[Order per : K. Gopal Hegde, Member (J)]. - This appeal arises out of and is directed against the order-in-original No. 9/Collr/1987, dated 12.3.1987 passed by the Collector of Customs and Central Excise, Rajkot.

2. The brief facts necessary for the disposal of this appeal are :

The appellant is a partnership firm running a small scale industry in the name and style of ‘Susha Electronics Industries’. It is engaged in the manufacture of colour T.V. sets and trading the same in the market under the brand name “JAC”.

The appellant imported 90 pieces of 20" colour picture tubes and 90 sets of plastic moulded components with cabinet front panel and rear covers, of total CIF value US Dollar 20,970. They sought clearance under OGL under App. 6 of the Policy 1985-1988. On examination of the goods the proper officer found the colour picture tubes bear label showing mark Sony A - 49 JLVIOX(II), made in Japan. He further noticed that black paint was applied on words Sony and made in Japan. The proper officer on inspection of boxes contained in the cabinet noticed that the outer boxes bear marks Sony KV 2092 EL TRINITORN made in Japan. He also found paper pasted on all the markings of all boxes to hide the markings. The plastic moulded cabinet with front panel and back cover was inspected. Front panel bearing emboss marking Sony but scratched on and black paper applied on it. The front panel and black cover also bear KV 2092 EL TRINITORN.

The appellant had also imported 90 sets each of sub-assembly, speaker, twiter set and Antenna and 90 sets each of Remote Control and pressed and punched parts and had filed bills of entry at A.I.R. Cargo Complex.

From the goods imported under 3 consignments it appeared that the appellants had imported colour T.V. sets manufactured by M/s. Sony Corporation, Osaka in SKD condition. Since consumer goods in SKD condition are restricted items and could be imported under cover of a specific import licence and under OGL, the customs objected to the clearance of the 90 pieces of 20" colour picture tubes and 90 sets of plastic moulded components with cabinet front panel and rear covers which were sought clearance under Bill of Entry No. F.3181 dated 30.10.1986. The clearance was also objected on the ground that the foreign suppliers M/s. Metro International Ltd., Hong Kong are not the agents of the manufacturing company and therefore should not have been in a position to supply colour T.V. Sony make in SKD condition and that the suppliers must have purchased 90 sets of Sony colour T.V. and had dis-assembled before supplying to the present appellant and therefore the goods imported are “disposal goods” and the same cannot be imported by reason of para 5(3) (iii) of the Import (Control) Order.

After issue of show cause notice, after personal hearing, the Collector of Customs and Central Excise, Rajkot, who held the enquiry, ordered confiscation of the goods covered by Bill of Entry No. F. 3181 dated 30.10.1986; but allowed redemption on payment of fine of Rs. 2,75,000/- and also imposed penalty of Rs. 50,000/- on the appellant. Hence this appeal.

3. Shri Nanavaty, the appellant’s learned advocate vehemently urged that the Collector’s finding that the foreign suppliers have purchased 90 sets of Sony colour T.V. and had dis-assembled the same before supplying to the appellants and that the goods covered by 3 consignments are second-hand goods or disposal goods is based on no evidence. It is the Collector’s surmises and conjectures. The Collector has not properly understood the meaning of the “disposal goods”. There was no evidence that the suppliers were anxious to dispose of the goods “as is where is condition” and at a reduced price. Shri Nanavaty further contended that what constitute “disposed goods” has been the subject-matter of the decided cases. In that connection Shri Nanavaty relied on the Tribunal’s decisions 1986 (6) E.C.R. 588 = and also on the decision of the Bombay High Court reported in 1981 E.L.T. 936 (Born.)

4. The further contentions of Shri Nanavaty may be summarised as under :-

(a) The appellant firm holds a valid import licence bearing Nos. 3083154 and 3083155, dated 30.3.1985 for importation of sub-assembly, speaker, tweeter sets and Antenna. For the manufacture of colour T.V. sets, all the components and spares are not locally available and therefore they are required to be imported as per the industrial licence granted to the appellant firm. They are required to manufacture T.V. Sets strictly in accordance with the approved production programme and the firm is not entitled to use the original name of the manufacturers while introducing finished items in the market. In order to comply with the said requirement blackening and pasting papers on the components were made and not with a view to hide the name of the manufacturer or to mislead the general public. He urged that the firm sells its T.V. sets in brand name “JAC” and the custom authorities have not found any evidence that the appellants firm was marketing the T.V. sets in any brand name other than the brand name “JAC”.

