Merely because goods are in bundle form in different shapes and sizes without usual packing as in the case of prime goods would not make them defective.

PJ/Case Law/2013-14/1953

Case:- SABARI EXIM (P) LTD.Vs COMMR. OF CUS. (IMPORTS), CHENNAI

Citation:- 2013 (295) E.L.T. 458 (Tri. - Chennai)

Brief facts:- Appellant imported goods described by them as “Non-alloy steel bars/rounds/flats/squares” and filed two Bills of Entries No. 834941 and 834942, dated 7-7-2005 at Customs House, Chennai. They classified the goods under Customs Tariff Item (CTI) 7215 90 90 and claimed exemption under Notification 21/2002-Cus. at S. No. 190B. This exemption was available to “All goods other than seconds and defectives” falling under Customs Tariff Headings 72.03 to 72.17. On examination of the goods, the customs officers felt that the goods were secondary or defective because they were in bundle form in different shapes and sizes without usual packing as in the case of prime goods normally imported. A scientist from National Mineral Laboratory was called to inspect the lot and also to test representative sample and give his view. The NML vide their Report No. NML/MC/04/MI/52/05-06, dated 16-8-2005 for B/E No. 834941 and Report No. NML/MC/04/MI/47/05-06, dated 16-8-2005 for B/E No. 834942 had opined that, “Bars with different length were found in same bundles; Bars were with moderate surface defects; and also bars were found with defects like broken ends, bends, and surfaces with lap joints”; “the materials could be considered as non-alloy steel bars rounds/fats/squares - seconds”.
Based on their own inspection and the report of the scientist from NML, the department took a view that the appellant had imported “Non-alloy Steel bars-seconds” in the guise of non-alloy steel bars prime and claimed duty exemption as applicable to prime goods only. A Show Cause Notice proposing confiscation of the goods on account of mis-declaration of description and also for demanding differential duty by denying the exemption notification was issued and adjudicated resulting in denial of the exemption in Notification 21/2002-Cus. (S. No. 190B) dated 1-3-2012, confiscation of the goods under Section 111(m) of the Customs Act, 1962 with option to redeem the goods on payment of fine of Rs. 10,00,000/- and imposition of penalty of Rs. 1,00,000/- on the importer. Aggrieved by the order of the Commissioner, appellants have filed this appeal before the Tribunal.

Appellant’s contentions:- The Counsel for appellant submitted that the words “seconds and defectives” used in the notification was not defined in the Customs Tariff or the Notification or any known trade standards. NML and Revenue had adopted its own criteria for understanding the expression and came to a conclusion that the goods were seconds or defectives. The standards adopted by NML for deciding the goods to be seconds were not disclosed to the appellants. It was their contention that mild rust formation noticed on a few pieces could not be a reason to conclude that the goods were seconds because due to storage and exposure to atmosphere steel goods are bound to get rusted. Similarly the bars being of different lengths also could not be a sufficient reason to consider the goods to be seconds. The NML report had held that the consignment consists of some rods, bars, which had broken ends, lap joints, etc., but the laboratory had failed to quantify such items in the total consignment. The counsel also pointed out that their request for getting the opinion of any other renowned agency like IIT, Madras was denied and thus the proceeding was not a fair proceeding.
The Counsel further pointed out that the adjudicating authority had held that the goods were not in “international standard packing” without specifying what such standard was. He also pointed out that the Commissioner relied upon the fact the appellant did not produce Mill Test Certificate from the manufacturer of the goods. He argued that no such issue was raised in the Show Cause Notice. Further this certificate mainly shows the composition of the material and composition of the material imported was known from the test report of NML .The Counsel also relied on the decision of the Tribunal in their own case on identical issue in their own case, namely, Sabari Exim Ltd. v. C.C. - 2005 (180)E.L.T.36 (Tri.-Chennai)wherein the Tribunal did not accept the report of NML in the case of similar goods and extended the exemption. So he argued that in the present case also, the confiscation and penalty should be set aside and exemption extended.

Respondent’s contentions:- Opposing the prayer, the ld. Authorized Representative for Revenue submitted that this was a case where odd sized products were bundled in ad hoc manner and shipped. The goods were of German origin shipped from UAE by a supplier in UAE. He submitted that prime quality bars and roads manufactured and sold by manufacturers were shipped in different type of packing and always contain material of same length in same bundle which was not the case here. Further, during the visual examination of the goods, it was seen that some of the items were rusted which showed that the goods were rusted and damaged. Therefore, the goods were actually rejected and wastes bundled together and shipped and the concession under Notification 21/2002-Cus. (S. No. 190B.) could not be extended in such cases. He emphasized that the Commissioner had adopted the common parlance test for the expression “seconds and defectives”. He also contested that the opinion of the National Metallurgical Laboratory which was a Government institution of experts in the field could not be ignored without any reason to do so. He also submitted that the appellants did not submit Mill Test Certificate as required under Public Notice No. 29/2004, dated 18-2-2004.

