ORDER
Harish Chander, Member (J)
1. M/s. Unisef Electronics India Ltd., H-317, New Rajinder Nagar, New Delhi has filed an appeal being aggrieved from the order passed by the Additional Collector of Customs, New Delhi. On 28th July, 1986 acting on an intelligence the officers of Directorate of Revenue Intelligence, New Delhi had examined and seized 3000 kits of cassette player Model Z-108 and 2000 kits of cassette tape recorders Model AF 52 in CKD condition imported against actual users licence No. 1960167/C/X/91/D/83 and under Bill of Entry No. 403 dated 19-7-1985 and Invoice No. 0520/Proforma Invoice No. ME 0646 and 0617 all dated 28th June 1985 collectively valued at Rs. 3,24,410/-. The revenue authorities were of the view that there was under valuation. The Collector in his order has observed the value as under :-
“Enquiries conducted from Hongkong market revealed that the FOB price for model AF 52 of Unisef was 120 Hongkong $ per set. After deducting 10% discount, on account of import in CKD condition, the value comes to 108 Hongkong $ per set equivalent to Rs. 167.96. (At the exchange rate of Rs. 100/-= 64.30 Hongkong $ as on 19-7-1985).
Enquiries conducted from Delhi Customs also confirmed having noticed under valuation in the import of model AF 52 (CKD condition) earlier and had enhanced assessable value to Hongkong $ 108 after giving due deductions.
The price indicated as Hongkong $ 250 per set of a similar model (Sanyo M-1010) as per catalogue of Clement & Co. which forms the basis for assessment purposes in baggage cases by Delhi Customs also evidenced wilful undervaluation by the importers.
Enquiries conducted from market at Hongkong revealed that prevailing price of model Z-108 of Unisef was Hongkong $ 112 per set. After deducting 10% discount, on account of import in CKD condition, the value comes to 100.8 Hongkong $ per set equivalent to Rs. 156.77 (at the exchange rate of Rs. 100/- = 64.30 Hongkong $ as on 19-7-1985).
The importers, in the Bill of Entry, had declared the value for model AF-52 as 1385 Japanese yen per set and for model Z-108 as 1220 Japanese yen per set equivalent to Rs. 69.88 and Rs. 61.55 respectively (at the exchange rate of Rs. 100/- = 1982 Japanese yen as on 19-7-1985). The total assessable value declared by the importer was Rs. 1,39,760/- for 2000 kits of AF 52 and Rs. 1,84, 650/- for 3000 kits of Z-108 in the Bill of Entry whereas the assessable value should have been Rs. 3,35, 920/- and Rs. 4,70,310/- respectively (on the basis of price of HK $ 108 = Rs. 167.96 per set and HK $ 100.8 = Rs. 156.77 respectively).
The DRI has also ascertained from ETTDC, New Delhi who have certified that the components imported are normally for assembling 2000 & 3000 nos. of the AF 52 & Z 108 models of tape recorders. Accordingly 5000 kits have been taken to be the complete sets of above two models in knocked down condition and they have been classified and assessed under Customs Tariff Heading No. 85.20.
It appeared that the importers had contravened Section 46 of the Customs Act, 1962 by wilfully under valuing the goods to the tune of Rs. 4,81,820/- i.e. Rs. 1,96,160/- (Rs. 3,35,920/- Rs. 1,39,760/-) in respect of 2000 kits of AF-52 and Rs. 2,85,660/- (Rs. 4,30,310/- Rs. 1,84,650/-) in respect of 3000 kits of Z-108 which should be loaded on the declared assessable value. Thus the total assessable value should be Rs. 8,06,230/- (Rs. 3,24,410/- + Rs. 4,81,820/-) and the importers have taken recourse to the undervaluation with the sole intention of evading customs duty which was worked out to be Rs. 10,79,045.71.
In view of the above, M/s. Unisef Electronics (India) were called upon to show cause to the Collector of Customs, New Delhi as to why the seized goods should not be confiscated under Section 111(m) of the Customs Act, 1962 and why duty amounting to Rs. 10,79,045.71 (short levied) should not be recovered under Section 28 of the Act ibid and why for acts of omission and commissions penal action under Section 112 of the Act ibid should not be taken against M/s. Unisef Electronics and Shri Jatinder Uppal, Prop, of the firm.
