M/S. DR. REDDY'S LABORATORIESversusCOMMISSIONER OF CUSTOMS

                       [2015] 10 S.C.R. 386


A              MIS. DR. REDDY'S LABORATORIES
                                 v.
                 COMMISSIONER OF CUSTOMS
                  (Civil Appeal No.2603 of 2006)
B                     SEPTEMBER 02, 2015
               [A.K. SIKRI AND R.F. NARIMAN, JJ.]
         Customs Act, 1962-ss. 111(m), 114A- Customs Tariff
    Act, 1975 - Classification of goods as auto analysers or
C   photometers - Appellant filed Bill of Entry for clearance of
    goods classified as auto analysers under Entry 9030. 89 -
    Goods seized by custom authorities - Issuance of notice
    stating that the said goods were photometers and not auto
    analysers - Demand of duty - Confiscation of goods and
0
    imposition of penalty - Commissioner held that goods
    imported were auto analysers, thus, amounted to
    misdeclaration of description and that the goods were liable ·
    for confiscation and penalty - No evasion of duty on the
E   imported goods, thus, no penalty uls. 114A - Tribunal set
    aside the order- Held: Without any analysis of whether the
    imported equipments were, in fact, auto analysers or were
    only photometers, the tribunal concluded that one can never
    come to a conclusion that a photometer is the same as an
F   auto analyzer - Commissioner had held that a photometer
    is a generic expression and auto analysers are photometers
    with software installed in them which could then perform
    various operations - Tribunal found this logic faulty but did
    not given any reason for disregarding the same -
G   Commissioner concluded that since the process of analysis
    is automatic, though mixing of samples may be done
    manually, yet since analysis has to be done automatically,
    an analyser would fall under the expression "auto analysers"
    for enzymes, drug levels and biochemical investigations -
H   Thus, the order of the tribunal is set aside and that of the
                                386
 DR. REDDY'S LABORATORIES v. COMMISSIONER OF 387
                  CUSTOMS

Commissioner is restored.                                         A
   Tietz Text Book of Clinical Chemistry edited by Carl A
   Burtis and Edward R. Ashwood 2"d Edn - referred
   to.
   CIVIL APPELLATE JURISDICTION: Civil Appeal No.                 B
2603 of 2006.
    From the Judgment and Order No. 99 of 2006 dated
20.01.2006 of Customs, Excise and Service Tax Appellate
Tribunal, South Zonal Bench at Bangalore in Appeal No. Cl         c
130/2002.
                           WITH
    Civil Appeal No. 4374 of2006.
      Aurav Agrawal, Vyom Shah, Manisha Singh, Vishal
Gehrana, Abhijit Mitra, Ruby Singh Ahuja, B. Krishna Prasad D
for the Appellant.
    YashankAdhyaru, Rupesh Kumar, Shirin Khajuria, Jitin
Singhal, B. Krishna Prasad for the Respondent.
                                                                  E
    The Judgment of the Court was delivered by
     R. F. NARIMAN, J. 1. The present case relates to appeals
filed both by the assessee and by the revenue against the
judgment dated 2ot11 January, 2006 passed by Customs, Excise
and Service Tax Appellate Tribunal (hereinafter referred to as F
"CESTAT"). The appellant company had been importing
various models of diagnostic equipment such as BTS 302,
BTS 310, BTS 320 and BTS 370 manufactured and supplied
Mis Bio Systems, Barcelona, Spi:iin. On 27 1h May, 1999, the
appellant in its Bill of Entry filed at Hyderabad for clearance of G
models of BTS 320 and BTS 310 classified the goods as "auto
analysers" under Entry 9030.89 of the Customs Tariff Act, 1975.
The goods were seized by the custom authorities, being a total
of 8 BTS 320 and 15 BTS 310 models, valued at Rs.
26,97,741.21. During the course of investigation, statements H
388        SUPREME COURT REPORTS                 [2015] 10 S.C.R.


