Holding

Rule 2(a) does not apply because the imported items lack the essential character of a complete CTV and were not presented together, so they are to be treated as components, not CKD kits.

Summary

Sony India Ltd. imported various components of colour televisions (CTV) under a duty‑free exemption notification. The Revenue issued a show‑cause notice alleging that Sony had evaded customs duty by misdeclaring completely knocked‑down (CKD) kits as mere components, thereby breaching the Exim Policy 1992‑97 and invoking Sections 111(d), 111(m), 112(a), 114(a) of the Customs Act. The Customs, Excise & Gold (Control) Appellate Tribunal set aside the Commissioner’s order, holding that the imported items were components, not CKD kits, and dismissed the differential duty and penalty. On appeal, the Supreme Court examined the applicability of Rule 2(a) of the General Rules for interpretation of the First Schedule of the Customs Tariff, concluding that the components did not possess the essential character of a complete CTV and were not presented together, so Rule 2(a) did not apply. Consequently, the Tribunal’s decision was affirmed and the appeal dismissed.

Issues considered

Whether Rule 2(a) of the General Rules for interpretation of the First Schedule of the Customs Tariff applies to the imported CTV components.
Whether the imported components have the essential character of a complete colour television and thus should be treated as CKD kits.
Whether the import of the components violated the Exim Policy 1992‑97, attracting confiscation under Section 111(d) and differential duty under Section 28(1).
Whether penalty provisions under Sections 112(a) and 114(a) of the Customs Act are applicable.

Legislation cited

Customs Act, 1962s. 111(d), s. 111(m), s. 112(a), s. 114(a), s. 28(1)

Subjects

customs duty evasionCKD kitsRule 2(a)Exim Policycomponent vs finished goodsimport classificationpenaltyconfiscationduty exemptionSony India

Judgment

[2008] 13 S.C R. 873
"
j

COMMISSIONER OF CUSTOMS, NEW DELHI A
v.
SONY INDIA LTD.
(Civil Appeal No. 8236 of 2002)
-I }
SEPTEMBER 23, 2008
8
[ASHOK BHAN AND V.S. SIRPURKAR, JJ.]

Customs Act, 1962; Ss. 111(d), 111(m), 112(a), 114(a)
and 28ABIGeneral Rules for interpretation under First Sched-
ule of Import Tariff; r. 2(a)IExemption Notification No. 79165- c
Gus.dated 31.3.1995:
Evasion of customs duty by assessee - Allegedly by
misdeclaring goods imported as component of color Televi-
,,,. sion (CTV) instead of declaring them as completely knocked
_/ ~
' down Kits of CTV in contravention to provisions of Exim Policy D
- Held: Advanced licenses issued by Authority for import of
components of CTV duty free in terms of exemption notifica-
tion No. 79165 - Some of the components so imported fall in
restricted list and need to be processed further before using
them in manufacture of CTV - CTV so manufactured partly E
used for house consumption on payment of excise duty and
partly exported in terms of Duty Entitlement Exemption Ger-
tificate Scheme by effecting an entry in Pass Book - R.2(a)
would be attracted only if all the components which constitute
--.. a final product would be presented at the same time for cus- F
tom clearance - On facts, r.2(a) not attracted - Hence, tribu-
nal rightly set aside order of appellate Commissioner con-
firming differential amount of duty, confiscation of goods and
imposition of penalty on components of CTV imported.
Exim Policy 1992-97 - Provisions under - Compliance G
of.
Words and Phrases:

.• 873 H
I 874 SUPREME COURT REPORTS (2008] 13 S.C.R. \,. ....

A 'as presented' - Meaning of, in the context of Rule 2(a)
of the General Rules for interpretation under first schedule to
import tariff.
'

Respondent-assessee, is a subsidiary of a foreign
company manufacturing Color Television (CTV) and au- ~ ii'-
B dio products in India. The company obtained advanced
Licenses from the authorities concerned for import of
various components of CTV duty free by availing benefit
of exemption Notification No. 79/65-Cus. dated 31.3.1995.
A Duty Entitl~ment Exemption Certificate (DEEC) Pass
c Book has also been maintained by the asssessee and in
terms thereof it imported various components of CTV. A
show-cause Notice was issued by the Revenue demand-
ing additional duties on the imported components treat-
ing them as complete CTV. Later, the demand of differen-
D tial amount of duty was confirmed by the authorities after ,. "'
confiscating the goods and penalty was also imposed.
Appeal filed thereagainst by the assessee was allowed
by a larger Bench of the Tribunal. Hence the present ap-
peal.
E Revenue contended that respondent evaded pay-
ment of duty on the CKD (completely knocked down) kits
of CTVs by misdeclaring them as CTV components; that
the assessee had contravened the provisions of the Exim
Policy 1992-97 by importing CKD kits of the CTVs with-
F out having an import license and thereby making the
goods liable for confiscation under Section 111(d) of the
Act; and that though the respondent had imported the
CKD Kits and had placed order therefor, numbering 1500
in all, in that order, it had paid a lesser duty, showing it as
G import of components, on which there was lesser duty,
and as such, the respondent had breached the provisions
of the Customs Act, 1962.
Respondent-assessee submitted that the Tribunal
had correctly deduced that the components imported by
H
~ ~ COMMINR. OF CUSTOMS,· NEW DELHI v. SONY 875
' INDIA LTD. .

the respondent could not amount to the CKD Kits; that A
there was no evidence available to suggest thai,the re-
spondent had used these very components in the manu-
facture' of the CTVs.; that these components could not
~ ~ form the complete CKD Kits of CTVs.; that these compo-
nents could· not have been used in its present form and B
there was a complicated manufacturing processJ_nvolved;
that not onJy the customs duty was paid on these com-
ponents, treating them as components, but the substan-
tial excise duty was paid on CTVs so manufactured, which
belied the claim of the Revenue that these were not merely c
the components, but amounted to the import of CKD Kits
of CTVs.; and that Rule 2(a) was not attracted.
Dismissing the appeal, the Court
<

- • HELD: 1.1 The advanced licenses were issued by D
the Director General of Foreign Trade (DGFT) to the re-
. spondent for import of components of CTV duty free by
availing the benefit of notification 79/65-Cus dt. 31.3.1995.
A Duty Entitlement Exemption Certificate (DEEC) pass-
book was also maintained and it was on this basis that
over a period of 22 months, 94 Bills of entry were filed by E
the assessee for importing the various components, con-
cerning the present case. (Para - SA) [889-D-E]
1.2 The components were assessed under different
tariff headings by applying Section Note 2 to Section XVI. F
It is an admitted position that the composed PCBs which
were in the restricted list, were further processed to con-
vert them into Motherboard, which was to be used in the
assembly line for the manufacture of CTVs. (Para - 88)
[889-F-G]
G
2.1 There is a clear finding given by the Commis-
sioner that before 25.3.1996, there was no breach of Exim
Policy by the respondent. Therefore, it is clear that every- .
thing depended upon the applicability of Rule 2(a) of the
General Rules and it was solely on that basis that the H
876 SUPREME COURT REPORTS [2008] 13 S.C.R.