Further scrutiny of the documents revealed that the goods imported in CKD condition and the various components have been invoiced separately. It was also observed that the goods imported include the following items of sub-assemblies and components which were covered by Appendix 3A of AM 85-88 as detailed below:-
Sl. No. Description Appendix/Sl.No. Value
1(a) Tape Deck 3A (607) (21) HK $ 148176 FOB
Mechanism Z 108
(b) -do- AF 52 -do- HK $ 105840 "
2(a) Unstuffed PCB Z108 3A (607) (18) HK $ 2715 "
(b) -do- AF 52 -do- HK $ 2600 "
3(a) Resistors Z-108 3A (607) (32) HK$ 1350 "
(b) -do- AF 52 -do- HK $ 1600 "
4 Silicon Diodes AF 52 -do- HK $ 560 "
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HK$ 262841 "
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or Rs. 4,08,773.00
Freight 6,677.00
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Rs. 4,15,450.00
Insurance @ 1. 825 Rs. 4,673.00
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Rs. 4,20,123.00 CIF
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The above detailed value of the components was arrived at after allowing appropriate discount on the value ascertained from Hongkong Market and proportionately loading on the value of components declare in details attached to the invoice, after dividing the ascertained value in the percentage of 49,28 and 23 for Tape Deck Mechanism, Plastic Moulded components and sub-assembly respectively.
Entry No. 610 of Appendix 3A of AM 85-88 covers kits/ready to assemble sets, assemblies, sub-assemblies, moulds, and combination thereof consisting of electronic item (excluding item mentioned in Appendix 6 list 8 Part 1) appearing at Sl. No. 609 but excluding electronic discrete components (unless individually mentioned elsewhere in this Appendix).
From above facts, it further appeared that the sub-assemblies and components, mentioned above, valued at Rs. 4,20,123/- were not covered under OGL and a specific import licence was required for their import. In the absence of valid import licence the above goods were also liable to confiscation under Section 111(d) of the Customs Act, 1962.
In view of the above facts, addendum was issued calling upon M/s. Unisef Electronics (India) to explain as to why the goods valued at Rs. 4,20,123/- (CIF) should not be confiscated under Section 111(d) of the Customs Act, 1962.”
2. The appellants in reply to the show cause notice had contested the allegations made in the show cause notice vide their letter dated 29th January, 1987. The appellants had declared the value at Rs. 3,24,410/-. The learned Collector was not satisfied with the reply filed by the appellants. He had assessed the value of the goods at Rs. 6,71,860/- including the four disputed items valued at Rs. 3,44,136/- and had confiscated the goods under Section 111(m) and 111(d) of the Customs Act but had given an option to redeem the same on a payment of fine of Rs. 2,00,000/- and penalty of Rs. 15,000/-. Being aggrieved from the aforesaid order the appellants have come in appeal before the Tribunal.
3. Shri K. Srinivasan, the learned Consultant appeared on behalf of the appellants. He has reiterated the facts that the goods were seized on 28th July, 1986 from M/s. Unisef Electronics (India). The Bill of Entry was examined in the presence of Directorate of Revenue Intelligence Officers and the goods were examined 9 months after filing of the Bill of Entry. The goods were seized on 26th July, 1986 and the show cause notice was issued on 20th January, 1987. In the first show cause notice the allegation was violation of provision 111(m) and the second show cause notice 111(d) was also invoked and a loss of duty Rs. 10.79 lakhs and penalty was also mentioned. He has referred to the replies to the show cause notice as well as reply to the Addendum. The Addendum was issued on 15th September, 1987. He has pleaded that the loading had been done on the basis of 49%, 28% and 23% and there is no basis, the valuation has been done on the basis of complete sets whereas the goods imported were in CKD condition. He has pleaded that the appellant has not been disclosed the secret enquiries conducted by the department. He has stated that the goods were seized after the expiry of the licence and there is no mention in the show cause notice that the licence was issued on 11th April, 1984 (1983-84 Policy) and was valid for 12 months and 1983-84 Policy granted two months grace period. The order was placed on 13th March, 1985. He has fairly stated that Silicon Diodes was not covered. He has pleaded that no redemption and penalty was called for. The value which the appellants had declared to be accepted. The Ld. Consultant argues that the goods were not in CKD condition but were components.
