ORDER
P.C. Jain, Member (T)
1. Brief facts of the case are as follows :-
1.1 The appellants had imported an Ion-Implanter machine for which a service and spares contract had been executed with the supplier which, inter alia, provided, for free service, replacements of defective spares and parts free of charge in lieu of replaced parts for the period of the contract.
1.2 A special type of compressor of the above lon-Implanter machine became defective and needed replacement. The supplier in terms of the above contract despatched a replacement ‘compressor cryo 208’. The compressor was supplied on charge basis and the value for custom purposes only was indicated as such in the invoice. The Appellants filed a bill of entry dated 8-7-88 for the clearance of the above compressor claiming OGL No. 4/88-91 in respect of Import Trade Control.
1.3 However, on examination of the consignment by the Customs it was found that the supplier had also included some other parts of the above machine besides the compressor which were not shown in the above invoice. The supplier had, however, been informed about the improper functioning of those parts on earlier occasion. Since the supplier had not sent any invoice for the parts other than the compressor and the goods had been sent in the same shipment, the appellants contacted the local agent of the supplier/manufacturer who provided the no charge invoice dated 15-6-88 for US $ 12845.20 for the extra items as. mentioned above. The import of the compressors has been accepted under OGL 4/88-91. However, the department took objection to the import of the other parts on the ground that these were not covered under OGL 4/88-91. The appellants, however, contend that these parts are also covered under the aforesaid OGL under sub-item (6) thereof. For the sake of convenience relevant item (6) of the aforesaid OGL 4/88-91 is reproduced below :-
“(6) Goods supplied free of charge by foreign suppliers or imported against an insurance (marine) or marine-cum-erection insurance claim settled by an Insurance Company in replacement of the goods previously imported but found defective or otherwise unfit/unsuitable for use or lost/damaged after import, provided that :-
(a) the shipment of replacement goods is made within 24 months from the date of clearance of the previously imported goods through the Customs or within the guarantee period in the case of machines or parts thereof, where such period is more than 24 months; (b) No remittance shall be allowed, except for payment of insurance and freight charges where the replacement of goods by the foreign suppliers is subject to the payment of insurance and/or freight by the importer and documentary evidence to this effect is produced at the time of making the remittance; (c) the following documents shall be produced to the satisfaction of the Customs authorities, at the time of clearance of the replacement goods :- (i) Original letter from the foreign supplier as evidence of goods being supplied free of cost, in the case of free replacements; (ii) a survey certificate issue by the Lloyds Agents or any other authorised insurance surveyors or in the case of machine or parts thereof, a certificate from a professional independent Chartered Engineer (or Chief Executive in the case of Government Departments and Public Sector Undertakings) to the effect that goods previously imported were actually received in defective condition and required replacement; (iii) evidence showing the period guarantees given by the foreign manufacturers of consigners in the case of machines or parts thereof, where shipment takes place after the period of 24 months stipulated in Sub-clause (a) above;
(iv) evidence of settlement of claim by the insurance company, in the case of replacement import involving fresh remittances. This will, however, not be necessary in the case of Government departments, provided foreign exchange has been released by the Ministry of Finance (Department of Economic Affairs)/Administrative Ministry to cover the amount to be remitted. Replacement imports will be allowed up to the value of the claim settled by the insurance company but an increase up to ten per cent of this amount may be allowed owing to the increase in the value of the machinery to be imported in replacement.”
1.4 The adjudicating authority has not accepted the contention of the appellants on the ground that the subject import does not admittedly fall within the ambit of an insurance claim. The invoice also shows that the goods have been supplied on no charge basis under a service contract No. 3000 SM 60670. The relevant service contract indicates payment of US $ 22,600 which covers inter alia parts and labour. The adjudicating authority, therefore, has inferred that the parts have been paid in advance and it cannot be said that they have been supplied free of charge. Accordingly, the goods have been confiscated under Section 111(d) with an option to the appellants to redeem them on a fine of Rs. 1,75,000/-. A personal penalty of Rs. 2,500/- has also been imposed on the appellants.
2. Learned Consultant Shri K.K. Chopra for the appellants has urged that the provisions of OGL 4/88-91 squarely applies to the facts of this case inasmuch as the goods have been supplied free of charge. The adjudicating authority, according to him, has erred by taking into account the service contract. He also urges that the impugned order is self contradictory because the compressor has been allowed without any objection whereas the spare parts in question have not been given the benefit of OGL-4. Compressor also according to him, forms part of the same warranty and was covered under the said service contract even though the compressor is also a restricted item for the purpose of importation.
3. Learned SDR Shri R.M. Ramchandani, on the other hand, reiterates the findings of the adjudicating authority and the reasonings given in the impugned order.
4. We have carefully considered the pleas advanced on both sides. While at first sight the argument of the learned Consultant Shri Chopra regarding clearance of the compressor appears to be attractive, on a deeper consideration we cannot consider it to be a sufficient ground for allowing the importation of the parts in question under OGL 4, We are not sure whether the compressor is a restricted item or not in the absence of any dispute about that or any findings by the adjudicating authority in that respect. It may be that the compressor was otherwise covered by OGL 4. Even assuming that the argument of the learned consultant is correct, the mistake committed by the department in allowing clearance of compressor should not be allowed to be perpetuated in respect of the parts for which the dispute has been raised by the department and the order is in appeal before us now.
4.1 Coming to the merits of question whether the parts are covered by OGL-4 we find that the reasonings of the adjudicating authority in denying the benefit of the said OGL is correct. No doubt, the parts are covered under warranty and the invoice also shows that the parts have been supplied free of charge, it cannot be said that it is actually so in the face of the service contract. Service contract to the tune of US $ 22,600 covers parts and labour. It is, therefore, reasonable to infer that the parts under consideration here have been paid in advance and the conditions of OGL-4, item (6) thereof are not strictly complied with. The goods are, therefore, liable to confiscation under Section 111(d) of the Customs Act.
5. At the final stage, however, the learned consultant pointed out that the importers were not informed about the confiscation of the goods for want of licence. He submits that enough licences are still available with the importers to cover the goods. The learned consultant drew our attention to ground No. 7 of the appeal which states as follows :-
“Without prejudice to the above submission the appellant also wishes to submit that no opportunity was given to the appellant to produce an import licence for the sub assemblies as the appellants have an import licence for over 18 lacs for import of spares required for the machinery installed at their factory in Mohali”.
6. In view of the aforesaid submission we give the appellants an opportunity to produce a valid licence for clearance of the goods. In case a valid licence is produced and accepted by the department the confiscation of the goods shall stand set aside. However, if the appellants are unable to produce a valid licence, the goods will remain confiscated. However, having regard to the overall facts and circumstance of the case and also the fact that the appellants are actual users, we reduce the redemption fine from Rs. 1,75,000/- (Rupees one lakh seventy-five thousand only) to Rs. 90,000/- (Rupees ninety thousand only).
7. As regards the personal penalty of Rs. 2,500/- imposed on the appellants, we do not find much justification for the same in the facts and circumstances of this case. Accordingly, we set aside the penalty of Rs. 2,500/- (Rupees two thousand five hundred only).
8. Appeal disposed of in the above terms.