Important Points
1. Any moveable articles, irrespective of what they may be or may contain would be goods as defined in Section 2(22) of the Customs Act.
2. Drawings and designs imported through courier are goods within meaning of the Customs Act; out of total contract value of project, transaction value of designs and drawings has to be determined and duty be levied thereon.

Headnote:(i) Customs Act, 1962—Sections 2(22), 12 and 156—Customs Tariff Act, 1975—Section 2—Chapter 49, Heading 49.06 of the First Schedule—Goods—Drawings, designs and manuals—Import through courier—Any movable article, irrespective of what they may be or may contain would be goods—Drawings and designs are goods—Eligible to duty.
       According to Section 12 of the Customs Act, duty is payable on goods imported into India. The word “goods” has been defined in Section 2(22) of the Customs Act and it includes in sub-clause (c) ‘’baggage” and sub-clause (c) “any other kind of movable property”. It is clear from mere reading of the said provision that any immovable article brought into India by a passenger as part of his baggage can make him liable to pay customs duty as per the Customs Tariff Act. An item which does not fall within sub-clauses (a), (b), (c) or (d) of Section 2(22) will be regarded as coming under Section 2(22)(e). Even though the definition of the goods purports to be an exclusive one, in effect it is so worded that all tangible movable articles will be the goods for the purposes of the Act by residuary clause 2(22)(e). Whether movable article comes as a part of a baggage, or is imported into the country by any other manner, for the purpose of the Customs Act, the provision of Section 12 would be attracted. Any media whether in the form of books or computer disks or cassettes which contain information technology or ideas would necessarily be regarded as goods under the aforesaid provisions of the Customs Act. These items are moveable goods and would be covered by Section 2(22)(e) of the Customs Act. (Para 26)
       The rate at which the customs duty is to be imposed has to be such as may be specified in the Customs Tariff Act. This is stipulated by Section 12 of the Customs Act. Thus the two Acts have to be read in conjunction with each other. Section 2 of the Tariff Act states that the rate at which duties of customs shall be levied under the Customs Act are specified in the First and Second Schedule to the said Act. Chapter 49 of the First Schedule relates to printed books, newspapers, pictures and other products of the printing industry; manuscripts, typescripts and plans. Note 2 in Chapter 49 states that the term “printed” also means reproduced by means of a duplicating machine, produced under the control of a computer, embossed, photographed, photocopied, thermocopied or typewritten. Heading 49.05 pertains to “maps and hydrographic or similar charts of all kinds, including atlases, wall maps, topographic plans and globes”. Heading No. 49.06 specifies “plans and drawings for architectural, engineering, industrial, commercial, topographical or similar purposes, being originals drawn by hand; handwritten texts; photographic reproductions on sensitised paper and carbon copies of the foregoing. Drawings, plans, manuals etc. specified in Chapter 49 of the Tariff Act are thus statutorily regarded as goods attracting a specified rate of customs duty on their import into India. There is no challenge to any of the statutory provisions and reading the two Acts together there can be no manner of doubt that what has been imported into India by the appellants, through the courier or otherwise, from their technical collaborators were goods even though the tangible articles so imported contained information or knowledge for use by the appellants. (Paras 27 to 29)
       In view of the clear provisions of the Customs Act and the Tariff Act, which have been referred to herein above, whenever any goods or moveables or tangible articles are imported into this country customs duty is payable. For the purpose of attracting levy it would be immaterial as to what are the types of goods imported or what is contained in them or recorded thereon. Any moveable articles, irrespective of what they may be or may contain would be goods as defined in Section 2(22) of the Customs Act. (Paras 30 & 31)
       It is true that what the appellants had wanted was technical advice or information technology. Payment was to be made for this intangible asset. But the moment the information or advice is put on a media, whether paper or diskettes or any other thing, that what is supplied becomes chattel. It is in respect of the drawings, designs etc. which are received that payment is made to the foreign collaborators. It is these papers or diskettes etc. containing the technological advice, which are paid for and used. The foreign collaborators part with them in lieu of money. It is, therefore, sold by them as chattel for use by the Indian importer. The drawings, designs, manuals etc. so received are goods on which customs duty could be levied. (Para 32)
       The drawings, designs, manuals etc. imported through couriers were ‘goods’ on which customs duty was payable. The action of the Reserve Bank cannot result in negating the statutory provisions of the Customs Act and the Tariff Act applicable in the instant cases. The belief of the appellants that what was imported were not ‘goods’, as the Reserve Bank had also regarded the payment was being made for services and not goods, was clearly erroneous and misplaced. (Para 34)