4. Shri A.S.R. Nair, the learned SDR who has appeared on behalf of the respondent stated that the appellant had imported AF 52 cassettes and Z-108 kits 3000. He has argued on the licensing part. He has argued that in the Bill of Entry the appellants had mentioned OGL and no licence had been filed. It is for the importer to file the licence. He has pleaded that resistors are not covered in the OGL also and the date of shipment was 28th June, 1985. He has stated that the learned Consultant has referred to the grace period. The grace period cannot be treated as a matter of right. Shri A.S.R. Nair, the learned SDR, has referred to AM 84-85 Policy and pleaded that in the new Policy the grace period was taken away. The goods which have been imported are covered by AM 84-85 Policy. He has pleaded that the appellants did not open a letter of credit and there was no firm contract. The goods were supplied on C.I. basis and was F.O.B. On valuation aspect, he has argued that as per Bill of Entry and invoice the value was declared at 1385 Japanese yen per set and for model Z-108 at 1220 Japanese yen per set equivalent to Rs. 69.88 and Rs. 61.55 respectively. In support of valuation by the Revenue, he has referred to the invoice dated 21st May, 1986 and has also referred to a judgment of the Bombay High Court in the case of Satellite Eng. Ltd. v. Union of India and Ors. reported in 1983 (14) ELT 2177. He has pleaded that there was no violation of the principles of natural justice. He has referred to the Order-in-Original and has laid special emphasis on internal page 14 of the Order-in-Original. He has pleaded that the value adopted by the revenue authorities was very reasonable. He has pleaded for dismissal of the appeal.
5. Shri K. Srinivasan, the learned Consultant, who has appeared on behalf of the appellants in reply referred to page 18 of the Order-in-Original and has pleaded that Victory Co. Hongkong’s invoice price cannot be compared with the price of the appellants. He has pleaded that the appellants are entitled to have the benefit of grace period in terms of para 209.1. He has pleaded for quashing of the fine in lieu of confiscation at Rs. 2 lakhs, Rs. 15,000/- imposed as penalty and acceptance of the declared value.
6. We have heard both sides and have gone through the facts and circumstances of the case. The issues to be decided are whether there was mis-declaration of value and non-coverage of goods under OGL or licences submitted. First we take up the valuation aspect of the goods. The facts are not disputed. The appellants had imported kits of Cassette Tape Recorders Model AF 52 and Cassette Tape player Model Z-108. Adjudicating authority had not accepted the value declared by the appellants but had adopted the value on the basis of invoice of M/s. Victory Co. Hongkong. As per Victory Co.’s invoice AF 52 was priced at Hongkong $ 120 FOB and Model Z-108 was priced at Hongkong $ 112. After granting 10% discount on account of CKD parts (in place of complete unit) the correct FOB price would come to Hongkong $ 108 (Rs. 167.96) and Hongkong $ 100.8 (Rs. 156.77) respectively, whereas the goods had been invoiced as 1385 Japanese yen for AF-52 and 1220 Japanese yen for Z-108 equivalent to Rs. 69.88 and Rs. 61.55 respectively. The duty difference is alleged to work out at around Rs. 10.79 lakhs. It is not disputed that the supplier was M/s. Modern Electronics, Japan, whereas the invoice referred to and relied upon by the Department had been obtained from Hongkong. The adjudicating authority on internal page 14 of the Order-in-Original mentions that the price in Japan and in Hongkong was not exactly comparable since the question of freight and handling charges are involved from Japan to Hongkong. The invoice value is C & I basis, whereas the price quotation relied upon is FOB basis. The DRI has not produced any record to indicate contemporaneous imports of similar goods at the proposed prices, whereas the importers had referred to a few consignments of similar goods imported by them and other parties at same prices. The adjudicating authority has observed that in 1984 the price of AF 52 was 1385 Japanese yen, in 1985 the price has been shown as 1385 Japanese yen C & I, though there had been no cause for a change in the valuation. The adjudicating authority has mentioned in the order that as per dementi & Co.’s catalogue, the price of an equivalent model Sanyo M-1010 is Hongkong $ 250 (Rs. 390/-) and this was the price of an assembled unit and was a retail price after allowing admissible discount and price reduction on account of components (kits), the estimated value of M-1010 model would still be higher than the declared value of the present kits of AF-52. It is settled law that the value of the goods has to be assessed under Section 14 of the Customs Act, 1962. Where customs duty adopted at ad valorem basis, the assessable value will be determined under Clause (a) of Section 14. The price will be ascertained according to the price of the goods or similar goods ordinarily sold at the material time in the course of international trade provided that the buyer and seller had no interest in the