Supreme Court of India

M/S. NORTHERN PLASTIC LTD. ETC.versusCOLLECTOR OF CUSTOMS AND CENTRAL EXCISE ETC.

Citation: 1998 INSC 254
Decided: 14 July 1998
Disposal: Appeal(s) allowed
Bench: S C AGRAWAL

Holding

The appellant did not misdeclare the goods; the description in the Bill of Entry corresponded with the imported items, which fall under heading 37.02/ sub‑heading 3702.41, and the appellant, as a small‑scale industrial undertaking with a registration certificate, is an actual user under the Import‑Export Policy and need not obtain an industrial licence under the IDR Act.

Summary

Northern Plastic Ltd. imported 59 jumbo rolls of unexposed photographic colour films, describing them in the Bill of Entry as "Cinematographic Colour Films (Unexposed) Positive" and claimed customs and counter‑vailing duty exemptions under an Open General Licence. Customs authorities held the description to be a misdeclaration, said the goods were photographic rather than cinematographic films, and that the company was not an "actual user (industrial)" because it lacked an industrial licence under the Industries (Development & Regulation) Act. The Collector confiscated the goods and imposed fines and penalties; the CEGAT affirmed these findings. The Supreme Court held that the description corresponded with the goods, that both photographic and cinematographic films fall under heading 37.02 and sub‑heading 3702.41, and that the appellant, being a small‑scale industrial undertaking with a registration certificate, qualified as an actual user without needing an IDR licence. Consequently, the confiscation and penalties were set aside and the appeals were allowed.

Issues considered

The description of the imported goods as "Cinematographic Colour Films (Unexposed) Positive" constitutes misdeclaration under Section 111(m) of the Customs Act.
Whether the goods should be classified under heading 3702.20 (cinematographic) or 3702.41 (photographic) of the Customs Tariff.
Whether the appellant qualifies as an "actual user (industrial)" eligible for import under the Open General Licence without an industrial licence under the IDR Act.
Whether the claim of exemption under Notifications No. 52/86‑Cus and No. 50/88‑C.Ex. amounts to a misdeclaration.
Whether confiscation of the goods and the imposed penalties are legally justified.

Legislation cited

Customs Act, 1962s. 111(d), s. 111(m), s. 112(a)(i)

Subjects

customsmisdeclarationclassificationopen general licenceactual userindustrial licencephotographic filmcinematographic filmexemption notificationspenaltyconfiscation

Judgment

MIS. NORTHERN PLASTIC LTD. ETC. A
v.
COLLECTOR OF CUSTOMS AND CENTRAL EXCISE ETC.

JULY 14, 1998

[S.C. AGRAWAL AND G.T. NANAVATl, JJ.] B

Central Excises & Salt Act, 1944/The Customs Act, 1962 :

Central Excise Tariff/Customs Tariff: Item 3702.20/Heading 3702.41

Appellant imported 59 jumbo rolls of Photographic Colour Films
c
(Unexposed) Positive-In the Bill of Entry it was described as
Cinematographic Colour Films (Unexposed) Positive-Classified under the
Excise Tariff Item 3702.20 and under Customs Tariff heading 3702.41-
Claimed exemption of customs and countervailing duty-On examination by
the customs authorities found to be "colour films-jumbo rolls", not entitled D
to exemptions-Appellant charged of misdeclaration -Also not found to be
an actual user (industrial)- After enquiry, Collector found it not to be a
case of misdeclaration-Accepted the appellant to be an actual user on the
basis of its SS/ Registration Certificate-CBSC found the order improper and
asked Collector to apply before CEGAT-CEGAT found that the appellant
misdeclared the goods and was not an actual user (industrial) in the absence E
of an industrial licence- Remanded to Collector-Collector charged
appellant of misdeclaration and unauth~rized importation-Appeal field
before CEGAT-Challenge to findings regarding misdeclaration and illegal
import not permitted-personal penalty reduced-On appeal, Held :
Photographic Film (Unexposed) or Cinematographic film (Unexposed) are p
covered under asme heading 37.02-/t was not necessary for the appellant
to describe the goods as jumbo colour Films as there was no separate
heading for it - As the goods imported were being and intended to be used
as Cinematographic Films, those were correctly classified under sub-heading
3702.20.
G
Import & Export Policy, 1988-91 : Chapter 5. Paragraph 56(3) and
Appendix 6:

Appellant, a small scale industry registered with Director of Industries,
UP-Registered for conversion/cutting jumbo rolls into Cinematographic
Films (Unexposed) Positive-Held-Appellant using the imported raw H
611
612 SUPREME COURT REPORTS [1998] 3 S.C.R.

A material for its own use-Furnished its registration certificate at the time of
customs clearance-Appellant entitled to import the jumbo rolls under Open
General licence.

Words & Phrases :

B 'Factory'-Meaning of in the context of Industries (Development &
Regulation) Act, 1951.

In 1981, the appellant imported 59 jumbo rolls of Photographic Colour
Films (Unexposed) Positive describing the goods as "Cinematographic Colour
Films (Unexposed) Positive" falling under Customs Tariff Heading 3702.41
c and the Central Excise Tariff Item 3702.20 and claimed exemption of customs
duty under Notification No. 52/86 read with Notification No. 157/88-Customs
and of countervailing duty under Notification No. 50/88-C.Ex. The imported
goods being Item No. 186(1) of Part I of List 8 of Appendix 6 of AM 85-
88, clearance was also sought under the Open General Licence. On
examination the goods were found to be "Colour Films Jumbo Rolls" and,
D
therefore ,not entitled to the benefit of exemptions under the said notification.
Consequently, the appellant was charged for misdeclaring the goods as
-r
"Cinematographic Colour Films (Unexposed) Positive", with a view to evade
Government revenue. As the appellant was having only SSI Certificate for
cutting/converting jumbo rolls, the appellant was not considered to be an
E actual user (industrial). The goods were also not found to be eligible for
exemption in the rates of duty as claimed in the Bill of Entry.

