Whether Drawings and Designs imported through courier can be considered as books eligible for exemption?

Case:- M/s GIVO LTD AND SHRI M K DHIR VERSUS COMMISSIONER OF CUSTOMS, NEW DELHI

Citation:-2014-TIOL-1180-CESTAT-DEL

Brieffacts:- In the present appeal, M/s KB &T (changed to GIVO Ltd.) imported drawing/ design/ documents through DHL Courier Service during March 1994 to October 1995 without payment of Customs duty thereon. The value of such import was Rs.20 lakhs US$ as per Collaboration agreement dated 24.11.1993 between appellant and M/s KBSH, M/s Thakral Investments Holdings Pvt. Ltd. Singapore and M/s GMF. Ltd. Adjudicating Authority held that the drawing/design/documents imported were goods in terms of section 2(22) of Customs Act, 1962 and related to imported machinery and goods were liable to Customs duty and there was a transfer of property in such goods came to India on import, with a value.
The issues before learned adjudicating Authority were:
(i) Whether the impugned items are goods or not?
(ii) Issue of classification and definition of Baggage.
Ld. Adjudicating Authority in Para 3.2 of the order recorded that according to Article 3 of the agreement GMF was to supply plant and equipment as well as to render technical assistance and training in India to the appellant for consideration in terms of a contract dated 28/05/1993 and amendments thereto. Consideration was linked with commencement of commercial production.
Appellant contended before ld. Adjudicating Authority that when the goods were imported by courier who was not the owner of the goods nor a passenger, there shall not be levy of duty since drawing and design brought by courier cannot be treated as baggage but ld. Authority considering Circular No. 56/95-Cus dated 30th May 1995 held that the goods brought was owned by the appellant was liable to duty.
Ld. Authority found from the bank documents and statement dated 19.01.98 of Sh. M.K. Dhir that a sum of US$ 20,00,000/- was collectively, remitted to GMF, Italy, vide LC 22LC/107055/94 dated 16.06.94 of Indian Bank, New Delhi and as per technical collaboration agreement between the parties US$ 6,66,667 constituted payment towards supply of Drawings/Designs/Documentation. Such considerations were paid for the drawing and design including plant layouts, process layouts, chemical technology, and manufacture of new machinery or Upgradation of the old plant. That also involved training of Indian personnel by the collaborators. When the property in the plans, designs etc. were physically transferred to the appellant, the transfer created an obligation on the receiver to pay the agreed sum for the goods imported. According to ld. Adjudicating Authority, Hon'ble Bombay High Court in the case of Wipro Products Ltd. 1986(25) ELT 485 (Bom) held that diskettes containing designs & drawings were goods and fell under the then Heading 49.04/06 of the CTA. Accordingly appellant was liable to duty on the impugned goods.
Appellant asserted that the goods imported by courier could not be termed as baggage and therefore would not merit for classification under heading 98.03. Ld. Authority held that prior to the notification of the courier import regulations, courier imports were treated as baggage. Circular No. 56 of 95 Cus dated 30.05.95 confirms such position.
Argument of the appellant that drawings, designs etc. were intellectual properties and were not goods did not get appreciation by ld. Adjudicating Authority on the ground that the definition of goods in Section 2(22) of the Customs Act was an inclusive definition and was wide enough to cover the drawings, designs etc.
Upon adjudication, ld. Adjudicating Authority confiscated the drawing and design under section 124 of the Customs Act, 1962 imported through DHL (Courier) valued at Rs. 6, 31,00,000/- (CIF) and imposed duty of Rs. 12,62,00,000/- (Rupees Twelve Crores and Sixty Two Lakhs only) holding that the impugned goods were classifiable under Chapter 98.03 as 'Baggage', in terms of Notification No. 86/94-Cus dated 1.3.94 invoking extended period under proviso to Section 28(1) of the Customs Act, 1962. Also for violation of section 111(m) and (o) of the Customs Act, 1962 redemption fine of Rs. 2,00,00,000/- (Rupees Two Crores only) was imposed under Section 125 of the customs Act, 1962.
Further, for violation of Notification No. 86/94-Cus dated 1.3.94, penalty of Rs. 20000000/- (Rupees Two Crores only) was imposed on the appellant under Section 112(a) of the Customs Act, 1962 and penalty of Rs. 1,00,00,000/- (Rupees One Crores only) was imposed on Sh. M.K. Dhir, the Managing Director and Vice-Chairman of KBT under Section 112(a) of the Customs Act, 1962.