A breach of Exim Policy also was alleged for the period prior
to 25.3.1996 vvhen Rule 2(a) came to the anvil. There was
no appeal filed by the Revenue against the finding of the
Commissioner. Thus, finding of the Commissioner had
become final. (Para - BC) [890-C-E] 1
,..
B 2.2 Rule 2(a) was relied upon by the revenue, because
such reliance alone could justify their stand that the im-
ported components(CTV) wou!c! have to be treated as CTVs
and as such, it would attract more duty. There is no diffi-
culty in holding that the imports were perfectly in order and
c under the proper import license. (Para - BC) [890-F-G]
2.3 The sine qua non for the application of Rule 2(a)
is that any imported article, which is "as presented", must

D
have the essential character of the complete or finished
article." This condition cannot be ignored and this Court
cannot allow the reading only of the second. part of the
'
..
Rule for application of the Rule. The Rule must apply as a
whole. A mere PCB or a CRT, components of CTV, under
any circumstances, cannot be held to have essential char-
acter of the CTV. It is only when this first condition is sat-
E isfied that the remaining clause would have to be read and
thereby, the words "that article" used in the later part would
have to pass the test of the opening words of the clause
"as presented, the incomplete or unfinished article has the
essential character of the complete or finished article". y
F Once this condition is satisfied then the further clause is
activated, suggesting that even when such article is in dis-
assembled or unassembled condition, it would still be taken
to be a complete article. Therefore, essentially the second
part would come into play provided the component parts
G intended to make up the finished product are all presented
tor customs clearance at the same time which is not the
case here. (Para - 9) [891-F-H; 892-A-B]
2.4 The principles emerging out of the decision in
Phoenix International Ltd. case would have to be re-
H
) .J COMMINR. OF CUSTOMS, NEW DELHI v. SONY 877
INDIA LTD.

stricted to the facts in that case. Unlike in Phoenix Inter- A
national Ltd. case, there is no allegation of fraud ~gainst
the present assessee. There is a complete absence of any

- '
such device or "subterfuge" in the present case, nor is there
any allegation of the sort. Again the further point of differen-
tiation is that in that case, the Court was dealing with the
consumer goods like shoes and that was included in the
B

negative list, whereas, the CKD in the present case (if at all it
is to be CKD which was imported), was not in the negative
list, it was in the restricted list. The other differentiating fea-
ture and the most important one is that while the parts im- c
· ported by the assessee in this case could be independently
used as the spare parts or sold in the market, that was not
the case in Phoenix International Ltd. In that case, all the'
parts imported by the assessees came in one and the same
- ... container on one and the same day, which was not the case
here. In the present case, as suggested by ASG for the
D
Revenue, all these imports were based on a single order
in which the figure of 1500 is found to be ordered. How-
ever, it was rightly pointed out on behalf of the assessee
that there is no specific finding that all the parts imported
could manufacture 1500 CTVs. and that much more num- E
ber of CTVs were manufactu-red on the basis of the im-
ports. Further, it is clear from the Show Cause Notice that
out of the 100 imported components, the number does
not match with the components required for manufacture
of 1500 CTVs in case of at least 21 items. This is another F
distinguishing feature. (Para - 7) [887-B-H; 888-A-D]
Commissioner of Customs, New Delhi vs. Phoenix In-
ternational Ltd. &Anr. (2007) 10 SCC 114 - explained & dis-
tinguished.
G
2.5 It is a settled position in law that the goods would
have to be assessed in the form in which they are im-
ported and presented to the customs and not on the ba-
sis of the finished goods manufactured after subjecting
them to some process after the import is made. (Para - H
878 SUPREME COURT REPORTS [2008] 13 S.C.R.

A 11) [892-F-G]
Vareli Weaves Pvt. Ltd. v. Union of India (1996) 83 ELT
255 (SC) and Dunlop India and Madras Rubber Factory Ltd.
v. UOI (1982) 13 ELT 1566 (SC) - relied on.
1 -
B 2.6 Rule 2(a) would mean that Rule 2(a) would be appli-
cable only and only if all the components which are intended
to make a final product would have to be presented at the
same time for customs clearance. Such is not the case in
the present situation where the goods have been brought
c in 94 different consignments. (Para - 12) [893-D-E]
Union of India v. Tarachand Gupta & Sons (1971) 1 SCC
487; Girdhari Lal Bhansidhar v. Union of India (1964) 7 SCR
62 and Sharp Business Machines v. CCE, Bangalore (1991)
1 sec 154 - relied on.
D
2.7 Nothing found to take a view that the goods were
in unassembled or dis-assembled condition and they
should be taken to be the complete CTVs, particularly
when there is no finding recorded anywhere on facts that
all these goods could make 1500 CTVs. However, since
E the goods brought in different consignments separately
on the basis of valid import licences, it would not attract
the import duty as if they were the finished goods, is ac-
cepted. (Para - 14) [895-C-E]
F 2.8 Since the concerned HSN Explanatory Note to
Rule 2(a) was applicable to the goods in question, there
would be no question of treating them to be in
unassembled or disassembled condition since a compli-
cated process had to be exercised before it could be used
G for the assembly of the CTVs. (Para - 15) [896-8-C]
2.9 The Tribunal has correctly held that the HSN Ex-
planatory Notes to Rule 2 (a) had to be applied while con-
sidering the relevant Tariff Entry; that after considering
the whole process that the process involved in the user
H of the components is the complex manufacturing process
COMMINR. OF CUSTOMS, NEW DELHI v. SONY 879
!NOIA LTD.

during which many components are subjected to work- A
ing operation requiring sophisticated machinery and
skilled operators. Further it has correctly assessed the
effect of the amendment of HSN Explanatory Notes which

- ;
came on 14.3.1997. Further, this Court is in agreement with
the finding that even applying the amended HSN Explana-
tory Notes the position would be no different. (Para - 15)
B

[896-E-H; 897-A-B]
CCE v. Woodcraft (1995) 3 SCC 454 - relied on.

