Does import of a complete set of components of an end product amount to import of the end product itself? This question has been the subject matter of many disputes.
The government has tried to reduce the disputes by suitable clarifications and many court decisions have also helped lend clarity on the issue. Still, different conclusions emerge when settled principles are applied to different situations.
Sony India Ltd imported components for manufacture of colour television (CTV) sets from Sony Corporation (Singapore) Ltd in 94 different consignments.
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The revenue relied on Supreme Court judgment in the case of Sharp Business Machines and contended that when the whole gamut of operations is viewed in entirety, what Sony imported were CTVs in unassembled form.
On this point, the tribunal was divided and the matter went to the larger bench of the tribunal (T-LB). A host of other legal points also came up for decision.
Firstly, the T-LB held [2002 (143) ELT 410 (T-M)] that when a dispute is raised regarding classification by applying Rule 2(a) of the interpretative notes to customs tariff, it has to be solved by referring to the harmonised system of nomenclature (HSN) explanatory notes. Secondly, any amendment to HSN explanatory notes, being clarificatory, will have retrospective effect.
On facts, the T-LB observed that the components imported under 94 consignments would not make up all the components required to make 1,500 CTVs, as alleged. Some components were not in the multiples of 1,500. Some components were not required for manufacture of the particular model. No single consignment covered all the components to make CTVs.
Sony Singapore had procured the components for Sony India from various manufacturers on the basis of minimum order quantities. Manufacture of CTVs involved further working on some components and a complex process of assembly.
The T-LB relied on Calcutta High Court judgment in the case of HCL Ltd. In that case, HCL had imported 100 per cent of the components of photocopiers in four consignments at different ports. After considering the Supreme Court judgment in the cases of Sharp Business Machines, Tarachand Gupta & Bros and Girdharlal Bansidhar, the High Court held that since photocopier was not prohibited for import, the importer did not achieve something he could not have legally achieved.
The T-LB held that Rule 2 (a) of interpretative notes deals with articles presented in disassembled or unassembled condition for assessment. If the imported components have to be subjected to further working before assembly, they can not be treated as complete article unassembled.
More important, the T-LB upheld a view that an article is to be considered to be imported unassembled or disassembled where the component parts, that is the parts which may be identified as components intended to make up the finished product, are all presented for customs clearance at the same time.
The T-LB went on to hold that the revenue was wrong in combining 94 different bills of entry spread over two years.
Although the revenue is likely to challenge this view, the case law assumes great significance for all companies who import most of their components for assembly in India, especially after the Supreme Court judgment in the BPL India Ltd, case [2000(143)ELT 3(SC)], that assembly of CKD/SKD kits in India would amount to manufacture and attract excise duty.