After the enquiry, the Collector held that the appellant had not
misdeclared the goods as the specific description of the goods, in the Bill
of Entry, had been given and also it was mentioned that the goods, being a
F raw material, were covered by the OGL. The Collector accepting the ,.
appellant's case that slitting, cutting and perforating is a manufacturing
process and the appellant had the SSJ registration certificate issued by the
District Industrial Centre for "Cinematographic Colour Films (Unexposed)

G
Positive'', held the appellant eligible to import the said goods as actual user
(industrial) in terms of Entry No. 297 of Part I of List 8 of Appendix 6 of
the Import-Export Policy for the year 1988-91. However, at the same time the
[
Collector also heid that the appellant was not entitled to the benefit of
exemption Notifications Nos. 52/86-Cus and 50/88-C.Ex.
.
The Central Board of Excise and Customs, on finding the order passed
H by the Collector as not legal and improper, directed the Collector to apply
NORTHERN PLASTIC LTD. ETC. v. C.C.E. 613
to CEGAT for determination of the points specified by the Board in its order. A
Treating the said application of the Collector as an appeal, the CEGAT held
that the appellant had misdeclared the goods for claiming exemptions under
the notifications as it had imported jumbo rolls of Photographic Film and not
Cinematographic Films. The appellant was further held not to be not an
actual user (industrial) in view of its not possessing an industrial licence B
issued under the Industries (Development &Regulation) Act, 1951 which
was necessary for claiming benefit of OGL. Therefore, the goods were held
to be imported without a valid import licence. After recording the above
findings, CEGAT remanded the case to the Collector for re-adjudication.

The Collector issued a Show Cause Notice charging the appellant with C
misdeclaration of goods in order to avail exemption benefits and evade payment
of customs duty. The said notice was based on unauthorized importation of
goods i.e. import without an industrial licence issued under the IDR Act. It
was also alleged that the goods imported by the appellant were 'jumbo rolls'
and not 'Cinematographic Colour Films (Unexposed) Positive' as the goods
were not ready for use on projector or a camera and were required to D
undergo the process of slitting/cutting and perforation along the length of
the film. Thus, the appellant was called upon to show cause, under Section
111 (d) and 111 (m) of the Customs Act, as to why the imported goods be not
confiscated and why personal penalty under Section 112 (a) (i) of the Act be
not levied. Ultimately, The Collector held that the charges of misdeclaration E
and unauthorized importation were established and ordered confiscation of
the 59 rolls; imposed a redemption fine of Rs. 5 lacs and also a personal
penalty of Rs. 10 lacs on the appellant.

The appellant, feeling aggrieved, appealed to CEGAT but the appellant
was not permitted to challenge the findings regarding misdeclaration and F
illegality of import as the bench hearing the appeal was of the view that it
being a bench of coordinate jurisdiction could not sit in appeal over the
findings recorded by the earlier bench. The CEGAT observing that the
appellant had not filed any appeal on the question of entitlement to the
benefits of the exemption notifications and also that the writ petition filed G
before the Gujarat High Court had been withdrawn, held that it was not open
to the appellant to agitate the question again. The appellant's contention that
Additional Licences acquired by it covered the import, was rejected on the
ground that only unattested photocopies of the additional licences were
produced and moreover, the question of acceptance or otherwise of additional
licences could have arisen only if the appellant was held actual user H
614 SUPREME COURT REPORTS [1998] 3 S.C.R.

A (industrial). The amount of redemption fine was found to be reasonable by
CEGAT. However, the amount of penalty was reduced to Rs. 5 lacs from Rs. +

IO lacs and the appeal was disposed of. Hence, these appeals.

The appellant contended that it was a sniall industrial unit and was
engaged in "conversion/cutting of jumbo rolls of Cinematographic Colour
B Films (Unexposed) Positive as ready for production" and the photographic
films were imported only for making them ready as Cinematographic Films
and no other use was intended. It was also contended that the goods were not
misdeclared. It was further contended that the Collector and CEGAT were •
wrong in holding that the appellant was not an actual user (industrial) as it
C did not had an industrial licence under the IDR Act. The appellant also
emphasised that the CEGAT had committed a grave error of law in relying
upon the definition of 'factory' as contained in the Factories Act even though
it was required to go by the definition of word "factory" as contained in the
IDR Act.

D The respondent contended that the goods imported by the appellant
were jumbo rolls of 'Photographic Colour Films (Unexposed) Positive' and
not 'Cinematographic Colour Films' as they were not ready for use by
<
putting them on a projector or a camera. In order to make them
'Cinematographic Colour Films' it was necessary to subject them to the
process of slitting and perforation.
E
Allowing the appeals, this Court

HELD: I.I. According to Section lll(m) of the Customs Act, 1962,
if the description of the imported goods given to the customs authorities does
not correspond in respect of value or in any other particular including its
F description as mentioned in the entry made under the Act, then only they can
be said to have been misdeclared and, therefore, liable to confiscation. The
word "Entry" in the context of the facts of this case meant an entry.made
in the Bill of Entry. Therefore, before holding that the goods were misdeclared
the authorities were required to come to the conclusion that the imported
G goods did not correspond in respect of value or in any other particular with
the description and the value of the goods as stated in the Bill of Entry.

1.2. In the Bill of Entry the imported goods were described as
Cinematographic Colour Films (Unexposed) Positive. The size of the goods
was also mentioned in the Bill of Entry. There was no dispute in respect of
H correct valuation of the goods or any other particular except its description
NORTHERN PLASTIC LTD. ETC. v. C.C.E. 615

as Cinematographic Colour Films. Since the proceedings were initiated for A
the purpose of confiscation, the burden was on the department to show that
the goods imported were not Cinematographic Colour Films but were
Photographic Colour Films only. Whether the film was Photographic Film
(Unexposed) or Cinematographic Film (Unexposed), it was included under the
heading 37.02. Whether with sprocket holes or without sprocket holes they B
were all described as Photographic Film in Rolls and there was no separate
heading or sub-heading in respect of Cinematographic Films having sprocket
holes and of width not exceeding 105 mm. Therefore, the scheme of Chapter
• 37 did not disclose that only those Photographic Films in Rolls (Unexposed)
could legitimately be described as Cinematographic Films if they were slitted
into a width not exceeding 105 mm and had sprocket holes. Thus, for the C
purpose of being included under hearing 37.02 it was not necessary that the
film should have been cut to useable sizes or should have been of a particular
width only. All Photographic Films, including Cinematographic Films with
or without sprocket holes and having normal width of Cinematographic Film
or otherwise were covered by heading 37.02 and since the film imported by
the appellant was without sprocket holes and exceeded width of 610 mm and D
length of 200 mm, it was correctly classifiable under 3702.41 only.