business of each other and the price is the sole consideration for the sale or offer of sale. On the other hand, Clause (b) comes into operation where the price is not ascertainable and under the terms of Clause (a) in which event it is the nearest available value of such goods which is determined in accordance with the rule made for the purpose. The provisions of Section 14(l)(a) and 14(1)(b) indicate that recourse to Section 14(1)(b) can be had only when the value cannot be determined under Section 14(1)(a) on the material placed by the importer or available with the Department. In the matter before us, it is not disputed that the price quotation of Victory Co. relates to AF-52 and Z-108 (both Japanese origin). It is also apparently true that the export/international price at Hongkong and in Japan could not be the same and the prices at Hongkong would include freight charges from Japan and handling charges and overhead expenses. In other words, the price at Japan cannot be applied to the goods at Hongkong. The price quotation of M/s. Victory Co. mentioned FOB Hongkong. The adjudicating authority has also referred to Clementi & Co.’s catalogue where the price of an equivalent model M-1010 is HK $ 250 (Rs. 390). The Tribunal had occasion to deal with the Mail Order catalogue in the case of M/s. Takara Electronics v. Collector of Customs, New Delhi vide Order No. 607/85-A dated 6th August, 1985 and had followed the same in the case of Nikon Systems (P) Ltd. v. Collector of Customs 1989 (42) ELT 598 (Tribunal) and keeping in view the Takara Electronics judgment, the Tribunal had ordered that 60% discount to be allowed from the catalogue price. In this case, the catalogue price in the case of Clementi & Co., is HK $ 250 (Rs. 390) for an equivalent model M-1010. Sixty per cent rebate will come to Rs. 234. The adjudicating authority in the matter before us has allowed a reduction of 25% from HK $ 120 for AF-52 and HK 112$ for Z-108 and has worked out the equivalent value in rupees. CIF (HK $ 120 less 25% = $ 90 for AF-52) and HK 112$ less 25% = HK $84 equivalent to Rs. 130.64 CIF under Rule 8 of the Customs Valuation Rules, 1963 subject to arithmetical correction. Keeping in view the totality of the facts and circumstances of the case and the fact that the goods were imported from Japan whereas the invoice from Hongkong has been relied upon, we are of the view that the invoice value declared by the appellants cannot be accepted. In the matter before us, the invoice value of Hongkong has been adopted whereas the goods were imported from Japan. From Japan to Hongkong there must be freight and other expenses. The same cannot be loaded. We are of the view that the ends of justice will be met if instead of 25% a total deduction of 35% is allowed from the assessable value. In the result, the value for AF-52 kits has to be adopted at 120$ HK less 35% = 78$ HK. The value for Z-108 has to be adopted at HK $112 less 35% equal to HK 72.80$. Accordingly, we order that the lower authorities should adopt the value as ordered above.
7. Now coming to the issue – non-coverage of goods under OGL – we would like to observe that in the Bill of Entry the appellants had claimed clearance of the goods under OGL. Subsequently, during the course of adjudication proceedings they had filed a licence No. 1960167 dated 11-4-1984 (reported to be already submitted to D.R.I.) which, according to the appellants, would cover the disputed items. The Revenue’s contention is that the goods were imported in CKD condition and the various components had been invoiced separately. The goods imported included items of sub-assemblies and components which were covered by Appendix 3A of AM 85-88 Policy. The Additional Collector in his order has observed that Licence No. 1960167 was examined. He has observed that out of the four disputed items, TDM and PCBs were covered by the list appended to the licence (serial nos. 6 and 9) as claimed by the appellants. ‘Silicon Diodes’ had been claimed as a sub-assembly (mentioned at serial No. 14 of the list). The Additional Collector has observed that silicon diode was not a sub-assembly but a discrete component included in Appendix 3A (serial nos. 607-32) and hence it was not covered by the licence. As regards resistors the appellants had claimed that it was on OGL until 31-10-1986 and the goods had been shipped on 28-6-1985 i.e. before that date. The Additional Collector was of the view that resistors were restricted items from the beginning of AM 85-88 Policy. There was also no notification amending the policy in this respect. Regarding TDM and PCBs covered by the licence, it was observed that the licence dated 11-4-1984 was valid for 12 months from the date of issue i.e., upto 30-4-1985. As against the date of shipment of the goods on 28-6-1985 i.e., well after the expiry of the licence. In other words, the TDMs and PCBs were not covered by the licence submitted. In effect, therefore, TDMs, PCBs, Resistors and Silicon Diodes were not covered by any valid licence and hence importation of the same was unauthorised and the said goods were liable to confiscation under Section 111(d) of the Customs Act.