2.10 Rule 2(a) would apply only when the imported ar- C
ticles presented unassembled or disassembled can be put
together by means of simple fixing device or by riveting or
welding, but not when complicated process would be re-
quired for the user of those parts. (Para - 16) [897-H; 898-A]
Simplex Mills v. Union of India (2005) 181 ELT 345 (SC) o
- relied on.
Modi Xerox Ltd. v. CCE, New Delhi (1998) 103 ELT 109
- referred to.
2.11 On facts, Rule 2(a) would not be applicable to E
the present case since there is no question of the goods
having the essential character of CTVs. In that view, the
question of applicability of Section 2(a) on this account need
not be gone into in this judgment. Hence, Tribunal's judg-
ment needs no interference. (Paras - 17 & 19) [899-A-C]
F
Susha Electronics Industries v. CC (1989) 39 ELT 585;
Trident Television Pvt. Ltd. v. CC (1990) 45 ELT 24; Vishal
Electronics Pvt. Ltd. v. CC, Bombay (1998) 102ELT188 and
Sharp Business Machines v. CCE, Bangalore (1991) 1 SCC
154 - approved. G
Case Law Reference
(2001) 10 sec 114 Distinguished Para - 4
(1996) 83 ELT 255 (SC) Relied on Para - 11
(1982) 13 ELT 1566 (SC) Relied on Para - 11 H
880 SUPREME COURT REPORTS [2008] 13 S.C.R.

A (1971) 1 sec 487 Relied on Para - 13
(1964) 7 SCR 62 Relied on Para-13
(1991) 1 sec 154 Relied on Para-13

8
(1995) 3 sec 454
(2005) 181 ELT 345 (SC)
Relied on
Relied on
Para-15
Para - 17
"I
-
(1998) 103 ELT 109 Referred to Para - 16
(1989) 39 ELT 585 Approved Para-18
(1990) 45 ELT 24 Approved Para - 18
c (1998) 102 ELT 188 Approved Para - 18
(1991) 1 sec 154 Approved Para - 18

CIVILAPPELLATE JURISDICTION: Civil Appeal No. 8236
of 2002
D
From the final Order No. 237/2002-8 dated 28/5/2002 of
'
the Customs, Excise & Gold (Control) Appellate Tribunal, New
Delhi in Appeal No. C/122/99-8

Vikas Singh, A.S.G., S.K. 8agaria, Gaurav Agrawal,
E Shweta Garg, Udita Singh, Shiva Lakshmi Singh, Amrita
Narayan (for 8.V. 8alaram Das), V. Lakshmi Kumaran, Alok
Yadav (for M.P. Devanath), Nikhil Nayyar, Amit Gupta and Anil
Kaushik (for Shiv Prakash Panday) for the appearing parties.

The Judgment of the Court was delivered by
F
V.S. SIRPURKAR, J. An Order by Customs, Excise &
Gold (Control) Appellate Tribunal (hereinafter called "the Tribu-
nal" for short), allowing the appeal filed by M/s Sony India Ltd.
(the respondent herein), is in challenge at the instance of the
G appellant herein. The said appeal was filed challenging the or-
der-in-original dated 30.1.1999, passed by Commissioner of
Customs, Inland Container Depot, Tughlakabad, New Delhi, .... ~

wherein the said Authority had confirmed the said differential
duty demand of Rs.42,89,75,196/- under the Proviso to Sec-
H tion 28(1) of the Customs Act, 1962 (hereinafter referred to as
..
_
COMMINR. OF CUSTOMS, NEW DELHI v. SONY 881
INDIA LTD. [V.S. SIRPURKAR, J.]

"the Act"). The penalty was also imposed amounting to A
Rs.30, 19,92, 183/- under Section 112{a) read with Sectiori 114{a)
with interest under Sectfon 28 AB of the Act. By the order of the
Commissioner, the import of several parts of Colour Television
"'.> t
(hereinafter called "CTV" for short) made by the appellant for
the period from April 1995 to 1997 were treated as import of B
complete CTV Sets for the purpose of assessment by the Com-
missioner.

2. Initially, there was difference of opinion amongst the two
Learned Members of the Tribunal on the ~pplication of Rule 2(a)
of the General Rules for Interpretation under First Schedule of c
Import Tariff, on the basis of which the order-in-original was
passed. Accordingly, the following questions were referred to
the larger Bench of the Tribunal:-

• -i "Whether the goods in question are components and
D
cannot be treated as complete colour Televi.sion sets and
hence the duty demand, confiscation of penalty are
unsustainable as held by Ld. Member (J.)?
OR
E
Whether the issue as to the circumstances under which
Rule 2(a) of the·lhterpretative Rules can be applied, as fo
whelher the benefit of Notification exempting components
- only will be available,_ if the product is considered as
- complete or finished article by virtue of deemed provision
of Rule 2(a), and whether the change effected in F
Explanatory Notes of HSN will give only prospective
application or it will be applicable-for the earlier period
also, requires to be referred to a Larger Bench, as held by
Ld. Member (T.)?"
\
G
Ultimately, the larger Bench seems to have agreed with
the view expressed by the Ld. Member (Judicial) to the effect
--. that components imported by the appellant could n :>t be treated
as complete CTV Sets. The larger Bench also held that the duty
demand, direction for confiscation and i!llposition of penalty
H
882 SUPREME COURT REPORTS (2008] 13 S.C.R.

A were unsustainable in law. Accordingly, the order-in-original
passed by the Commissioner was set aside, allowing the ap-
peal. It is this order of the larger Bench of the Tribunal, which is
in challenge before us.
3. Shri Vikas Singh, Ld. Additional Solicitor General (ASG)
8 of India, painstakingly took us through the impugned order of
the Tribunal, as also to the records including the Show Cause
Notice dated 4.3.1997. The main plank of the argument is based
on that Notice, whereunder the Revenue asserted the evasion
of duty on the part of the respondent on the CKD (completely
C knocked down) Kits of CTVs by misdeclaring them as CTV com-
ponents and also proposed their confiscation under Section
111 (m) of the Act. In addition, the Revenue also asserted that
the respondents had contravened the provisions of the Exim
Policy 1992-97 by importing CKD Kits of the CTVs without an
D import license and thereby making the goods liable for confis-
cation under Section 111 (d) of the Act.
4. The Show Cause Notice further refers to an exhaustive
list of components imported by the respondents which go into
the manufacture of CTVs of models KV-2185 GE, KV-2197 PF
E and KV-2167 MT. Heavy reliance is placed on the First Pur-
chase Order No. IN-31Pl-10 dt. 27.11.1994 placed by Sony In-
dia Pvt. Ltd. on Sony International (Singapore) Ltd. It was on the
basis of this order, which was treated to be an order for 1500
CKD Kits of CTVs for the model KV-2185 GE only. The Show
F Cause Notice also gives not only the quantity actually imported,
but also points out the quantity required for 1500 CTVs. The list
consists of 100 such components and it was the assertion on
the part of the Revenue that all these components were nothing,
but 1500 CTVs, for which the order was placed on 27.11.1994.
G There are some other assertions regarding some other items,
which were once used, but discontinued to be used, probably
with an idea to show that the components mentioned in the list
were nothing, but 1500 CTVs. It was, however, clarified that the
items at S.Nos. 93, 94, 95, 97 and 98 could not be considered
H to be the components or parts of CTVs. The ass.ertion in the
... COMMINR. OF CUSTOMS, NEW DELHI v. SONY 883
INDIA LTD. [VS. SIRPURKAR, J)

