Case Law Details

Case Name : Windlass Online Stores Pvt. Ltd. Vs Commissioner of Customs (CESTAT Delhi)
Appeal Number : Customs Appeal No. 51098 of 2019 (DB)
Date of Judgement/Order : 08/11/2023
Related Assessment Year :

Windlass Online Stores Pvt. Ltd. Vs Commissioner of Customs (CESTAT Delhi)

Conclusion: Neither the applicability of the legal provisions particularly with reference to the Arms Act and the Rules and various notifications had been considered nor any reasoning had been given with reference thereto, therefore, CESTAT quashed the Customs duty demand on the import of antique finished rifles with a direction to the appellate authority to consider the appeal and decide the same giving proper and substantive reasoning in support thereof.

Held: Assessee-company filed Bill of Entry No.7205764 for clearance of goods imported from Overseas supplier – M/s. Denix S.A. C/Dels Bijuteers, Spain.  Considering the warning on the catalogue found along with the goods, FSL examination report from Balestic Division, FSL and also the information gathered from the manufacturers’ website and the legal provisions, the Department issued show cause notice on the ground that assessee made incorrect declaration of the description, value and classification of the imported goods in Bills of Entry  and thereby, contravened the provisions of Section 46(4) of the Act read with Rule 11 of the Foreign Trade Regulation Rules, 1993 (as amended). Assessee imported “Replica Fire Arms” convertible into Fire Arms” classifiable under CTH 93040000, which was restricted as per ITC (HS) Import Policy, without any licence or authorization from the DGFT and also imported “daggers” and “swords” with blade size more than 9” without fulfillment of the requirements specified in the MHA Notification No.S.O.667(E) dated 12.09.1985 and Notification No.S.O.831 (E) dated 02.08.2002 and thereby contravened the provisions of para 2.08 of FTP 2015 -2020 read with Section 11 (1) of the Foreign Trade (Development) and (Regulation) Act, 1992 (as amended). Assessee thereby rendered themselves liable for penal action under Section 112(a) of the Act and under Section 114 (AA) for intentionally using false and incorrect documents. Assessee appealed against the order passed by the adjudicating authority for confirming the customs duty demand and for the confiscation of goods under section 112(a) of the Customs Act,1962. It was held that neither the applicability of the legal provisions particularly with reference to the Arms Act and the Rules and various notifications had been considered nor any reasoning had been given with reference thereto by the Commissioner (Appeals) though being the first appellate authority. The impugned order was therefore unsustainable and deserved to be set aside with a direction to the appellate authority to consider the appeal and decide the same giving proper and substantive reasoning in support thereof. Since the impugned order did not reflect any application of mind, it would be appropriate to remand the appeal to the Commissioner (Appeals) to discuss the issues on merit.

FULL TEXT OF THE CESTAT DELHI ORDER

The present appeal has been filed challenging the Order-in-Appeal No. CC(A)CUS/D-1/ACC(IMP)/656/2018-2019 dated 31.01.2019, whereby the appeal filed by the appellant was dismissed and the order-in-original was affirmed.

2. The facts of the present case are that the appellant filed Bill of Entry No.7205764 dated 24.10.2016 for clearance of goods imported from Overseas supplier – M/s. Denix S.A. C/Dels Bijuteers, Spain. The description, quantity and value of the goods declared by the importer in the said Bill of Entry as per Invoice cum Packing List, are detailed in Table-A below:-

