M/S. POLYGAS ACRYLIC MFG. CO. LTD.versusCOMMISSIONER OF CUSTOMS, VISHAKHAPATNAM

A            MIS. POL YGAS ACRYLIC MFG. CO. LTD.
                              v.
          COMMISSIONER OF CUSTOMS, VISHAKHAPATNAM

                                MARCH 31, 2003

B
                   [M.B. SHAH Al\D ARUN KUMAR, JJ.]


          Customs Act, 1962: Section I 38-E.

C         Classiftcation-Misdeclaration of imported goods-Import of Methyl
    Methac1ylate Monomer (MMM) regenerated second grade-Show cause notice             r
    for misdeclarnlion of goods--Testing of sample of goods by both Revenue as
    well as assessee--Test reports confinning the goods as regenerated second
    grade MMM--Commissioner a/Customs dropped proceedings-Appeal allowed
    by CEGAT rejecting test reports as sample was not fit for testing-On appeal,
D   held: Tribunal has rejected cogent evidence oftest reports in respect of sample
    ofgoods on grounds which are not germane to the issue under consideralion-
     Tribunal ignored tesl report ohtai11ed at the instance of Revenue but accepted
    a not so relevant reporl .from another institution on superfluous grounds-
    Since test reports rlearl)' established that imported goods are regenerated
E   second grade MMM, there is no misdeclaralion of goods by the assessee.

          Appellant-assessee had imported raw material Methyl Methacrylate
    Monomer for its manufacturing activity. In the invoice as well as packing
    list the goods were classified as "MMM regenerated second grade".
    Revenue did not accept such declaration of quality of goods, therefore,
F   provisional clearance was allowed on payment of import duty on the
    declared price of the goods and on furnishing bank guarantee for the
    hi11her assessed value of goods. Samples were taken and sealed for testing
    quality of goods. Some samples were given to the assessee as well. Samples
    were sent by the department to the Central Revenue Control Laboratory/
    llT. On the basis of test report from CRCL, a case of misdeclaration of
G   2oods was set up by the department as according to them the goods were
    not regenerated second grade MMM but were of prime quality and a show
    cause notice was issued to the assessee. Assessee refuted the stand of the
    department on the basis of test reports of samples obtained from HT/other
    institutions confirming the goods as MMM regenerated second grade;
H                                       188
           MIS POL YGAS ACRYLIC MFG. CO. LTD. v. COM MR. OF CUSTOMS      ] 89

sample test was also conducted at the instance of assessee by a Professor       A
of llT before the Commissioner who was satisfied with the test report and
directed dropping of the show cause notice. CEGAT allowed the appeal
of the dtpartment rejecting the test reports holding that sample was unfit
for testing the quality of goods. Hence the present appeal.

       It was contended for the appellant that Tribunal did not accept test     B
reports from HT/other institutions in favour of appellant but accepted the
test report of CRCL though CRCL had earlier denied about having
facilities to conduct such test and moreover the report was not clear and
even did not support the stand of the Department in unequivocal terms;
and that it was incumbent upon the Department to establish misdeclaration       C
of goods by the appellant.

      On behalf of the Department, it was submitted that test sample was
sent to test laboratories after a long lapse of time when sample became
unfit for testing.
                                                                                D
     Allowing the appeal, the Court

      HELD: 1.1. The fact that the test reports of the samples were sent
by the laboratories/other institutions, shows that they were able to conduct
the tests. These were Government institutions and pr""sumably there was
no reason for them to give a wrong report. The delay in sending the sample      E
for examination by the appellant was explained on the basis of the fact.
Issuance of the show cause notice gave a clear indication that the
department was not accepting the stand of the appellant. This occasioned
the need for the appellant to get test reports with respect to the quality of
goods. f 194-A, Bf
                                                                                F
       1.2. The Tribunal has rejected cogent evidence produced by the
appellant on grounds which are not germani: for the issue under
consideration. The reasoning of the CEGAT is contradictory in as much
as it accepts the report of the CRCL while ignoring a report from the llT,
New Delhi which was also obtained at the insta')ce of the department. The       G
reports in fal'our of the appellant by Gol'ernment departments have been
rejected on superfluous grounds. f194-D, Ef