(b) The two consignments sought to be cleared through A.I.R. Cargo complex were against specific licences and not under OGL. The learned Collector had totally missed this aspect. The Policy permitted import of components both under OGL and against licences. Shri Nanavaty forcibly argued that the learned Collector has no jurisdiction or power to club the consignment under OGL with the consignments sought clearance against licences and then hold that all the consignments put together would constitute consumer goods in SKD condition. In support of this contention Shri Nanavaty placed reliance on the decision of the Supreme Court reported in 1983 E.L.T. 1456.

(c) Appendix 3 Part A contains list of limited permissible items. They could be imported only against licences, whereas under Appendix 6(1) actual user (Industrial) are eligible to import all items found in List 8, Part I of Appendix 6. The goods imported through A.I.R. Cargo complex, Ahmedabad fall under App. 3 Part A and they are covered under Entry 607 and sought clearance only against licence. The goods imported through Kandla Port are OGL items appearing in List 8, Part I of Appendix 6. The jurisdiction vested with the Collector is only to consider whether the imported items are eligible to be imported under OGL and he has no jurisdiction to hold that if the items imported against licences are clubbed with items imported under OGL, they became ineligible to import because they together constitute consumer goods in SKD condition.

(d) Shri Nanavaty further urged that without prejudice to his earlier contention, even if all the components imported under 3 consignments were clubbed together, they would not constitute complete T.V. sets, some more parts are required; some other process for assembling them would also be required and therefore, they cannot be treated as consumer goods, having regard to the definition of the consumer goods given in para 7(14) of the policy.

(e) The appellants were under bona fide belief that they are entitled to import under OGL the components of colour T.V. sets and even if it were to be held that there was a breach, the breach if at all would be a technical breach. It does not call for imposition of fine or penalty and in that connection Shri Nanavaty placed reliance on the decision of the Supreme Court reported in A.I.R. 1970 SC 253. Shri Nanavaty urged that innocent acts of the trader should not be characterised as illegal by giving a restricted meaning to the widely worded entries of the Policy. He, therefore, prayed that the order passed by the Collector may be set aside and the goods may be ordered to be released.

5. Shri Pal appearing for the Collector, however, submitted that the eligibility to import OGL items specified in List 8, Part I of Appendix 6 is subject to the conditions specified in Appendix 6. Having regard to condition number 22, the Collector has jurisdiction to go into the question whether the goods sought to be imported under OGL would be required for the manufacturing activities of the appellant and would be in conformity with the industrial licence granted to the appellant. Shri Pal submitted that under 3 consignments the appellant firm had imported all the components of Sony make T.V. sets in SKD condition and therefore the Collector was justified in holding that the import is impermissible having regard to Sr. No. 122 of App. 2, Part B of Import Policy 1985-1988. Shri Pal stressed the attempt made by the appellant to obliterate the markings by black painting and pasting papers. Shri Pal also urged that even outer cartons have also been imported. This clearly indicates that the goods were not indented for the manufacturing process but only to sell them by assembling them and as such the Collector was justified in ordering confiscation and imposing fine and penalty. Shri Pal further submitted that the decision of the Supreme Court reported in 1983 E.L.T. 1456 is not applicable to the facts of this case. On the other hand, Section 16 and Chapter 84 and 85 of the Harmonised Tariff are attracted. In this connection Shri Pal relied on the Tribunal’s decision reported in . Shri Pal, however, did not address any argument that the goods imported are “disposal goods”.

6. In reply, Shri Nanavaty submitted that there was no allegation in the show cause notice as to the violation of condition number 22 of Appendix 6 and the Departmental Representative is not entitled to make a new case at the appellate stage. Shri Nanavaty further submitted that if the appellant firm were to violate the licence conditions the party which could take action is not the Collector but only the licensing authority. Shri Nanavaty reiterated his contentions that Supreme Court’s case dealt with jurisdiction of the Collector and not violation of the condition of import and, therefore, the rules in Chapter 16 of Harmonised Tariff which is intended for the purpose of classification has no relevance.

7. The points that fall for determination are :-

(i) Whether the Collector was not correct and unjustified in ordering confiscation of the import effected through Kandla Port?

