Per: P.G. Chacko
These appeals are directed against the Commissioner's order dropping all the charges levelled against the respondents in the show-cause notice dated 17/03/1999 issued by the department. M/s. Electronic Instrumentation (proprietor: Shri Vinod Kumar Agarwal) and M/s. Videomax Electronics (proprietress: Smt. Sneh Lata, w/o. Shri Vinod Kumar Agarwal) are the respondents in these appeals filed by the department. Components/parts required for electronic goods, namely, rechargeable lights and radio cassette recorders, were imported by the respondents during the period from April, 1997 to February 1998. These imports were made in several consignments during the said period. A set of Bills of Entry were filed by Electronics Instrumentation and another set by Videomax Electronics. These Bills of Entry were accompanied by the respective invoices and packing lists. In each Bill of Entry, the imported items were described in the same manner as in the invoice and the packing list. The declared description, classification, quantity and value of the goods covered by each Bill of Entry were accepted and assessment made accordingly. The duty assessed was paid and the goods were allowed to be cleared under out-of-customs-charge orders issued under Section 47 of the Customs Act. Later on, the department launched investigations into the above imports, as part of which several statements of Shri Vinod Kumar Agarwal were recorded under Section 108 of the Customs Act. Statement of his wife Smt. Sneh Lata were also recorded likewise. Documents produced by Shri Vinod Kumar Agarwal in response to queries made by the department were scrutinised. Upon completion of the investigations, the aforesaid show-cause notice was issued to the respondents. ANNEXURE-X to the show-cause notice was a "CHART FOR CALCULATION OF DIFFERENTIAL DUTY ON THE KITS OF RADIO CASSETTE RECORDERS MADE BY THE IMPORTS BY M/S ELECTRONIC INSTRUMENTATION & M/S VIDEOMAX ELECTRONICS DURING 1997- 98". ANNEXURE-Y to the notice was a "CHART FOR CALCULATION OF DIFFERENTIAL DUTY ON THE KITS OF RECHARGEABLE LIGHTS MADE BY THE IMPORTS MADE BY M/S. ELECTRONIC INSTRUMENTATION & M/S. VIDEOMAX ELECTRONICS DURING 1997-98". As is evident from the allegations in the show-cause notice read with the annexures thereto, the department sought to shuffle components imported by M/s. Electronic Instrumentation and M/s. Videomax Electronics and regroup them in such a way that each of the many groups would appear to constitute the import of a "radio cassette recorder" or a "rechargeable light", as the case may be, in CKD/SKD condition. For instance, a component, namely, 'cabinet' covered by Bill of Entry No. 3753 dated 11/04/1997 filed in the name of Electronic Instrumentation was grouped with seven components (PCB, transformer, cable/wire, speaker, antenna, hardware and TDM) covered by Bill of Entry No. 3752 dated 11/04/1997 filed in the name of Videomax Electronics so as to obtain a "radio cassette recorder in CKD/SKD condition". On this basis, thousands of kits of radio cassette recorder and kits of rechargeable light were allegedly imported in CKD/SKD condition by the respondents. These kits were found to be restricted items for import under the Import Policy which was in force during the material period. It was alleged that the respondents imported these goods without specific licence in breach of the above restriction imposed under the Policy and with intent to evade payment of appropriate duty. The show-cause notice further alleged that the respondents had wilfully suppressed before the department the fact that they had imported restricted items in CKD/SKD condition without import licence. On this basis, the show-cause notice proposed to invoke the extended period of limitation under the proviso to sub-section (1) of Section 28 of the Act. Apart from demanding differential duty on radio cassette recorders and rechargeable lights in terms of ANNEXURE-X and ANNEXURE-Y respectively, the notice proposed to confiscate the goods under Section 111(d), (m) and (o) of the Act as also to impose penalties on the respondents under Sections 112 and 114A of the Act. The demand of duty was contested both on merits and on the ground of limitation, and other proposals in the show-cause notice were also contested on a few grounds by the respondents. It was in adjudication of this dispute that the learned Commissioner of Customs passed the impugned order dropping the demand of duty and other charges.
2. In the present appeals, the Revenue has raised numerous grounds, both factual and legal, against the Commissioner's order. Elaborating these grounds, learned JCDR has submitted that the learned Commissioner who passed the impugned order has not applied his mind properly to the case law cited before him and also has not taken into account the crucial facts admitted by Shri Vinod Kumar Agarwal in his statements under Section 108 of the Customs Act. It has been argued that, on the basis of admitted facts, the adjudicating authority could have easily discerned the subterfuge behind the subject imports and unearthed the fraudulent device resorted to by the respondents. It has been contended that a fraud was played on the Revenue in the name of 'tax planning'. In support of this contention, the learned JCDR has relied on the following decisions.
