MOORTHY'S INTERNATIONAL & Vs. CC. CHENNAI

JUDGEMENT

(1.) BOTH these appeals arise from a common Order -in -Original No. 43/96 dated 16.5.96 passed by Commissioner of Customs, Madras confirming the allegations made out in the show cause notice dated 22.3.96 issued after investigation carried out by officers of DRI. Both the appellants are claimed to be independent importers with separate registration of their proprietary concerns under respective authorities, but however, functioning from a common place and the relationship between them is that of father and son. They filed declaration by Bill of Entry through their CHA M/s. S.K. International vide Bill of Entry No. 49303 dated 6.10.95 on behalf of importer M/s. Moorthy's International and M/s. Sri Sunder Agent, filed bill of entry No. 54227 dated 3.11.95 on behalf of M/s. Nandana International, Madras, for the clearances of consignments declared as components of telephones. The value of these consignments were declared as Rs. 4,96,424/ - and Rs. 3,14,717/ - respectively on the strength of the shipper's invoice No. 95/378 dated 14.9.95 and 95/379 dated 14.9.95 for US 14,939.70 CIF Madras and US 8704.50 CIF Madras respectively. The invoice in both cases were raised in favour of the importers by the shippers M/s. Nagi Lik Electronics Co. Ltd., Hong Kong. The importers sought the clearance of the same on the ground that in terms of para 22 of the Export -Import Policy for 1992 -97, the goods does not require licence as parts of telephones can be imported on OGL basis. However, after the consignment of M/s. Nandana International was cleared on payment of duty on 6.11.95, while the consignment of Moorthy's International was still pending clearance,when investigation was taken up by DIR and statements recorded from R. Nanda Kumar, Proprietor of M/s. Nandana International, Madras on 14.11.95 and that of his father, proprietor of M/s. Moorthy's International, who had imported these goods. They admitted having visited Hong Kong for purpose of purchasing these components. It was revealed that they had a common office and also had a separate private limited firm dealing in manufacture of Ayurvedic products. These concerns were doing import -export business. They admitted that the consignments were stuffed in the same container and it had been purchased from the same supplier and were shipped after careful scrutiny by assigning consecutive numbers. The samples were drawn from both the consignments and forwarded to one M/s. Powerline Electronics, Madras to ascertain as to whether the parts can form a complete telephone set on assembling. The said firm after examining the samples, opined that they were able to assemble from the said sample a complete functioning telephone of Model No. DENWA TP -206 and 'LENOX SOUND model KB 329'. These assembled sets were handed over to the investigators they were said to be model telephones in functioning condition. It was further presumed that in terms of para 156 (a) of the Export -Import Policy 1992 -97 and Classification (ii) Consumer Telecommunication equipment namely telephone instruments are covered under restricted items of imports and therefore, they are not permitted to be imported except against a licence or in accordance with a public Notice issued in this behalf. Therefore, they were charged for violating the Export -Import Policy 1992 -97 by mis -declaration and with an intention to violate the provision of law in terms of Section 111 (d) of the Customs Act read with Section 3 (2) of Foreign Trade (Development and Regulation) Act 92. The gist of the allegation has been brought out by the Commissioner in para 13 of his order which is extracted herein below: -

(2.) BOTH the appellants filed their reply contending that they are independent firms and the relationship of father and son will not come in the way of their functioning as independent importers as per law. They had independently negotiated and purchased the components parts which could be imported without licence. They denied the allegation that they had imported telephone instruments without licence. M/s. Moorthy's International categorically pointed out that he had a valid special import licence No. OA 0129052/28.11.95 for the import of one of the restricted item, i.e. PCB sets for telephones, which by value constitutes about 40% of the consignment imported. Their main plea was that they did not admit that they had imported telephone instruments in CKD or SKD condition to violate the OGL Policy. They submitted that they did not any facility for manufacturing, assembling and for selling the telephone instruments. They were to dispose of only as parts as it was permissible. They relied on the judgment of the Apex Court rendered in the case of UOI Vs. Tarachand Gupta and Bros. Reported in 1983 ELT 1456(SC) and referred to the following portion of the order: -

(3.) THE Commissioner rejected all their pleas and also examined the case law to distinguish the judgments brought before him. he has noted that the appellants had admitted not only to circumvent the policy but also tax evasion as a higher rate is applicable on the finished product and the components attract lesser rate of duty. A complete set can merely be assembled and sold. Although the importers are not manufacturers, yet if this practice is allowed to continue, then it will lead to perpetual loss of revenue to the government besides circumventing the policy of import. He has relied on the judgment of the Apex Court in the case of Sharp Business Machines Pvt. Ltd. Vs. CC [1990 (49) ELT 640] wherein the appellant import who admitted to import of restricted items in complete set in SKD condition was held to be a device adopted by the appellants to play fraud on the import policy indirectly. he has also not agreed with the contention raised by them that they are two independent and different legal entities. He has noted in para 25 of his order that "normally when an importer imports all the components/parts which will constitute a complete set there should not be any problem in taking the stand as has been taken in this case. But when two different legal entities are involved the point for consideration is whether it has to be treated independently or together. What strikes me her is that though the importers are two different legal entities, the premises is common and components imported separately, when assembled together constitute an exact number of finished product. 'this only shows that the arrangement is merely to circumvent the law in nan ingenious and an apparently legalistic manner. In this context one has to draw inspiration from the case of Juggilal Kamlapati Vs. Commissioner of Income Tax, UP in AIR 1969 SC 932 (V 56 C 169) wherein the Hon'ble Supreme Court has upheld the principle that the judicial authorities have the power to disregard the corporate entity if the conception is used for tax evasion or to circumvent tax obligation or to perpetrate fraud"