A     of six persons were recorded under Section 108 of the
      Customs Act. On 2"d November, 1999 the Directorate of
      Revenue Intelligence, Chennai issued a show cause notice .
      stating that the goods in question are "photometers" and not
      "auto analysers". On this basis, the revenue demanded:-
 B
           (a) Duty of Rs.1,79, 11,499/- [as detailed inAnnexure 11
           to the Notice] towards import of BTS 302, BTS 310, BTS
           320 and BTS 370 from 1994 till 1999.

           (b} Confiscation of goods valued at Rs.3,31,55,908/-
 c
           imported without payment of duty and sold (in the market)
           as auto analysers under Section 111(m} of the Customs
           Act, 1962.

            (c} Confiscation of goods valued at Rs.26,97,741/-
 D
            imported vide Bill of Entry No. 4454 dt. 27-05-99 and
            seized by the officers of DRI on 8.6.99 under Section
            111 (m) of the Customs Act, 1962.

            (d) Penalty under Section 114A of the Customs Act,
 E          1962.

            (e) Penalty under Section 112(a)/112(b) of the Customs
            Acton Dr. Jayaram Chigurupati, SeniorVice President
            and in-charge of Diagnostic Division of the Appellant.
 F
         2. On 241h December, 1999, the assessee sent a detailed
   reply to the said show cause notice and explained that the
   imported equipments were "Auto Analysers" which used the
   photometry principle and were different from photometers.
 G Being a pathology lab, these equipments were imported for
   the purpose of automatic analysis of blood samples. This,
   according to the assessee, could not be done by a photometer.
   The only difference between the four models imported was
   that whereas model BTS 370 was technologically superior and .
 H fully automatic, the other modelS>Were not as technologically
 DR. REDDY'S LABORATORIES v. COMMISSIONER OF 389
           CUSTOMS [R.F. NARIMAN, J.]

advanced nor were they fully automatic. However, insofar as A
the analysis of Enzymes is concerned, the said two models,
namely, BTS 310 and BTS 320 were fully automatic, the only
non-automatic part being the manual mixing ~f certain elements
with blood samples. They further relied upon the technical
literature to buttress their point and claimed that they were B
exempted under notification No. 20/1999 dated 28th February,
1999. The said notification exempts medical equipments
specified in List 21, serial No. 66 of which reads as follows:-

     "SI No. 66: Blood Gas Analyser (including cartridges, if C
     any) Sodium Potassium Analyser, Auto Analyser for
     Enzymes, Drug Levels and Biochemical Investigations,
     or a combination of two or more of the aforesaid."

     3. The assessee was given a hearing on 9th January, 2001 D
by the learned Commissioner of Customs, Hyderabad. In a
detailed order dated 1•t March, 2001, the learned
Commissioner went through the show cause notice and the
reply filed by the assessee. He correctly concluded that the
issue for determination was whether the impugned goods were E
qualified to be called "auto analysers" of Enzymes, drug levels
and biochemical investigations. In this connection, he referred
to a book by "Tietz Text Book of Clinical Chemistry", second
edition, edited by Carl A. Burtis and Edward R.Ashwood. More
importantly, in para 46, which deserves to be quoted, the F
Commissioner found:-

     "46. This very question came up for examination before
     the conference of Commissioners of Customs held in
     Cochin in October 1995 in the context of Notification No. G
     55/95-Cus. dated 16.3.95. It would be important and
     relevant to reproduce the extracts of the minutes of the
     said conference herein below:-

     "The issue raised by the Board was whether the term      H
390   SUPREME COURT REPORTS                     [2015] 1OS.C.R.


A     "Auto Analysers for enzymes, Drug levels and
      Biochemical investigations" could be applied to
      Analyzers in which a part of the operations are performed
      manually, like some in which mixing of samples and
      reagents is done manually but the actual analysis is done
 B    automatic. The doubt arose since a view existed that the
      term applied only to those instruments in which all
      operations, including mixing of samples and reagents
      are automatic. However, in one particular case of semi-
      automatic analyser "Technician - Chemistry Auto
 c    Analyzers', the DGHS had clarified that the term could
      fall within the item auto Analyzers in the predecessor
      Notification namely 122/94-Cus.

