or
sheets of paper or of other substance, blank, written or printed, of any size,
shape and value, held together along one of the edges so as to form a
material whole and protected on the front and back with a cover of more or
less durable material. The Court also referred to dictionary meaning. It was
observed that one must refer not only to the physical, but also functional
characteristic of “book”. It must be functionally useful for the purpose of
assessee’s business or profession. To put it differently, it must be a tool of
his trade an article which must be part of the apparatus with which his
business or profession was carried on. It must have utility value enabling its
owner to pursue his business or profession with greater advantage. It must,
thus, satisfy a dual test. It must bear both physical and functional
characteristics of a book. It must be a collection of a number of sheets of
paper or of other substance, having suitable size, shape and value, bound
together at one edge so as to form a material whole and protected on the
front and back with covers of some kind and functionally useful to the
assessee for carrying on his business or profession.
The Court also referred to English decisions on the point. A
reference may be made in this connection to a decision of Court of Chancery
in Pretyman v. Pretyman, (1931) 1 Ch 521. The testator in that case had by
his will inter alia bequeathed “all the pictures, prints, statues, sculptures,
articles of vertu books, furniture and plate” to his trustees. The estate of the
testator included 155 original manuscripts of the series of letters and papers
known as Paston letters. Those letters and papers were not in the form of
loose sheets included in portfolios or kept in a safe. They were mounted, or
inlaid in sheets of paper and bound up in three volumes. The question
before the Court was whether those three volumes could be said to be
“articles of vertu” or “book” within the meaning of the relevant statute.
Replying the question in affirmative, Maugham, J. stated;
“To my mind it is plain that a book is not
necessarily a printed book. But in addition, according
to the ordinary meaning of the English word ‘book’.
There are many books which are not necessarily the sort
of books which one finds in a library at all, and which
yet are books. I might mention as an example the book
which I have before me, a judge’s notebook. I do not
know how that could be described otherwise than as a
book.”
Referring to earlier decisions, the Court concluded;
“In the present case I have come to the conclusion
that these three volumes are books. The factors leading
me to that conclusion are these : The volumes are in
book form; to the outward eye they look like books, and
in the ordinary course they can be, and are, handled like
books. Next, I observe that they can be used like books,
in the sense that, as one turns over the sheets, one can, if
able to decipher the handwriting, read the various letters
as a collection of letters bound up in the books. I
observe further that they are not detachable letters in the
ordinary sense, but have been so inserted in the sheets
that they are in substance permanent parts of the
volumes, unless, indeed, they should be cut out or
removed by some forcible effect.”
A similar question came up for consideration before this Court in
Scientific Engineering House Ltd. referred to above. In that case, the
assessee entered into collaboration agreement for manufacture of scientific
instruments. The collaborator was to supply technical know-how by
drawings, designs, charts, plants, etc. The question was whether those
documents in the form of “documentation service” under the agreement
could be said to be ‘book’ and ‘plant’ within the meaning of the Income Tax
Act and whether the assessee was entitled to claim depreciation? The Court
considered two questions; viz. (i) whether the ‘documentation service’
agreed to be and actually rendered by the foreign collaborator to the assessee
was incidental to other services as a result whereof the assessee acquired
technical know-how requisite for the purpose of manufacturing its products;
and (ii) whether the expenditure could be said to be of a capital nature
brought into existence a depreciable asset?
Considering the provisions of Sections 32 and 43 of the Act, the Court
held that the word ‘plant’ would include any article or object fixed or
movable, live or dead, used by a businessman for carrying on his business
and it is not necessarily confined to an apparatus which is used for
mechanical operations or processes or is employed in mechanical or
industrial business.
The Court quoted with approval the following passage of Lindley, L.J.
in Yarmouth v. France, (1887) 19 QBD 647:
“There is no definition of ‘plant’ in the Act : but, in its
ordinary sense, it includes whatever apparatus is used by
a businessman for carrying on his business, – not his
stock-in-trade which he buys or makes for sale ; but all
goods and chattels, fixed or movable, live or dead, which
he keeps for permanent employment in his business.”
The Court also referred to functional test formulated by Lord Guest in
Inland Revenue Commissioners v. Barclay Curle & Co. Ltd., (1970) 76 ITR
62 (HL):
“In order to decide whether a particular subject is
an ‘apparatus’ it seems obvious that an inquiry has to be
made as to what operation it performs. The functional
test is, therefore, essential at any rate as a preliminary.”
The Court then formulated the test thus;
“Does the article fulfill the function of a plant in
the assessee’s trading activity? Is it a tool of his trade
with which he carries on his business? If the answer is
in the affirmative it will be a plant.”