Appellant’sContention:- On behalf of appellant it was argued that the drawings, designs, specimens and documentation are only the means for imparting or instructing the knowledge which is exclusive and proprietary in nature in the present case. Such documents can neither be sold by the appellants nor be purchased by anybody as the right to impart the knowledge contained therein is proprietary and exclusive to the drawings, designs; specimens and documentation supplied by Marzotto have not acquired the essential properties of "goods". Thus, such documents cannot be goods as the same has not acquired the essential ingredients of being goods. Accordingly the definition of "goods" under section 2(22) of the Customs Act is not attracted. In any case, the knowledge imparted through the above documents in question cannot be taxed.
The drawings, designs, specimens and documentation in question are classifiable under Heading 99.10 of the Customs Tariff Act since those are for instructional purposes.
Heading 9910.00 of the Customs Tariff Act, 1962, stipulates free rate of duty for specimens, models, wall pictures and diagrams for instructional purposes. Further, by virtue of Interpretative Rule 2(b) read with Rule 3 (c), the documentation in question is classifiable along with the diagrams, models and specimens under Chapter 99.10. It is not even the case of the Department in the show cause notice that the drawings, designs, specimens and documentation in question are not for instructional purposes as stipulated under Heading 99.10.
The drawings, designs, specimens and documentation in question have met the requirement of being for instructional purpose. Therefore, the drawings, designs, specimens and documentation in question are correctly classifiable under Heading 99.10 and hence, the impugned demand is incorrect and unsustainable. Courier imports in question are items for instructional purpose and thus, Note (1) to Chapter 99 is satisfied.
Assuming without admitting that the drawings, designs, specimens and documentation are also covered under Heading 98.03 i.e. other than 99.10, however, as Chapter Note (1) of Chapter 99 is identical to Chapter Note (1) to Chapter 98.10 is to be applied in view of interpretative Rule 3(c). Rule 3 (c) of Interpretative Rules specifically stipulates that the goods are to be classified under the heading which occurs last in numerical order. Consequently, in any event, the items imported are to be classified only under Heading 99.10.

The appellants submit that the textual material and the drawings were supplemental to each other. The drawings, designs, specimens and documentation would all be covered by Heading 99.10 being for instructional purposes. The Commissioner has erred in not upholding this even after being shown the exact items imported.
Alternately, the appellants had sought classification under Heading 49.01. The appellants had shown that the textual material which came in printed book form. At the relevant point of time when the drawings, designs, specimens and documentation in question were imported, Notification No. 38/94 was in operation. According to the terms of this Notification, Printed Books (including covers for Printed Books) are exempt from the whole of duty of Customs.
The impugned order classifying the drawings, designs, specimens and documentation in question under Heading 98.03 is incorrect and unsustainable. Heading 98.03 does not cover courier imports as cargo. According to the show cause notice, the drawings, designs, specimens and documentation during the period of import would fall under Heading 98.03 and attract Customs duty at 200% ad valorem. However, the show cause notice has not led any evidence whatsoever to classify the drawings, designs and documentation in question under the Heading 98.03. Heading 98.03 is a specific entry for passenger baggage. Heading 98.05 covered "all dutiable articles imported by a passenger or a member of a crew in his baggage". Thus, for any article to be classified under this Heading, the same has to be necessarily a baggage of a passenger containing dutiable articles. As stated supra, the drawings, designs, specimens and documentation were not articles of a passenger baggage, meriting classification under Heading 98.03 but courier imports under the cover of air-way bill a commercial cargo. In other words, the import of these items is an import of cargo. In such circumstances, Heading 98.03 covering passenger baggage is not attracted to the facts of the present case.
The Customs at no point of time has applied the provisions relating to baggage to courier imports as commercial cargo. It is not even the case of the Department either in the show cause notice or in the impugned order that duty is payable on the drawings, designs, specimens and documentation in question elsewhere under the Tariff. No duty is payable in the present case as the impugned items fall under Heading 99.10. In such circumstances, the drawings, designs, specimens and documentation in question are not dutiable articles even under Heading 98.03 merely as baggage.
The import of the drawings, designs, specimens and documentation in question were by courier as commercial cargo and through legal channels. Without prejudice to the above arguments and assuming without admitting that the imported items are classifiable as baggage under Chapter Heading 98.03 still the assessable value taken is untenable. The appellants submit that the basic value of the items imported, i.e. value for preparation which includes duplication cost of the imported Drawings, Designs, Specimen and Documentation is meagre. The major value is in respect of intellectual inputs which went into the preparation of the imported items. By no stretch of imagination, the intellectual costs incurred by the technology provider could be subjected to Customs duty.
There was no suppression or misdeclaration and the imports were proper. In such circumstances, the extended period is not invokable. The appellants were all along under a bona fide belief that the items imported being specifically for instructional purposes are free of duty under Chapter Heading 99.10. The issue involved in the present case is purely a question of law relating to classification on the basis of Notification 86/94-Cus. Therefore adjudication is time barred.