                CONFERENCE CONCLUSION:
 D
      The conference was of the view that the process of
      analysis is automatic, though mixing of sample is done
      manually. It is to be noted that for the exemption to accrue
      under the entry at SI. No. 77 thereto, all that is required is
 E    thatthe analysis has to be done automatically. TRU may,
      however, examine in consultation with the administrative
      Ministry concerned whether they would like this entry to
      be amended in any manner to remove ambiguity."

 F    Thus what is crucial to determine whether a medical
      equipment is an auto analyser or not is to see whether
      the analysis is done automatically or not. All the models
      (BTS 302, BTS 310, BTS 320 and BTS 370) in the
      impugned goods did not achieve this purpose. Of course,
 G    more and more features increasing the extent of
      automation have been built-in in the later models as
      compared to the earlier models. But all of them are auto
      analysers. It would also be relevant to note that the
      Minutes of the Conference of Commissioner's of
 H    Customs extracted above also indicates that DGHS a
DR. REDDY'S LABORATORIES v. COMMISSIONER OF 391
          CUSTOMS [RF. NARIMAN, J.]

   competent expert body did clarify that a semi-automatic A
   analyser was eligible for the exemption under Notfn. No.
   122/ 94-Cus. as auto analyser. Furthermore inspite of
   the recommendation· of the Conference of
   Commissioners of Customs to amend the entry relating
   to auto analysers if found necessary for the purpose of B
   removing ambiguity, no such amendment has been
   carried out till date indicating that there is no ambiguity
   regarding the scope of the expression auto analysers
   as viewed by the Cor.ference of Commissioners of
   Customs."                                                   C

  4. He further held:

   "47. The word photometer used by M/ s. Bio Systems,
   Barcelona, Spain to describe two out of the four models    o
   of the impugned goods (BTS 302 and BTS 310) has
   been the fundamental cause for generating doubts in the
   minds of the investigating officers about the bonafides
   of the importer in availing full exemption on the impugned
   goods from time to time and also in provoking the E
   importer to resort to ways and means to overcome
   problems with Customs in the matter of assessment of
   the impugned goods. Photometer is a generic expression
   meant to refer to a wide range of instruments used for
   taking measurements of light or electro magnetic F
   radiation. Photometry is a branch of physics dealing with
   measurement of intensity of light sources. Instruments
   used for such measurements are called Photometers.
   However the principle of photometry has found
   application in the field of clinical chemistry and auto G
   analysers are one type of medical equipment which have
   been invented incorporating the principle of photometry
   applied to investigations in clinical laboratories. The
   catalogues of the manufacturer for the four models of the H
   impugned goods describe the impugned goods as
392   SUPREME COURT REPORTS                    [2015) 10 S.C.R.


A     follows:-

       a) BTS 302

       The Basic Photometer

 B    The BIOSYSTEMS range of photometers has been
      developed to meet the standards of today's analysis in
      the clinical laboratory.

      b) BTS 310
c
      The Photometer

      c) BTS 320

      The most versatile and user friendly Semi-Auto analyser
 D    with capacity to perform ELISA with Microtitre Wells.

      d) BTS 370

      Fully-automatic Clinical Analyser
      Biosystems technology to meet your requirements.
 E
      I have carefully gone through the rest of the salient features
      of each of the above models printed elsewhere in these
      catalogues. There is no doubt in my mind that these
      equipments are auto analysers meant for conducting
 F
      tests in clinical laboratories. Just because the word
      Photometer has been used by the manufacturer in the
      catalogues for two first two models, neither will these two.
      models (BTS 302 and BTS 310) nor the other two models
      (BTS 320 and BTS 370) cease to be auto anlaysers. It
G
      is true that all these models are based on the principle of
      photometry and therefore have a photometer built-in
      within. It will be totally incorrect to conclude that the
      impugned goods are not auto analysers."
H
                     .
  DR. REDDY'S LABORATORIES v. COMMISSIONER OF 393
            CUSTOMS [R.F. NARIMAN, J.]