Sl. No. Description of Goods as declared in the B/E Model No.(As per Invoice /packing list) CTH Qty.(in Pcs.)
1. Cannon (Decoration and Gift Articles, Replica Weapons for display purpose) 407 8306 29 90 8306 29 90 5
2 420 5
5
3 421 5
4 422
5 Panoplie (Decoration and Gift Articles, Replica Weapons for
display purpose)
518 10
6 506 10
7 508 10
8 Cartridge Belt (Decoration and
Gift Articles, Replica
Weapons for
703 4203 40 90 5
9
707 5
10 Display purpose) 704 5
11 708 5
12
701 5
13 Catapult (Decoration and Gift Articles, Replica Weapons for display purpose) 426 8306 29 90 5
14 Sword belt (decoration and Gift Articles, Replica Weapons for display
purpose)
713 4203 40 90 5
15 Paperweight (decoration and Gift Articles, Replica Weapons for display
purpose)
737 8306 29 90 10
16 Paper weight (Decorative and Gift Articles, Replica
Weapons for Display Purpose)
56 8306 29 90 200
17 Letter opener (Decoration and Gift Articles, Replica Weapons for display
purpose
F-3033 8214 10 10 25
18 F-3027 25
19 F-3029 25
20 F-3030 25
21 F-3032 25
22 F-3048 25
23 F-3047 25
24 F-3059 25
25 F-3045 25
26 F-3066 25
27 F-3080 8214 10 10 25
28 Flintlock pistol with antique finish (Decoration and Gift Articles Replica 1026 5
29 1009/G 5
30 Weapons for display Purpose) 1129/G 8306 29 90 5
31 1135/G 5
32 1135/L 5
33 Antique Finish Pistol(Decorative and Gift Articles Replica Weapons for Display Purpose) 1231/L 5
34 1238 5
35 1061 8306 29 90 5
36 1062 10
37 1123 5
38 1227 5
39 M-1227 5
40 1227/NQ 5
41 1254
42 1254/NQ
43 1123/NQ
44 1235
45 Antique Finish Rifle (Decorative and Gift Articles, Replica Weapons for Display
purpose)
1086 10
46 1093 8306 29 90 5
47 1097 10
48 1124/C 5
49 1125 8306 29 90 5
50 Antique Finish Rifle (Decorative and Gift Articles, Replica Weapons for Display
purpose)
113IC 8306 29 90 5
51 Antique Finish Rifle (Decorative and Gift Articles, Replica Weapons for Display
purpose)
4139/L 5
52 4139/NQ 7323 99 90 5
53 4157/NQ 5
54 4157/N 5
55 4101/NQ
56 Antique Finish Sword (Decorative and Gift Articles, Replica Weapons for Display
purpose)
4123 7323 99 90 5
57 4125/L 5

3. The said Bill of Entry was facilitated with RMS and was, therefore, neither prescribed for assessment nor for examination. The matter was forwarded to Special Intelligence and Investigation Bureo (SIIB) for investigation as similar cases of imitation /replica of Fire Arms were being investigated by SIIB of Air Cargo Complex (Import). The consignment was subjected to 100% examination on 28.11.2016, whereby it was found that the goods were declared in the subject bill of entry as “Antique Finished Pistols”, “Antique Finished Rifles” and “Antique Finished Carbind Guns”. The details are at Sl.No.35-44, 45-49 and 50 respectively of the Table-A given above, though, prima facie, the goods appeared to be of articles of lethal weapons. Similarly, the swords detailed at Sl.Nos.51-55 and daggers detailed at Sl.No.56-57 of Table A were found to have blade size of more than 9”. The samples were drawn for further investigation. The appellant had earlier imported similar consignment vide Bill of Entry No.79761580 dated 12.01.2015 and the same was stopped by ICE, Patparganj, which was challenged by the appellant in Writ Petition No.4906/2015, where the Hon’ble High Court of Delhi called for the Balestic report of examination of these articles by the Forensic Science Laboratory (FSL). The examination report dated 23.11.2015 was placed before the Hon’ble High Court and vide Order dated 26.11.2015, the High Court disposed of the petition observing that , “

“From the above report, it is evident that the exhibits ‘F1’ to ‘F5’ cannot discharge a projectile in their present condition and these are not firearms as defined in the Arms Act, 1959. Though, it is submitted that after modification the same could be used as firearms, in the present state, they are not firearms as defined in the Arms Act, 1959. Mr. Kalra appearing for the Delhi Police (DCP Licensing) states that since these are not firearms no licensing is necessary.

In view of the foregoing, the Customs Department is directed to assess the Bill Entry No.7267159 dated 06.11.2014 in accordance with law and release the goods within two weeks to the petitioner.

The writ petition stands disposed of.

Dasti.”

Subsequently, vide order dated 11.12.2015, the High Court directed the Customs Department to re-assess the Bill of Entry No.7961580 dated 12.01.2015 in accordance with law and release the goods within two weeks.

4. In order to verify the actual nature of the goods in the present case, the catalogue found with the goods was examined, wherein a warning was mentioned as under:-

“Assembled/kit, non-firing DENIX Replica Models should be used only in the home as scale model displays or collector’s item or for theatrical or training purpose. They should always be used under supervision of a responsible adult. They should ER be carried on the street, pointed at anyone, hidden on your person or left carelessly in your car. Do not leave them where they are accessible to unsupervised children or irresponsible adults. The carrying, handling or brandishing in public of any model that resembles a real weapon may be in violation of the law, may create undue apprehension on the part of law enforcement officers or other persons, and could result in INJURY to the person handling the model. Be sure to check your local laws for any restrictions regarding replica guns.”