The Court proceeded to observe that applying the said test, the
drawings, designs, charts, plans, processing data and other literature
comprised in the ‘documentation service’ specified in the agreement would
constitute ‘book’ and hence ‘plant’ within the meaning of the Act. The
Court, therefore, held that it was clearly of the opinion that the capital asset
acquired by the assessee, namely, the technical know-how in the shape of
drawings, designs, charts, plans, processing data and other literature fell
within the connotation ‘plant’ and, therefore, a depreciable asset. The Court
referred to Elecon Engineering Co. Ltd. and said;
“Counsel invited our attention to the decision in
CIT vs. Elecon Engg. Co. Ltd. where the Gujarat High
court has, after exhaustively reviewing the case law on
the topic, held that drawings and patterns which
constitute know-how and are fundamental to the
assessee’s manufacturing business are ‘plant’. we
agree and approve the said view”. (emphasis supplied)
It is, no doubt, true that in Parasrampuria Synthetics Ltd., a two Judge
Bench of this Court reversed the decision of CEGAT and held that
Drawings, Designs and Plans imported by the assessee from Zimmer under
an agreement for transfer of technology for setting up a plant to manufacture
specified goods could not be said to be ‘book’ and hence was not covered by
Chapter Heading 49.01 nor exempted under notification of 1975. It is also
true that the Court considered both the decisions, viz., Scientific Engineering
House Ltd. decided by this Court and Elecon Engineering Co. Ltd. decided
by the High Court of Gujarat.
Regarding Scientific Engineering House Ltd., a two Judge Bench
said;
“While there is some factual divergence as noticed
above but the factum of the drawings etc. not forming part
of a book within the exemption notification stands
accepted in Scientific Engg. as would be evident from the
emphasized portion in para 13 noticed above. In this
view of the matter, the aforesaid decision of this Court in
Scientific Engg. does not lend any assistance to the
assessee, rather runs counter to the respondent’s
contentions. As can be seen from one of the volumes
produced before us, it contains documents in loose sheets
merely put up in a folder. It has none of the
characteristics of a book known in the common trade
parlance. At any rate, the principal interest in the goods is
related to transfer of technology to the assessee in the
form of drawings, designs and plans for setting up a plant
to manufacture polyster, polyster filament yarn and
polyester staple fibre. Thus viewed from any angle, the
goods imported by the assessee are not covered by
Sl.No.10 but are covered by Sl. No. 15 of the said
exemption notification.”
The Court proceeded to observe;
“The question thus arises as to whether articles
imported satisfy the requirement of Serial No.10 of the
notification. Incidentally, this Court in Scientific Engg.
categorically posed a question as to whether apart from
the physical form, the documents satisfy the functional
test! The basic issue thus would be the nature of articles
imported. Now what these documents are : admittedly in
terms of the agreement between the parties, these
documents cannot be attributed to be technical know-how
in the shape of drawings, designs, plans and other
literature: it is a literature or specification for a particular
plant to manufacture polyester, polyester filament yarn
and polyester staple fibre : even without adverting to the
general trade parlance of the word “book” and its known
features a plain look at the book itself denotes it to be an
installation and planning manual. The documents though
loosely kept in a binder is known as Zimmer
Documentation as regards the Fisher-Fosemount Systems.
It is a technology transfer agreement which stands
documented in a folder. The heading itself records
“Installing CHIP Products and Application Software”.
The heading itself thus indicative of not being a work of
art by an author it is a record of scientific progress
achieved and this particular achievement is being
transferred by way of transfer of technology agreement
between the two parties and thus cannot but be termed to
be a “technical know-how in the shape of drawings,
designs, charts, plans and other literature” these items
have been ascribed to be a part of the plant for the
purposes of depreciation allowance in terms of Sections
32 and 43(3) of the Income Tax Act. Merely by reason of
the factum of certain writings on various sheets of paper,
one cannot ascribe the documentation to be a “book”.
The word “book” has not been defined in the Act but the
“book” in common acceptation is a literary composition
from which one may extend or advance his or her
knowledge and learning.”
As to Elecon Engineering Co. Ltd., it was stated;
“Incidentally, the decision of the High Court of Gujarat
in the case of CIT vs. Elecon Engg. Co. Ltd. has been
strongly relied upon by the Tribunal and it has also been
recorded in the order impugned that the decision was
subsequently approved by this Court. While it is true that
Elecon Engg. stands approved by this Court but para 14 in
the decision in Scientific Engg. would make the situation
clear enough to indicate that the same does not convey
what the learned Tribunal wanted to convey.”
