ORDER
Jyoti Balasundaram, Member (J)
1. The above appeal arises out of the order of the Additional Collector of Customs by which he has upheld the liability to confiscation of 24,980.75 kgs. of imported prime quality fibre and imposed penalties of Rs. 2 lakhs under Section 111(o) and Section 112 and Rs. 2 lakhs under Sections 113(i) and 114 of the Customs Act, 1962 and directed amendment of entries in para E of the appellant’s DEEC book to show that only 24,980.75 kgs. of prime quality fibre had been exported under shipping bill No. 907 dated 12-6-1989.
The facts of the case are as follows :
The appellants are manufacturers of synthetic slivers, yarns, blankets, etc., and are also registered exporters thereof. In terms of Appendix 19 of the Import Policy AM 1985-88 providing for Duty Exemption Entitlement Scheme by which raw material etc., can be imported without payment of customs duty on the condition of its use in the resultant end-product for export, the appellants obtained advance licence dated 10-8-1988 under DEEC Book No. 004685 dated 3-8-1988 for the import of 1,25,000 kgs. of polyester fibre prime commercial quality and an identical quality of synthetic waste polyester. The appellants manufactured synthetic sliver/top out of the imported fibre and waste and filed shipping bill No. 907 dated 12-6-1989 declaring that the material used for resultant product consisted of 50% polyester fibre prime commercial quality and 50% synthetic waste polyester. The consignment was examined, samples were drawn on 13-6-1989 and sent for chemical analysis. According to the test report from the Chemical Examiner, CRCL Laboratory, “the sample is in the form of a white strand of staple fibre without twist containing cut bits of short fibres. It is composed wholly of synthetic polyester fibres”. The consignment was sent to Bombay for further export where the shipment was detained and subsequently allowed for export pending test of samples. As per the test results of the Silk and Art Silk Mills Research Association, Bombay, SASMIRA and the Deputy Chief Chemist, Bombay Customs House and BTRA Test House, it appeared that the goods are not of prime quality. The allegation of the Department was that the exporters misdeclared the quality of the raw material in order to fulfill the export obligation fraudulently in respect of the imported goods. Since the imported goods were not utilised for the manufacture of resultant products, the appellants who are the DEEC Book holders and also exporters, were called upon to show cause against levy of duty on the polyester fibre prime quality imported by them, for contravention of the DEEC Scheme read with Notification 116/88-Cus., dated 30-3-1988 and penal action under Section 112 and Section 114 of the Customs Act, 1962.
2. The adjudicating authority relied upon the certificate issued by the BTRA that the samples contained above 75% of waste fibres of different types of polyester, to hold that the content of prime quality fibre in the exported goods was only 25% and not 50% as claimed by the exporters, leading to misdeclaration in respect of the goods, which were accordingly held liable to confiscation and the appellants liable to penalty. He further ordered amendment of entries in the DEEC Book relating to resultant product to the effect that only 24,980.75 kgs. of prime quality fibre had been exported against the shipping bill in question. Hence this appeal.
3. At the outset, learned Counsel for the appellants, Shri L.P. Asthana seeks permission to bring on record a copy of the covering letter dated 9-5-1989 to the contract entered into between the appellants and the foreign buyer in which the composition of the export goods is specified as 50% synthetic waste and 50% polyester fibre commercial quality, copy of the affidavit of one Shri Sanjeev Goyal, Mechanical Engineer, in-charge of works affirming that the normal pattern of production is for use of raw materials in the same ratio and copies of the relevant extracts from the raw materials register and production register for synthetic sliver/tops, entries being verified by the Enforcement Inspector (Technical) from the Regional Office of the Textile Commissioner. He pleads that these documents .being vital for the determination of the issues under consideration and being contemporaneous with the export, they should be allowed to be produced in terms of Rule 23 of the CEGAT (Procedure) Rules. Learned DR objects to the covering letter and affidavit being brought on record, but, however, has no objection to the raw materials register being taken on record being an additional document.
