ORDER
S.V. Maruthi, Member (J)
1. This appeal arises out of an order of Collector:
a) confiscating the goods imported and giving an option to redeem the goods on payment of redemption fine.
b) Imposing a personal penalty of Rs. 1 lakh.
c) Directing the assessment of goods on merits without giving the benefit of Notification No. 250/88 dated 16th Sept., 88.
2. The facts are as follows:-
The appellants imported 5 layer Co. extrusion line valued at Rs. 2,35,35,279/-. This equipment figured in OGL list (Appendix 1, part B) of the Import Policy for 1985-88. (As per appendix 6 para 8, conditions governing OGL the importer i.e. the actual user if enters into a ‘firm contract’ for import upto the last date of February of the licensing year shipment may be permitted upto 31st March of the following licencing year, provided the contract in question is duly registered with a foreign exchange dealer (Bank) on or before the last date of February of the licensing year.)
3. The appellants entered into purchase contract with a German firm under the agreement dated 18th Dec, 1986. The said contract was registered with State Bank of India under registration No. 0814/88/S/l on 27-2-1988.
4. In pursuance of the above the goods imported arrived at the Bangalore ICD. A bill of entry No. 510188 dated 7th Sept., 1988 was filed. The appellants claimed assessment of the machinery under CTA : 8477.20 read with Notification No. 59/87-Customs dated 1st March, 1987 at 90% Ad val. (45% Basic + 45% Aux.)
5. However, the Asstt. Collector issued a show cause notice dated 28th Sept., 1988 proposing to confiscate the goods and to impose personal penalty. On receipt of the reply the Collector passed the impugned order against which the appeal is filed.
6. The Collector held that “whether the contract registered with the bankers could be termed as firm for the purposes of import policy. It is seen that there are numerous proforma invoices right from the date 18th Dec, 86 viz; on 4th Jan, 88; 4th Feb., 1988, 23rd February, 88 & 7th March, 1988. All these proforma invoices are offer for sale with the condition that firm order with the opening of L/C within specified period is to be done by importer. In all these proformas, the supplier have enclosed a standard printed conditions of which condition II (i) clearly indicates that the contract becomes effective only when the acceptance of the order has been confirmed and until such time the offer of the seller is not binding. The importers have received even one more offer (proforma) on 7th March, 1988 after the registration of the contract with the bank on 27th February 88 based on proforma invoice dated 4th Feb., 88 which clearly indicated that L/C should be opened before the last date of February, 1988. Therefore, a firm contract cannot be deemed to have been registered on or before the last date of February, 1988, when there is subsequent offer for sale.”
7. The appellants challenging the above order raised the following contentions: that under para 8 of the conditions for import of capital goods under OGL two conditions are prescribed:
i) that the actual user importer should enter into a firm contract for import upto 28th of February of the licensing year.
ii) the said contract should be registered with a foreign exchange dealer (bank) on or before 28th February of the licensing year.
That these two conditions have been satisfactorily complied with by the appellants. Para 8 nowhere lays down opening of a letter of credit as a condition for import of capital goods. Therefore, the order of the Collector proceeded on a wrong premise. The contract entered into with the foreign firm is a firm contract as the price is “firm and irrevocable.” The contract was also registered with the bank. Therefore, the goods are imported in accordance with para 8 of the appendix 6 to the import policy.
That the rate of duty leviable is the rate prevailing on the date on which the goods are available for clearance. The appellants filed the bill of entry on 7th Sept., 1988 on which date the rate of duty prevailing is 90%. Had the customs authorities finalised the bill of entry the appellants would have cleared the goods on payment of duty. However, the Customs authorities issued a show cause notice dated 28th September, 88 therefore, they could not clear the goods. Thereafter the goods were confiscated by the order and were made available for clearance only on 22nd Dec, 88 on which date Notification No. 250/88-Cus., dated 16th September, 88 was in force. Therefore, appellants are entitled to the benefit of the said notification under which the rate of duty is 35%. In support of the above contention the appellants relied upon Orient Paper Mills v. U.O.I. [AIR 1967 SC 1564)]; CC v. Coromandal Fertilizers [1988 (33) ELT 451]: Shewbuxrai Onkarmall v. Asstt. Collector of Customs and Ors. [1981 (8) ELT 298 (Cal.)]; KR Ahmed Shah v. Addl. Collector of Customs [1981 (8) ELT 153 (Mad.)].