1.3. The goods which were imported by the appellant were Photographic
Colour Films (Unexposed) and they were meant for being used as
Cinematographic Films. The appellant was engaged in the activity of using E
such films as raw material for making it ready for use as Cinematographic
Film by subjecting the said raw material to the process of slitting, cutting
and perforation or making of sprocket holes. It was not even suggested by
the customs authorities that the imported goods were ordinarily used for or
intended to be used for any other purpose. Therefore, even though the
imported goods were not ready for being used as Cinematographic Films in F
the sense that they could be straightaway put on a projector or a camera, the
appellant cannot be said to have misdeclared them by describing and
classifying them as Cinematograpic Colour Films (Unexposed).

1.4. The word "jumbo" is only indicative of size of the goods and the G
appellant having specifically stated the size of each roll it was not necessary,
as there was no such requirement of law, for him to have described the goods
which were in the form of rolls as jumbo rolls. It was also not necessary for
him to describe them as the 'jumbo colour film' as there was no separate
heading or sub-heading for jumbo colour film in Chapter 37. Merely because
the appellant claimed that it was entitled to exemptions in respect of customs H
616 SUPREME COURT REPORTS [1998] 3 S.C.R

A duty under exemption notification No. 52/86 as amended by 157/88 and
because there was a separate exemption notification in respect of jumbo +
colour films, it cannot be said that the declaration made in the Bill of Entry'
did not correspond with "any other particular" of the imported goods.
Wheth~r the appellant was entitled to benefit of exemption under the said
B notification or not was a matter of belief of the appellant and not a matter
of 'any other particular' with respect to the goods. It is also relevant to note
that the appellant's earlier consignment bearing the same description, same
classification and identical claim for exemption was cleared by the Delhi
Customs House in the previous year. ..
C 1.5. As the goods imported by the appellant were being used and
intended to be used as Cinematographic Film, the appellant had described
them as Cinematographic Films covered by sub-heading 3702.20. No attempt
was made by the customs authorities either before the Collector or before
CEGAT to show that the goods imported by appellant were ordinarily not used
as Cinematographic Films or were not intended by the appellant for such a
D use. Moreover, looking to the heading 3702 and its sub-heading, it does not
appear that such goods duty were intended to be covered by sub-heading
3702.90.

1.6. As regards the claim for exemption in payment of countervailing
E duty the appellant had stated that it was entitled to the benefit under notification
No.50/88-C.Ex. This declaration made by the appellant had been found to be
wrong by the Collector and CEGAT on the ground that there was a separate
exemption notification in respect of jumbo rolls for Cinematographic Films.
Regarding the claim in respect of payment of customs duty, the declaration
was in the nature of a claim made on the basis of the belief entertained by
F the appellant and therefore, cannot be said to be a misdeclaration as
contemplated by Section 111 (m) of the Act. As the appellant had given full
and correct particulars as regards the nature and size of the goods, it is
difficult to believe that it had referred to the wrong exemption notification
with any dishonest intention of evading proper payment of countervailing
G Juty.

2.1. Appellant's undertaking was a small scale industrial undertaking
and was registered as such with the Director of Industries, Uttar Pradesh.
It was registered for conversion/cutting of jumbo rolls into Cinematographic
Films (Unexposed) Positive. Under Paragraph 56 (3) of Chapter 5 of the
H Import Export policy, 1988-91, actual users were permitted to meet the
NORTHERN PLASTIC LTD. ETC. v. C.C.E. 617

requirements of their imported inputs under OGL subject to the conditions A
prescribed in Appendix 6. Consistently with the Policy, for the year 1988-
91, the central Government, in exercise of the powers conferred under
Section 3 of the Import and Export Act, 1947, had issued an order on 30th
March, 1988 giving general permission with effect from 1st April, 1988 to
actual user (industrial) to import raw materials, components and consumables
subject to the conditions specified therein. Condition No. 3 was that the raw B
material, components and consumables should have been required by the
actual user (industrial) concerned for his own use. Condition No. 5 required
the actual user (industrial), at the same time of clearance of the goods, to
furnish the Customs authorities, a declaration giving particula1 s of the
industrial licence or the registration certificate issued by the appropriate C
government authority. Thus, a small scale industrial unit could import raw
material, components or consumables required by it under OGL on the basis
of its industrial licence or registration certificate obtained from the
appropriate government authority.

2.2. The position under the Industries (Development & Regulation) D
Act was that unless the scheduled industry was carried on in a factory as
defined by the Act itself, it was not required to take out a licence eveu though
it was an undertaking pertaining to a scheduled industry. This aspect has
been totally overlooked by CEGAT. Even the guidelines issued by the
Government oflndia, Ministry of Industry for the benefit of the industries
stated that no industrial licence was necessary if the industrial undertaking E
was not carried on in a factory as defined by the IDR Act. It was the case
of the appellant, and it had produced material in support of it, that in its
factory not more than 12 workers were ever employed. This fact was never
disputed by the Customs authorities. It thus becomes clear that the appellant's
industrial undertaking, though engaged in the industrial activity pertaining F
to the scheduled industry, was not carrying on such industry in factory as
defined by the IDR Act. It was, therefore, not necessary for it to obtain a
licence under the IDR Act. It did have a certificate of registration issued by
the Director of Industries, Uttar Pradesh.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4196 of G
1989 Etc.

From the Judgment and Order dated 14.8.89 of the Customs, Excise and
Gold (Control) Appellate Tribunal New Delhi in Appeal No. 2092/89-C in
(Order No. 388of1989-C).
Dushyant A. Dave, Parag P. Tripathi and A.T. Patra, (Gautam Khaitan) H
618 SUPREME COURT REPORTS [1998] 3 S.C.R.

A for Mis Khaitan & Co., for the Appellant/Assessee.
M. Gauri Shanker Murthy, V.K. Venna and P. Panneswarn for the Revenue/
Respondent.