4. Arguing on the appeal, Shri L.P. Asthana, learned Counsel commenced his argument by denying the charge of mis-declaration in the shipping bill. He submits that there is no evidence to establish that the composition of the export goods is not 50% polyester fibre and 50% waste except the report of BTRA, while on the other hand, the appellant’s raw material register would clearly show that the export goods comprised 50% polyester fibre and 50% waste. He draws our attention to the import licence and to the description of the resultant products in the DEEC pass-book which reads as “synthetic sliver/tops made out of synthetic waste/polyester waste/polyester fibre, etc.” and submits that the DEEC scheme does not require that the export goods should consist of prime quality fibre and waste in an equal ratio. He contends further that the import entitlement cannot be reduced even if there is mis-declaration. Lastly he submits that even assuming without admitting that the declaration on the shipping bill is incorrect, Section 111(o) is not attracted to the facts of this case as the appellants still had time to fulfil their export obligation. Similarly Section 113(i) is also not applicable. This section applies only in 3 categories of goods – dutiable goods – prohibited goods and goods entered for exportation under claim for drawback. Since no export duty was leviable on the goods exported, they were not dutiable. They were also not entered for exportation and the goods are also not prohibited goods in the absence of any prohibition on their export. He submits that as a consequence, no penal action under Section 112 or Section 114 is warranted. He, therefore, prayes for setting aside of the impugned order.
5. Learned DR, Shri V.C. Bhartiya, draws our attention to the findings in the impugned order regarding misdeclaration of material used for the resultant product which finding is based upon categoric report of BTRA and submits that even though admittedly the DEEC Scheme does not prescribe a 50%: 50% ratio of prime quality fibre and waste, such ratio is to be inferred from the factum of permission to import equal quantities of prime quality fibre and synthetic waste. Once there is such a requirement in the DEEC scheme and the same has not been fulfilled by the appellants, then the goods become prohibited goods under the special scheme of DEEC wherein import angle cannot be isolated or divorced from the export obligation. Hence, confiscation and penalty are to be sustained.
6. We have heard both sides and carefully considered their submissions. We agree that the covering letter indicating the composition of the export goods has a vital bearing directly on the issue of correctness of the declaration in the. shipping bill and in the interests of justice, we take this document on record. The raw material register is also very relevant to the same issue and its production has also not been objected to by the learned DR and hence this document is also taken on record. The affidavit of Sanjeev Goyal being in the nature of self-serving document, is not taken on record. The miscellaneous application No. 1563/92-NRB is disposed of in the above terms.
7. Turning now to the merits of the case, the various test reports of the export goods are reproduced below :-
(i) Test report dated 11-8-1989 of Deputy Chief Chemist, New Customs House, Bombay – 38 :
“Please refer to your letter No. SG-INF-49/AJ/89 SUB dated 26-7-1989 forwarding four samples bearing Container Nos. CIIU 488838, OSCX4-653/6501, CIIU-444494 and SCX4-451841-4 respectively to this office for testing. All the four samples have been registered here under Dy. No. 452/28-7-1989 and analysed the results as follows :
Each of the four samples is in the form of running rope containing cut bits of yarns and fibres. Each is made of polyester. It is not possible to say whether it is manufactured out of virgin or waste material. However, presence of waste materials could be seen in each sample. It is not possible to give percentage of polyester synthetic waste and polyester fibres of prime commercial quality.
Sealed remnant samples are returned.”
(ii) Test report dated 29-8-1989 of the Silk and Art Silk Mills Research Association (SASMIRA), the sample appears to be of not prime quality.
(iii) Test Report dated 27-10-1989 of CRCL, Delhi:
“The sample is in the form of a white strand of staple fibre without twist containing cut bits of short fibres. It is comprising wholly of synthetic polyester fibres.
Remnant returned.”
(iv) According to the BTRA Test House report of 19-8-1989, the major proportion of all the samples consists of various types of polyester waste. There is a letter from the BTRA Test House to the Deputy Controller of Customs which reads as under :
“With reference to your telephonic talk you had with me yesterday, I am to inform you that the polyester sliver/tops reported under our TH/TR/2882/89 contain predominantly (above 75%) was to fibres of different types of polyester and other fibres. We trust this additional clarification would help you in deciding the case. As you desired the remnant samples are returned herewith. Kindly acknowledge.”
This is followed up by a letter of 26-6-1990 from the BTRA Test House to the Assistant Collector of Customs, which is as follows :
“Kindly refer to your letter SG-INF-49/AJ/89 SUB dated 28th May 1990 wherein you had sought the test methods followed by us pertaining to the synthetic sliver/tops samples reported vide our TH/TR/2882/90, dated 19-9-1989. We would like to inform you that there are no established standard test methods for determining the virginity of polyester fibres used in a textile material. However, from our knowledge and experience in the field of textiles we are able to identify the quality of the fibres used by certain detailed microscopic analysis. From these studies we are able to identify the extent of damage caused to the fibres, variation in uniformity both lengthwise and diameterwise, and other defects in the fibres. Our judgment is based on these factors and in addition we take into consideration the normal damage that can be caused to the prime quality fibre during various stages of manufacture. We also give allowance to the fact that in all mixings in a textile mill a certain amount of soft waste is added. You will appreciate that we have given our conclusion on practical technical consideration. We would also like to add that this type of analysis is unique to our situation and such needs are felt by only Governmental departments. As such these tests are not required for any other work and hence are not standardised.