8. Mr. Durgayya for the respondents while supporting the order of the Collec-tor submitted that under para 8 of the condition for import of capital goods under OGL the appellants should enter into a firm contract. In the instant case there is no concluded firm contract as para 3 of the agreement providing for terms of payment reads :
“100% payable against irrevocable letter of credit to be confirmed by a well known German Bank and to be opened in our favour by end of April 1987 at the latest. The full L/C amount is payable on presentation of shipping documents and performance guarantee amounting to 10% of the sales price.”
Therefore, it is submitted that unless L/C is opened the contract has no legal force. He also relied on the following terms of the sale. ‘Terms of payment’
“100% against irrevocable letter of credit to be Confirmed by a well known German Bank and to be opened in our favour by end of April 1987 at the latest. The full L/C amount is payable by presentation of shipping documents and performance of guarantee amounting to 10% of the sales price, validity will end by presentation of the acceptance protocol latest 6 months after date of bill of entry.”
9. It is submitted that the L/C was opened on 8th April, 1988. As long as no L/C is opened the contract has no legal force, according to the terms of the agreement. In other words his contention is that under the agreement the terms of payment provides for the opening of the L/C and payment against the L/C, and until or unless the L/C is opened the contract has no legal force. Therefore, there is no ‘firm contract’. Consequently, para 8 of the conditions is not complied with, hence, the imports are liable to be confiscated as not entitled to the benefit of the OGL.
10. As regards the condition that the duty is payable as per the rate prevailing on the date on which the goods are available for clearance, he submitted that the authorities cannot go beyond the provisions of the Act. The goods are cleared for home consumption. Therefore, the provision that is applicable is Section 15(1) (a) of the Customs Act. He also submitted that the authorities relied upon by-the appellants are irrelevant.
11. The first question which arises for consideration is whether there is firm contract as contemplated by para 8 of the condition. The purchase contract dated 18th Dec, 86 reads as follows:-
between
Reifenhauser-GmbH & Co. Maschinenfabrik, Troisdorf, West Germany, hereafter called Reifenhauser, and
Gurukar Plastics Pvt. Ltd., No. 30, Nehru Circle,
Bangalore – 560 020, India
hereafter called Gurukar Plastics, an agreement is hereby concluded
whereby
1.
Gurukar Plastics purchases from Reifenhauser:
1. Blown film line (5-layer) with down-stream equipment of 1400 mm as specified in the attached proforma invoice, Annex I.
The total price of the equipment is DM 2,947,590 – (in words: two million nine hundred forty seven thousand and five hundred and ninety). The price is firm and irrevocable.
Packing: wooden cases (seaworthy) or containers.
Shipping marks : to be provided by Gurukar Plastics.
3.
Terms of payment are:
100% payable against irrevocable Letter of Credit to be confirmed by a well-known German bank and to be opened in our favour by end of April 1987 at the latest. The full L/C amount is payable on presentation of shipping documents and performance guarantee amounting to 10% of the sales price.
12. From this document it is clear that there is a contract between the seller and the appellants and it categorically says “the price is firm and irrevocable”. This contract is registered with SBI on 27th February, 1988.
13. The expression ‘firm contract’ is nowhere defined. The dictionary meaning of word ‘firm’ is as follows:
Firm – Binding, fixed, final, definite (Blacks Law Dictionary (Fifth edition)].
Firm – Fixed, settled, or unalterable, as a belief or decree; steady; not fluctuating or falling as prices or the market not subject to change, as a firm offer (New Websters’ Dictionary Delux Encyclopedia Edition).
13.1 The Delhi High Court in Bansal Exports v. U.O.I. (1987 (30) ELT page 361) held:
“The petitioners seek to invoke the provisions of paragraph 316 of the Hand Book of Import and Export Procedure. The pre-condition for invoking the said provision is that there should be a firm commitment by an exporter. The facts show that the contract dated on 25-3-1977 was altered and amended from time to time at the sweet will and pleasure of the parties. The said contract cannot be regarded as any firm contract. Therefore, the petitioner is not entitled to relief under paragraph 316 of the Hand Book of Import and Export Procedure.”