(ii) Whether the goods imported are not disposal goods;

(iii) Whether the goods ordered to be confiscated are eligible to be imported under OGL by the appellant firm?

8. As the above points are inter-related, they are taken up together for consideration.

9. In order to appreciate the rival contentions, it is necessary to refer to the findings of the Collector and also to the relevant entries in the Policy.

10. From the order of the Collector it is crystal clear that the show cause notice was issued firstly on the ground that the 3 consignments, one sought to be cleared at Kandla Port and 2 sought to be cleared at A.I.R. Cargo complex together constitute consumer goods in SKD condition and therefore they became restricted items and as such specific import licence was required and that there was no specific import licence. Secondly that the goods imported are second-hand goods and, therefore, they are to be treated as “disposal goods” which are impermissible for import having regard to para 5(3) of the Import (Control) Order, 1955.

11. In page 5 of his order, the Collector has stated “it, therefore, appeared that the goods sought to be cleared under the cover of the aforesaid three Bills of Entry filed at Kandla Customs House and at A.I.R. Cargo Complex, Ahmedabad, have been imported without cover of a valid import licence in contravention of Section 11 of the Customs Act, 1962 read with Section 3(2) of the Imports & Exports (Control) Act, 1947 and are, therefore, liable for confiscation under Section 111(d) of the Customs Act, 1962, and that the importers are liable for a penalty under Section 112 ibid”.

12. During the hearing of this appeal Shri Nanavaty had submitted that the two consignments sought to be cleared at A.I.R. Cargo Complex, Ahmedabad, were against specific licences. Shri Pal did not dispute the said submission of Shri Nanavaty. As a matter of fact, though the Collector’s order is silent as to the licences the Collector did not order confiscation of the goods sought to be cleared at A.I.R. Cargo Complex. Therefore, it could be safely inferred that the goods sought to be cleared at the A.I.R. Cargo Complex were not offended goods and they were covered by specific licences. If that be so, the allegation in the show cause notice that the goods sought to be cleared under the cover of 3 bills of entry have been imported without cover of valid import licence and in contravention of Sec. 11 of the Customs Act, read with Section 3(2) of the Imports and Exports (Control) Act, 1947, would be incorrect.

13. It is not the Collector’s finding that the goods imported and sought to be cleared at Kandla Port by Bill of Entry No. F. 3181, dated 30.10.1986 by themselves would constitute colour T.V. sets. On the other hand, his definite finding as recorded in page 10 of his order, to quote “I also find that number of colour picture tubes, plastic moulded cabinets imported at Kandla and sub-assemblies, speakers, twiters, antenna, remote control, pressed and punched parts etc. imported at A.I.R. Cargo Complex, Ahmedabad, are all in numbers as 90. This is initially very much suggestive that when all such separate imported items are assembled would make 90 colour television sets of 20”. Undisputedly sub-assemblies, speakers, twiters, antenna, remote control, pressed and punched parts were imported under specific licences. The clearance of those parts cannot be objected to. Admittedly, the components sought to be cleared in Kandla Port are OGL items and the appellant firm being actual users are eligible to import the components sought to be cleared at Kandla Port. These components would not by themselves constitute colour T.V. sets. The Collector, therefore, cannot object to the clearance of those components on the ground that they require import licences. The learned Collector was well aware of this aspect. He did not hold that the goods sought to be cleared at Kandla Port constitute complete T.V. sets. His finding as has been seen earlier was when the components imported under the 3 bills of entry were assembled, would make 90 colour T.V. sets. The question that would arise is whether the Collector has jurisdiction to club the imports effected against licences and the import under OGL for the purpose of holding that the import is unauthorised and, therefore, liable to confiscation. In the whole of his order, the Collector did not record a finding that the components sought to be cleared at Kandla Port would not be required for the manufacturing activities of the appellants. He had no-where held that the appellants had violated any of the conditions of App. 6 much less the condition No. 22 relied on by the learned SDR. Even if we are to accept the contention of Shri Pal that the Collector has jurisdiction to enquire as to whether the imported goods would be required for the manufacturing activities, in the absence of such an allegation in the show cause notice and in the absence of a finding by the Collector, the departmental representative cannot be allowed to make out a new case for the department at the time of hearing of the appeal. Section 124 of the Customs Act requires setting out of the grounds on which the goods would be liable to confiscation. The said section embodies the principles of natural justice. The appellants should have an opportunity to meet the grounds on which the department seeks to order confiscation of the goods. If the ground now urged by Shri Pal had not been specified in the show cause notice, the appellant would not have an opportunity to meet that ground. Therefore, allowing Shri Pal to urge such a contention would amount to denial of principles of natural justice to the appellant. There is also no scope to accept Shri Pal’s contention that by applying Rule 2A of General Rules for the interpretation of Tariff Schedule the confiscated goods should be treated as complete or finished articles. Rule 2A reads “any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled”. The components sought to be cleared at Kandla Port were not having the essential character of the complete or finished article. The essential parts of T.V. sets were not found among the components imported at Kandla. As a matter of fact, the Collector’s finding was that the components imported at Kandla Port alongwith components imported by 2 consignments at A.I.R. Cargo Complex assembled together would make 90 colour T.V. sets. In the circumstances reliance placed by Shri Pal on Section 16, Chapter 84 and 85 and rules of interpretation will be of no assistance to the department. The decision, relied on by Shri Pal also has no application to the facts of this case. The ratio of the decision of the Supreme Court in the case of Tarachand Gupta, 1983 E.L.T. 1156 SC is attracted to the facts of the present case.