(i) Commissioner vs. Phoenix International Ltd. 2007 (216) ELT 503 (SC);
(ii) Commissioner vs. Sony India Ltd. 2008 (231) ELT 385 (SC);
(iii) Monica Enterprises vs. Collector 2002 (149) ELT 1264 (Tri.-Del.) (Civil Appeal filed by the party against this judgment of the Tribunal was dismissed by the Supreme Court.)
(iv) Sharp Business Machines Pvt. Ltd. vs. Collector 1990 (49) ELT 640 (SC);
(v) Micro Electronics vs. Collector 1989 (41) ELT 464 (Tribunal);
(vi) Shiv Shakti Enterprises vs. Collector 1991 (52) ELT 439 (Tri.).
3. Learned JCDR has particularly referred to the facts of the case of Phoenix International Ltd. (supra) and has claimed that the apex court's decision can be squarely applied to the facts of the present case. In this connection, it has also been pointed out that what the apex court held in para 10 of its judgment in Sony India case would strengthen the department's case. Learned JCDR has also referred to the facts of other cases cited above and has claimed support from the respective judgments. The gist of arguments of the learned JCDR is that, by virtue of Rule 2(a) of the General Rules of Interpretation of the First Schedule to the Customs Tariff Act, it is open to an assessing authority under the Customs Act to club components or parts (of any complete article) imported under two or more Bills of Entry by a person or by more than one person (where they are found to have common economic interests) at or about the same time, so as to make up such article in CKD/SKD form, where the intention of the importer(s) is admitted or otherwise established. In the present case, Shri Vinod Kumar Agarwal admitted that he had imported all the items covered by Annexures X & Y to the show-cause notice, some of them in the name of Videomax Electronics and other items in the name of Electronic Instrumentation. He also admitted that these were components of rechargeable lights and radio cassette recorders and could be assembled into these articles. He further admitted that such assemblage of components into finished goods viz: rechargeable lights and radio cassette recorders was actually done and that no component was disposed of as such. Shri Vinod Kumar Agarwal clearly admitted that rechargeable lights and radio cassette recorders had been imported in CKD/SKD condition on the pretext of importing individual components. He also expressed his willingness to pay differential duty as applicable to the finished goods. It was also admitted that, in the absence of import licence, he was not in a position to import complete radio cassette recorders or complete rechargeable lights on account of the restriction imposed under the Import Policy and, therefore, took to the device of importing individual components in the name of the two proprietorships. The husband and wife also admitted that the husband was entirely managing the affairs of the wife's business (Videomax Electronics) too. Learned JCDR has argued that, on these admitted facts, it was not open to the adjudicating authority to drop the proceedings initiated in the show-cause notice. Relying on Rule 2(a) and case law, the learned JCDR submits that the crucial finding recorded by the Commissioner cannot be sustained in law. The finding referred to by the learned JCDR reads thus: "It is a well settled position that each consignment covered by each B/E is to be assessed in the condition in which the goods are presented for assessment". He has referred to certain judgments in support of the challenge against this finding. Learned JCDR has also sought to justify invocation of the extended period of limitation. Claiming support from the Supreme Court's judgement in Union of India vs. Jain Shudh Vanaspati Ltd. 1996 (86) ELT 460 (SC), he submits that the show-cause notice was lawfully issued for recovery of differential duty from the respondents for the extended period of limitation notwithstanding the fact that the assessments in respect of the goods imported by the respondents were final. It is submitted that Shri Vinod Kumar Agarwal clearly admitted the fraud played on the Revenue by importing restricted items without licence and with intent to evade payment of appropriate duty on the pretext of importing components thereof. It is submitted that this fact was suppressed before the department and the same came to light only at the end of investigations. In the circumstances, it is argued, the extended period of limitation was validly invoked in the show-cause notice. Learned JCDR has also canvassed a case for holding the goods liable to confiscation under Section 111 of the Customs Act and for imposing penalties on the respondents under Sections 112 and 114A of the Act.