       (ii) Customs Act, 1962—Section 14 read with Section 12—Customs Tariff Act, 1975—Chapter 49 and Chapter 97—Customs Valuation (Determination of Price of Imported Goods) Rules, 1988—Rules 3, 4 and 9—Valuation of goods—Drawings and designs—Would form part of price of goods for purpose of determining value for levy of duty—Customs duty leviable on transaction value of drawings and designs—Appellant imported drawings and designs as a part of architectural contract through courier—Value shown at nominal one dollar—Out of total contract value transaction value of drawings and design etc. imported through courier and duty has to be imposed thereon.
       As is evident from the perusal of the aforesaid provisions, namely, Sections 12 and 14 of the Customs Act and Rules 3, 4 and 9 the value of the goods which are imported is deemed to be the price at which they are ordinarily sold. Sub-section (1A) provides that the price referred to in sub-section (1) of Section 14 shall be determined in accordance with the rules made in this behalf. As per Rules 3 and 4 the transaction value of the imported goods, subject to adjustment under Rule 9, is to be the price actually paid or payable for the goods when sold for export to India. Rule 9 (1) (b) (iv) is important for that shows that engineering, development, artwork, design work and plans and sketches would form part of the price of goods for the purpose of determining its value for levy of duty. Significantly Chapter 49 also includes items which have substantial intellectual value as opposed to the value of the paper on which it is put. Newspapers, periodicals, journals, dictionaries etc. are to be found in Chapter 49 wherein maps, plans and other similar items are also included, while Chapter 97 talks about original engravings. It is clear that intellectual property when put on a media would be regarded as an article on the total value of which customs duty is payable. To put it differently, the legislative intent can easily be gathered by reference to the Customs Valuation Rules and the specific entries in the Customs Tariff Act. The value of an encyclopaedia or a dictionary or a magazine is not only the value of the paper. The value of the paper is in fact negligible as compared to the value or price of an encyclopaedia. Therefore, the intellectual input in such items greatly enhance the value of the papers and ink in the aforesaid examples. This means that the charge of a duty is on the final product whether it be the encyclopaedia or the engineering or architectural drawings or any manual. Similar would be the position in the case of a programme of any kind loaded on a disc or a floppy. For example in the case of music the value of a popular music cassette is several times more than the value of the blank cassette. However, if a pre-recorded music cassette or a popular film or a musical score is imported into India duty will necessarily have to be charged on the value of the final product. When technical material is supplied whether in the form of drawings or manuals the same are goods liable to customs duty on the transaction value in respect thereof. (Paras 38 to 41)
       It is misconception to contend that what is being taxed is intellectual input. What is being taxed under the Customs Act read with Customs Tariff Act and the Customs Valuation Rules is not the input alone but goods whose value has been enhanced by the said inputs. The final product at the time of import is either the magazine or the encyclopaedia or the engineering drawings as the case may be. There is no scope for splitting the engineering drawing or the encyclopaedia into intellectual input on the one hand and the paper on which it is scribed on the other. For example, paintings are also to be taxed. Valuable paintings are worth millions. A painting or a portrait may be specially commissioned or an article may be tailor made. This aspect is irrelevant since what is taxed is the final product as defined and it will be an absurdity to contend that the value for the purposes of duty ought to be the cost of the canvas and the oil paint even though the composite product, i.e., the painting is worth millions. (Para 42)
       The value of the goods imported would depend upon the quality of the same and would be represented by the transaction value in respect of the goods imported. It would not be correct to take the entire contract value as being the value of the imported goods. What is the transaction value in respect thereof has to be ascertained. In most of the other cases this has been done by adopting about one-third of the contract value as being the transaction value of the imported goods for the purpose of levy of customs duty. Out of the total contract value, the Commissioner will determine the transaction value of the drawings, designs, etc. imported through the courier and then impose the levy thereon. (Paras 46, 47 & 85)
       (iii) Customs Act, 1962—Sections 28 and 28A—Short levy—Time limit for notice—Proviso to Section 28—Extended period of five years—When can be invoked—Wilful mis-statement or suppression of fact by importer or his agent or employee is a condition precedent.