Information was also gathered from the website of the manufacturer www.denix.ex and it was found that they were involved in the manufacture of the following categories of goods:-

“i. Novelties

ii. Hangers

iii. Complements

iv. Cannons

v. Panoplies

vi. Axes & Halberds

vii. Leather articles\

viii. Firearms with mechanism

a. Arms S.XVII-XVIII-XIX

  •  Guns Museums
  •  Pirate Pistols
  •  Pocket Pistols
  •  Pistols S.XVII, XVIII
  •  Trabucos X.XVIII
  •  Rifles S.XVIII

b. Western

  • Revolvers
  • Guns
  • Rifles

c. World War I & II

  • Pistols and Revolvers
  • SMGs and Rifles

d. Modern Weapons

  • Guns
  • Revolvers
  • SMGs and Rifles

ix. Letter Openers

x. Swords and Daggers

  • Dagers & Byonets
  • Swords
  • Sabres.”

5. The subject consignment was placed under seizure on 19.12.2016 under Section 110 of the Customs Act, 1962. The appellant filed Writ Petition No. C/12051/2016 referring to the earlier writ petition and the orders passed therein and accordingly, prayed that the present Bill of Entry be assessed and the goods may be released. The Hon’ble High Court vide Order dated 22.12.2016 disposed of the writ petition, inter alia, observing that :-

“A reading of the previous order of the Court in the petitioner’s case undoubtedly suggests that upon satisfaction, the Customs Authorities were directed to release the goods. At the same time, this Court notices that after the order, certain subsequent events occurred with the promulgation of the new rules with effect from 15.07.2016 and the introduction of Rule 89, which stipulates that import of replicas of contemporary or modern firearms would be subject to the submission of a certificate of innocuousness from the manufacturing company of the country of Export and an undertaking from the importer that the replicas of firearms imported are incapable, even after modification, of expelling or launching a bullet or short or projectile. Even with such certificate apparently, the permission of the Director General of Foreign Trade (DGFT) is essential for the import under the prevailing Exim Policy. Having regard to these circumstances, at this stage, the previous order would not ipso factory be the basis of disposing of the petition. Instead the petitioner should respond to the notice issued by the department and ensure participation, in the proceedings.”

6. Considering the warning on the catalogue found along with the goods, FSL examination report dated 23.11.2015 from Balestic Division, FSL and also the information gathered from the manufacturers’ website and the legal provisions, the Department issued show cause notice dated 15.06.2017 on the ground that the appellant made incorrect declaration of the description, value and classification of the imported goods in Bills of Entry No.7205764 dated 25.10.2016 and thereby, contravened the provisions of Section 46(4) of the Act read with Rule 11 of the Foreign Trade Regulation Rules, 1993 (as amended). The appellant imported “Replica Fire Arms” convertible into Fire Arms” classifiable under CTH 93040000, which was restricted as per ITC (HS) Import Policy, without any licence or authorization from the DGFT and also imported “daggers” and “swords” with blade size more than 9” without fulfillment of the requirements specified in the MHA Notification No.S.O.667(E) dated 12.09.1985 and Notification No.S.O.831 (E) dated 02.08.2002 and thereby contravened the provisions of para 2.08 of FTP 2015 -2020 read with Section 11 (1) of the Foreign Trade (Development) and (Regulation) Act, 1992 (as amended). The appellant thereby rendered themselves liable for penal action under Section 112(a) of the Act and under Section 114 (AA) for intentionally using false and incorrect documents. The above show cause notice was adjudicated and vide order-in-original dated 23.09.2018, the Adjudicating Authority passed the following order:-

“(i) I reject the classification of imported goods mentioned at Sl.No.35-50 and sl.No.51-57 of Table-A, which were classified under CTH 8306 29 90 & CTH 7323 99 90 respectively in the Bill of Entry No.7205764 dated 24.10.2016 and order for classification of these goods under CTH 9304 00 00 in respect of goods at Sl.No.35-50 and under CTH 9307 00 00 in respect of goods at Sl.No.51-57 of Table A.

(ii) I reject the declared assessable value of Rs.6,56,842.62/- for the imported goods covered under Bill of Entry No.7205764 dated 24.10.2016 in terms of Rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 read with Section 14 of the Customs Act, 1962.

(ii) I reject the declared assessable value of Rs.6,56,842.62 for the imported goods covered under Bill of Entry No.7205764 dated 24.10.2016 in terms of Rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 read with Section 14 of the Customs Act, 1962.

(iii) I re-determine the assessable value as Rs.31,80,469/-(Rupees Thirty One Lakh Eighty Thousand Four Hundred Sixty Nine only) for the imported goods covered under Bill of Entry No.7205764 dated 24.10.2016 under Rule 9 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 read with Section 14 of the Customs Act, 1962.