4. Learned counsel for the respondents has argued in full support of the Commissioner's order. He submits that each of the respondents had acted lawfully. He points out that the Revenue has no case that the description, classification, quantity or value of the goods covered by any of the Bills of Entry was misdeclared or that the duty assessed by the assessing authority was not paid. According to the learned counsel, it was open to the respondents to import freely importable components and clear the same on payment of appropriate duty. The respondents are separate assessees for purposes of the Customs Act, the Income Tax Act and the Sales Tax Act and there is no reason why their imports, which were made over a period of time, should be clubbed. It is submitted that, under Rule 2(a) of the Interpretative Rules, only those components which are imported by the same person and presented together for assessment at the same time can be clubbed into a complete article or an incomplete article having the essential character of the complete article, in CKD/SKD condition. In the present case, various components of radio cassette recorders (RCRs) and rechargeable lights (RCLs) were imported over a period of time and, on no occasion, the components of any RCR or RCL were presented together at the same point of time before the assessing authority by any of the respondents. The learned counsel has, therefore, argued that the view taken by the adjudicating authority is sustainable in law. In this connection, he has relied on the following decisions.
i. Commissioner vs. Sony India Ltd. 2008 (231) ELT 385 (SC);
ii. Thomson Consumer Electronics (I) Pvt. Ltd. vs. Commissioner 2004 (177) ELT 872
iii. Vishal Electronics Pvt. Ltd. vs. Collector 1998 (102) ELT 188 (Tribunal);
iv. Trident Television Private Ltd. vs. Collector 1990 (45) ELT 24 (Cal);
v. Susha Electronics Industries vs. Collector 1989 (39) ELT 585 (Tribunal).
Learned counsel has also made an endeavour to distinguish the cases cited by the learned JCDR. According to him, all those cases are factually distinguishable and hence the decisions are not applicable to the instant case. It is submitted that it is legally valid for the respondents to have taken judicious recourse to tax planning and that neither any subterfuge nor any fraud can be read into what they have done.
5. Learned counsel has also pleaded limitation against the demand of duty raised in the show-cause notice. It is submitted that all the items imported by the respondents were freely importable and the same were imported in accordance with law and were lawfully cleared under Section 47 of the Act after payment of the duty assessed. The declared description, classification, value etc. of the imported goods were accepted by the assessing authority and the assessments were never revised. In this scenario, nothing can be said to have been suppressed by the respondents with intent to evade payment of duty. According to the counsel, the entire demand of duty is heavily time-barred and, where no demand of duty as raised in the show-cause notice is enforceable, there can be no penalty under Section 114A of the Act, nor can there be any penalty under Section 112 of the Act.
6. We have given careful consideration to the submissions. We note that the essential facts of this case are not in dispute. The husband imported components of radio cassette recorders and rechargeable lights in the name of Electronic Instrumentation and the wife imported components of the said articles in the name of Videomax Electronics. These imports took place over a period of time from April 1997 to February 1998. In at least one of these imports, the consignments imported by Mr. & Mrs. Vinod Kumar Agarwal came in the same container and, upon scrutiny of the Bills of Entry filed on the same date in respect of these consignments, it was found that the components imported by the husband matched those imported by the wife so as to make up complete kits of radio cassette recorders and rechargeable lights in CKD/SKD condition in terms of Rule 2(a) of the General Rules of Interpretation of the CTA Schedule. Even where a consignment of the husband and a consignment of the wife came in separate containers, the department found perfect match between components covered by the Bill of Entry filed by the husband and the components covered by the Bill of Entry filed by the wife on the same date and such components were also found to be constituting complete articles (RCRs or RCLs) in CKD/SKD condition. There were also cases in which similar match was noticed between components covered by the husband's Bill of Entry filed on a particular date and components covered by the wife's Bill of Entry filed a day before or a day after. In all these situations, according to the Revenue, the complete article (radio cassette recorder or rechargeable light) was imported in CKD/SKD condition fraudulently with intent to get over licensing provisions of the relevant Import Policy as also to evade payment of duty. The adjudicating authority has rejected this view of the department by holding that, in terms of Rule 2(a) ibid, the components covered by each Bill of Entry should be assessed independently. This decision of the learned Commissioner is under challenge in the present appeal.