       Though it was sought to be contended that Section 28 of the Customs Act is in pari materia with Section 11A of the Excise Act, we find there is one material difference in the language of the two provisions and that is the words ‘‘with intent to evade payment of duty” occurring in proviso to Section 11A of the Excise Act are missing in Section 28 (1) of the Customs Act and the proviso in particular. The proviso to Section 28 can inter alia be invoked when any duty has not been levied or has been short-levied by reason of collusion or any wilful mis-statement or suppression of facts by the importer or the exporter, his agent or employee. Even if both the expressions ‘mis-statement’ and ‘suppression of facts’ are to be qualified by the word ‘wilful’, as was done in the Cosmic Dye Chemical case while construing the proviso to Section 11A, the making of such a wilful mis-statement or suppression of facts would attract the provisions of Section 28 of the Customs Act. In each of these appeals it will have to be seen as a fact whether there has been a non-levy or short-levy and whether that has been by reason of collusion or any wilful mis-statement or suppression of facts by the importer or his agent or employee. (Paras 52 and 53)
       In the instant case the technical literature, drawings, manuals etc. were imported through courier. All this technical literature, drawings etc. were brought and cleared as personal baggage. (Para 54)
       Under Rule 10 of the Customs Valuation (Determination of Price of Imported Goods) Rules 1988, the importers are required to furnish, inter alia, a declaration disclosing full and accurate details relating to the value of the imported goods and any other statement, any information or document etc. as considered necessary for determination of the value of imported goods. Under the said Section baggage declaration forms have been prescribed which inter alia require the owner of the baggage to disclose the description of the goods as well as the value in respect thereof. It is as owner of the baggage containing the drawings and other technical literature and manual etc. that the couriers cleared the goods. They may not be the owners of the drawings etc. but for the purpose of clearance of the baggage, containing the said articles, the courier was the owner of the baggage. The Tribunal has held, and in our opinion correctly, that the sender as well as the receiver were aware of the value of the goods. The courier acted as the conduit or the agent and would only have declared such value in respect of the goods imported as must have been instructed by the sender and or receiver. The declaration by the courier of the value of the drawings in the Leela Ventures case and other technical material in the case of other appellants must have been done by the courier either at the behest of the sender or the receiver or at his own behest. In either case the declaration of the value of the drawings as being very nominal was clearly a mis-statement or a mis-representation of facts. According to the baggage declaration forms it is for the passenger to give value of the goods being brought in by him. When the value of the goods which were dutiable in the present cases was shown as only nominal, while in actual fact the correct value was much more, there was clearly an attempt on the part of the passenger, namely, the courier, to have the goods cleared through customs authorities by grossly undervaluing the value thereof. The courier gave a specific value of one dollar in respect of the drawings when both the sender and the appellants knew fully well as to how important and valuable these goods were. In the case of Leela Ventures it was on the basis of the architectural drawings that the renovation etc. was to take place whereas the technical material made available to the other appellants was necessary for their purpose. We have already held that the value of the goods so imported was not merely the cost of the price of the media but also the intellectual input on the media as represented by architectural drawings or users manuals etc. The value of architectural drawings was not merely the cost of the paper and the ink but would be much more. In some of the cases we were informed that the appellants had themselves volunteered that about one-third of the total amount payable to the collaborators should be taken as a figure representing the transaction value of the technical material so imported. The Tribunal as well as the Commissioner were right in coming to the conclusion that there was a wilful suppression or mis-statement of the value of the goods imported and, therefore, the respondents were entitled to invoke the provisions of the proviso to Section 28 (1) of the Customs Act and issue show-cause notice even if period of six months importation had expired but before the expiry of five years thereof. (Paras 56 to 58)
       (iv) Customs Tariff Act, 1975—Chapter 98—Heading 98.03—Passenger baggage—Import through courier—Position prior to 26.1.1995 —Foreign collaborators sending plans and drawings through courier—Nominal value shown at $ 1—Short levy on due to wilful misdeclaration or suppression of facts—Proceedings against importer—Plea that heading 98.03 not applicable to corporate entity and if at all, proceeding could be only against passenger entity from whom less duty, could be recovered i.e. the courier—Untenable—Material cleared as part of passenger baggage—Subject matter of tax is goods imported and not the person—It is only from owner short-fall in duty levied could be recovered—Chapter 98 applicable—Customs Act, 1962—Sections 2(26), 28 and 28A.