Respondent’scontention:-It was submitted on behalf of Revenue that drawing, design and technical documents imported through courier is liable to duty since such documents were not covered under Heading 49.01 not being books or part thereof. Those had no characteristics of books. The goods imported were covered under sub-heading 98.03 being baggage brought by courier. Therefore the adjudication resulted in confiscation of drawing, design and documents valued at Rs.6,31,00,000/- under section 111(m) (o) of the Customs Act, 1962 with the consequence of levy of duty on the appellant company and penalty on the company as well as on Sri Dhir. When the appellant as well as the courier failed to provide information relating to import, enquiry was conducted. Arrival of consignment was proved. Bank remittance also proved discharge of consideration towards acquisition of drawing and design.
Revenue further argued that the appellant entered into technical agreement with Singapore as well as the Italian concern to make import of the plant and machinery as well as drawing and designs. Article 3 thereof showed that the agreement was to supply the plant as well as supply of drawing and design and impartation of know-how and technical services. Documentation and training in Italy was also provided as per Engineering Contract. The supplier was under obligation to set up the manufacturing unit and render training to the personnel of the appellant to make use of the equipment. So also to undertake manufacture of the product. For supply of technical assistance and training, the consideration stipulated was USD 600,000, payable in 3 installments. Similarly, for supply of drawing and design, the consideration payable was USD 2,000,000, payable in 3 installments.
Revenue submitted that the drawing and design came through courier being goods were liable to duty and no notification benefit is available to appellant company. Ld. adjudicating authority considering entire aspect of the imports held that drawing and designs came as goods in terms of Para 8.1 of the adjudication order and not being books were liable to duty.
According to revenue, so far as classification of the goods is concerned, learned Adjudicating Authority decided the same under para- 9.3 and 9.8 of the impugned order. He held that the drawing and designs imported were not "books" but being "goods" were classifiable under heading 98.03. The goods imported were neither part of book or booklet for which that is not classifiable under heading 49.01 as claimed by the appellant. He rightly denied the classification sought by the appellant. Also he further examined the intent of the Notification No.86/94-CUS, dated 01.03.1994 and held that the exemption cannot be granted as a matter of right, but deniable as a matter of public policy. If the object of the Notification is defeated, no question of grant of exemption under that arises. Accordingly both the appeals are liable to be dismissed.