7. In our view, of all the cases cited before us, Phoenix International case is the most proximate to the present case in factual matrix. Therefore, this case should be decided on the basis of the ratio of Phoenix case which also involved the application of Rule 2(a) which reads as under:
"2. (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or dis-assembled." (underlining added)
In the case of Sony India Ltd., the Supreme Court compared that case with Phoenix case with regard to the applicability of Rule 2(a) and observed as follows:
"10. In Phoenix International Ltd. & Anr. (supra) these conditions in Rule 2(a) were fully satisfied inasmuch as the spare parts of the shoes could formulate into a full pair of shoes. Though the learned Judges did not refer to that specifically in their judgment, the facts clearly suggest that Rule 2(a) was fully applicable in that case. This is one more reason why the decision in Phoenix International Ltd. & Anr. is different on facts from the present case." [underlining added]
In this context, we shall state the facts of Phoenix case (supra). Some parts of footwear were imported by M/s. PIL and some other parts by M/s. PIND. M/s. PIND were a subsidiary company, of which M/s. PIL were the holding company. The aforesaid parts, namely, shoe uppers, outer soles, insoles, and sock liners were OGL items i.e., were freely importable, but footwears could not be imported without specific licence as per para 156A of the EXIM Policy 1992-97. Consumer goods such as footwears, whether in SKD/CKD condition or ready-to-assemble sets or in finished form, were not permitted to be imported except against a licence or in accordance with a Public Notice issued in this behalf vide para 156A ibid. M/s. PIL and M/s. PIND imported the respective parts of footwear over a period from 21/06/1995 to 04/11/1995 and also in the month of February 1996. All these imports were claimed under OGL and duty was paid on the basis of the CIF value declared in the relevant Bills of Entry. After investigations, the department took the view that the two importers had jointly imported footwears in SKD condition with intent to get over the restriction imposed under para 156A of the EXIM Policy and to evade payment of appropriate duty. The modus operandi of the two companies was believed to be a subterfuge or a fictitious arrangement to evade customs duty. The allegations of the department were denied by the importers. The dispute eventually came up before the apex court.
Their lordships noted that M/s. PIL had funded M/s. PIND with interest-free loans running into Rs. 18 crores (approx.) and also that the latter's name had been shown as the former's supporting manufacturer in the DEEC held by M/s. PIL. Their lordships further noted that the components imported by M/s. PIND were given to M/s. PIL who manufactured the finished product viz: synthetic shoes by using all the components together with 28 other items (peripherals) procured domestically. They held that the importation of one component (shoe uppers) by M/s. PIL and three components (outer soles, insoles, and sock liners) by M/s. PIND was a subterfuge/ fictitious arrangement intended to deceive the department and also a fraud on para 156A of the EXIM Policy 1992-97. It was found that the obvious reason behind the bifurcation of footwear into components was to bypass the EXIM Policy and obtain the benefit of Exemption Notification No. 45/94-Cus dated 01/03/1994. The Hon'ble Supreme Court, accordingly, held the two companies to be guilty of violating para 156A of the EXIM Policy and also held them liable to pay duty on the goods viz. footwear (CTH 64.04) imported in SKD condition.
We note that, in the case of Sony India Ltd., the Supreme Court had occasion to examine the impact of Rule 2(a) on the facts of Phoenix case vide para (10) of the judgment rendered in Phoenix case. Their lordships held that, in Phoenix case, the requirements of Rule 2(a) were fully satisfied inasmuch as the spare parts of shoes could formulate into a full pair of shoes. They categorically held that Rule 2(a) was fully applicable to the facts of Phoenix case. In this context, it is pertinent to note that, in Phoenix case, some parts/components of shoes were imported by M/s. PIL and other parts/components by M/s. PIND and these imports took place over a period of time (June-November 1995 & February 1996). Obviously, the parts/components imported by the two companies and presented to Customs under different Bills of Entry filed on the same date or on different dates were clubbed and held to be assessable as "footwear in SKD condition" attracting duty as applicable to Customs Tariff Heading 64.04. As clarified in Sony India case, the parts/ components imported by the two companies can be held to have been presented to the Customs for classification (and assessment) in terms of Rule 2(a) of the Interpretative Rules.
8. We have found a glaring parallel between the instant case and Phoenix case. In the present case, components of radio cassette recorders and rechargeable lights were imported by the respondents over a period of time. On many occasions, the components imported by Shri Vinod Kumar Agarwal in the name of 'Electronic Instrumentation' on a particular date perfectly matched those imported by his wife in the name of 'Videomax Electronics' on the same date. (In one of these cases, the consignments covered by the Bills of Entry filed by the husband and the wife came in the same container.) There are also numerous instances of matching imports having been made by the couple on successive dates. In a few cases, matching components figured in Bills of Entry filed by the couple with a short gap of a few days. In Annexure-X to the show-cause notice, the department has brought out spectacular groupings of imports of components by the couple, each group indicating import of "radio cassette recorder kits in CKD/SKD condition". Similarly Annexure - Y to the notice has brought out similar groupings of components imported by the couple, each group indicating import of "rechargeable light kits in CKD/SKD condition" for the same period. The show-cause notice also clearly brought out the couple's intention (a) to get over the restriction laid down in para 15.2 of EXIM Policy 1997-2002 (which is pari materia with para 156A of EXIM Policy 1992-97 which was considered in Phoenix case.) In our view, Rule 2(a) was correctly applied in Annexures - X and Y to the show-cause notice.