       Heading of Chapter 98 clearly shows that the same is applicable to passengers’ baggage. As a matter of fact, in each of the present cases, the technical material which was received was cleared as part of passenger baggage. Whether the courier or the person bringing the technical material was a person nominated by the collaborator or by the appellants is of no consequence because the levy under Section 12 of the Customs Act is on the goods imported into India. In other words, the subject matter of the tax is not the person importing or exporting but the subject matter of the tax is the goods imported. If such goods are imported as a part of the baggage then by virtue of heading No. 98.03 rate of duty prescribed therein has to be paid. The underlying principle prior to May, 1995 in relation to taxing the passengers’ baggage was that the said baggage which contained dutiable articles was not to be taxed separately as articles but the baggage as a composite unit was to be taxed in its entirety, after giving a credit for the free allowance which was available to the passenger. It cannot be denied that the imports were made by the appellants. The courier or any other passenger may be the mode or the manner of physical importation of the goods, just as the said goods may have been imported by post. Section 28 of the Customs Act, however, enables the Government to issue notice to the persons importing the articles into India. It is by reason of the collaborators agreements that the drawings, manuals, technical material etc. were sent by the foreign collaborators to the appellants and it is the appellants who were the importers who alone could be made liable in case of non-levy or short-levy of customs duty. The word ‘importer’ in Section 2(26) of the Customs Act includes the owner and as the appellants were the owners of the goods, certainly after these were received by them, it is only from them that the short-fall in duty levied could have been recovered. The parties took a chance in importing the articles through the courier. Initially they were successful in having the goods cleared by declaring a nominal value in respect thereof. They may not have been able to do this if the technical material and goods had been imported, not as a part of passengers’ baggage, but in the ordinary course of import either through post or by filing bill of entry. We, therefore, concur with the conclusion of the Tribunal and the Commissioner that the provisions of Chapter 98 were rightly applied on the facts of these cases. (Paras 62 to 64)
       (v) Customs Act, 1962—Sections 2(26), 28 and 28A—Customs Tariff Act—Heading 96.03—Short levy of duties—Passenger baggage—Import through courier—Importer alone could be proceeded with—Duty is on goods imported and not on the person. (Paras 62 to 64)
       (vi) Customs Act, 1962—Section 78 read with Section 2(22)—Customs Tariff Act, 1975—Heading 49.06—Drawings and designs—Import as part of passenger baggage—Import of drawings and designs at relevant time (1992-93) not taxable to duty—No customs duty leviable thereon even as a part of passenger baggage.
       While by virtue of Section 2(22) all kinds of movable property would be ‘goods’ but it is only those goods which would be regarded as ‘dutiable goods’ under Section 2(14) which are chargeable to duty and on which duty has not been paid. The expression “chargeable to duty on which duty has not been paid” indicates that goods on which duty has been paid or on which no duty is leviable, and therefore no duty is payable, will not be regarded as ‘dutiable goods’. It is only if payment of duty is outstanding or leviable that goods will be regarded as dutiable goods. Section 12 of Customs Act provides that the duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act. When the Customs Tariff Act itself provides that the import of drawings and designs under heading No. 49.06 is ‘free’, it must follow that these drawings and designs, though goods, were not chargeable to duty. If no customs duty is chargeable either by reason of tariff not providing for it or because of the exemption notification, those goods will not be regarded as dutiable goods “on which duty has not been paid”. (Paras 78 & 79)
       It is sufficient in the present case to observe that the drawings and designs which were imported by the appellant were correctly classifiable under heading No. 49.06 and the tariff itself providing that the import of the same is free, the said drawings and designs were not dutiable articles and, therefore, no customs duty was leviable thereon even as a part of the passenger baggage. (Para 79)
       (vii) Customs Act, 1962—Section 78 r/w Sections 28 and 28A—Customs Tariff Act—Heading 98.03—Short levy—Collection and penalty—Drawings and designs—Prepared and sent to Germany for approval—Came back to India through courier—Nominal value shown—Correct—Levy of customs duty and penalty unjustified.
       These drawings in respect of which customs duty had been levied were not something which had originated from Germany. These drawings were prepared by the Indian company of which the German company was a shareholder. These drawings were no doubt sent to Germany for approval but the agreement between the parties does not show that the payment of DM 60,000 was directly relatable or attributable to the approval and despatch of the said drawings to India. Under the agreements between the parties apart from the licence fee payable by the Indian company, for the use of the name of the German company and engineering fee, money was payable in terms of the agreement. As we have already observed there is nothing to show that this amount of DM 60,000 was relatable only to the approval of the said designs and drawings. Be that as it may the value of these drawings which belong to the Indian company were merely approved by the German company could only be nominal and under no circumstances the said value could be regarded as DM 60,000. The nominal value disclosed by the courier, on the facts and circumstances of this case, could not, therefore, be said to be incorrect. The order passed against the appellant levying the customs duty and penalty is, therefore, to be set aside. (Paras 83 & 84)