You will also note that we had informed you about our inability to exactly quantify the amount of prime quality or waste fibre used, by our letter TH/1380/89, dated 28-7-1989. Only on your .agreement to this condition we had issued the test report. Subsequently, in response to your telephonic request we had sent you the letter TH/1816/89, dated 27-9-1989.
We trust the above details would help you in the particular case.”
8. From an analysis of the test reports we find that the common thread running through all of them is that the export goods were not of prime quality i.e. they were a mixture of prime polyester fibre and synthetic waste. However, this does not assume any importance in view of the admitted fact that the resultant product under the DEEC scheme was to compose of polyester fibre commercial quality and synthetic polyester waste. A product which is composed of prime polyester fibre and synthetic waste can never be of prime quality. The test report dated 11-8-1989 of the Chemical Examiner of the office of the Deputy Chief Chemist, Bombay Customs only confirms the presence of waste materials in the sample tested without determining the percentage of prime quality fibre and of waste and does not support the case of the Department that the goods were not made out of equal proportions of prime quality fibre and polyester waste. The SASMIRA report also does not in any way controvert the declaration made in the shipping bill regarding the 50% : 50% ratio of prime polyester fibre and synthetic polyester waste in the resultant products. Further it is significant to note that in the test report, the SASMIRA has remarked : “The report is only for the submitted sample and not for the entire consignment as it has not been sampled according to the sampling method” (Emphasis supplied). Another indicator to the correctness of the declaration is the acceptance of the goods by the foreign buyers’ representatives in India (See letter dated 9-5-1989 of the foreign buyer – Annexure ‘A’ to the miscellaneous application and letter of 12-9-1989 at page 131 of the paper book). Another pointer in this direction is the raw material register and production register for the period 1988-89, 1989-90 and 1990-91 for synthetic sliver/tops entries in which have been verified by the Enforcement Inspector (Technical) of the Regional Office of the Textile Commissioner which would establish useage of polyester fibre and synthetic waste in equal ratio in the resultant product. The Inspector has made the following endorsement in the raw material register at the relevant point of time i.e. June 1990 “verified 67,800 kgs. and seen the manufacturing activities that the Unit is manufacturing synthetic sliver/top with the admixture of synthetic waste/polyester with polyester staple fibre with a ratio of 50% each”.
9. The case of the Department is entirely based upon the test report furnished by the BTRA Test House which shows that the sample contains polyester fibre ranging from 89.3% to 95.5%, and that a major proportion of all the samples consist of various types of polyester waste. The report also shows that there were other materials ranging from 4.5% to 10.7%. The basis for the finding that the resultant products contain predominantly (above 75%) waste fibres of different types of polyester and other fibres is not disclosed in either of the letters of BTRA which itself admitted in its letter of 26-6-1990 (page 118 of the paper book) that there are no established standard test methods for determining the virginity of polyester fibres used in a textile mill. The BTRA has stated that the judgment as to the percentage of waste in a composite product is based upon the factors such as the extent of damage caused to the fibres, variation in uniformity both lengthwise and diameterwise and other defects in the fibres. They had expressed inability to exactly quantify the amount of prime quality fibre used in their letter TH/1380/89, dated 28-7-1989 which is referred to in the letter dated 26-6-1990.
10. A cumulative reading of the letters appears to support the argument of the learned Counsel for the appellants that they have been procured by the Customs Department and are, therefore, of dubious nature and hence cannot be relied upon for forming the sole plank of the Department’s case and are required to be discarded. Once this plank is removed, the case of the Department falls to the ground, the finding on the contravention of the conditions of import under the DEEC Scheme read with the relevant notifications the charge of misdeclaration and consequent liability of the goods to confiscation and imposition of penalty cannot be sustained. In view of our finding on the merits, we do not consider it necessary to go into the submission regarding non-applicability of Section 113(i) of the Customs Act, 1962 to the goods in question.
11. In the result the impugned order is set aside in toto and the appeal allowed with consequential relief, if any, due to the appellants.