Show Cause Notice, therefore, is that though the respondent A
was importing the CKD Kits of CTVs for their assembly in In-
dia, which attracted higher customs duty, the said imports were
being shown as the imports of the components of the CTVs,
attracting lesser customs duty and as such, the respondent was
liable to pay not only the differential duty, but also the penalties 8
on account of the clandestine imports. A reference was also
made in paragraph 8 of the Show Cause Notice to Rule 2(a) of
the General Rules for the Interpretation of the First Schedule to
the Customs Tariff Act, 1975 and it was conveyed that any ref-
erence in a heading to an article should be taken to include a c
reference to that article in complete or unfinished, if the in com-
plete or unfinished article has the essential character of the com-
plete or finished article. It was on this basis that the respondent
was accused of misdeclaration of imported goods, as also
. 1
breach of the Exim Policy. A reference in the said Show Cause
0
Notice was made to the reply dated 20.9.1996. However, rely-
ing fully on Rule 2(a), it was asserted that the respondent was
guilty of misdeclaration and confiscation of the imported CKD
Kits. In short, the assertion was that though the respondent had
imported the CKD Kits and had placed order therefor, number-
ing 1500 in all, in that order, it had paid a lesser duty, showing it E
as import of components, on which there was lesser duty, and
as such, the respondent had breached the provisions _of the Act
and had made itself liable for the confiscation and imposition of
differential duties and also the penalties. Shri Vikas Singh, Ld.
-... ASG heavily relied on Rule 2(a), which was referred to by us in F
the earlier part of the judgment. In addition to this, the assertion
of Shri Singh was that the question was considered by this Court
and decided in favour of Revenue in a decision reported in
(2007) 10 SCC 114 Commissioner of Customs, New Delhi
Vs. Phoenix International Ltd. & Anr. G
5. Shri V. Lakshmi Kumaran, learned counsel appearing
." on behalf of the respondent, however, pointed out that the Tribu-
nal had correctly deduced that the components imported by the
respondent could not amount to the CKD Kits. According to him,
H
884 SUPREME COURT REPORTS (2008] 13 S.C.R.
..
A therewas no evidence available to suggest that the respondent
had used these very components in the manufacture of the CTVs.
He disputed the claim on the part of the Revenue that these
components could and did form the complete CKD Kits of 1500
CTVs. He pointed out that these could not have been used, as
B they were imported in the manufacture of CTVs and there was
a complicated manufacturing process involved, according to
which the components which were imported, had to be treated
and processed before they could be used for the manufacture
of CTVs. He further points out that not only the customs duty
c was paid on these components, treating them as components,
but the respondent had also paid substantial excise duty on the
manufacture of these CTVs in Crores, which belied the claim of
the Revenue that these were not merely the components, but
amounted to the import of CKD Kits of CTVs. Shri Lakshmi
Kumaran also seriously disputed the interpretation, put forward
D
by the Revenue on Rule 2{a) and asserted that Rule 2(a) was • ~

not even applicable in the present case. We were taken through
number of entries and the notes by the learned counsel. He also
relied on number of decisions of this Court, as also the High
Courts and finally submitted that the decision in Phoenix Inter-
E national Ltd. Case (cited supra) was not applicable to the facts
of the present case, as the said decision turned on its own facts,
peculiar to that case. It is on this backdrop that we have to con-
sider the questions involved.

F 6. The Learned ASG opened up his arguments by a propo-
sition that the issue involved in the present Appeal Ts covered
fuHy by the judgment of this court in Phoenix International Ltd.
Case (cited supra). We would first consider as to whether all
the issues are closed in favour of the Revenue in that judgment.
This was the case, where various parts of the shoes, namely
G
shoe uppers, outer soles, insoles and sock liners were imported
by M/s. Phoenix Industries Ltd. ("PINO" for short) in the same
container. It was the claim of the Revenue that they could be y•
considered as the import of the shoe in SKD (Semi knocked
down) condition. However, the importer had declared them only
H
COMMINR. OF CUSTOMS, NEW DELHI v. SONY 885
-<
!NOIA LTD. [V.S. SIRPURKAR, J]

\ to be the components. It was on that basis that the matters pro- A
~
ceeded. The Court first came to the conclusion that a synthetic
shoe consists of the vital parts, namely, the synthetic shoe up-
pers, outer soles, ins()les and sock liners. M/s Phoenix lnterna-

-
-<
tional Ltd. ("Pl L" for short) had the license under which it was
entitled to import synthetic shoes uppers, PVC compounds and B
natural rubber. However, the importer PIL had imported 5215
pairs on 16.1.1996 on a declared value, while on the same day,
PINO imported soles and insoles numbering 5151 pairs. The
Court noted that while PIL had imported synthetic uppers under
DEEG Scheme, the PINO had imported the soles under Exim c
Policy, 1992-97. Therefore, the Department-was satisfied that
... there was an attempt to mislead by importing the above items
separately through two. different companies, but in fact, it
amounted to the import of the complete synthetic shoes in SKD
form. The Court also noted that all the cartoons were placed in
~ D
on~ container with the marking of "Phoenix" without specifying
whether the container was meant for PIL or PINO. The Court
also noted that in the Show Cause Notice, it was claimed that
the import orders had been placed by the above two compa-
'
~ nies with the same supplier in Bangkok and that both the import
orders were signed by Mr. Bhupinder Nagpal, General Man- E
. ager of PIL. rt was also alleged in the Show Cause Notice that
import invoices filed by the two companies referred to the same
proforma invoice dt. 2.11.1995, which was placed by Mr.
Bhupinder Nagpal on behalf of both the companies. The Court
·'"'(
also further noted that in the Show Cause Notice, it was specifi- · F
cally pointed out that the c0nsumer ifems were placed in the
negative list vide Para 156(A) of Exim Policy, 1992-97 and un-
.der the said Para, the consumer gooc:j;; . in SKD form or ready-
to-assemble condition were required to be imported under spe-
cific import.license and that the synthetic shoe amounted to a G
consumer item and as such, had required specific import Ii-
cense and, therefore, it was further alleged in the Show Cause
·-. Notice that the importer had imported the goods in SKD form
or ready-to-assemble condition without specific import license.
The Court further noted that in the Show Cause Notice, it was H
886 SUPREME COURT REPORTS [2008] 13 S.C.R. ,..