      5. Having found that in point of fact what was imported A
 was, in fact, auto analysers, the learned Commissioner held
 that the assessee was guilty o( several manipulations which
 presented a description of the goods convenient for itself, but
 not exactly what the real invoice from the exporter would have
 carried. He thus held that this amounted to a misdeclaration of B
 description and that therefore the impugned goods were liable
.for confiscation and penalty. However, no penalty under Section
 114A was imposed on the importer because there had, in fact,
 been no evasion of duty on the imported goods. Importantly,
 the learned Commissioner concluded:-                            C

     "52. Since the goods under import are required to be
     programmed after import by feeding standardized
     procedures separately developed before they can be
     used as auto analysers it has been alleged in the show        D
     cause notice that they cannot be called as auto analysers
     in the condition in which they are imported. After having
     gone through the features of the four models of the auto
     analysers under import as mentioned in the catalogues
     of the manufacturer and also the comparative details of       E
     these four models furnished by the importer in their reply
     as Exhibits V and VI to the letter of the importer dated
     24.12.99 sent in reply to the show cause notice, I find
     that there is pabsolutely no merit in this allegation that    F
     the need to program the impugned goods according to
     the needs of each individual customer would for that
     matter render the goods into something entirely different
     from auto analyser. It is common knowledge that auto
     analysers come both as closed system and as open              G
     systems enabling customers to program them according
     to their own needs when they are open system models.
     In fact open systems are more popular these days
     because it allows the customer the flexibility to adapt the
     system to his own needs."                                     H
                                         •
394    SUPREME COURT REPORTS                   [2015] 10S.C.R.


A     6. Finally, he ordered:-

                            "ORDER

      (i) Under Section 111(m) of the Customs Act, 1962 I
      order confiscation of goods valued at Rs. 26,97,741/-
 B
      seized on 8.6.99. However under Section 125 of the
      Customs Act, 1962 I give M/s. Dr. Reddy's Laboratories
      Ltd., the option to redeem the said goods by paying a
      fine of Rs. 1,00,000/- (Rupees one lakh only). Since the
c     goods have already been provisionally released to the
      importer I order that the fine amount of rupees one lakh
      only be recovered by enforcing the bank guarantee
      furnished by the importer at the time of provisional
      release.
D
      (ii) Goods valued at Rs. 3,31 ,55,908/- already cleared
      and sold by M/s. Dr. Reddy's Laboratories Ltd. are also
      liable for confiscation under Section 111 (m) of Customs
      Act, 1962. But as the said goods were neither seized
 E    nor available now for seizure it is not possible for ordering
      its confiscation at this point of time.

      (iii) Under Section 112(a) of the Customs Act, 1962 I
      impose a penalty of Rs. 50,000/- (rupees fifty thousand
      only) on M/s Dr. Reddy's Laboratories Ltd. This amount
 F
      of penalty is also ordered to be recovered by enforcing
      the bank guarantee furnished at the time of provisional
      release of the seized goods.

      (iv) Under Section 112(a) of the Customs Act, 1962, I
 G    impose a penalty of Rs. 5,000/- (rupees five thousand
      only) on Dr. Jayaram Chigurupati, Sr. Vice-President, M/
      s Dr. Reddy's Laboratories Ltd.

      (v) I drop further proceedings in respect of rest of the
 H    actions proposed in the show cause notice."
 DR. REDDY'S LABORATORIES v. COMMISSIONER OF 395
           CUSTOMS [RF. NARIMAN, J.]

     7. Against the said order of the learned Commissioner,      A
revenue filed an appeal under Section 1290(4) of tre Customs
Act on 121h April, 2002. The assessee filed a reply-cum-cross
objection dated 81h June, 2002 in which the assessee
specifically stated:-
                                                                  B
     "ln all cases, closed or open the in-built software contains
     programs for analysis and interpretation. The only inputs
     which are entered in an open system is volume of
     reagents to be used for each test, time of incubation,
     temperature for incubation etc. Rea.gents from each C
     manufacturer have variation in this regard. Even though
     the Respondent's engineers program the machines, for
     DRL manufactured reagents (nor for reagents
     manufactured for Bio-systems), the customers can
     themselves change these programs over a period of time D
     if they choose to purchase reagents from other
     manufacturers. It is always in customers' best interest to
     have an open system."