9. Learned JCDR has also relied on Girdharilal Banshidhar vs. Union of India AIR 1964 SUPREME COURT 1519. In that case, the appellant had obtained a licence for importing "iron and steel bolts, nuts, set screws, machine screws & machine studs, excluding bolts, nuts and screws adapted for use on cycles". During April-July 1954, they imported bolts and nuts described in the Bill of Entry as "stove bolts and nuts". The imported goods were found to be identifiable parts of bolts and nuts of "Jackson type single bolt, oval plate belt fasteners", importation of which had been prohibited by a Notification of the Ministry of Trade issued in January 1952. A show-cause notice was issued to the party alleging inter alia that they had misdeclared the goods as "stove bolts and nuts" with intent to import them in breach of the above prohibition. In adjudication of this show-cause notice, the Collector of Customs held that the bolts and nuts imported by the party were, in reality, components of the prohibited article and accordingly he imposed a penalty on them under the Sea Customs Act, 1878. He also confiscated the goods with option for redemption against payment of a fine. When the matter ultimately came up before the Supreme Court, the Collector's decision came to be upheld. The Collector had noted that the washers to fit into the bolts and nuts imported by Girdharilal Banshidhar had been separately imported by a company called 'Nawanagar Industries Ltd.' which was owned or controlled by close relatives of Girdharilal Banshidhar. This fact was considered by the Collector as evidence to confirm his conclusion that the bolts and nuts imported by Girdharilal Banshidhar were, in realty, components of the prohibited article viz. single bolt oval plate belt fastener. The Collector also noted that the real intention of Girdharilal was to evade the aforesaid prohibition and contravene the provisions of Section 167(8) of the Sea Customs Act. While upholding the Collector's decision, the apex court observed inter alia as follows:
"It appears to us that it does not stand to reason that a component part which has no
use other than as a component of an article whose importation is prohibited is not included in a ban or restriction as regards the importation of that article. Expressed in other terms, we cannot accede to the position that it is the intention of the rule that the importers are permitted to do indirectly what they are forbidden to do directly, and that it permits the importation separately of components which have no use other than as components of an article whose importation is prohibited, and that an importer is thereby enabled to assemble them here as a complete article though if they were assembled beyond the customs frontiers the importation of the assembled article into India is prohibited."
As held by the Hon'ble Supreme Court, an importer cannot be permitted to do indirectly what he is forbidden to do directly. This ruling of the apex court prompts us to take the view that Rule 2(a) cannot be interpretted in a manner that permits an importer to import components (which have no use other than as components of an article whose importation is prohibited or restricted) under OGL and assemble them in India into an article in respect of which there is a ban or restriction on importation. In the instant case, Vinod Kumar Agarwal admitted that, without licence, he imported the restricted items (RCRs and RCLs) in CKD/SKD condition on the pretext of importing individual components in the name of Electronic Instrumentation and Videomax Electronics. This admission amounted to acceptance that Rule 2(a) was applicable to the imports in question. The highly belated claims to the contra made in the reply to the show-cause notice cannot be accepted as a valid retraction of the confessional statements made by him under Section 108 of the Customs Act.
10. In the case of Monica Enterprises (supra) considered by the Tribunal, it was found
that one Shri Jatinder Uppal had imported electronic consumer goods (car stereo cassette player; stereo cassette tape recorder-cum-radio etc.) in SKD condition in the names of different firms in which he had direct or indirect interest. These were prohibited items under the EXIM Policy, 1985-88. The imported goods were found to have been misdeclared as electronic 'components' in seven Bills of Entry filed on 17/03/1986 for clearance under Open General Licence (OGL). The Tribunal upheld the Collector's finding that complete electronic consumer articles had been imported in SKD condition and not components thereof and, therefore, the imported goods were liable to confiscation under Section 111(d) of the Customs Act on the ground that they had been imported in violation of the prohibition laid down under the EXIM Policy. The Tribunal followed the ratio of the Supreme Court's judgment in Girdharilal Banshidhar's case (supra). We find that the Civil Appeals filed against the Tribunal's decision were dismissed by the apex court vide Alconic International Merchandise vs. Collector 2003 (153) ELT A165 (S.C.). The ratio of the Tribunal's decision in Monica Enterprises case as upheld by the Supreme Court is also applicable to the present case.