A further alleged that the PIL had resorted to the above subte·r-
fuge by importing the uppers of "Reebok" shoes in their own
name and the remaining three components in the name of PINO
in order to bypass restriction imposed by Para 156(A) of Exim
Policy. The Court also noted that the Department had alleged in
the Show Cause Notice that a loan of Rs.11. 7 crores was ad-
....
B
vanced by PIL to PINO which was interest free loan during the
year ending 31.3.1995 and a loan of Rs.7.7 crores was also
advanced to the same company, which was also interest free
during the financial year ending 31.3.1994. The Court noted that
c it was under these circumstances it was alleged that the good
imported were not parts or the components, but, were SKD
goods, liable to be assessed as complete finished goods un-
der Tariff Sub-heading 6404.19 of the First Schedule of the
Customs Tariff Act, 1975 and was liable to the higher duty ad
valorem and countervailing duty at 15% ad valorem. The Court
D
further referred to the replies sent by PINO and PIL and came to
•
the conclusion that in that case, the intention would play impor-
tan! role, since it was the case of duty-evasion on imports. The
Court came to the conclusion that it was clear that the entire
device of bifurcation was arranged in order to bypass the re-
E strictions imposed vide Para 156(A) of the Exim Policy and the
importer had found out the device for evading the import duty.
The Court further wondered as to why the three units of PIL did
not import all the four items when it was in complete charge of
manufacturing the said shoes. The Court, therefore, came to ., .
F the conclusion that the bifurcation was unnatural and it was
cleared that if the imports of two companies, namely, PINO and
PIL were clubbed, it was nothing, but the import of the shoes,
which was in the negative list. The Court wrote the finding that:
"Therefore, it is clear that the above device of importation
G
of one item by PIL and three items by PINO was a
subterfuge/fictitious arrangement intended to deceive the
Department and fraud on Para 156(A) of Exim Policy, ~·
1992-97."

H It was under these circumstances that the Court came to
COMMINR. OF CUSTOMS, NEW DELHI v. SONY 887
~ INDIA LTD. [VS. SIRPURKAR, J.]

the conclusion that the imports made by the two companies were A
fraudulent and with the sole objective to deceive the Depart-
ment.
7. Though, the Ld. ASG heavily relied on this case to draw
,.. a parallel with the present case, we are of the clear opinion that
the principles emerging out of the decision of Phoenix lnterna- B
tional Ltd. Case (cited supra) would have to be restricted to the
facts in that case. Unlike in Phoenix International Ltd. Case
(cited supra), there is no allegation of fraud against the present
assessee. There is a complete absence of any such device or
"subterfuge" in the present case, nor is there any allegation of c
the sort. Again the further point of differentiation is that in that
case, the Court was dealing with the consumer goods like shoes
and that was included in the negative list, whereas, the CKD in
the present case (if at all it is to be CKD which was imported),
was not in the. negative list, it was in the restricted list. In our D
" opinion, the other differentiating feature and the most important
one, in our opinion, is that while the parts imported by the as-
sessee in this case could be independently used as the spare
parts or sold in the market, that was not the case in Phoenix
International Ltd. Case (cited supra), at least there is no find- E
ing to that effect in Phoenix International Ltd. Case (cited su-
pra). It was very fairly admitted by the Ld. ASG that the parts
imported could be independently utilized or sold in the open
market, which was not the case with the parts involved in Phoe-
~'f nix International Ltd. Case (cited supra). The Ld. ASG also very F
fairly admitted that there was a specific fraud alleged and proved
on the basis of which the Court came to the conclusion that this
was nothing, but a device to deceive the Revenue. We cannot
also ignore the factual panorama in Phoenix International Ltd.
Case (cited supra) where all the parts imported both by PIL and
G
PINO came in one and the same container on one and the same
day, which was not the case here, as the parts in the present
• '1 case came during 22 months on different dates in 94 consign-
ments. A feeble attempt was tried to be made by the Ld. ASG to
suggest that all these imports were based on a single order
H
888 SUPREME COURT REPORTS [2008] 13 S.C.R.

A dated 27.11.1994, in which the figure of 1500 is found to be
ordered. However, it was pointed out by Mr. V. Lakshmi Kumaran
that in the present case, there is no specific finding that all the
parts imported could manufacture 1500 CTVs. It was also
pointed out by the Ld. Counsel for the respondent that much
B more number of CTVs were manufactured on the basis of the
imports. On the backdrop of all this, we would have to conclude
that the Phoenix International Ltd. Case (cited supra) must be
restricted to the facts involved therein, which cannot be matched
with the facts in the present case. In the Phoenix International
C Ltd. Case (cited supra), it was clear that the imports of the com-
ponents perfectly matched with the number of shoes, which
could be prepared from those imported components. There is
a finding to that effect in the decision of Phoenix International
Ltd. Case (cited supra). However, on that backdrop, when we
see the list of components as mentioned in the Show Cause
0 '
Notice, it is clear that out of the 100 imported components, the
number does not match with the components required for manu-
facture of 1500 CTVs in case of at least 21 items. This is an-
other distinguishing feature. In our opinion, therefore, the argu-
ments of the Ld. ASG that the Phoenix fntemational Ltd. Case
E (cited supra) decides the question involved here in favour of
Revenue, must be rejected.
8. Ld. ASG drew our attention to the order passed by the·
Commissioner, who had held that there was a violation of Exim
F Policy for period after 25.3.1996. It was pointed out that the
Commissioner had relied on Rule 2(a) and on that basis, he
held that the said violation was after 25.3.1996. As per Rule
2(a), the components imported had to be treated as CTVs, which
attracted the higher duty as also the penalty, since the duty was
G paid only on the basis of the fact that it was a duty on compo-
nents only.
BA. It would be better to see some facts. It must be re- y •

membered here that the respondent had clarified that in the first
year of operation with the respondent Sony India Ltd., a wholly
H owned subsidiary of Sony Corporation, Japan, after liberaliza-
COMMINR. OF CUSTOMS, NEW DELHI v. SONY 889
INDIA LTD. [V.S. SIRPURKAR, J.]