     1.3. The test was conducted in the presence of the Commissioner and
other departmental representatives. It shows that the test was possible.
The Tribunal has not given any cogent reason for rejecting the reports          H
     190                 SUPREME COURT REPORTS                 (20031 3 S.C.R.

A    submitted on behalf of the appellant according to which the goods in
     question are established to be regenerated second grade MMM. 1195-BI

            1.4. The bu rd en of proof was on taxing authority to show that
     imported goods were not regenera:ted second grade MMM. Mere assertion
     by the department was of no avail as heavy burden was on the department
B    to la,v evidenc1~ that the test reports which were given by the Government
     institutions were incorrect or erroneous. No such attempt was made and
     the test carried out before the Commissioner (Appeals) by IIT Expert
     revealed that 1hc contention of the appellant was justified. 1195-D, El
                                                                                   --
C          Unio11 olf11diu a11d Ors. v. Garware Nylons Ltd und Ors., 119961 10
     sec   413, relied on.

           1.5. An important fact overlooked by the Tribunal is that because
     of an earlier report of the CRCL with respect to the similar consignment,
     to the effect that it wa~ unable to :test the sample for regenerated second
D    grade MMM. The llT report left no scope to sustain the stand of the
     department. The report obtained at the instance of the department itself
     had great force and it should not have been ignored. 1195-E, GI

           ! .6. The report of the CRCL relied upon by the department does
                                                                                   -
     not unequivocally state that the goods were not regenerated second grade
E    MMM. The report is carefully worded and gives an impression that
     something is sought to be concealed rather than truth being revealed. The
     onus is on the department to establish that it is a case of misdeclaration
     of goods. The clep<irtmcnt has mis1~rably failed to discharge that onus in
     the instant case. Hence the stand of the department cannot be sustained.
                                                             1195-G; H; 196-AI
F
           CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1648 of2001.

          From the Judgment and Order dated 24.8.2000 of the Central Excise.
     and Custom Gold (Control) Appellate Tribunal. New Delhi in A. No. C./203/
     99-A in F.O. No. 691 of 2000-A.
G
           Ju:,eph Vcllapally. Ramakrishna Reddy and Mrs. D. Bharathi Reddy for
     the Appellant.

           Ms. Nisha Bagchi for B. Krishna Prasad for the Respondent.

II         The luugment of the Court was delivered by
     MIS. POL YGAS ACRYLIC MfG. CO.LTD. v. COMMR. OF CUSTOMS [ARUN KUMAR, J.]   191
          ARUN KUMAR, J. This civil appeal under Section 138E of the Customs          A
    Act, 1962 is directed against an order dated 24.8.2002 passed by the Customs,
    Excise & Gold (Control) Appellate Tribunal (hereinafter referred to as
    "CEGAT").

           Briefly the facts are that the appellant is engaged in the manufacture of
    acrylic sheets. The appellant imported raw material for its said manufacturing B


-   activity from Japan. The raw material is known as Methyl Methacrylate
    Monomer (regenerated) [for short 'MMM']. A contract in this behalf was
    entered into by the appellant on 17.3.1996 with a Hongkong firm for supply
    of 106.40 metric tonnes of MMM regenerated second grade at the rate of US