14. While considering the scope of entry 295 of Import Policy Book for July 1986 the Supreme Court observed “the respondent’s licence admittedly authorised him to import goods covered by entry 295. They could therefore legitimately import on the strength of that licence, all and several kinds of parts and accessories of motor cycles and scooters. The only question, therefore, before the Collector was whether the respondents’ licence covered the goods imported by them, i.e. whether the goods were parts and accessories. If they were, the imports were legitimate and no question of their being not covered by the licence or the respondents having committed breach of Section 3 of the Imports & Exports (Control) Act or Section 167(8) of the Sea Customs Act could possibly arise. What the Collector, however, did was that he put the two consignments together and held that they made up 51 ‘Rixe’ Mopeds in CKD condition and were, for that reason, not the articles covered by entry 295 but articles prohibited under remark (ii) of entry 294. But entry 294 deals with motor cycles and scooters complete and assembled. Remark (ii) against that entry prohibits an importer who held a licence to import motor cycles and scooters from importing motor cycles and scooters in CKD condition. Remark (ii) containing that prohibition had nothing to do with entry 295 which did not contain any limitations or restrictions whatsoever against imports of parts and accessories.

That being so, if an importer has imported parts and accessories, his import would be of the articles covered by entry 295. The Collector could not say, if they were so covered by entry 295, that, when lumped together they would constitute other articles, namely motor cycles and scooters in CKD condition. Such a process, if adopted by the Collector, would mean that he was inserting in entry 295 a restriction which was not there. That obviously he had no power to do. Such a restriction would mean that though under a licence in respect of goods covered by entry 295 an importer could import parts and accessories of all kinds and types, he shall not import all of them but only some, so that when put together they would not make them motor cycles and scooters in CKD condition".

15. The above observations of the Supreme Court aptly apply to the present imports. The imports at A.I.R. Cargo Complex, Ahmedabad, were covered by licences. The imports at Kandla Port are OGL items. The policy did not place any restriction regarding import of OGL items under OGL and restricted items against licences even if the OGL items and restricted items put together would make complete T.V. sets. When the policy permitted import of all components of T.V. sets, some against licences and some under OGL the Collector has no jurisdiction to object to the clearance of the OGL items on the ground that those items if clubbed with other items imported against licences would constitute complete T.V. sets in SKD condition.

16. As per the definition given in the policy, for the purpose of Import Policy, consumer goods will mean consumer goods which can directly satisfy human needs without further processing, it would include consumer durable also. Components imported by the appellants at Kandla would not directly satisfy human needs. Further processing would be required to make complete T.V. sets. Therefore, it cannot be even said that the components imported are consumer goods.

17. On careful consideration of all the aspects, we hold that the Collector was not correct and was unjustified in ordering confiscation of the goods sought to be cleared under bill of entry No. F. 3183 dated 30.10.1986. We, therefore, while allowing this appeal, set aside the order of confiscation as well as the penalty. Since we have set aside the order of confiscation there will be no scope to levy fine in lieu of confiscation. The goods shall be released to the appellant, if not already released. The penalty and fine, if paid, shall be refunded to the appellant.