Reasoning of judgment:-After considering submissions on both sides, the issue before the Tribunal was to decide what was meant by the expression “seconds and defectives” without any authoritative definition for the same. Two paragraphs of the findings of the adjudicating authority which were considered most relevant are reproduced below :
“12.9 In ‘Common Trade Parlance’ the words ‘seconds’ refer to a material which is not first quality. Any material which may be with defects ranging from minute to very major, the material may be considered as seconds/defectives/rejects. And also, it is a practice in the Trade that such material would be available at a considerably cheaper price. And also in such cases the buyer cannot have any claim over the goods, once the sale is over. It may also be seen that even India, when any ‘seconds’ materials are sold, the goods will not be in proper/normal packing, the seller clearly stipulates that the buyer cannot have any claim over the goods once sale is made. And also, it is everybody’s knowledge, that seconds do have defects which in many cases cannot be found out. Therefore, in ‘Common Trade Parlance’ the seconds do not have proper packing/labelling. The buyer will not have any claim after purchase when any defects are found to be present in the consignments supplied. Further, in the international steel trade, the manufacturer furnishes a Mill Certificate for all prime materials. These mill certificates are issued for each bundle/coil/sheet with details such as Heat Number, Chemical Composition and the mechanical properties. This is an International Trade practice in the steel business.
13. Such being the case of “Common Trade Parlance or Trade Practice”, I find that the importers are only making a claim to consider the goods as prime material without submitting a mill certificate in which case, the entire exercise of referring the issue to NML would have been avoided. Further, I find that as a matter of Trade Practice, most of the importers in the case of import of prime material are submitting Mill Certificates, hence they are not facing problems on this account. Therefore, I am unable to accept the request made by the Ld. Advocate to consider the subject material as prime.”
The documents submitted by the importer nowhere mentioned that the goods were seconds or of defective quality. No such documents had been unearthed by department either. No case was made out that the prices declared were lower as compared to prices for goods other than defective and seconds. Since customs was most focused on Revenue on an item like this and no case of undervaluation was made out in spite of allegation that the goods were seconds, it was reasonable to conclude that the prices declared corresponded to prices for prime quality of goods. No case was made out that if the goods were “seconds or defective”, it was prohibited for import. Once this factor was taken into account all what revenue was relying was the fact that some packages had goods which were not of same sizes and that the goods were not packed properly. NML had given a report based on the fact that rust was seen on some items and defects like broken ends, bends, etc., were found. This resulted in a situation wherein NML laid standards for deciding what was ‘defective’ or ‘seconds’ and deciding whether the goods were ‘defective’ or ‘seconds’. In the absence of Notification empowering to NML to do both these aspects, this was not a desirable situation because a person importing goods should know what the standard was so that his business fortunes did not get decided arbitrarily after the event of import. This issue came up before Tribunal earlier also in the appellants own case wherein NML took a stand that the goods were seconds but the Tribunal took into account opinion of IIT and gave the benefit of doubt to the appellants. Thereafter also, there had been no change in the notification to clarify the position to the public at large.
Against such background, the Bench gave the benefit of doubt to the appellants and held that the goods were not seconds or defective. Consequently, they allowed the appeal by setting aside the impugned order and allowing the appellant to clear the goods by classifying the goods under CTI 7215 90 90 and claiming exemption under Notification 21/2002-Cus. at S. No. 190B.

Decision:-Appeal was allowed.

Comment:- The gist of this case is that the issue under consideration was deciding the fact whether the imported goods were covered under the category of “seconds and defectives” as if they were defective and seconds, the benefit of notification 21/2002-Cus would not be available to them. It was concluded in this case that as nothing has been defined as to what would constitute second hand, merely because the imported goods were not packed properly and were bundled in different shapes and sizes and some of them were rusted would not lead to belief that the same were second hand and defectives. As the nature of steel is such that it is possible to get rust on it on being exposed to different atmospheric conditions, benefit of doubt was extended to the appellant and benefit of exemption was allowed.

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PJ/Case Law/2013-14/1953

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