P.C. Jain, Member (T)

1. Question involved in this appeal is whether the goods found on examination as "broken pearls" not in powder form, but of non-jewellery quality", are covered by OGL under Appendix 6, List 4, Part B, SI. No. 8 of the I.T.C. Policy or whether they require an Import Control Licence in terms of SI. No. 388 (a) of Appendix-3-(A) of I.T.C. Policy April, 1985-March' 1988. The other question involved is whether these goods are classifiable under Tariff Heading 71.01 and enjoy the benefit of Notification 247/76-Cus., dated 2.8.1976 or whether they are classifiable under Chapter 5, Heading 05.01/15 (1) as products of animal origin not elsewhere specified or included.

2. The department contends that Appendix-6, List 4, Part-B SI. No. 8 read with Footnotes (i) and (ii) allows import of Pearls, when the pearls are in powder form and of non-jewellery quality. In other words, the pearls allowed under the aforesaid SI. No. OGL should be both in powder form and of non-jewellery quality. Since the pearl under import are not in powder form, though on non-jewellery quality, these are not permissible to be imported under the OGL under the aforesaid SI. No. and therefore, licence is required, since the goods are covered by SI. No. 388(a) of Appendix- 3A of the said Policy. The appellant on the other hand contends that the expression in Footnote (ii) in Appendix 6 List-4 Part B namely "only in powder form and of non-jewellery quality alone" would imply that Pearls either of powder form or of non-jewellery quality alone would be permissible for import under OGL. Since the goods under import are admittedly in the form of non-jewellery quality, these are covered under Footnote (ii). The word 'and' occurring in the aforesaid expression should be interpreted, according to the learned Consultant for the appellant as 'or'. Otherwise, the expression "of non-jewellery quality" would become redundant. If the intention had been that pearls must qualify both the conditions i.e. it must be in powder form as well as of non-jewellery quality, there was no need to spell out the latter qualification because powder form of pearl by itself would be of non-jewellery quality.

Regarding the classification, the learned Consultant has argued that the pearls are specifically covered by Tariff heading 71.01 of CTA 1975 and that they are further exempted by Notification 247/76 dated 2.8.1976 because the Examination Report clearly reveals that the goods under Import are real pearls (broken/raw). Therefore, the goods are unworked i.e. no machining like cutting, polishing etc. has been done and they are in raw form i.e. they are unworked pearls.

3. The lower authorities having regard to the past practice, had allowed the goods to be imported without ITC licence on caution. Classification aspect has been decided by the lower authorities for the pearls as classifiable under Chapter 5 on the ground that this heading (Chapter) covers all products of animal origin "not elsewhere specified or Included". The lower authorities have found heading 71.01 as inapplicable to the goods because it refers only to real pearls raw or unworked and worked. The goods, according to the lower authorities cannot be treated as of the same identity as of real pearls. The pearls referred to in Chapter 71, according to them it can only mean by implication, full pearls and not broken pearls and if they are not full pearls, then they must be worked pearls sawn into half or three-quarters. in other words, that Chapter covers either full pearls or pearls on which some work has taken place. It has also been held by the lower appellate authority that there is no reference to the term broken pearl' in CCCN or in other literature. Further, since pearls under Chapter 71 is clubbed with precious, semi-precious stones, precious metals, rolled precious metals and articles thereof, this Chapter would cover pearls of jewellery variety only. The learned Consultant has, in rebutting the finding of