tion in 1991 wanted to set up a large manufacturing facility for A
consumer goods like CTVs and audio products. They had clari-
fied in their application before the Foreign Investment Promo-
tion Board ("FIPB" in short) that in the first year of operation,
there will be no indigenization and there will be a gradual in-
crease in indigcnization. It was on that basis that the re~pon- B
dent obtained industrial license from the Secretariat of Indus-
trial Approval ("SIA" for short) and applied for import license for
CRT and PCB, since the same were in the restricted list. All the
other components were freely importable in India. The respon-
dent obviously used Sony Singapore as their indenting agent c
because Sony Singapore had a close proximity with the ap-
proved vendors of Sony Corporation situated in countries like
Japan, Taiwan, Thailand, Indonesia, Malaysia, China etc. All
these vendors supplied the components on the basis of Mini-
mum Order Quantity (MOO) for the optimum utilization of con- D
tainers, as also for the reduction in the transport costs, stan-
dardizing the manufacture and dispatch procedures. The ad-
vanced licenses were issued by the Director General of For-
eign Trade (DGFT) for import of components duty free by avail-
ing the benefit of notification 79/65-Cus dt. 31.3.1995. A Duty
Entitlement Exemption Certificate (DEEG) passbook was also E
maintained and it was on this basis that over a period of 22
months, 94 Bills of entry were filed for importing the various
components, concerning the present case.
I~
8B. The .components were assessed under different tariff F
headings by applying Section Note 2 to Section XVI. It is an
admitted position that the PCBs which were in the restricted
list, were further processed to convert them into Motherboard,
which was to be used in the assembly line for the manufacture
of CTVs. It is the case of the respondent that they manufactured G
CTVs at their Plant and they were cleared for home consump-
......... tion on payment of excise duty and a percentage of them were
also exported under bor:id. There is also no complaint about the
indigenization. and it is the case of the respondent that they
cleared 52,640 and 1,26,009 units of CTVs and paid an excise
H
890 SUPREME COURT REPORTS [2008] 13 S.C.R.

A duty of more than Rs.49 crores. As promised, the respondent
also made the exports and the entries to that effect were made
in the DEEC Pass book.

BC. The concerned Show Cause Notice dated 4.3.1997
was restricted only to the 94 consignments of the components
8 of CTVs imported by the respondent and it was proposed to
club all these 94 consignments. A detailed reply was filed arid it
was asserted by the r9spondent that there was no violation of
Exim Policy, since the goods were not in CKD/SKD condition.
It was then asserted by the respondent that Rule 2(a) could not
C have been invoked, as it was tried to be done, since the import
took place over a period of 22 months in 94 lots in containers
containing different parts sourced from different countries. As
has already been stated earlier, the Commissioner applied Rule
2(a) for the period subsequent to 25.3.1996. There is a clear
D finding given by the Commissioner that before 25.3.1996, there
was no breach of Exim Policy by the respondent. Therefore, it
is clear that everything depended upon the applicability of Rule
2(a) and it was solely on that basis that the breach of Exim Policy
also was alleged for the period prior to 25.3.1996 when the
E said Rule came to the anvil. It must be noted here that against
the finding of the Commissioner that there was no breach of
Exim Policy by the respondent prior to 25.3.1996, there is no
appeal filed by the Revenue and that finding had become final.
Therefore, all the difference, which was made, was owing to
F Rule 2(a). We have already clarified that it is for this sole pur-
pose that Rule 2(a) was relied upon by the Department, be-
cause such reliance alone could justify the Department's stand
that the components would have to be treated as CTVs and as
such, it would attract more duty. There is no difficulty in holding
G that the imports were perfectly in order and under the proper
:mport license. At this juncture, we must also appreciate the find-
ing of the Commissioner that the goods imported were sourced
from different countries and the imported components were not
in CKD form, at least prior to 25.3.1996.
H 9. It is then only due to Rule 2(a) that these components
COMMINR. OF CUSTOMS, NEW DELHI v. SONY 891
INDIA LTD. [V.S. SIRPURKAR, J.]

are being treated as the CTVs and that is the main plank of the A
argument of Mr. kas Singh, Ld. ASG. We would, therefore, con-
sider the implication of Rule 2(a). Rule 2(a) is as under:-
"Any reference in a heading to an article shall be taken to
include ci reference to that article incomplete or unfinished,
provide that, as presented, the incomplete or unfinished 8
article has the essential character of the complete or
finished art!-;le. It shall also be taken to include a refe~ence
to that article complete or finished (or falling to be classified
as complete or finished by virtue of this rule), presented
unassembled or dis-assembled." C

The Ld. ASG, therefore, suggests that the articles though
were not the CTVs in CKD form and were incomplete or unfin-
ished ones, they had the essential character of complete or fin-
ished CTVs and applying this Rule, every such component, would D
have to be taken as an import of CTV. The Ld. ASG heavily
relied on the second part of the Rule, starting from words "It was
also to be taken to new reference ............. " He says that every
component whether it is complete or finished and which is pre-
sented in unassembled or dis-assembled condition, would have
to be taken as the finished article, like CTVs in this case. In our E
opinion, this argument is completely illogical and again that is
not the import of the language of the Rule. If the argument of the
Ld. ASG has to be accepted, then we would have to concen-
--.. trate only on the later part of the Rule, ignoring the first part of
the Rule and such dissection, in our opinion, is not possible. F
The sine qua non for the application of this Rule is that any im-
ported article, which is "as presented", must have the essential
character of the complete or finished article." This condition
cannot be ignored and we cannot allow the reading only of the
second part beginning with words "It was also to be taken to G
new reference ........... " for application of the Rule. The Rule must
·-. apply as a whole. Ld. ASG was not able to point out as to how
the first condition can be satisfied in the present case. A mere
PCB or a CRT, in our opinion, under any circumstances, cannot
be held to have essential character of the CTV. It is only when H
892 SUPREME COURT REPORTS [2008] 13 S.C.R.