8. Shri Srinivasan, the learned Consultant, during the course of arguments, had referred to Para 209(1) of the Hand Book of Import and Export Procedures 1983-84. Relevant parts of the said para are reproduced below:
“209. (1) In order to facilitate shipment/despatch of goods against licences, a grace period not exceeding 60 days is allowed after the date on which the licence expires. In the case illustrated in sub-para 207(2) above, the period of grace will commence from the 1st December, 1983, and the licence will be completely dead on the 30th January, 1984.
(2) The grace period of 60 days will also be available in the case of Customs Clearance Permits.
(3) The importers can also avail of the grace period of 60 days in the case of revalidated licences.
(4) The grace period cannot be claimed as a matter of right and no letter of credit should be opened or order placed against the licence during the period of grace.”
In the Import Policy for the period 1984-85, the grace period was abolished. Para 201 from the Hand Book of Import-Export Procedures 1984-1985 is reproduced below:
“201. No grace period for shipment of goods over and above the validity period prescribed will be admissible.”
9. During the course of arguments, the Ld. SDR had opposed in giving the benefit of grace period and had argued that the grace period cannot be given automatically. The importer has to apply for the same. In the matter before us the invoice is dated 28-6-1985. It is also an admitted fact that no letter of credit was opened and there was no firm contract. Sub-para (4) of Para 209 of AM 1983-84 Policy clearly lays down that the grace period cannot be claimed as a matter of right and no letter of credit should be opened or order placed against the licence during the period of grace. There is no evidence on record to the effect that the appellants had applied for the grace period of the import licence.
10. The appellants have contended that Rule 2(a) could be applied only to the articles imported unassembled or dis-assembled which could be assembled into finished article by the simple process of nailing, affixing screws or welding etc.; that assembling PCB and then assembly of the components of a cassette recorder or a walkman was not such a simple assembly; that all, components had not been imported; that the ceramic capacitors, connecting wires, jumper wire were procured locally without which the assembly of cassette recorder and walkman could not be completed; that they had not imported cassette recorders and walkman in CKD condition but have imported the components for their manufacture.
11. We have considered the arguments of both sides on this aspect. The goods have been imported in CKD condition and do not fall under OGL. The appellants had filed the import licence during the adjudication proceedings. The import licence in the matter before us pertains to the ITC Policy 83-84. The Tribunal in the case Mirah Dekor v. Collector of Customs, New Delhi 1988 (35) ELT 357 (Tribunal) had held that import licence governed by conditions and restrictions in force as on date of issuance – subsequent amendments inapplicable – Import licence issued on 12-2-1986 not governed by ITC Public Notice No. 127 dated 17-10-1986. Hon’ble Bombay High Court in the case of Bharat Oxygen & Acetylene Co. and Anr. v. Union of India and Ors. 1987 (29) ELT 858 (Bom.) had held –
“Import – Additional Licence – Right to import subject to manner provided for in import policy of year of issue of licence – Holder of additional licence entitled to issue letter of authority under Import Policy 1978-79 not debarred from such facility under Import Policy 1985-88.”
12. In the matter before us, the goods were shipped within the grace period. The import licence was not filed along with the Bill of Entry and was filed during the course of adjudication proceedings. In these circumstances, we are of the view that the benefit of import licence cannot be extended to the appellants. However, it appears that the appellants had imported items in dispute bonafidely, as in the past clearances had been allowed. Keeping in view our observations as to under valuation and ITC regulation and the gravity of offence, to meet the ends of justice, we reduce the fine in lieu of confiscation from Rs. 2 lakhs to Rs. 1 lakh and penalty from Rs. 15,000/- to Rs. 7,500/-. The Revenue Authorities are directed to give consequential effect to this order. Except for this modification in the order, the appeal is otherwise rejected.