-   $ 300 per metric tonne CIF. The goods had been dispatched vide a Bill of C
    Lading dated 29.5.1996. The Invoice and Packing List both dated 18.6.1996
    accompanied the consignment. The Bill of Lading mentions the words "RMA"
    i.e. Regenerated Methyle Methaedylete. Likewise in the invoice as well as in
    the packing list it is stated that the goods were MMM regenerated second
    grade. The invoice further mentions quantity of goods as 106.40 metric tones
    and price at the rate of US $ 300 per metric tonne. The said goods were D
    cleared at !CD Ludhiana. Since the Department was not accepting the
    declaration regarding quality of goods there was difficulty in clearance as a
    result of which provisional clearance was allowed. Import duty was paid as
    per the declared price of the goods in the invoice while a bank guarantee was
    furnished for the rest of the amount by the importer. Fifteen samples were E
    taken and sealed in the presence of both sides at the time of delivery of the
    goods. Out of fifteen samples, four were given to the importer, one sample
    was sent by the department to the Central Revenue Control Laboratory
    ('CRCL' for short). Ten samples were retained by the department. A show
    cause notice dated 3.7.1997 »'as issued by the Commissioner of Customs to
    the appellant to which the appellant sent reply on 5.12.1997. In the show F
    cause notice the department set up a case of misdeclaration of goods resulting
     in the declared value of the goods being kept low. According to the department
     the goods were not regenerated second grade MMM, but were of prime
    quality. The price of prime quality was stated to be US $ 1700 per metric
    tonne. This stand was taken by the department mainly on the basis of a test
     repo11 dated 22.7.1996 said to have been obtained from the CRCL, New G
    Delhi which reads as under:

            "The sample is in the form of colourless liquid and has the
            characteristics of methyl methacry!ate monomer. The physico chemical
            properties of the same in respect of boiling point, refractice index,     H
    192                     '.;lJPREMF CllllRl RF POR IS              [20031 3 S.C.R

A           specific gravity and purity are in agreement with that of chemically
            pure methyl methacrylate monomer in the literature.''

          This rep;irt de>•" not indicate whether the goods could be said to be
    regenerated second grade MMM. Since the report was not very clear, the
    CRCL was requested by the department vi de letter dated 17.5 .1997 to specify
B   "whetl.er the material can be described as Methyl Methacrylate Monomer
    regenerated second grade or virgin grade". The CRCL responded to the above
    vide its letter dated 23.5.1997 as under:

            "Keeping in view of physico chemical properties, the samples under
            reference do not have any basis to be considered as ·me thy I
c           methacrylate monomer regenerated second grade'.··

          In its reply to the show cause notice the appellant refuted the stand of
    the depa1tme11t. It was said in the reply that the appellant's similar consignment
    was held up at Delhi and opinion was sought from the CRCL by the revenue
D   authorities v1de their letter dated I 0.6.1996. In reply the CRCL had stated
    vide its letter dated 26.6.1996 that it was not possible for the CRCL to test
    the sample and to state whether the product was of regenerated second grade
    or otherwise. The exact words contained in the CRCL reply are "each of 4
    samples is in the form of colourless liquid, each is composed of methyl
    methacrylatc (monomer). It is not possible for the laboratory test to state
E   whether the products are regenerated second grade or otherwise."

          When the revenue found this inability on the part of the CRCL. a
    sample from the subject consignment was sent by it to the llT. New Delhi.
    The IIT New Delhi opined that the sample of the consignment disclosed that
    it was regenerated second grade MMM. In its reply to the show cause notice
F   the appellant added that it had sent samples of the consignment, subject
    matter of the show cause notice. lo the Punjab Test House which is a laboratory      ...
    set up by the State Government ,Jf Punjab. Another sample had also been sent
    by the appellant to the Gujarat State Fe1tilizer Co. Ltd. which was a nnit of
    the Government of India. Reports from both these institutions were in favour
G   of the appellant. Both reports stated that the goods were MMM regenerated
    second grade.