S.K. Mehta for the Applicant in I.A. No. 2.
B
The Judgment of the Court was delivered by

NANAVATI, J. The appellant in both these appeals is Northern Plastics
Limited. Civil Appeal No. 4196 of 1989 is filed against the order of remand
dated 14.8.89 passed by the Customs, Excise and Gold (Control ) Appellate
C Tribunal (hereinafter referred to as the 'CEGA T') in Customs /.ppeal No.
2092/89-C. Civil Appeal No. 3325 of 1990 is filed against the order dated
20.4.90 passed by the CEGAT in Customs Appeal No. 2720/89-C, which
appeal was against the order of the Collector passed after the remand.

D In January 1989 the appellant i~ported 59 jumbo rolls of Photographic
Colour Films (Unexposed) Positive. On or about 11.1.89 it produced before the
Deputy Collector of Customs, Kandla Port the documents required for clearance
of the said goods wherein the goods were described as "Cinematographic
Colour Films (Unexposed) Positive" falling under Customs Tariff Heading
3702.41 and the Central Excise Tariff Item 3702.20 and entitled to exemption
E of customs duty under Notification No. 52/86 read with Notification No. 157./
88-Customs and of countervailing duty under Notification No.50/88-C.Ex.
Clearance of the goods was sought under OGL, the imported goods being
Item No. 186 (1) of Part I of List 8 of Appendix 6 of AM 85-88.

F On examination at Kandla Customs House they were found to be
"Colour films-jumbo rolls" and, therefore, not entitli:d to the benefit of
exemptions under the said notifications. Therefore, the Collector of Customs,
Rajkot initiated proceedings for confiscation under Section 111 (m) of the
Customs Act, 1962 and imposition of penalty. The appellant waived show
cause notice and requested for a personal hearing. The appellant was charged
G for misdeclaring the goods as "Cinematographic Colour Films (Unexposed)
Positive", with u view to evade Government revenue to the tune of Rs.
51,89,698. The appellant was told that the misdeclaration consisted of wrong
description of the goods, in the Bill of Entry and was for the purpose of
availing of exemptions in payment of customs duty and conuntervailing duty.
H The appellant was also told that it was having SSI Certificate for only cutting/
NORTHERN PLASTIC LTD. ETC. v. C.C.E. [NANA YATl.J.] 619

conversion of jumbo rolls, and as it was not a manufacturing activity it could A
not be considered as 'actual user (industrial)'. On this basis it was charged
that it had imported the goods illegally. The third point which was raised by
the Collector was with respect to eligibility of the goods for exemption in the
rates of duty as claimed in the Bill of Entry.

On completion of the enquiry as regards misdeclaration of goods, the B
Collector held that the appellant had given a specific description of the
product including its length and width and had also shown at the bottom of
. Bill of Entry that the product was covered by OGL Appendix 6, List 8, Part
I of Import Policy A.M.85-88 being raw material. He therefore, held that
though the imported item could not be straightaway put on a projector or a C
camera, nonetheless, it was 'Cinematographic Colour Film (Unexposed)
Positive' imported for slitting and perforating and converting it into
Cinematographic Colour Films (Unexposed) ready for use on a projector. The
Collector also held that the appellant was eligi.ble to import the said goods
as actual user (industrial) in terms of Entry No. 297 of Part I of List 8 of
Appendix 6 of the Import-Export Policy for the year 1988-91. He accepted the D
appellant's case that slitting, cutting and perforating, is a manufacturing
process and it did have SS! registration certificate issued by the District
Industrial Centre, Ghaziabad for "Cinematographic Colour Films (Unexposed)
Positive. As ready for production for conversion/cutting of jumbo rolls". The
Collector also relied upon the fact that in 1987 the appellant was pennitted
by the Delhi Customs House to clear an identical consignment under OGL. E

Accordingly he held that it was not a case of misdeclaration of goods
either in respect of classification under the Customs Tariff or for showing
eligibility to import under OGL.

As regards entitlement to the exemptions claimed, he held that as there F
were two sets of exemption notifications, one for the Cinematographic Films
(Unexposed) and the other for the Jumbo Films (Unexposed) that clearly
indicated that the Notifications regarding Cinematographic Films were not
applicable to Jumbo Films and, therefore, the appellant was not entitled to the
benefit of exemption Notifications Nos.52/86-Cus. dated 17 .2.86 and 50/88-C.E. G
dated 1.3.88. The Collector did not examine whether the appellant was entitled
to any other exemption as that was a matter of assessment of duty and not
a subject-matter of the proceedings initiated by him.

, The Central Board of Excise and Customs found the order passed by
the Collector as not legal and proper and, therefore, in exercise of its powers H
620 SUPREME COURT REPORTS [1998) 3 S.C.R.

A under Section 129D(l) of the Customs Act, directed the Collector to apply to
CEGAT for determination of the points specified by the Board in its order. As
directed, the Collector made such an application to CEGA T and it was heard
as an appeal against the order of the Collector. It may be stated that before
the Board the appellant had produced SS! Registration Certificate dated
B 24.8.85 issued by the Director of Industries, Gaziabad and the Central Excise
L-4 Licence dated 23.12.86.

The CEGA T agreeing with the finding of the Collector that the appellant
had imported jumbo rolls of Photographic Films and not Cinematographic ..
Films held that for claiming exemptions under the aforesaid notifications it had
c misdcclared the goods. It further held that the appellant was not an acmal
user (industrial) as it did not have an industrial licence issued under the
Industries (Development and Regulation) Act, 1951, necessary for claiming
the benefit of OGL and, therefore, the goods were imported without a valid
import licence. After recording these findings CEGAT observed that all these
relevant aspects were not taken into consideration by the Collector while
D passing the order and, therefore, it remanded the case to the Collector with
a direction to re-adjudicate the matter keeping in mind what was said in its
order.