14. From the forgoing it follows that a firm contract means a contract not fluctuating or falling as prices are the market; not subject to change, as a firm offer. There cannot be any alteration or amendment in any term of the contract in order to come within the meaning of the expression ‘firm contract’. If there is an alteration in the terms of the contract it ceases to be a firm contract.
15. Therefore, we have to see whether on the facts and circumstances of this case there is a firm contract. We have already referred to the terms of the contract in earlier paragraphs. One of the terms of the contract concluded on 18th December 1986 is the price, indicated at DM 2,947,590-(two million nine hundred forty seven thousand and five hundred and ninety). However, from the records we find that the contract that was registered with the State Bank of India on 27th February 88 the price that was indicated is 30834120 DM. In other words the consideration for which the contract was registered with the State Bank of India was different from the consideration that was agreed upon between the parties on 18th December, 1986. Since there is an alteration in the essential conditions of the contract it cannot be said that there is a firm contract. In the absence of firm contract the appellants are not entitled to the benefit of OGL. One of the conditions of appendix VI governing OGL says that the importer i.e. actual user should enter into a firm contract for import…
16. Since there is no firm contract the appellants are not entitled to the benefit of OGL.
17. We do not find anywhere in para 8 to indicate that opening of L/C is a condition precedent for importing the goods. It is true that the purchase contract providing for the terms of payment stipulates “100% payable against irrevocable letter of credit to be confirmed by a well known German bank and to be opened in our favour by end of April, 1987 at the latest”.
However, this is only a term of payment it does not say that there is no concluded contract unless letter of credit is opened.
18. Therefore, the contention of the respondent that unless L/C is opened, there is no contract can not be accepted. We also observe in the event of failure to open L/C goods will not be shipped as there is no payment, but that does not mean that there is no “contract” until the L/C is opened. Invoices cannot be treated as a fresh offer as concluded contract has already been executed. Invoices are placed as follow up action or in pursuance of the contract.
19. It is not disputed that the purchase contract is entered into on 18th December, 1986 i.e. prior to 28th Feb. of licensing year and it was registered with the Foreign Exchange dealer (SBI) before 28th February, 1987.
20. It is true that the Collector referred to condition II(i) of the standard printed conditions attached to the proforma which, according to him, indicates that the contract becomes effective only when the acceptance of the order has been confirmed and until such time the offer of the seller is not binding. Neither the appellants nor the respondent brought to our notice such a condition in the proforma nor we could locate the said condition in the documents filed before us. Therefore, we are unable to subscribe to the view of the Collector.
21 As regards the second submission that the rate of duty prevailing on the date on which the goods were made available for clearance cannot be accepted in view of Section 15(a) of the Customs Act, according to which the relevant date is the date on which the bill of entry was filed for home consumption. Therefore, whatever is the rate of duty on that date the duty is payable at that rate.
22. The judgment of the Supreme Court in Incut Paper Mills Ltd. v. U. O.I. (AIR 1967 SC 1564) is not relevant as it acrose under the Central Excises & Salt Act. The issue in K.R. Ahmed Shah v. The Addl. Collector of Customs (1981 ECR 1D) relates to when the ‘incident’ of import is complete. According to the Madras High Court goods are imported into the country only after it passes the Customs barriers and mixed up with the mass of the goods in the country. It has not dealt with the issue as to the point at which the duty is to be collected. Therefore, this judgement is not relevant in the facts of the present case.
23. Similarly, the judgment in Shew Buxrai Onkarmall v. Asstt. Collector of Customs and Ors. (1981 ECR P. 270D Cal.) the facts are: Soda imported, and on importation the goods were not immediately cleared for home consumption, but were kept in a bonded warehouse without payment of any duty. Therefore, it was held that the goods became chargeable to duty only when they are cleared for removal from the bonded warehouse and become capable of being utilized for the purpose for which the import took place. It is not relevant to the issue involved in the present case.
24. The order in Tin Plate Co. of India Ltd. v. CC, Calcutta reported in 1987 (29) ELT 552 (Tribunal) it was held that the goods became imported goods only when they were out passed at Calcutta and were declared for home consumption. It is not clear how this order supports the contention of the appellants. On the other hand it goes against the contention of the appellants and support the respondent’s view.