The learned counsel for the assessee, however, is right in submitting
that a Bench of two Judges proceeded on the basis of submission on behalf
of the Revenue by the learned Attorney General wherein he contended that a
book must certain features. This is clear if one reads paragraph 10 of the
Report, which reads thus;
“Turning attention on to Serial No. 10, be it noted
that in Chapter 49 “printed books” and “printed manuals”
including those in loose-leaf form with binder, have been
specifically referred to as “nil” duty article. It is in this
context that the learned Attorney-General in support of
the appeal contended that in general trade parlance a book
is known by features like (i) a book has an author, (ii) a
book has a publisher, (iii) a book is a priced publication,
(iv) the book is available to all and sundry who pay for it,
(v) the book does not have a memorandum of
understanding, (vi) there is no confidentiality about the
book, (vii) a book has a subject to deal, with, (viii) the
pages are serially numbered and neatly bound, and (iv)
last but not the least, it should have ISBN Code i.e.
International Standard Book Number.”
Our attention was also invited by the learned counsel to dictionary
meaning of the word ‘Book’.
In the Penguin English Dictionary, it is stated;
“Book is a set of written, printed, or blank sheets bound
together into a volume.”
The Concise Oxford Dictionary, defines ‘book’ as “a written or
printed work consisting of pages glued or sewn together along one side and
bound in covers; a main division of a literary work or of the Bible; a set of
records or accounts; a book maker’s record of bets accepted and money paid
out; a set of tickets, stamps, matches, etc. bound together”
According to the New Webster’s Dictionary,
‘Book’ means “A writing or document; a written or
printed work of some length, as a treatise or other literary
composition, esp. on sheets fastened or bound together; a
volume; cap. the Bible. A libretto; a division of a literary
work, esp. one of the larger divisions; a record of bets, as
on a horse-race; any collection of sheets fastened or
bound together; a number of sheets bound together and
used for making entries, as of commercial transactions; a
pile or package of leaves, as of tobacco; a trick at cards,
or a number of cards forming a set; bridge, six tricks
taken by one side.”
According to Words and Phrases (Permanent Edition), “A “book”,
in its popular sense, is understood to be a volume, bound or unbound,
written or printed.”
In our opinion, the counsel is right in submitting that when the
expression ‘book’ is not defined in the Act, natural and ordinary meaning of
the said expression must be kept in view. According to him, nowhere it is
provided that all the nine characteristics or ingredients as highlighted by the
learned Attorney General in Parasrampuria Synthetics Ltd. and referred to
by this Court in paragraph 10 must be considered essential or sine qua non.
He, therefore, submitted that a wrong test was applied by this Court in
Parasrampuria Synthetics Ltd. and Scientific Engineering House Ltd. was
erroneously distinguished. The proper way on the part of the Court was to
consider the test laid down in Scientific Engineering House Ltd. and to come
to a conclusion whether on the facts and in the circumstances of the case,
Drawings, Designs and Plans in the case on hand could be said to be ‘book’.
By not doing so, a clear error of law had been committed and the decision
deserves to be overruled.
It was also submitted that so far as factual aspect is concerned,
CEGAT was right in holding that Drawings, Designs and Plans imported by
the assessee were covered by Tariff Heading 49.01 and were also entitled to
exemption under notifications No. 107/93-Cus and 38/94-Cus.
Alternatively, it was submitted that if this Court is of the view that CEGAT
has not entered into the said question in view of the Larger Bench decision,
the matter may be remitted to CEGAT directing it to consider the case afresh
by applying correct test and to take an appropriate decision.
The learned counsel for the Revenue submitted that Elecon Engineers
Ltd. and Scientific Engineering Housing Ltd. were rendered in different
context. The basic issue was whether ‘books’ were covered by the entry
‘plant’ under the Income Tax Act. Those decisions, therefore, have no
relevance to the issue in question since the entries are different. It was also
submitted that since the article in question was to be used by the assessee
and was prepared according to his requirement, it had no utility to others.
Hence, it cannot be said to be a ‘book’ in general sense. It was argued that
this Court has considered the factual position in Parasrampuria Synthetics
Ltd. and held that the article was not a book. It would not, therefore, be
appropriate to hold otherwise in the present case.
In our opinion, all these questions have to be considered and decided
by the CEGAT in the fact-situation of the case in hand. As already noted by
us, some of the tests applied in Parasrampuria Synthetics Ltd. were not
relevant and appropriate. The CEGAT will now consider the ratio in
Parasrampuria Synthetics Ltd. in the light of the observations made by us in
this judgment and decide the issue raised in the instant case.
