Legal principle

Where imports are split between related entities, the adjudicating authority must look at the entire composite picture to ascertain the real intention behind the arrangement, and goods shipped together as parts of one article in SKD condition may be clubbed and assessed as the finished article if the split is a subterfuge to bypass the EXIM Policy and claim exemption.

Court decision

The Supreme Court allowed the Department's appeals and set aside the Tribunal's order. It held the respondents guilty of violating para 156(A) of the EXIM Policy 1992-97, held them liable to assessment under tariff Heading 64.04 with duty at 50% basic customs duty plus 15% CVD ad valorem, held them not entitled to the concessional rate under Notification No.45/94-Cus dated 1.3.94, and upheld the Department's invocation of rule 8 of the Customs Valuation Rules; the question of re-quantification of differential duty, redemption fine and penalties was remitted to the Commissioner of Customs, ICD Tughlakabad, New Delhi.

Facts

M/s. Phoenix International Ltd. (PIL), holder of a Quantity Based Advance Licence under the DEEC Scheme, imported 5215 pairs of synthetic shoe uppers, while Phoenix Industries Ltd. (PIND) imported 5151 pairs of outer soles, insoles and sock liners on the same day under para 22 of the EXIM Policy 1992-97, all packed in one container marked 'Phoenix'. The Department alleged the goods were 'Reebok' brand synthetic shoes in semi-knocked down (SKD) condition, split between two companies to bypass para 156(A) of the EXIM Policy 1992-97 which required a specific import licence for consumer goods in SKD condition. Two show cause notices proposed confiscation under Section 111(d)(l)(m), assessment under tariff Heading 6404.19 at 50% basic customs duty plus 15% CVD, valuation at Rs.1,566.39 per pair under rule 8 of the Customs Valuation Rules, denial of Notification No.45/94-Cus and DEEC benefit, and penalty under Section 112(a). The Tribunal allowed the importers' appeals, and the Department appealed to the Supreme Court under Section 130E.

Key provisions

• Section 112(a), Customs Act, 1962 — Penalty for improper importation of goods
• Section 28(1), Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded
• Section 111(d)(l)(m), Customs Act, 1962 — Confiscation of improperly imported goods etc
• Section 130E, Customs Act, 1962 — Appeal to Supreme Court