        Ultimately the matter came up for consideration before the Commissioner
  of Customs. Amritsar. The appellant appeared before the Commissioner
  alongwith a Professor from the llT. New Delhi who took alongwith him
H necessary equipment to conduct a test in front of the Commissioner to
  M/S. POL YGAS ACRYLIC MFG. CO. LTD. v. COMMR. OF CUSTOMS [ARUN KUMAR,!.] J 93

determine the quality of the goods in question. As per the test conducted A
before the Commissioner of Customs, it was established by the llT Professor
that the sample was of goods described as MMM regenerated second grade.
The learned Commissioner after considering the said test report and other test
reports on record came to the conclusion that the stand of the department was
unsustainable and therefore directed dropping of the show cause notice vide
its letter dated 30.3.1998. Aggrieved by the said decision of the Commissioner, B
the department went in to appeal before the CEGA T. The CEGAT accepted
the appeal of the department vide its order dated 24.8.2002 which is under
challenge in the present appeal.

       The learned counsel for the appellant argued that the Tribunal did not C
appreciate the test reports in favour of the appellant which included reports
from the IIT New Delhi, the Punjab Test House, Department of Industries_,
State of Punjab and the Gujarat State Fertilizers Co. Ltd. On the other hand,
according to the learned counsel for the appellant the Tribunal had relied on
a report of the CRCL which was not clear and which did not in unequivocal
term support the stand of the Department. The CRCL report had to be read D
in the light of an earlier report of the CRCL with regard to sample of identical
goods cleared at the !CD, Delhi in which the CRCL has stated that it did not
have the facilities to conduct a test so as to find out whether the goods were
regenerated second grade or not. This stand of the CRCL completely diluted
its subsequent report with respect to the consignment in question and, therefore, E
the same could not have been relied upon. The said report is the only basis
for the department to take a stand that the goods were of prime grade and not
regenerated second grade. Therefore, it was contended that the impugned
order of the Tribunal proceeded on a totally wrong basis and was, therefore,
liable to be set aside.
                                                                                  F
      Relying on Union oflndia and Ors. v. Garware Nylons Ltd. and Ors.,
[ 1996] l O SCC 413, the learned counsel for appellant contended that it was
for the department to establish that there was misdeclaration of goods on the
part of the importer. The department had failed to do so in the present case.
The department did not have any clear report which could support its stand.
It was also pointed out that at various other depots the department had allowed G
clearance of identical goods as regenerated second grade MMM. The learned
counsel appearing for the department was unable to contradict this argument.
He only submitted that the samples were sent to the Punjab Test House and
the Gujarat State Fertilizers Co. Ltd. after a long lapse of time as a result of
which the samples were not fit for testing. This argument does not appeal to H
    194                   SUPREME COURT REPORTS                    [2003] 3 S. C.R.

A reason. If the samples were not fit for testing and it was not possible to give
  a report based thereon, there was no compulsion for the concerned institutions
  to give report. The fact that the reports were sent by these institutions, shows
  that they were able to conduct the tests. These were Government institutions        ,.
  and presumably there was no reason for them to give a wrong report. The
B delay in sending the sample for examination by the appellant was explained
  on the basis of the fact that the show cause notice itself was issued by the
  department on 3.7.1997. Issuance of the show cause notice gave a clear
  indication that the department was not accepting the stand of the appellant.
  This occasioned the need for the appellant to get reports with respect to the
  quality of goodls. It was also argued on behalf of the appellant that purity of
C the material was not determinative of the fact whether it was regenerated
  second grade or not. Purity was a different aspect altogether. Even regenerated
  second grade MMM could have very high purity.

           We have carefully considered the material on record and the contentions
    advanced on behalf of the parties by their learned counsel. In our view the
D   impugned order passed by the CEGA T is not sustainable and is therefore
    liable to be set aside. The Tribunal has rejected cogent evidence produced by
    the appellant on grounds which are not germane for the issue under
    consideration. The reasoning of th<' CEGA T is contradictory in as much as
    it accepts the report of the CRCL while ignoring a report from the llT, New
E   Delhi which was also obtained at the instance of the department. The reports
    in favour of the appellant by Government departments have been rejected on
    superfluous grounds. The reports produced by the appellant which it had
    obtained from official source clearly establish that there is no misdeclaration
    of goods and the imported goods are regenerated second grade MMM.

F        The Commissioner of Customs had given due weightage to the
  experiment conducted in his presence by the IIT Professor produced before
  him alongwith laboratory equipment by the appellant. This was however
  rejected by the Tribunal stating "how Commissioner ventured into such an
  exercise, there is nothing on record to show that he is a scientist competent
  to take any analysis". One need not be a scientist to appreciate a test report
G based on a test conducted in his presence by an expert from a prestigious
  institution like the IIT, New Delhi. The test was conducted in the presence
  of the departmental representatives and the Commissioner of Customs during
  the course of hearing. From the said test it has been opined that the goods
  in question were regenerated second grade MMM. The department neither
H objected to the test nor pointed out any defects in the test. Another reason for
  MIS. POLYGAS ACRYLIC MFG. CO.LTD. v. COMMR. OF CUSTOMS [ARUN KUMAR,J.] 195

which the test conducted in presence of the Commissioner was decried by the A
CEGAT was that by the time the test was conducted on I 0.12.1997 the
sample would have polymerised. This was said in view of the report ofGSFC
Ltd. which had given similar opinion regarding a sample sent to it at a late
stage. In our view this reasoning of the Tribunal is not correct. If the test was
not possible, the testing authority could have said so rather than going ahead B
with the test. The test was conducted in the presence of the Commissioner
and other departmental representatives. It shows that the test was possible.
The Tribunal has not given any cogent reason for rejecting the reports
submitted on behalf of the appellant according to which the goods in question
are established to be regenerated second grade MMM. In fact, it was
vehemently argued before us that identical goods were allowed to be cleared C
by the Customs Department at other ports/ICDs as regenerated second grade
MMM. This argument remained unrefuted and undisputed.

      Further, as held in Union of India and Ors. v. Garware Nylons Ltd and
Ors., (1996] 10 SCC 413, the burden of proof was on taxing authority to
show that imported goods were not regenerated second grade MMM. Mere D
assertion by the department was of no avail as heavy burden was on the
department to lay evidence that the test reports which were given by the
Government Institutions were incorrect or erroneous. No such attempt was
made and the test carried out before the Commissioner (Appeals) by IIT
Expert revealed that the contention of the appellant was justified.      E
       An important fact overlooked by the Tribunal is that because of an
earlier report of the CRCL with respect to the Delhi consignment to the effect
that it was unable to test the samples for regenerated second graqe MMM, the
department had sent samples from the Delhi consignment to the IIT, Delhi
and the IIT, Delhi vide its report dated 18.7.1996 had opined that the goods F
were of regenerated second grade quality. This report had been placed on
record. The CEGA T accepted the fact that the goods forming part of the
Delhi consignment were identical to the goods in question that is goods of
the Ludhiana consignment. This IIT report left no scope to sustain the stand
of the department. In our view the report obtained at the instance of the G
department itself had great force and it should not have been ignored.

     It is important to note that the report of the CRCL, New Delhi relied
upon by the .department does not unequivocally state that the goods were not
regenerated second grade MMM. The report is carefully worded and gives an
impression that something is sought to be concealed rather than truth being H
    196                   SUPREME COURT REPORTS                  [2003] 3 S.C.R.

A revealed. The onus is on the department to establish that it is a case of
    misdeclaration of goods. The department has miserably failed to discharge
    that onus in the present case. Therefore, we are unable to sustain the stand
    of the department. The impugned judgment of the CEGA T cannot be upheld.
    The same is set aside. The appeal is allowed. The order of the Commissioner
B   of Customs, Amritsar, is restored. Parties are left to bear their respective
    costs.

    S.K.S.                                                     Appeal allowed.