The matter could be looked at from another angle also. As noted
earlier, HSN has dealt with the point and as per Explanatory Note, it would
fall under Chapter Heading 49.01. If it is so, it would not be covered by sub-
heading 4911.99.
In this connection, we may refer to a three-Judge Bench decision of
this Court in Collector of Central Excise, Shillong v. Wood Craft Products
Ltd. (1995) 3 SCC 454 : (1995) 77 ELT 23 (SC). The Court, in that case,
considered the question whether ‘plywood’ was classifiable under sub-
heading 4408.90 or sub-heading 4410.90? HSN Explanatory Notes was
considered by this Court and it was observed;
“We are of the view that the Tribunal as well as the High
Court fell into the error of overlooking the fact that the
structure of the Central excise tariff is based on the
internationally accepted nomenclature found in the HSN
and, therefore, any dispute relating to tariff classification
must, as far as possible, be resolved with reference to the
nomenclature indicated by the HSN unless there be an
express different intention indicated by the Central Excise
Tariff Act, 1985 itself. The definition of a term in the ISI
Glossary, which has a different purpose, cannot in case of
a conflict, override the clear indication of the meaning of
an identical expression in the same context in the HSN.
In the HSN, block board is included within the meaning
of the expression “similar laminated wood” in the same
context of classification of block board. Since the Central
Excise Tariff Act, 1985 is enacted on the basis and pattern
of the HSN, the same expression used in the Act must, as
far as practicable, be construed to have the meaning
which is expressly given to it in the HSN when there is no
indication in the Indian tariff of a different intention.”
The ratio laid down in Wood Craft Products Ltd. was followed and
reiterated in Collector of Central Excise, Hyderabad v. Backelite Hylam
Ltd., (1997) 10 SCC 350 : (1997) 91 ELT 13 (SC) and in Collector of
Customs, Bombay v. Business Forms Ltd. Thr. O.L. (2002) 142 ELT 18
(SC). Hence, even that aspect has to be considered and kept in mind while
deciding as to whether Drawings, Designs and Plans could or could not be
said to be ‘printed book’ covered by Chapter Heading 49.01, 49.06 or sub-
heading 4911.99?
There is still one more aspect which is relevant. It cannot be disputed
and is not disputed before us and is also concluded by a decision of a three-
Judge Bench in Associated Cement Co. Ltd. that the basic heading is 49.01.
It deals with “Printed books, brochures, leaflets and similar printed matter,
whether or not in single sheets”. 49.11 covers “Other printed matter,
including printed pictures and photographs”. Thus, specific or basic heading
is 49.01 and residual entry is 49.11. Priority, therefore, has to be given to
the main entry and not the residual entry. According to the Company, the
case is covered by the main entry under 49.01, and in that view of the
matter, one cannot consider the residual entry 49.11.
In Indian Metals & Ferro Alloys Ltd., Cuttack v. Collector of Central
Excise, Bhubaneshwar, 1991 Supp (1) SCC 125, this Court held that
residuary item can be referred to and such item can be applied only when
goods are shown to be not falling under any other specific item. If they are
covered by a specific item, residuary item has no application.
The Court stated;
“One more aspect of the issue should be adverted to
before we conclude. The assessee is relying upon a
specific entry in the tariff schedule while the department
seeks to bring the goods to charge under the residuary
Item 68. It is a settled principle that unless the
department can establish that the goods in question can,
by no conceivable process of reasoning, be brought under
any of the specific items mentioned in the tariff, resort
cannot be had to the residuary item” [See also Bharat
Forge & Press Industries v. Commissioner of Central
Excise, (1990) 1 SCC 532 : (1990) 45 ELT 525 (sc)]
In our considered opinion, all these contentions raised by the assessee
have to be dealt with and decided in the light of relevant statutory provisions
of the Act and the Rules as also on the basis of decided cases on the point.
As CEGAT has disposed of all the appeals merely on the basis of Larger
bench decision in Parasrampuria Synthetics Ltd. and has not considered
rival contentions on merits nor recorded findings thereon, it would be
appropriate and in the fitness of things to remit the matters to CEGAT, now
to Customs, Excise and Service Tax Appellate Tribunal (CESTAT) to decide
them on all points in accordance with law in the light of observations made
in this judgment.
For the foregoing reasons, all the appeals are allowed. The order
passed by CEGAT is hereby set aside and the matter is remitted to CESTAT
for reconsideration and for passing fresh order in accordance with law. In
the facts and circumstances of the case, however, there shall be no order as
to costs.