11. The ratio of Monica Enterprises (supra) and the ruling in Girdharilal Banshidhar (supra) were followed by the Tribunal in the case of Shiv Shakti Enterprises (supra) also, wherein the importer, who had REP licence for rivets and did not have any licence for snap fasteners, imported two consignments of what was declared as "metal fittings rivets (rivets for leather goods)" and claimed clearance under the REP licence, but the Tribunal upheld the Collector's order clubbing the goods covered by the two Bills of Entry and holding that the goods imported by the party were snap fasteners and not rivets. The party was held to have split their import so as to make it appear that they imported decorative rivets, for which partial exemption from customs duty was available under Notn. No. 224/85-Cus as amended by Notn. No. 290/87-Cus. They were also held to have contravened the Import (Control) Order, 1955, whereunder snap fasteners were not importable without licence. Thus, in the case of Shiv Shakti Enterprises also, a fraud on the Revenue as well as on the Import Policy was exposed.
12. In Micro Electronics case (supra), the goods imported in four consignments and declared as "spare parts" of video cassettes in the 4 Bills of Entry - two of these filed in the name of M/s. Bharat Laxmi Trading Co. Ltd. & the other two in the name of M/s. East Asia Skin Corporation - were held to be complete "video cassettes in SKD condition" which were not importable as per para 186(A) of the Import Policy in force during the period of the subject imports (1984 - 85).
13. In the case of Sharp Business Machines Pvt. Ltd. (supra), the apex court observed that the appellant was doing indirectly what they were not permitted to do directly. The Import Policy of the relevant period had, by way of incentive to small scale industrial units, allowed such units to import, initially, 62% of the components of plain paper copiers (final product), the balance 38% of components having to be indigenously manufactured by them. The appellant (SSI unit), under this scheme, made imports in a few consignments during January - March 1987 and declared the goods as parts and accessories of copiers in the Bills of Entry. The Collector (adjudicating authority) held that the goods imported by the party were fully finished copiers in CKD/SKD form, which were prohibited item for import. The dispute traveled through the Tribunal to the apex court. The Supreme Court, dismissing the party's appeals, observed that the device adopted by the appellant was a complete fraud on the Import Policy.
14. Thus it can be seen that, whenever it was found that freely importable components or parts of articles which were prohibited or restricted for import under the Import Policy were imported by a person in his own name or in the names of two or more firms (which were either fictitious or directly or indirectly controlled by such person) contemporaneously and presented for assessment as components or parts of such articles, the Supreme Court and this Tribunal approved the department's procedure of clubbing of the imported consignments to ascertain whether the complete article was actually imported in CKD or SKD condition with intent to defraud the Government.
The decisions are, by and large, based on the premise that the circumstances surrounding the imports have to be ascertained and the intention behind the importation has to be probed so as to determine whether the importation of individual components was a subterfuge or fraudulent device to evade duty and Import Policy restrictions applicable to the complete article. The apex court's judgment in Phoenix case is particularly noteworthy in this context.
15. We also note that "tax planning" or "tax avoidance" cannot be a valid defence, today, against a charge of fraudulent evasion of duty. In the two-and-a-half-decades-old case of McDowell & Co. Ltd. vs. Commercial Tax Officer (1985) 3 SCC 230, cited by the learned JCDR, the Supreme Court had, after referring to a good number of English cases, observed that the principle of Westminster had been given a decent burial in the very country (England) where the phrase "tax avoidance" had originated. The court wondered whether the "ghost of Westminster", which had been exorcised in England, should be allowed to rear its head in India. It was also opined that it was high time for the judiciary in India, too, to part its way from the principle of Westminster and the alluring logic of tax avoidance. The apex court further held as under:
"Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges."
In McDowell's case, it was also held as follows:
"It is neither fair nor desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices should be related to the existing legislation with the aid of 'emerging' techniques of interpretation ....... to expose the devices for what they really are and to refuse to give judicial benediction." (underlining added)
We further note that, in certain exceptional cases where the legal personality of a company was misused for tax evasion or for circumventing tax obligation, the Supreme Court held that tax authorities and courts were entitled to pierce or lift the corporate veil to find out the economic realities behind the legal fagade vide Commissioner of Income Tax vs. Sri Meenakshi Mills Ltd. AIR 1967 SC 819 and Calcutta Chromotype Ltd. vs. Collector 1998 (99) ELT 202 (SC), both cited by the learned JCDR. We are of the view that, if the corporate veil can be lifted to see the economic realities involved in the transaction in question in an appropriate case involving one or more corporate entities, the principle underlying this procedure must a fortiori be applicable to transactions involving natural persons in appropriate cases like the present one. We take this view, bearing in mind the observations made by the apex court in McDowell case, which we reproduce once again at the risk of repetition:
"It is up to the court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices should be related to the existing legislation with the aid of 'emerging' techniques of interpretation ....... to expose the devices for what they really are and to refuse to give judicial benediction."