A this fi:st condition is satisfied that the remaining clause would
have to be read and thereby, the words "that art.cle" used in the
later part would have to pass the test of the opening words of
the clause "as presented, the incomplete or unfinished article
has the essential character of the complete or finished article".
B Once this condition is satisfied then the further clause is acti-
vated, suggesting that even when such article is in disas-
sembled or unassembled condition, it would still be taken to be
a complete article. Therefore, essentially the second part would
come into play provided the component parts intended to make
c up the finished product are all presented for customs clearance
at the same time which is not the case here.
10. In Phoenix International Ltd. & Anr. (supra) these con-
ditions in Rule 2(a) were fully satisfied inasmuch as the spare
parts of the shoes could formulate into a full pair of shoes. Though
D the learned Judges did not refer to that specifically in their judg-
ment, the facts clearly suggest that Rule 2(a) was fully appli-
cable in that case. This is one more reason why the decision in
Phoenix International Ltd. & Anr. is different on facts from the
present case.
E 11. Again the meaning of terms "as presented" in Rule 2(a)
would clearly imply that the same refers to i)resentation of the
incomplete or unfinished or unassembled or dis-assambled
articles to the customs for assessment and classification pur-
pose. It is also a settled position in law th~t the goods would
F have to be assessed in the form in which they are imported and
presented to the customs and not on the basis of the finished
goods manufactured after subjecting them to some process after
the import is made. In the reported decision in Vareli Weaves
Pvt. Ltd. v. Union of India [1996 (83) ELT 255 (SC)] the ques-
G tion was as to whether the countervailing duty was liable to be
left on the imports made by the assessee at a stage they would
reach subsequent to their import after undergoing a process. It
was contended that such goods could be sut.jacted to duty only
in the State in which they were imported. It was held that the
H countervailing duty must be levied on goods in the State in which
:I .
COMMINR. OF CUSTOMS, NEW DELHI v. SONY 893
~
INDIA LTD. [V.S. SIRPURKAR, J.]

they are when they are imported. This was on the basis of Sec- A
tion 3 cf the Customs Tariff Act. Though there is no reference to
Rule 2(a}, in our opinion, the same Rule should apply subject
ofcourse to the applicability of the Rule. We have already held
that the Rule is not applicable. Similar view was taken in Dunlop
India and Madras Rubber Factory Ltd. v. UOI [1982 (/3j ELT B
1566 (SC).

12. Shri L3kshmikumaran argues on the basis of a Ger-
man Court decision on which the Tribunal also relied upon. Ac-
cording to the learned counsel in that decision Rule 2(a) was
considered and the Court took the view that the article is to be c
considered to be imported in unassembled or disa~sembled
where the component parts, that is the parts which may be iden-
tified as components intended to make up the finished product
, are all presented for customs clearance at the same time. The
--. -.,- interpretation that we have given to Rule 2(a) would mean that D
Rule 2(a) would be applicable· only and only if all the compo-
nents which are intended to make a final product would have to
be presented at the same time for customs clearance. Such is
not the case in the present situation where the goods have been
brought in 94 different consignments. E
13. In Union of India v. Tarachand Gupta & Sons [(1971)
1 sec 487] the question was whether in respect of the goods
covered by Entries 294 and 295 of Schedule I, the import could
have been treated under Entry 294. The Court held that when
-'-1
the Collector examines the goods imported under a licence in F
respect of goods covered by Entry 295, he has to ascertain as
to whether the goods are parts and accessories and not whether
the goods though parts and accessories are so comprehen-
sive that if put together would constitute motocycle and scoot-
ers in CKD condition. The court further held that it cannot be G
said that if the goods were so covered by Entry 295 that when
A-. 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 and that would tan- H
894 SUPREME COURT REPORTS [2008] 13 S.C.R.

A !amount to making a new entry in place of Entry 295. The Court
explained the term "CKD" in para 11 and observed in para 12
that merely because the goods imported, if assembled, would
make motor-cycles and scooters in CKD condition, it would not
mean that there was breach of Entry 294 if the imports under
B Entry 295 was a valid import. What is important for the present
case are the observation in para 13 to the following effect:

"Therefore, the mere fact that the goods imported by them
were so complete that when put together would make
them motor-cycles and scooters in CKD condition, would
C not amount to a breach of the licence or of Entry 295.
Were that to be so, the position would be anomalous as
aptly described by the High Court. Suppose that an
importer were to import equal number of various parts
from different countries under different indents and at
D different times, and the goods were to reach here in
different consignments and on different dates instead of
two consignments from the same country as in the present
case. If the contention urged before us were to be correct,
the Collector can treat them together and say that they
E would constitute motor-cycles and scooters in CKD
condition. Such an approach would mean that there is in
Entry 295 a limitation against importation of all parts and
accessories of motor-cycles and scooters. Under that
contention, even if the importer had sold away the first
F consignment or part of it, it would still b e possible for the
Collector to say that had the importer desired it was
possible for him to assemble all the parts and make motor-
cycles and scooters in CKD condition ..... "
Relying on this case and referring further to the case of
G Girdhari Lal Bhansidhar v. Union of India [(1964) 7 SCR 62]
which was distinguished in Tara Chand's case, the learned coun-
sel also drew our attention to the judgment in Sharp Business
Machines v. CCE, Bangalore [(1991) 1 SCC 154] as also the
judgment of the Division Bench of the Calcutta High Court in the
H case of Union of India v. HCL Ltd. (unreported order). On this
COrviMINR. OF CUSTOMS, NEW DELHI v. SONY 895
·• INDIA LTD. [V.S. SIRPURKAR, J.]

basis the learned counsel says that the imports made in 94 con- A
signments could not have been clubbed together for the pur-
poses of holding that there was a breach by the importer of the
Exim Policy. The complaint of the learned ASG was that all these
judgments do not refer to Rule 2(a) as Rule 2(a) was not on the
" anvil when ti1ese judgments were delivered. That may be true B
but the principles of la,w emerging would still apply. Therefore,
the clubbing of all 94 consignments of different dateG was not
permissible.

14. We have already held that in this case the goods
brought were not having the essential character of CTVs. We c
do not find anything to take a view that the goods were in
unassembled or dis-assembled condition and they should be
taken to be the complete CTVs, particularly when there is no
finding recorded anywhere on facts that all these goods could
'! make 1500 CTVs. However, we accept the argument that the D
goods brought in different consignments separately on the ba-
sis of valid import licences would not attract the import duty as if
they were the finished goods. We have already referred to this
aspect vis-a-vis the facts in Phoenix /ntemationafs case where
the goodswere brought in one and the single congignment and E
they were all brought together though they were imported by
two companies, i.e., PINO and PIL fraudulently.

15. Shri Lakshmikumaran, learned counsel for the respon-
dent also drew our attention to the HSN Explanatory Notes as it
-·~
stood prior to 1997 which is as under: F

"(VII) For the purpose of this Rule, 'articles presented
unassembled or disassembled means articles the
components of which are to be assembled either by means
of simple fixing devices (screws, nuts, bolt, etc.) or by
G
riveting or welding, for example, provided only simple
assembly operations are involved."
._.._,,_
Learned counsel further points out that in a decision in CCE
v. Woodcraft [(1995) 3 SCC 454] this Court took the view that
HSN Explanatory Notes should be referred to for understand- H
896 SUPREME COURT REPORTS (20.08] 13 S.C.R.