JUDGMENT

Kirpal, J.—These appeals have been filed against the common order dated 15th November, 1999 of the Customs, Excise and Gold (Control) Appellate Tribunal which, while confirming the order of the Commissioner of Customs held that drawings, designs etc. relating to machinery or industrial technology were goods which were leviable to duty of customs on their transaction value at the time of their import.

2. As principal arguments on behalf of the appellants were addressed in the case of M/s. Hotel Leela Ventures Limited by Mr. Ashok H. Desai, learned senior counsel, for the sake of convenience we will refer to the relevant facts in that case in greater detail.

3. Leela Ventures are engaged in the business of setting up, operating and maintaining Hotels and Resorts. For designing the Hotels and Resorts, it engaged a foreign company M/s. Wimberly Allison Tong & Goo, USA (“WAT” for short) for providing architectural services including design development drawings. Leela Ventures had entered into four agreements with the said foreign company in respect of four different ventures in India. Apart from preparing the designs and drawings the scope of work under the said agreements included site visits and on site consultations with architects.

4. Leela Ventures paid WAT under the said agreements for the services rendered and the amount was remitted through bank by following the procedure of remittance under Form A-2 prescribed by the Reserve Bank of India which form is meant for foreign exchange remittances, other than for import of foreign goods, pursuant to the permission given by the Reserve Bank.

5. In terms of the said agreements entered into with WAT, the appellants received drawings and diskettes through couriers during the period 30th October, 1995 and 12th May, 1996. The drawings so received were part of technical collaboration and/or technical know-how and were accompanied by an airway bill and an invoice issued by the consignor. The courier, in all the cases, declared the drawings with various descriptions such as “drawings”, “architectural designs” etc. The value of these drawings and designs was declared at a nominal value of one dollar. According to Leela Ventures one dollar was the correct value because drawings by themselves have no value, since if the drawings are lost they could be replaced and the loss would merely be of the cost of paper. The value declared by the courier was bonafide and was based on the invoice carried by it. As per the appellants, the declaration by the courier was in accordance with the accepted practice at that time. At the time of the imports these designs and the diskettes were cleared at the nominal value declared.

6. The other appellants in these appeals are also public corporations engaged in the manufacture of excisable goods. Like Leela Ventures the other appellants also entered into technical collaboration with leading manufacturers in their own fields abroad. The agreements provided for exchange of technology in the form of supply of know-how, drawings and designs on media training by personnel staff and similar other activities. As a part of fulfilment of the contracts, the contracting parties abroad, from time to time, sent drawings, designs etc. In the case of M/s. Videocon these drawings etc. were imported by hand through one Mr. Kato. In all other cases the drawings etc. were imported through Professional Courier or by post parcels. In each case only a nominal value was declared at the time of its importation.

7. According to the respondents, intelligence gathered by the Directorate of Revenue Intelligence and Special Valuation Branch, Bombay revealed that the appellants had imported drawings, designs and plans through couriers on remitting the consideration for the same but these had been cleared without proper declaration and without payment of correct amount of duty. In view of the omission on the part of the appellants to declare the correct transaction value, show-cause

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2001 Supreme(SC) 148

Cases Referred (19)