25. The order in Collector of Customs v. Coromandel Fertilizers [1988 (14) ECR P. 281] is also not relevant as the issue involved there is the includability of charges like unloading charges, port charges, bonus for quick unloading.
26. In our view these judgments are irrelevant as the facts of the present case are different. On the arrival of goods bill of entry for home consumption was filed and at that stage the goods were not allowed to be cleared for the reason that the authorities were of the view that the goods were imported in violation of conditions of Import Policy and are liable to be confiscated. The goods in accordance with the said view were in fact confiscated and released subject to the payment of redemption fine. The stage of collection of duty has already occurred attracting the provisions of Section 15(l)(a) of the Customs Act, 1962. Therefore, the duty is payable in accordance with the provision of Section 15(l)(a) of the Act. Therefore, we are in agreement with the view of the Collector.
27. In the light of above we confirm the order of the Collector on different grounds. Consequently the appeal fails, and therefore, dismissed.
D.C. Mandal, Member (T)
28. I have perused the order written by Miss S.V. Maruthi, Member (Judicial). I agree with her conclusion that the contract dated 18-12-1986 was not a firm contract and hence the goods could not be imported under OGL (Appendix 6 of the Import Policy 1985-88). On this point, I would like to add the following :-
According to the purchase contract dated 18-12-1986, the contract price was DM 2,947,590; 100% irrevocable Letter of Credit was to be opened by the end of April, 1987 latest, and the delivery of the goods was to be made by the end of November, 1987 at the latest. By the Supplier’s letter dated 3-6-1987, copy of which has been placed at page 109 of the Paper Book filed “by the appellants, the terms of the contract were amended. Alongwith this letter the Suppliers sent one revised proforma invoice No. P/2081/86/1.0 dated 3-6-1987 to the appellants. It is stated in that letter that according to their discussions they had altered the terms of shipment from CIF to FOB, namely DM 2,947,590 CIF Madras to DM 2,888,690 FOB. A significant amendment in the original terms was that packing cost of DM 22,000 was omitted in the amended proforma invoice dated 3-6-1987. The last date of opening the Letter of Credit was also amended from April, 1987 to 15-7-1987. Another alteration was made in the terms of the contract on 4-1-1988 vide the Supplier’s Proforma Invoice No. 1/2122/87/1.0 dated 4-1-1988. A copy of this proforma invoice has been filed at page 107 of the Paper Book. By this amendment, the FOB price was raised to DM 3,083,120; the last date for opening the Letter of Credit was altered to “latest on 31-1-88”; and the delivery time was made “latest end of April, 1988”. Further amendment was made to the terms of the contract by proforma invoice No. 1/2122/87/1.0 dated 4-2-1988. A copy of this proforma invoice is at page 96 of the paper book. According to this proforma invoice, letter of credit is to be opened “latest on 25-2-1988”; delivery time was “latest end of April, 1988” and the price was DM 3,083,120 FOB. This proforma invoice dated 4-2-1988 and the contract dated 18-12-1986 were registered in the State Bank of India, Bangalore City Branch, under Registration No. 0814/88/S/l dated 27-2-1988. The bank’s endorsement regarding registration is at page 56 of the paper book. The validity of the Registered Proforma Invoice was extended upto 29-2-1988 and the last date of opening the letter of credit was extended to 29-2-1988 by the letter dated 24-2-1988 from M/s. Chika Limited to the appellants. A copy of this letter has been placed at page 47A of the paper book. Thus, alterations in the contract dated 18-12-1986 were made from time to time in respect of price, period of shipment and the last date of opening the letter of credit. The contract was, therefore, not a firm contact.
29. I agree with the finding of Ms. Maruthi that the rate of duty applicable in this case would be the rate prevailing on the date of filing the Bill of Entry and that the benefit of Notification No. 250/88 dated 16-9-1988 was not admissible.
30. In the circumstances, I also dismiss the appeal.
V.P. Gulati, Member (T)
31. I agree with the findings of the learned Members that the contract dated 18-12-1986 cannot be held to be firm contract and, therefore, the goods could not be imported under OGL (Appendix 6 of the Import Policy 1985-88) for the reasons recorded by the learned Members. I also agree with the findings above that benefit of Notification No. 250/88 dated 16-9-1988 was not admissible for the reasons set out in the order recorded by learned Member Miss S.V. Maruthi.