The learned Commissioner in this case did not even attempt to see whether the respondents were actually evading customs duty and Import Policy restrictions by presenting various components of RCRs and RCLs before the assessing officer in a manipulative manner to make it appear that they had imported only the components and not the complete articles in CKD/SKD condition.
16. In this case, Shri Vinod Kumar Agarwal and Smt. Sneh Lata Agarwal, living under the same roof sharing inter alia common economic interests, imported RCRs and RCLs (both of which were not importable without licence as per the relevant EXIM Policy) in CKD/SKD condition on the pretext of importing individual components of the said articles (freely importable) declared as such components in the Bills of Entry filed in the names of Electronic Instrumentation (prop: husband) and Videomax Electronics (prop: wife) with obvious intent to circumvent the Policy provision as also to short-pay duty. The husband admitted the facts under Section 108 of the Customs Act. He often referred to 'Videomax Electronics' as "his" firm. He admitted that he had imported, in the names of the two firms, all the components required for a complete electronic item; that he had taken precaution not to import all the components for a complete article in the name of the same firm and at the same time; that, at a time, some parts of one article were imported in the name of one firm and other parts of that article in the name of the other firm; that they did this to avoid scrutiny and detection by Customs officers at the time of processing of papers and examination of goods; that they had imported whole kits in CKD/SKD condition through Bombay port; that the Export Import Policy did not permit import of consumer goods in CKD/SKD condition without specific advance licence which they did not have; that they used to sell complete mini RCLs both in bulk and in retail to customers from the factory of Electronic Instrumentation at B-153, G.T. Karnal Road, Industrial Area, Delhi and also from the shop of Videomax Electronics at 539, Old Lajpat Rai Market, Delhi; that they sold only finished mini RCLs and never sold components; that these goods were assembled at the basement of the residential building No. B-232 Derawal Nagar, Delhi and at B-15/3, G.T. Karnal Road, Delhi; that these goods did not have any indigenous component and were as good as goods manufactured abroad and imported into India; that radio cassette recorders, mini rechargeable lights, emergency lights, electric iron, microwave oven, toasters, hand mixers etc. were assembled in the above manner; that all components of these items, including plastic cabinets, wires, nuts and even packing, were imported; and that only complete articles were sold, but cash memos were issued for the components and these cash memos used to be torn off. Vinod Kumar Agarwal also stated that he was willing to pay the duty short-paid and also to make payment towards personal penalty and redemption fine. He further stated that he was looking after the day-to-day work of both the firms and that his wife did not attend to any work of Videomax Electronics. He also answered the investigating officer's queries relating to Videomax Electronics. Smt. Sneh Lata stated that her firm, Videomax Electronics, was started in 1985 and its work was being looked after by her husband (Vinod Kumar Agarwal) and son. In his statements, Vinod Kumar Agarwal also explained his modus operandi in the matter of presenting the imported goods for assessment. He furnished information as to the number of Bills of Entry which he filed in the names of Electronics Instrumentation and Videomax Electronics. He also illustrated with reference to specific Bills of Entry that the components covered by different Bills of Entry filed on the same date could be assembled into a complete electronic article. All the statements were consistent and none was retracted.