(iv) I order for absolute confiscation of the goods mentioned at Sl.No.35 to 57 of Table-A in para-1 above, i.e. Replica Firearms & Daggers/Swords valued at Rs.19,36,371/-, under Section 111(d) of the Customs Act, 1962.

(v) I order for confiscation of the imported goods mentioned at Sl.No.1 to 34 of Table-A in para-1 above, valued at Rs.12,44,097/-, covered under Bill of Entry No.7205764 dated 24.10.2016 under Section 111(m) of the Customs Act, 1962. However, I give an option to the importer to redeem the goods on payment of redemption fine of Rs.2,50,000/- (Rupees Two Lakh Fifty Thousand only) under Section 125(1) of the Customs Act, 1962.

(vi) I confirm the demand of Customs duty amounting to Rs.3,66,275/- (Rupees Three Lakh Sixty Six Thousand Two Hundred Seventy Five only), on the goods mentioned at Sl.No.1 to 34 of the Table A in para-1 above, out of which Rs.1,93,381/- has already been paid by the importer on account of self-assessed duty.

(vii) I order for appropriation of customs duty already paid amounting to Rs.1,93,381/- towards the demand of customs duty. I also order that, thus, importer is required to pay a differential duty amounting to Rs.1,72,894/-, under Section 28(1) of the Customs Act, 1962 along with applicable interest under Section 28AA of the Customs Act, 1962.

(viii) I impose a penalty of Rs.50,000/- (Rupees Fifty Thousand only) on the importer i.e. M/s. Windlass Online Stores Pvt. Ltd. under Section 112 (a) of the Customs Act, 1962.

(ix) I impose a penalty of Rs.50,000/- (Rupees Fifty Thousand only) on the importer i.e. M/s. Windlass Online Stores Pvt. Ltd. under Section 114 AA of the Customs Act, 1962.”

7. Being aggrieved, the appellant filed an appeal, which has been rejected by the Commissioner (Appeals) by the impugned order dated 31.01.2019. Hence, the present appeal has been filed before this Tribunal.

8. Having heard both the sides at length and also perused the records along with the written submissions and compilations filed, we may consider the contentions raised both by the appellant as well as by the Department.

9. Mr. Anshuman Sahni, learned Counsel for the appellant raised preliminary issue that the impugned order lacks application of mind and has been passed in violation of principles of natural justice. On merit, he referred to similar consignment vide Bills of Entry No.7961580 dated 12.01.2015 which was cleared by the Customs Authorities as ordered by the Delhi High Court vide Order dated 26.11.2015. It is also his contention that the earlier FSL report dated 23.11.2015 has been relied upon in a selective manner and thereby ignored the observations that, “ no projectile can be fired in the present state” and the present FSL report dated 10.03.2017 has not given any view, whether the goods are capable of discharging any projectile or have all firing mechanism and, therefore, a mere composition of conversion in future cannot be a ground to retain the goods. The learned counsel also referred to the Certificate/declaration issued by the supplier/manufacturer of the imported goods stating that the goods imported are classifiable under CTH 83062900 and, therefore, there is no prohibition or restriction either under the Customs Act or under the Foreign Trade Policy to import the “Replica Fire Arms”. The goods in question do not fall within the definition of “ firearms” under Section 2(1) (e) of the Arms Act, 1959, according to which firearm means “arms of any description designed or adapted to discharge a projectile or projectiles of any kind by the action of any explosive or other forms of energy”. Further, referring to the Notification No.2461(E) dated 18.07.2016 issued by MHA, the learned Counsel submitted that the Replica Fire Arms are exempted from the operation of Arms Act and Rules. Learned Counsel also challenged the re-valuation of the goods on the ground that the Department has not compared the imported price to any identical or similar imports rather had simply relied on the suggested retail price on the internet by the manufacturer – supplier. Thus, purpose of contemporaneous exports having been ignored, the impugned order is bad and the goods in question could not have been confiscated by the department.