     8. By the impugned order, the CESTAT allowed revenue's E
appeal. It found fault with the book quoted by the assessee
which found favour with the learned Commissioner, and stated
"Instead of appreciating the evidence unearthed by the
investigating officer with reference to the goods imported, the
adjudicating authority has embarked himself on a detour F
deviating from the main issue".

     9. We are at loss to understand what is meant by this
statement. The evidence analysed by the investigating officer
in the form of statements made by six persons affiliated to the G
assessee led to confiscation of the_ goods and imposition of
penalty. Without any analysis of whether the imported
equipments were, in fact, auto analysers or were only
photometers, the CESTATwent on to conclude that one can
never come to a conclusion that a photometer is the same as H
396         SUPREME COURT REPORTS                     [2015] 10 S.C.R.


A     an auto analyser. The learned Commissioner had held that a
      photometer is a generic expression and auto analysers are
      photometers with software installed in them which could then
      perform various operations. The CESTAT in finding this logic
      faulty has not given any reason for disregarding the same. It
 B    then goes on to say that the whole of paragraph 46 of the
      Commissioner's order is irrelevant. In this paragraph the
      learned Commissioner referred to the Commissioners'
      Conference to arrive at the conclusion that since the process
      of analysis is aut~matic, though mixing of samples may be
 C    done manually, yet since analysis has to be done automatically,
      an analyser would fall under the expression ''auto analysers"
      for enzymes, drug levels and biochemical investigations. This
      finding of the learned Commissioner was important in that the
      model BTS 370 which mixed both samples automatically and
 0
      did the analysis automatically, was found by the customs
      authorities to fit the description of auto analyser. In holding that
      this paragraph is not at all relevant, the CESTAT does not seem
      to have come to grips with the real issue at all.
 E         10. This is a peculiar case in which it is clear that what
      has, in fact, been imported is an equipment which is to be
      used in a pathological lab for the automatic analysis of blood
      samples. It is an admitted fac.t that models BTS 310 and BTS
 F    320 were imported with inbuilt software that contained
      programmes for analysis and interpretation. It is equally an
      admitted fact that an importer can change such programmes
      to suit its own convenience. From this it does not follow that
      what has been imported is only a photometer. Learned senior
 G    advocate appearing for the revenue had to admit that a
      photometer is an instrument which measures intensity of light.
      There is no necessity for any inbuilt software in such photometer
      unless such instrument is, in fact, to be used for the automatic
      analysis of blood samples. This being the case, it is clear that
 H    oral statements made by persons affiliated to the assessee to
  DR. REDDY'S LABORATORIES v. COMMISSIONER OF 397
            CUSTOMS [R.F. NARIMAN, J.]

the effect that the description of the imported goods was A
changed from photometers to auto analysers to avail the
benefit of the exemption under notification No. 20/1999, and
that the foreign supplier was requested to alter the description
of the goods from photometer to auto analysers in order so to
do, would not change the position in law. As correctly held by B
the learned Commissioner, these statements would be material
in deciding whether Section 111(m) of the CustomsActread
with Section 125 are attracted as to amount to mis-declaration
of description of goods resulting in confiscation of the said
goods, fine, and penalty under Section 112(a) of the Customs C
Act.

     11. We, therefore, allow the appeal of the assessee and
set aside the order of the CESTAT and restore that of the
learned Commissioner. Revenue's appeal concerns itself with D
penalty under Section 114A ofthe Customs Act. Since we have
set aside the CESTAT's order, which imposed a penalty under
Section 114A, revenue's appeal no longer survives and is
therefore dismissed as such.
                                                                  E
Nidhi Jain                                 Appeals disposed of.