On perusal of the xerox copies of a couple of invoices produced by the JCDR, we have found this evidence to be typically clinching the Revenue's case. The essential particulars of the two invoices are shown below:
Invoice No. & Date
Shankar's Emporium (PTE) Ltd. Singapore
Description and quantity of goods
Tape Deck Mechanism
Plastic Moulded Cabinet
Separate Bills of Entry, No. 682 and No. 534 respectively, were filed on 05/01/1998 in the name of 'Videomax Electronics' and 'Electronic Instrumentation' describing the above goods in the same manner as in the respective invoices and claiming clearance under OGL as components of electronic goods. All these components covered by the two Bills of Entry were clubbed in the show-cause notice to make 2141 kits of radio cassette recorders as seen from Annexure - 'X' to the show-cause notice. Similar clubbing of other contemporaneous imports of components into 'RCR kits' was also made and such kits were also included in Annexure - 'X'. Similarly kits of rechargeable lights were also made, in the SCN, from RCL components contemporaneously imported by the respondents. Annexure - 'Y' to the SCN gives the relevant particulars of 'RCL kits'. Each kit borne on Annexure - 'X' or 'Y' represents import, in CKD/SKD condition, of the complete article, namely, RCR or RCL, as the case may be. We find that the scheme of Annexures 'X' and 'Y' to the show-cause notice eminently reflects the respondents' modus operandi as admitted by Vinod Kumar Agarwal. In other words, the complete articles, which were restricted items for import during the material period, were admittedly imported in CKD/SKD condition by Mr. & Mrs. Vinod Kumar Agarwal on the pretext of components (freely importable) being imported by two different firms. It is a basic and settled law that what is admitted need not be proved vide Commissioner vs. Systems & Components Pvt. Ltd. 2004 (165) ELT 136 (S.C.) and that a confessional statement made by a person before a customs officer under Section 108 of the Customs Act binds him vide Surjeet Singh Chhabra vs. Union of India 1997 (89) ELT 646 (S.C.). The respondents' intention to evade Import Policy restrictions and to short-pay duty on the consumer goods imported by them is crystal clear from Vinod Kumar Agarwal's confessional statements. The learned Commissioner ought to have taken serious note of the subterfuge involved in the respondents' colourable device. As held by the Supreme Court in McDowell case, a colourable device or a dubious method to avoid payment of tax is not part of "tax planning". We, therefore, cannot accept the learned counsel's contention that the respondents were entitled to make the imports in the manner they did by way of tax planning.
17. Learned counsel has also relied on a few decisions including the apex court's judgment in Sony India case in support of his contention that each Bill of Entry has to be separately assessed and that it is not permissible in law to club imports of components covered by different Bills of Entry filed on the same date or on different dates, so as to assess the goods as the complete article in CKD/SKD condition. We have already held to the effect that the said contention of the learned counsel is not acceptable inasmuch as Vinod Kumar Agarwal admitted the subterfuge resorted to by him in the names of the respondents to evade Import Policy restrictions and to short-pay duty. It was clearly and categorically admitted that the imports of components by the respondents during the material period, as a matter of fact, constituted importation of complete RCRs and RCLs in CKD/SKD condition. Having admitted the Revenue's case on facts, the respondents cannot claim the benefit of any of the decisions cited by their counsel, as the importers in the cited cases had apparently relied on Rule 2(a) without admitting subterfuge. We are of the view that, in respect of importers like the respondents who deliberately resort to subterfuge by importing complete articles against policy restriction on the pretext of importing components/parts thereof and also admit the offence as in this case, any interpretation of Rule 2(a) is only of academic interest. Moreover, the issue in the present case is squarely covered by the ratio of the apex court's decision in Phoenix case, the facts of which are similar to the facts of the present case.
18. In the result, we hold that the respondents committed breach of para 15.2A of the Exim Policy 1997-2002 by importing consumer goods, viz., radio cassette recorders and rechargeable lights without import licence. They also evaded payment of customs duty by presenting the goods as components instead of complete articles. As Shri Vinod Kumar Agarwal admitted the offence clearly in his statements under Section 108 of the Customs Act, it is not open to the respondents to plead that they did not suppress any material fact with intent to evade payment of duty. Hence the extended period of limitation is invocable in this case. For the same reason, it is also not open to the respondents to argue that no penalty is liable to be imposed on them under Section 114A of the Customs Act, as the legal requirements for a penalty under this provision are the same as the legal requirements to be established for invoking the extended period of limitation under Section 28(1) of the Act. We also hold that the goods imported by the respondents and misdeclared as freely importable components instead of complete consumer articles restricted for import are liable to confiscation under Section 111(d) and (m) of the Customs Act. However, Section 111(o) of the Act has not been shown to be applicable in this case.
19. We, therefore, set aside the impugned order and remand the case to the learned Commissioner for the limited purpose of quantifying the correct amount of duty to be paid by the respondents and determining the penalty to be imposed on them under Section 114A of the Act. In determining the quantum of this penalty, the Commissioner shall have due regard to the first proviso to Section 114A. It is made clear that no penalty shall be imposed on any of the respondents under Section 112 of the Act as it is barred by the fifth proviso to Section 114A. Coming to the proposal in the show-cause notice for confiscation of the goods, the learned JCDR has submitted that all the goods seized from the respondents' premises were released to them against bond and security deposit and, therefore, redemption fine has got to be imposed in lieu of confiscation as held by the Supreme Court in Weston Components Ltd. vs. Commissioner 2000 (115) ELT 278 (SC). We note that this submission of the JCDR pertains to the seized goods only. The learned Commissioner shall take note of this aspect and proceed to determine the fine in accordance with law. It goes without saying that the respondents should be given a reasonable opportunity of being heard on the remanded issues.
20. The appeals are disposed of in the above terms.