Reasoningof Judgment:- The allegation in the Show Cause Notice was that the drawings, designs and technical documents classifiable under Customs Tariff Heading 98.03 were imported through courier without payment of duty. There was suppression of value thereof at the time of import. Statement recorded from Mr. MK Dhir, Vice Chairman on 19.01.1998, showed that in terms of technical collaboration agreement dated 24.11.1993, the drawings, designs and documents were imported around 1994 through courier and price thereof was USD 2 millions. The technical collaboration agreement was meant for supply of plant and equipments as well as supply of drawings and designs and rendering of technical assistance and training.
On the above background, the controversy arose was as to whether the drawings, designs and documents shall be liable to custom duty, or exempt from duty being books. The Show Cause Notice disclosed the custom Tariff Heading 98.03 attracting duty and the said heading reads as: "all dutiable articles imported by a passenger or a member of crew in his baggage". But appellant pleaded that the import shall fall under the tariff heading 49.01, which reads as "printed books, brochures, leaflets and similar printed matters, whether or not in single sheet".
The appellant submitted that the goods falling under Chapter 49 relating to printed books shall be liable to nil rate of duty in terms of Notification No.38/94-CUS and No.107/93-CUS, dated 30.03.1993. Revenue negated the plea on the ground that the imports were goods, not being books at all and liable to duty being baggage.
Hon'ble Supreme Court while remitting the civil appeal of the appellant expressed opinion in Para 53 of the judgment reported in 2005(186) ELT 532 (SC) = 2005-TIOL-104-SC-CUS-LB that the goods in question whether shall be books shall depend on the facts situation.
Normally, "books" mean, text books or reference books meant for reading by general public, professionals and students. The imported goods were meant for sole purpose of the appellant, which cannot be regarded as "book" not being meant for reading by general public. Those were technical literature relating to the plant and machinery imported by appellant to bring such plant and machinery into existence and carry out manufacture using the technology agreed to be imparted.
Perusal of the copy of the collaboration agreement throws light that the drawings, designs and documents came through courier are all attributable to the plant and machinery imported according to technical collaboration agreement. That formed part of the entire supply contract and does not leave any doubt to treat technical collaboration agreement to be independent of divisible contract of supply and service.
The supply of plant and machinery were integrally connected with drawing and design and vice verse and one was not substitute of the other. Rather they were complimentary to each other. Accordingly claim of the appellant technical literature pertaining to the plant and machinery to be "book" is inconceivable and such plea is absurd. Supply of drawing and design was not independent of supply of plant and machinery.
The drawings, designs and technical documents are no doubt goods being integrally connected with the plant and machinery and not classifiable under CTH 49.01. In the present case, those were inevitable necessity of the capital goods to come into existence. Inseparability of each other was their virtue. Therefore it does not appeal to common sense to treat the import consignment independent of plant and machinery to be called "book".
When it transpires that the entire contract of supply of plant and machinery (capital goods) and supply of drawing and design were integrally connected with each other that shows allocation of part of value of contract towards drawings and designs to escape duty on capital goods. Such division brings the case to the purview of section 28 of Customs Act 1962. Once the goods (drawing and designs) were not books, the notification benefit claimed by appellant is also deniable and adjudication was not time barred.
Even the alternate claim of the appellant that the import of drawing and design shall fall under the Tariff Heading 99.10 is inconceivable because those were not specimens, models, wall pictures nor diagrams for instructional purpose as is specified by that entry. Accordingly the appellant fails to succeed on merit as to the claim that the imported drawings, designs and technical documents were books. Exemption benefit of the notification claimed by it is not admissible to it since the drawings and designs are not books classifiable under the CTH claimed by the appellant. Thus appeal on this count is dismissed.
So far as imposition of penalty on the appellant company is concerned considering facts and circumstances of case that is reduced to Rs. 20 lakhs (Rupees twenty lakhs) and the penalty imposed on the appellant Sri M. K. Dhir is reduced to Rs. 10.00 lakhs (Rupees ten lakhs).In the result both the appeals are partly allowed to the extent indicated above.

Decision:-Demand upheld, penalty reduced, Appeals disposed of.

Comment:- The analogy drawn from the case is that the imported goods were meant for exclusive use of the appellant, which cannot be regarded as "book" not being meant for reading by general public. The imported goods were technical literature relating to the plant and machinery imported by appellant to bring such plant and machinery into existence and carry out manufacture using the technology agreed to be imparted. So claim of the appellant that technical literature pertaining to the plant and machinery to be "book" was held to be inconceivable and such plea was held as absurd. Once the goods (drawing and designs) were not books, the notification benefit claimed by appellant is also deniable and adjudication was not time barred as this is the case of suppression of facts by the assessee.

Prepared By:-Priya Jain

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