Legal principle

Under Rule 2(a) of the Interpretative Rules, imported parts are deemed to be the finished article only if they present its essential character and can be completed by simple assembly such as fixing, riveting or welding; where components require further complex working operations before manufacture, they remain classifiable as parts.

Court decision

The Supreme Court confirmed the Tribunal's judgment and dismissed the Revenue's appeal, without costs, holding that on the facts the imported goods did not have the essential character of complete CTVs and Rule 2(a) was not attracted; the question whether Section Note 2 to Section XVI barred the application of Rule 2(a) was expressly left undecided as unnecessary.

Facts

Sony India Ltd. imported parts of colour televisions (CTV) between April 1995 and 1997, which the Revenue alleged were actually CKD kits of complete CTVs misdeclared as components to attract lesser duty. By order-in-original dated 30.1.1999, the Commissioner of Customs, ICD Tughlakabad, treated the imports as complete CTV sets, confirmed differential duty of Rs.42,89,75,196 under the proviso to Section 28(1) of the Customs Act, 1962, imposed a penalty of Rs.30,19,92,183 under Section 112(a) read with Section 114(a), with interest under Section 28AB, and proposed confiscation under Sections 111(m) and 111(d) for breach of the Exim Policy 1992-97. The CEGAT, initially divided between two Members, referred the matter to a larger Bench, which held that the imported components could not be treated as complete CTV sets and that the duty demand, confiscation and penalty were unsustainable, setting aside the order-in-original. The Commissioner of Customs appealed to the Supreme Court.

Key provisions

• Section 3, Customs Tariff Act, 1975 — Levy of additional duty equal to excise duty, sales tax, local taxes and other charges
• Section 2, Customs Tariff Act, 1975 — Duties specified in the Schedules to be levied
• Section 28(1), Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded