The Hindu Business Line : Row's over handsets

BlackBerry was the subject matter of a recent case that came up before the New Delhi Tribunal. As you may be aware, BlackBerry is a wireless connectivity solution. "It combines award winning devices, software and services to keep mobile professionals connected to the people, data and resources that drive their day," announces www.blackberry.com. It is "a wireless hand-held device introduced in 1999 which supports push e-mail, mobile telephone, text messaging, Internet faxing, Web browsing and other wireless information services," according to Wikipedia.

The story begins with Bharati Teletech Ltd importing BlackBerry `wireless handsets' Model 7730. This model is a `data and voice-enabled' product with features such as `phone, e-mail, SMS, browser and organiser applications in a single wireless hand-held,' as the Ontario-based manufacturer Research In Motion Ltd informs.

Further features are: "Large, high resolution screen to provide ample workspace; vibrant display supporting over 65,000 colours; available memory for application and data storage; Java development platform based on open standards; integrated attachment viewing; exceptional battery performance; tri-band hand-held, operates on 900/1800/1900 MHz GSM/GPRS wireless networks, allowing for international roaming between North America, Europe and Asia-Pacific."

Amazing features, but woefully the consignment Bharati imported in May 2004 was `found to be defective'. Bharati "re-exported the wireless handsets back to the original supplier on February 16, 2005." The foreign supplier replaced the said goods, which Bharati received in April 2005. "The customs authority examined the goods on random basis and found the goods were old ones. Since import of second-hand goods other than capital goods was restricted, these goods were sought to be seized and confiscated."

The Department imposed a Rs 2.5 lakh redemption fine and also a penalty of Rs 50,000 on Bharati. At the Tribunal, the company's advocate Srinivas Kotni conceded that the goods were old one. However, he sought the benefit of paragraph 2.42 of the Import Export Policy, which was about `import of replacement goods.'

This paragraph says: "Goods or parts thereof on being imported and found defective or otherwise unfit for use or which have been damaged after import may be exported without a licence/ certificate/permission, and goods in replacement thereof may be supplied free of charge by the foreign suppliers or imported against a marine insurance or marine-cum-erection insurance claim settled by an insurance company."

Such goods can be allowed clearance by the customs authorities without import licence and so on, subject to the following conditions:

Shipment of replacement is made within 24 months from the date of clearance of the previously imported goods, or within the guarantee period in case such a period is more than 24 months; and

No remittance shall be allowed except for payment of insurance and freight charges.

The paragraph adds that, instead of obtaining replacement of goods, the importer has the option to claim refund of any payment to the foreign supplier.

For the Department, V.K. Agarwal who argued at the Tribunal, said that to take the benefit of paragraph 2.42, the importer had to show that the replacement of goods is identical.

After hearing both the sides, Tribunal Member M.V. Ravindran observed that what Bharati received, re-exported, and received back was `wireless handsets Model 7730', which itself indicates `that the same goods have come back into India'. He said that from a plain reading of paragraph 2.42, it was very clear that Bharati could get replacement of the goods, by satisfying the two conditions specified in the paragraph. Since the replacement of goods was made within time, and also free of charge, requiring no remittance from Bharati, the benefit under the paragraph was available to the company, he ruled. Instructive case about defectives!

World-class air-conditioning for aircraft designing

GE India Technology Centre Pvt Ltd was recently before the Bangalore Tribunal. The company is a 100 per cent EOU (export-oriented unit) engaged in "the activity of inter disciplinary research and development as well as related software exports," informs the text of the Tribunal's ruling dated January 6. Trouble came when it sought to take the benefit of a Customs Notification (No. 53/97 Cus dated June 3, 1997) for an import.

Excerpt from the Notification relevant to the case on hand is this: "The Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified ... when imported into India for the purpose of manufacture of articles for export out of India, or for being used in connection with the production of packaging or job work for export of goods or services out of India by hundred per cent Export Oriented Units..."

The import that attracted the taxman's attention was of `armaduct sheet and insulation tape (adhesive materials) valued at Rs 26,50,397 without payment of duty.' It seems the import was made after approvals from the Development Commissioner and subsequent approval of the Board of Approvals. But the taxman proceeded against GE, saying that the imported goods are parts of building materials and are not eligible for duty free clearance in terms of the Notification.

The Deputy Commissioner of Customs in his Order-in-Original dated December 24, 2001 held that the goods must be classified as building materials and could not be classified as capital goods. He didn't accept `the post-facto approval from the Board of Approvals for import of the said goods' and passed an order demanding duty of Rs 14,94,417 along with interest.

GE approached the Commissioner (Appeals). He upheld the original order. Interestingly, while passing the order, the Commissioner accepted GE's contention that the imported goods were not building materials but were spares and consumables of air-conditioner. "However, he held that these goods were not necessary for rendering the services of aircraft designing."

Challenging the order, GE marched to the Tribunal. There, Raghuraman argued the company's case, while K.S. Bhatt appeared for the Department. "Air-conditioners are entitled for the benefit of the Notification. The imported goods are accessories to the air-conditioners; therefore, the imported items are clearly entitled for the exemption in terms of the Notification," said Raghuraman.

On the Commissioner's opinion that it was not clear how the impugned goods could be necessary for export of GE's services unless extended link was contrived, Raghuraman had this to say: "The appellant is a prestigious centre set up for developing world-wide research and development, therefore requires world class facilities for developing research results and exporting the same. The appellant has a completely computerised environment, which requires air-conditioning at the highest levels." So? "The said materials, which are imported are required to ensure that air-conditioning is effective and is meant to be an energy conserving device... The said items are required for air-conditioning ductwork."

Even though certain goods do not participate in the manufacture of finished goods, if they are found to be necessary for technical necessity, they are eligible to be imported by 100 per cent EOUs, he said, citing the Kudremukh Iron Ore Ltd case.

Raghuraman said that the Commissioner's finding that the goods in question could not be termed as capital goods used in connection with export of services was erroneous. Because as per the Exim Policy, the definition of capital goods included any plant, equipment or accessories either directly or indirectly required for rendering of services. "The imported goods are necessary for the air-conditioning system, which is essential for rendering designing services," he explained. "Therefore the imported goods are indirectly used in the course of rendering services."

On the other side, the Department's counsel reiterated the point about the post-facto approval. Tribunal Members S.L. Peeran and T.K. Jayaraman heard both the arguments and observed, "Armaduct sheets and insulation tapes are meant for insulating the roof slab from inside the building for preventing heat radiation into the air-conditioning area." An indirect use of the materials is sufficient for the purpose of the Notification, ruled the Tribunal.

"Once the competent authority, that is, the Board of Approvals has allowed the appellants to import the goods for use in their unit, the Customs Authorities cannot question the same," noted the Tribunal, frowning upon the action by the Department. "The Board of Approvals is also a wing of the Government of India. If the Customs do not agree with the Board of Approvals decision, they should take it up separately at appropriate levels. Otherwise different Departments take different stand, the net result would be uncertainty and confusion in the mind of trade, which is in nobody's interest."

Cool verdict about cooling matters.

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