10. The learned Authorised Representative for the Revenue Ms. Jaya Kumari, vehemently opposed the appeal. Referring to HSN Explanatory Notes, she submitted that all type of arms, ammunitions and parts or accessories thereof including the replica arms are covered under chapter 93 whereunder even very pistol, revolver, gun and dummy/imitation/safety/warning pistols/revolvers /guns have been covered for classification. Therefore, irrespective of their state, (lethal or innocuous), category (prohibited, restricted, permissible standard or non­standard) all kinds of arms are classifiable under chapter 93. She also referred to the provisions of the Arms Act, 1959 to say that as per the definition of “arms” under section 2 (1)(c), it excludes only those weapons that are incapable of being converted into serviceable weapons. Referring to the definition of “arms” under Section 2(1)(c), the Apex Court in Neel Vs. State of West Bengal – 1972 (2) SCC 668 para 6; observed sword is “arms” within the meaning of Section 2 (1)(c) of the Act. Further, Schedule 1 of the Arms Rules, 2016 covers all kinds of arms, i.e., prohibited, restricted and permissible. Firearm replicas have been characterised under category III (g) of the Schedule and hence the same are classified under chapter 93. Similarly, category V of the Schedule covers arms, other than firearms whereunder swords and daggers with blades longer than 9” or wider than 2” have been covered and therefore the same are rightly classifiable under chapter 93. In support of her contentions, the learned AR has relied on the ruling of US No. HQH023504, where replica guns were held to be classified under subheading 9304.00.20., which provides for: “Other arms (for example, spring, air, or gas guns and pistols, truncheons), excluding those of heading 9307”. The reasoning in the said decision was that replicas of real guns are classified on the basis of their similarity in appearance to the real gun of which they are on imitation. Referring to Para 2.03 of the Foreign Trade Policy she relied on the provisions of rule 89 of the Arms Rules, 2016 whereby import of replica firearms are subject to submission of certificate of innocuousness from the manufacturing company of the country of export and an undertaking from the importer that the replica firearms are incapable, even with modification, of expelling or launching a shot, bullet or projectile. In fact, in view of the said provisions, the High Court of Delhi in its order dated 22.12.2016 rejected the writ petition holding that the permission of DGFT is essential for the import under the prevailing Exim Policy and refused to grant any relief to the appellant on the basis of its earlier order. The reliance placed by the appellant on the MHA notification S.O.2461 (E) dated 18.07.2016 granting exemption to the replica firearms from the provisions of the Arms Act, 1959, she clarified that the exemption was in respect of all sections except Section 5, whereby a license is required to procure, sell, expose or offer for sale or transfer or have in his possession for sale of any firearms or any other firearms and the appellant has not produced any such license and hence the same is hit by the provisions thereof. On importability she referred to the conditions specified in the MHA Notification No. S.O.667 (E) dated 12.09.1985 and Notification No. S.O.83 (E) dated 02.08.2002 are fulfilled, i.e. obtaining the requisite license from the competent authority which the appellant failed to produce in respect of the goods in question, i.e., the swords or daggers for clearing them for home consumption. Lastly, she relied on the test report dated 10.03.2017, which was obtained subsequent to the directions of the order of the High Court of Delhi and which in categorical terms stated the possibility of converting the replica firearms into non-standard firearms by improvisation cannot be ruled out. The learned Authorised Representative also relied on the findings of the Adjudicating Authority as under:-

“28.7 ………………………….. I also find that during the investigations, as mentioned in para-19 above, it came to light that in respect of the goods detailed at S.No.35-44, 45-50, the importer in his e-mail communications with the overseas supplier had referred same as “Modern Pistols & Revolvers” and “Assault Rifles” respectively of respective model numbers and not as “Antique Finish Pistol”, “Antique Finish Rifle” and “Antique Finish Carbine Gun” as declared in the Bill of Entry by the importer. I further find that the investigating agency also found out that during communication of importer with supplier, no quotation for prices was made. I find that neither the importer had quoted for supply of goods as “Antique Finish Pistols or Revolvers or Carbine Guns” nor the manufacture-cum-supplier’s catalogue available on their website www.denix.es declared these goods as “Antique Finish”. Instead the website of manufacturer-cum-supplier’s website declared these goods as “Modern Weapons” & “World War I & II.”

11. Considering the elaborate arguments made on behalf of the appellant as well as the revenue, we find that the appellate authority has not considered the same in proper perspective. Rather on perusal of the impugned order we find that the same is repetition of the order in original passed by the adjudicating authority. We agree with the learned counsel for the appellant that the impugned order lacks application of mind, in as much as it is verbatim the same as the order under challenge. Neither the applicability of the legal provisions particularly with reference to the Arms Act and the Rules and various notifications have been considered nor any reasoning has been given with reference thereto by the Commissioner (Appeals) though being the first appellate authority. The impugned order is therefore unsustainable and deserves to be set aside with a direction to the appellate authority to consider the appeal and decide the same giving proper and substantive reasoning in support thereof. Since the impugned order does not reflect any application of mind, we feel that it would be appropriate to remand the appeal to the Commissioner (Appeals) to discuss the issues on merit. In the circumstances, when we are remanding the matter, we are not stating anything on the merits of the matter.

12. The appeal is, accordingly allowed by way of remand.

[Order pronounced on 08/11/2023].

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