The Collector, accordingly, issued a show cause notice dated 30.8.89
charging the appellant with misdeclaration of goods in order to avail of the
E
exemption benefits and evade payment of customs duty to the tune of Rs.
81,80,698. The basis of the notice was an allegation that the import was
unauthorized as the appellants did not have an industrial licence issued under
the Industries (Development and Regulation) Act, 1951 and thus it was not
an actual user (industrial) entitled to import the said goods under OGL. It was
F also alleged that the goods imported by the appellant were "jumbo rolls" and
not 'Cinematographic Colour Films (Unexposed) Positive' and that the said
misdeclaration was made with an intention to wrongly avail of concessional
rates of duty even though the goods imported were not entitled to such
concessional rates of duty. The basis of this charge was that the goods were
not ready for use on a projector or a camera and were required to undergo
G the process of slitting/cutting and perforation along the length of the fiirri and,
therefore, could not be considered as Cinematographic Colour Films. On the
basis of these allegations the appellant was called upon to show cause why
the imported goods be not confiscated under the provision of Section 111 (d) ..
and 111 (m) of the Customs Act, 1962 and why personal penalty should not
H be levied under Section 112(a)(i) of the Customs Act.
NORTHERN PLASTIC LTD. ETC. v. C.C.E. [NANA VA Tl, J.) 621

The Collector possibly was inclined to agree with the submissions of A
the appellant, but held that in view of the finding recorded by CEGAT that
"in so far as the identity of the goods is concerned, it is quite clear that what
has been imported are jumbo rolls and not cinematographic colour films ...... "
he had no option but to hold that the act of describing the imported goods
as "Cinematographic Films" amounted to misdeclaration. The Collector also B
held that in view of the finding recorded by CEGA T that the appellant did not
possess a valid industrial licence under the !DR Act and was thus not an
actual user (industrial), he was required to hold that the appellant was not
eligible to import the said goods under OGL. In view of the findings recorded
by CEGA T, the Collector had no other option and he also expressed his
helplessness by observing that "these findings and conclusions of Hon 'hie C
CEGAT forecloses any arguments pleas of the importer against requirement
of an industrial licence under !DR Act and hence the charge of uanuthorized
importation in the absence of such a licence." He then held that the charges
of misdeclaration and unauthorized importation were established, rendering
the goods liable to confiscation under Sections 11 l(d) and 11 l(m) of the
Customs Act and rendering the appellant liable to penalty under Section D
111 (a) of the Customs Act. He ordered confiscation of the 59 rolls, imposed
a redemption fine of Rs. 5 lacs and also imposed a personal penalty of Rs.
10 lacs on the appellant.

The appellant feeling aggrieved by the order of the Collector appealed E
to CEGA T. It was not permitted to challenge the findings regarding
misdeclaration and illegality of import as the bench hearing the appeal was
of the view that it being a bench of coordinate jurisdiction could not sit in
appeal over the findings recorded by the earlier bench. Even though on the
earlier occasion, the matter was remanded to the Collector for re-adjudication,
all the questions were considered by CEGA T in detail and findings were F
recorded categorically. On the question of entitlement to the benefits of the
said exemption notifications CEGA T held that as the appellant had not filed
any appeal against that part of the order of the Collector whereby its claim
for exemption was denied and the writ petition filed before the Gujarat High
Court was withdrawn, it was not open to the appellant to agitate that question G
again, particularly when such· an issue did not arise out of the Collector's
second order passed after remand. The appellant's contention that Additional
licences acquired by it covered the import was rejected by CEGA T on the
ground that only unattested photo copies of the additional licences were
produced and moreover the question of acceptance or otherwise of additional
licences could have arisen only ifthe appellant was held actual user (industrial). H
622 SUPREME COURT REPORTS [1998] 3 S.C.R.

A CEGA T found the amount of redemption fine as reasonable but the amount
of penalty was found excessive and, therefore, reduced it from Rs. I 0 lacs to
Rs. 5 lacs. With this little modification the appeal was disposed of.

Before we consider the contentions raised on behalf of the appellant,
it has to be stated that the findings recorded by CEGAT are inconsistent. For
.B the purpose of holding that there was misdecl~ration, CEGAT held that the
goods imported were not 'Cin~matographic Colour Films (Unexposed) Positive'.
It has been so held both in respect of classification and eligibility for benefit
of the exemption notifications. However, while holding that the import was
illegal it proceeded on the basis that the goods being 'Cinematographic
C Colour Films (Unexposed) Positive' was not entitled to import them under
OGL as it was not an 'actual user (industrial)'. We take it that CEGAT has
recorded the later finding on the basis that even if the imported goods were
considered as 'Cinematographic Colour Films (Unexposed) Positive' their
import under OGL was illegal.

D Mr. Dushyant Dave, learned counsel appearing for the appellant severely
criticized the manner in which CEGA Thad disposed of the earlier appeal. He
submitted that it was highly improper and unfair. CEGAT considered all the
points in detail and recorded categorical findings and then remanded the
matter to the Collector for re-adjudication. He drew our attention to various
parts of the order passed by the Collector to point out how he felt helpless
E and bound by the findings recorded by CEGA T and could not decide the
questions of misdeclaration and legality of import independently. He also
drew our attention to the observations made by the subsequent bench to
show that even the said bench felt bound by the findings recorded earlier.
We find much substance in this grievance made by the learned counsel. On
F the second occasion also CEGAT did not deal with the appellant fairly as it
allowed its business rival to oppose the appeal as an intervenor.

It is, however, a fact that the appellant had not preferred any appeal
against the first order of the Collector whereby it was held that the appellant
was not entitled to the benefit of the exemption notifications Nos.52/86-Cus
G and 50/88-C.Ex. It had filed a writ petition in the High Court of Gujarat against
that order but it was withdrawn after CEGAT had disposed of the appeal of
the appeal on 14/8/89. The remand was only on the points of misdeclaration
and illegality of import and the consequential issues of confiscation and
penalty. Since there was no appeal or cross-objection against the order of the
Collector rejecting the appellant's claim for exemption under the said
H notifications CEGAT naturally did not direct the Collector to readjudicate that
NORTHERN PLASTIC LTD. ETC. v. C.C.E. [NANA VA TI, J.] 623
question also and the order passed by it was not capable of being A
misunderstood. That part of the order of the Collector having thus become
final it is now not open to the appellant to challenge it.