A ing the true scope and meaning of exprnssions used in the
Customs Tariff. He further points out that the Revenue did not
dispute the fact that complicated processing of imported parts
had to be done before they could be fit in the assembly of CTVs.
Shri Vikas Singh, learned ASG also did not dispute this fact
B during the debate before us that a complicated process had to
be exercised before these components could be brought in use
for CTVs. There is also a specific finding by the Tribunal en this
issue. In that view since the concerned Explanatory Note was
applicable, there would be no question of treating these goods
c to be in unassembled or disassembled condition since a com-
plicated process had to be exercised and then before it could
be 1.1sed for the assembly of the CTVs. Ofcourse this Explana-
tory Note was further amended by adding the words "no ac-
count is to be taken in that regard of the complexity of the as-
D sembly method. However, the components would not be sub-
jected to any further working operation for completion into the
finished stage". It is an admitted position that this amendment
was not. there and therefore, the complexity of the assembly
method would have to be taken into consideration atleast in
case of the present goods since the concerned period is pre
E 1997 period. The Tribunal has correctly held that the HSN Ex-
planatory Notes to Rule 2(a) had to be applied while consider-
ing the relevant Tariff Entry. It has also correctly held after con-
sidering the whole process that the process involved in the user
of the components is the complex manufacturing process dur-
F ing which many components are subjected to working opera-
tion requiring sophisticated machinery and skilled operators.
Further it has correctly assessed the effect of the amendment
of HSN Explanatory Notes which came on 14.3.1997. We ap-
prove of the finding given by the Tribunal in para 25 of its order
G which takes into account the fact that there was no amendment
to Clause (v) while this is amended to the e~fect that complexity
of the assembly method was made irrelevant. However, it was
made clear that the. components would not ::ie subjectad to any
further working operation for completion ir1 the finished state.
H The Tribunal has referred in details to t:ie manufacturing pro-
COMMINR. OF CUSTOMS, NEW DELHI v. SONY 897
INDIA LTD. [V.S. SIRPURKAR, J.]

cess to show that some of the components require further work- A
ing operation for completing the manufacturing process and
further that CTV is not a machine which is presented in assem-
bly for the sake of convenience of packing, handling or trans-
port. We are, therefore, in agreement with the finding that even
applying the amended HSN Explanatory Notes the position B
would be no different.

16. Our Jttention was invited to a very interesting d~cision
reported in Modi Xerox Ltd. v. CCE, New Delhi (1998 (103)
ELT 109] which was confirmed by this Court in 2001 (ELT) A 91
(it must be noted that the decisions in Woodcraft Products is C
specifically confirmed in this decision). In this case, the Tribunal
had relied on Tara Chand's case as also the CC v. Mitsuny
Electronics Works [1987 (13) ELT 345 (Cal. HG)] which we
have made reference in the earlier part of this judgment. The
Tribunal had held that the fax machine in completely knocked D
down condition imported by the appellant being not a fax ma-
chine but part thereof, the benefit of exemption under notifica-
tion No.59/88/Cus. Dated 1.3.1988 would not be available. Very
interestingly, it was claimed by the importer that it had imported
the fax machine and not the components obviously because E
the duty payable on the components was more. The Tribunal
came to the conclusion that in view of Section Note 2 to Section
XVI Rule 2(a) would not apply and confirmed the import of goods
as components. While interpreting Explanatory Note to Rule 2(a),
the Tribunal had held that this Rule would apply only when the F
imported articles presented in unassembled or disassembled
can be put together by means of simple fixing device or riveting
or welding. It came to the conclusion that fax machines were not
the type of goods which were normally traded or transported in
knocked down condition and therefore, the imports were that of G
the components and not of fax machines. Shri Lakshmikumaran
also invites our attention to the fact that Chapter 64 dealing with
footwear does not have a note similar to Note 2 in Section_ XVI. .
Thus this position would render support to the proposition that
Rule 2(a) would apply only when the imported articles presented H
898 SUPREME COURT REPORTS [2008] 13 S.C.R.

A unassembled or disassembled can be put together by means
of simple fixing device or by riveting or welding. We have al-
ready pointed out in the earlier part of our judgment that the
complicated process would be required for the user of those
parts.
B 17. Lastly, we must take stock of the argument of Shri
Lakshmikumaran that Section Interpretative Rule 2(a) would not
be applicable at all in this case. For this he invited our attention
to Rule 1 of Interpretative Rules as also to the decision in Sim-
plex Mills v. Union of India [2005 (181) ELT 345 (SC)] wherein
C this Court had held in para 11 as under:
"11. The rules for the interpretation of the Schedule to the
Central Excise Tariff Act, 1985 have been framed pursuant
to the powers under Section 2 of that Act. According to
Rule 1 titles of sections and chapters in the Schedule are
D
provided for ease of reference only. But for legal purposes,
classification "shall be determined according to the terr'ns
of the headings and any relevant sector or chapter Notes".
If neither the heading nor the notes suffice to clarify the
scope of a heading, then it must be construed according
E to the other following provisions contained in the Rules.
Rule-I gives primacy to the Section and Chapter Notes
along with terms of the headings. They should be first
applied. If no clear picture emerges then only can one
resort to the subsequent rules." ) -
F
Relying on this the further contention of the counsel is that
Section Note 2 of Section XVI provides mandate for classifica-
tion of the parts of machines falling under Section XVI. In terms
of Rule 1 of Interpretative Rules, invocation of Rule 2(a) forcer-
G tain categories of goods covered in Section XVI like the goods
of CTVs are prohibited. For this the learned counsel relied on
the decision in Modi Xerox (supra). In that view the learned coun-
sel says that Rule 2(a) would not be applicable at all. This ques-
tion needs no consideration here particularly in view of the in-
terpretation that we have given to Rule 2(a). On facts, we have
H
COMMINR. OF CUSTOMS, NEW DELHI v. SONY 899
INDIA LTD. [V.S. SIRPURKAR, J.]

already found that Rule 2(a) would not be applicable to the A
present case since there is no question of the goods having the
essential character of CTVs. In that view, the question of appli-
cability of Section 2(a) on this account need not be gone into in
:. . this judgment.
18. We also approve of the reliance by the Tribunal on the 8
reported decision in Susha Electronics Industries v. CC [1989
(39) ELT 585}, Trident Television Pvt. Ltd. v. CC [(1990) 45
ELT 24), Vishal Electronics Pvt. Ltd. v. CC, Bombay [1998
(102 ELT188], Sharp Business Machines (supra) and the judg-
ment of the Calcutta High Court in HCL Ltd. (supra). C
19. Accordingly, we are of the clear opinion that the
Tribunal's judgment needs no interference. We accordingly con-
firm the same and dismiss the present appeal. In view of the
important question of interpretation involved in the matter, we
0
do not propose to inflict any costs.
S.K.S. Appeal dismissed.

t ....