Therefore, even if the appellant succeeds in satisfying us that the
goods imported by it were not misdeclared and that it was entitled to import B
them under OGL, only relief that can now be granted would be in respect of
fine in lieu of confiscation and personal penalty. It was contended by Mr.
Dave that the appellant was a small scale industrial unit and was inter alia
.-... engaged in "conversion/cutting of jumbo rolls of "Cinematographic Colour
Films (Unexposed) Positive as ready for production". The Photographic Films
were imported by the appellant for making them ready as Cinematographic C
Films and it was nobody's case that the said goods were intended or could
be used for any purpose other than as Cinematographic Films. He also
submitted that the appellant having given full description of the goods in the
Bill of Entry cannot be said to have misdeclared them and, therefore, the
Collector and CEGAT were wrong in holding that the appellant had misdeclared
the goods with a view to evade payment of proper customs duty. On the other D
hand it was contended by the learned counsel for the respondents that the
~, goods imported by the appellant were jumbo rolls of 'Photographic Colour
Films (Unexposed) Positive' and not "Cinematographic Colour Films" as they
were not ready for use by putting them on a projector or a camera. He
submitted that in order to make them "Cinematographic Colour Films' it was E
necessary to subject them to the process of slitting and perforation.

As srnted earlier, the charge of misdeclaration was based on two counts.
Classification of goods was alleged to have been stated incorrectly and
secondly the declaration with respect to entitlement of exemptions, under the
notifications mentioned in the Bill of Entry was also incorrect. F
We will examine the question of correct classification first. The appellant
had imported goods in January, 1989 and the Bill of Entry and related necessary
documents were produced by the appellant before the Customs authorities at
Kandla sometime between 11.1.1989 and 19.1.1989. Therefore, Chapter 37 of G
the Customs Tariff for the year 1988-89 was applicable. Chapter 37 dealt with·
Photographic or Cinematographic goods. It divided those goods under several

- heads and various sub-heads. Heading No. 37.02 was in respect of
"PHOTOGRAPHIC FILM IN ROLLS, SENSITISED, UNEXPOSED, OR ANY
MATERIAL OTHER THAN PAPER, PAPER BOARD OR TEXTILS, INSTANT
PRINT FILM IN ROLLS, SENSITISED, UNEDXPOSED" If the width of the roll H
624 SUPREME COURT REPORTS fl998] 3 S.C.R.
A of'Photographic Colour Fih;1' exceeded 610 mm and the length exceeded 200
m then such goods were included under sub-heading No.3702.41. In the
explanatory notes to HSN in Chapter 37, while explaining the heading
'Photographic Films in Rolls (Unexposed)' falling under heading 37.02 it was
stated that the heading 'Photographic Films in Rolls' included Cinematographic
Film, normal width of which is 35, 16. 9.5 or 8 mm. It was also stated by way
B of an explanation that Photographic Films not cut to useable sizes remained
classifiable under the same heading. In the whole Chapter Cinematographic
Films (Unexposed) in Rolls were not shown separately under a different
heading except i1eading No. 37.06 which was in respect of Cinematographic
Film, 'Exposed and Developed'. In this case we are concerned with
C Cinematographic Films (Unexposed). Therefore, whether the imported goods
were Photographic Films in Rolls or Cinematographic Films in Rolls they were
covered by heading No. 37.02 and as the width and length of the said rolls
exceeded 610 mm and 200 m respectively they had to be classified under sub-
heading No. 3702.41. There was no heading or sub-heading in Chapter 37
which could have covered the imported goods. Moreover, the term
D 'Photographic Film' is wider than the term 'Cinematographic Film' and, therefore,
would include within its meaning Cinematographic Films also. The difference
between the rwo lies in this that a Cinematographic Film is one which is slitted
and perforated and thus made ready for use on a prujector or a camera. Yet
there was no separate heading or sub· heading in respect of Cinematographic
E Film (Unexposed). When all this is considered along with the explanatory
notes to HSN of Chapter 37 it becomes apparent that Cinematographic Film,
the normal width of which used to be 35,16, 9.5 or 8 mm, was not considered
as a separate item and Photographic Films in Rolls usea.ble as Cinematographic
Films (ready) were treated almost as interchangeable terms. Neither the customs
tariff not the central excise tariff for the years 1988-89 indicated that the term
F 'Cinematographic Films' was intended to mean 'Photographic Film' made
ready by slitting, cutting and perforation (i.e. making sprocket holes), for use
on a projector or a camera.

The only reason why the Collector of Customs and CEGA T held that
G the classification of the goods was misdeclared was that they were
Photographic Films in Rolls and not Cinematographic Films in Rolls as they
could not have been straightawa} put on a projector or a camera and for
making them ready for that purpose it was necessary to subject them to the l
process of slitting, cutting and perforation. This reasoning of the Collector
and CEGAT is clearly erroneous and misconceived. The r.harge of
H misdeclaration of goods was based upon Section 11 l(m) of the Customs Act.
NORTHERN PLASTIC LTD. ETC. v. C.C.E. [NANA VAT!, J.] 625

According to the said provision the goods brought from a place outside India A
are liable to confiscation ifthe goods. "do not correspond in respect of value
or in any other particular with the entry made under this Act." Therefore, if
the description of the imported goods given to the customs authorities does
not correspond in respect of value or in any other particular including its
description as mentioned in the Entry made under the Act, then only they can
be said to have been misdeclared and, therefore, liable to confiscation. The B
word "Entry" in the context of the facts of this case meant an Entry made
in the Bill of Entry. Therefore, before holding that the goods were misdeclared
the authorities were required to come to the conclusion that the imported
goods did not correspond in respect of value or in any other particular with
the description and the value of the goods as stated in the Bill of Entry. In
the Bill of Entry the imported goods were described as Cinematographic C
Colour Films (Unexposed) Positive. The size of the goods was also mentioned
in the Bill of Entry. There was no dispute in respect of correct valuation of
the goods or any other particular except its description as Cinematographic
Colour Films. Since the proceedings were initiated for the purpose of
confiscation the burden was on the Department to show that the goods
imported were not Cinematographic Colour Films but were Photographic Colour D
Films only. We have already referred to the scheme and the relevant heading
and sub-headings of Chapter 37 of the Customs Tariff for the year 1988-89
and observed that there was no separate heading or sub-headings in respect
of Cinematographic Colour Films (Unexposed). Whether the film was
Photographic Film (Unexposed) or Cinematographic Film (Unexposed), it was E
included under the heading 37.02. Whether with sprocket holes or without
sprocket holes they were all described as Photographic Film in Rolls and there
was no separate heading or sub-heading in respect of Cinematographic Films
having sprocket holes and of width not exceeding 105 mm. Therefore, the
scheme of Chapter 37 did not disclose that only those Photographic Films in
Rolls (Unexposed) could legitimately be described as Cinematographic Films p
if they were slitted into a width not exceeding 105 mm and had sprocket holes.
Thus for the purpose of being included under heading 37.02 it was not
necessary that the film should have been cut to useable sizes or should have
been of a particular width only. All Photographic Films, including
Cinematographic Films with or without sprocket holes and having normal
width of Cinematographic Film or otherwise were covered by heading 37.02 G
and since the film imported by the appellant was without sprocket holes and
exceeded width of 610 mm and !ength of 200 m, it was correctly classifiable
under 3702.41 only. It is, therefore, difficult to appreciate how for the purpose
-;
of the Customs Act and for payment of customs duty the goods cannot be
said to have been correctly classified. The goods which were imported by
the appellant were Photographic Colour Films (Unexposed) and they were H
626 SUPREME COURT REPORTS [1998) 3 S.C.R.

A meant for being used as Cinematographic Films. The appellant was engaged '
;

in the activity of using such films as raw material for making it ready for use
as Cinematographic Film by subjecting the said raw material to the process
of slitting, cutting and perforation or making of sprocket holes. 1l was not
even suggested by the customs authorities that the imported goods were
ordinarily used for or intended to be used for any other purpose. Therefore,
B even though the imported goods were not ready for being used as
Cinematographic Films in the sense that they could be straightaway put on
a projector or a camera, the appellant cannot be said to have misdeclared them , ._
by describing and classifying them as Cinematographic Colour Films
(Unexposed).
c The second ground on which it was held that the imported goods were
misdeclared was that the appdlant had wrongly stated in the Bill of Entry that
it was entitled to the benefit of exemption notification No.52/86-cus as amended
by notification No. 157/88-cus. and notification No.50/88-C.Ex. In the Bill of
Entry and other related documents the appellant had given specific and clear
D description of the goods as can be seen from the following extract from the
Bill of Entry:
~
.
"Cinematographic Colour Films (Unexposed) Positive.

Size: Length 1250 mtrs.x width I 140 mm.
E
(Useable length 1250 mtrs.x width 1085 mm)

Total Linear Metres:

59 Rolls x 1250 m = 73, 750 mtrs.
F ...
Total sq. m. 1250xl 140x59= 84075."

The appellant had not described the rolls as jumbo rolls but had given
the length and width of each roll. The word "jumbo" is only indicative of size
of the goods and the appellant having specifically stated the size of each roll •
G it was not necessary , as there was no such requirement of law, for him to
have cjescribed the goods which were in the form of rofls as jumbo rolls. It
was aiso not necessary for him to describe them as the 'jumbo colour film'
as there was no separate heading or sub-heading for jumbo colour film in
Chapter 37. Merely because the appellant claimed that it was entitled to
exemptions in respect of customs duty under exemption notification No.52/
H 86 as amended by 157/88 and because there was separate exemption notification
~ORTHERN PLASTIC LTD. ETC. v. C.C.E. [NANA VAT!. J.] 627
.,.
.( in respect of colour jumbo films, it cannot be said that the declaration made A
in the Bill of Entry did not correspond with "any other particular" of the
imported goods. Whether the appellant was entitled to the benefit of exemption
under the said notification or not was a matter of belief of the appellant and
not a matter of 'any other particular' with respect to the goods. It is also
relevant to note that the appellant's earlier consignment bearing the same
description, same classification and identical claim for exemptions was cleared
B
by the Delhi Customs House in the previous year. The Collector and CEGA T
were, therefore, clearly in error in holding that by claiming benefit of exemptions
under notifications which really did not apply to the imported goods, the
appellant had intentionally tried to evade proper payment of customs duty.

For the purpose of claiming benefit of exemption in respect of
c
countervailing duty, the appellant had stated in the Bill of Entry that the
goods imported by it were covered by the heading 3702 and by the sub-
heading 3702.20 of Chapter 37 of the Central Excise Tariff and that it was
entitled to the exemption to the extent provided under notification No.50/88-
C.Ex. Under Central Excise Tariff for the year 1988-89 also Chapter 37 dealt D
~
with Photographic or Cinematographic goods. The relevant heading in respect
of Photographic Film in Rolls was 37 .02 and .it read as under:-

"PHOTOGRAPHIC FILM IN ROLLS, SENSITISED, UNEXPOSED OF
ANY MATERIAL OTHER THAN PAPER, PAPER BOARD OR TEXTILES;
INSTANT PRINT FILM IN ROLLS, SENSITISED, UNEXPOSED.'' E

Photographic Film in Rolls (Unexposed) were covered by heading 37.02.
If it was meant for X-Ray then the proper sub-heading for it was 3702.10.
Cinematographic Films (Unexposed) were covered by sub-heading 3702.20
and for other types of Photographic Films in Rolls the proper heading was
3702.90.
F

As the goods imported by the appellant were being used arid intended
to be used as Cinematographic Films, the appellant had described them as
Cinematographic Films covered by sub-heading 3702.20. No attempt was
made by the customs authorities either before the Collector or before CEGA T
G
to show that the goods imported by the appellant were ordinarily not used
as Cinematographic Films or were not intended by the appellant for such a
..... use. Moreover, looking to the heading 3702 and its sub-heading, it does not
appear that such goods were intended to be covered by sub-heading 3702.90.
As regards the claim for exemption in payment of countervailing duty the
appellant had stated that it was entitled to the benefit under notification H
628 SUPREME COURT REPORTS [1998] 3 S.C.R.

A No.50/88-C.Ex. This declaration made by the appellant has been found to be .
>
wrong by the Collector and CEGAT on the ground that there was a separate
exemption notification in respect of jumbo rolls for Cinematographic Films.
While dealing with such a claim in respect of payment of customs duty we
have already observed that the declaration was in the nature of a claim made
B on the basis of the belief entertained by the appellant and therefore, cannot
be said to be a misdeclaration as contemplated by Section 11 !(m) of the
Customs Act. As the appellant had given full and correct particulars as
regards the nature and size of the goods, it is difficult to believe that it had
referred to the wrong exemption notification with any dishonest intention of
evading proper payment of countervailing duty.
c
We, therefore, hold that the appellant had not misdeclared the imported
goods either by making a wrong declaration as regards the classification of
the goods or by claiming benefit of the exemption notifications which have
been found not applicable to the imported goods. We are also of the view
D that the declarations in the Bill of Entry were not made with any dishonest
intention of evading payment of customs and countervailing duty.

The order of confiscati'tln has also been upheld by CEGA T on the
ground that the appellant did not have an industrial licence under the !DR
Act and, therefore, it was not an 'actual user (industrial)' eligible to import
E the said goods under OG L. It was contended by Mr. Dave that the Collector
and CEGAT have committed a grave error in holding that the appellant was
not an 'actual user (industrial)', as it did not have an industrial license under
the !DR Act. He submitted that under the Import and Export Policy for the
year 1988-91 items included in Part I of List 8 of Appendix 6 could be imported
F under Open General Licence by actual user (industrial). Jull}bo rolls of •
Cinematographic Colour Films (Unexposed) were included at Serial No. 297 in
the said list. Thus, it was permissible to actual user (industrial) to import
jumbo rolls of Cinematographic Colour Films under OGL. The Import and
Export Policy defined actual user (industrial) to mean an industrial undertaking,
G be it in the large scale, small scale or cottage industry sector, engaged in the
· manufacture of any goods for which it holds a licence or registration certificate
from the appropriate government authority, wherever applicable.

Therefore, the question which arises for consideration is whether the
.-
appellant was an actual user (industrial) as per this definition. Appellant's
H undertaking was a small scale industrial undertaking and was registered as
NORTHERN PLASTIC LTD. ETC. v. C.C.E. [NANA VAT!. .I.] 629

such with the Director of Industries, Uttar Pradesh. It was registered for A
conversion/cutting of jumbo rolls into Cinematographic Colour Films
(Unexposed) Positive. Under Paragraph 56(3) of Chapter 5 of the Policy, actual
users were permitted to meet the requirements of their imported inputs under
OGL subject to the conditions prescribed in Appendix 6. Consistently with
Import and Export Policy for the year 1988-91, the Central Government, in B
exercise of the powers conferred under Section 3 of the Import and Export
Act, 1947, had issued an order on 30th March, 1988 giving general permission
with effect from Ist April, 1988 to actual user (industrial) to import raw
materials, components and consumables subject to the conditions specified
therein. Condition No. 3 was that the raw material, components and consumables
should have been required by the actual user (industrial) concerned for his C
own use. Condition No. 5 required the actual user (industrial), at the time of
clearance of the goods, to furnish the Customs authorities, a declaration
giving particulars of the industrial licence or the registration certificate issued
by the appropriate government authority.

Thus, a small scale industrial unit could import raw material, components D
or consumables required by it under OGL on the basis of its industrial licence
i.~ or registration certificate obtained from the appropriate government authority.

What has been held by CEGAT is that the appellant required an industrial
licence issued under the IDR Act as slitting and cutting of jumbo rolls, was E
a controlled/scheduled industry under that Act. Under that Act it was
necessary for a new industrial undertaking to obtain a licence if it was an
undertaking pertaining to a scheduled industry carried on in a factory. CEGAT
relying upon these provisions of IDR Act and the definition of factory as
contained in Factories Act held that the appellant's undertaking being a new
undertaking was required to obtain a licence as it was pertaining to a scheduled F
industry carried on in its factory. It was, however, contended by Mr. Dave,
learned counsel for the appellant that CEGAT committed a grave error of law
in relying upon the definition of 'factory' as contained in the Factories Act
even though it was required to go by the definition of factory as contained
in the IDR Act. He rightly submitted that as the IDR Act itself contains G
definition of word "factory" that definition should liave been considered
instead of the definition given in the Factories Act. The !DR Act defines
factory to mean "any premises, including precincts thereof, in any part of
-; which a manufacturing process is carried on or is ordinarily so carried on- (i)
with the aid of power, provided that fifty or more workers are working or were
working thereon on any day of the preceding twelve months; or (ii) .... ". It also H
630 SUPREME COURT REPORTS [1998) 3 S.C.R.

A defines industrial undertaking to mean any undertaking pertammg to a
scheduled industry carried on in one or more factories by any person. Tims,
the position under the IDR Act was that unless the scheduled industry was
carried on in a factory as defined by the IDR Act, it was not required to take
out a licence even though it was an undertaking pertaining to a scheduled
B industry. This aspect has been totally overlooked by CEGAT. Even the
guidelines issued by the Government of India, Ministry of Industry for the
benefit of the industries stated that no industrial licence was necessary if the
industrial undertaking was not carried on in a factory as defined by the IDR
Act. It was the case of the appellant, and it had produced material in support
of it, that in its factory not more than twelve workers were ever employed.
C This fact was not disputed by the Customs authorities. It thus becomes clear
that the appellant's industrial undertaking, though engaged in the industrial
activity pertaining to the scheduled industry, was not carrying on such
industry in a factory as defined by the Act. It was, therefore, not necessary
for it to obtain a licence under the IDR Act. It did have a certificate of
registration issued by the Director of Industries, Uttar Pradesh. Even the
D definition of' actual user (industrial)' which we have quoted above makes it
clear that licence under the JDR Act was required if the provision of the IDR
Act in that behalf was applicable. As pointed out earlier, for the purpose of ~4
answering the definition of 'actual user (industrial)' it was not necessary for
the appellant to obtain a licence under the IDR Act. It was sufficient, for the
E appellant to be called an actual user (industrial), to have a certificate of
registration issued by the competent authority. The CEGAT was, therefore, in
error in holding that importation of 59 jumbo rolls of Cinematographic' Films
by the appellant was unlawful and, therefore, liable to confiscation.

Therefore, neither on the ground of misdeclaration nor on the ground
F of import being unauthorized or illegal, the goods imported by the appellant
were liable to confiscation. We, therefore, allow these appeal, set aside the
order of confiscation and also the order levying fine of Rs. ·5 lakhs in lieu of
confiscation. We also set aside the order of penalty imposed upon the
appellant. In view of the facts and circumstances of the cases, the parties
G shall bear their own cost.
R.K. Appeals allowed.

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