JUDGMENT MR. MUMTAZ ALI, MEMBER TECHNICAL.-l.
This appeal has been^filed against the Order-in-Appeal No. 1786 of 1997 dated 30.4.1997 passed by the Collector of Customs, Central Excise and Sales Tax (Appeals), Rawalpindi.
2. The brief facts- of the case are that .M/s. P.I Daewoo Electronics Limited are manufacturers of television sets who operate a, factory in Hattar District Haripur. Some of the components of T.V. Sets are imported under duty concession within the framework of SRO 505(I)/95 dated 14.6.1995 while other parts are manufactured locally. The appellant has been issued a Form 'S' by the. Central Board of Revenue under the above SRO wherein certain items used in the T.V. Sets have been allowed to be imported either free of duty or at concession rates of duty and annual quantities of each item allowed to be imported under this scheme are also given therein. Of these printed circuit board is one such item. The appellants had imported then items in the past under duty concession and maintained accounts. The staff of Directorate of Intelligence and Investigation (Customs) inspected the record of the appellant on 17.2.1996 and reported that one of the imported items, namely mother printed circuit board was found mounted with some components and subcomponents such as coils, diodes, fixed resisters and jumpers which made the circuit board as a sub-assembly rather than a component and therefore under SRO 505(I)/95 it was liable to duty at 20% and not 10% whereas the appellant had claimed duty on this component as 10%. A consignment brought for in bonding into the factory premises the same day was also intercepted which contained mother circuit board mounted with the same fixtures mentioned above. One representative carton of the same was detained and on the persuasion of the said staff, the appellant paid an amount of Rs. 203,919.00 on 20.3.1996 as differential amount of duty representing the difference between rate of duty at 10% (earlier paid) and 20%, alleged by the- Customs Intelligence to be payable. On 16.4.1996 a notice was issued to the appellant to show cause within 10 days why, besides taking penal action under section 156(1)10A, 14 of the Customs Act, 1969 (hereinafter referred to as the Act) the customs duty be recovered from the appellant. The case was later on adjudicated by the said Deputy Collector vide Order-in-Original No. 305 of 1996 who held the mother printed board in question as liable to duty at 20% and not 10% under SRO 505(I)/95 because it was mounted with some sub-components and components which made it a sub- assembly as per the definition given in CGO 8/95. He held the charges stated in the show cause notice proved against the appellant and the said circuit board liable to duty (2) 20% and not 1-0% and imposed a penalty of Rs. 2000,000.00 on the appellant for violation of the provisions of the Act.
3. Feeling aggrieved by this order the appellant filed an appeal with the Collector of Customs (Appeals), Rawalpindi who disposed it of by the impugned order with the finding that the subject mother printed circuit board was a sub-assembly which was misdeclare as component attracting provisions of section 32(2) of the Act punishable under clause 14 of the Table under section 156(1) ibid. He further held that since no condition, limitation or restriction of SRO 505(I)/95 was violated, no offen ce punishable under clause 10A of Table under section 156(1) was proved. Accordingly he reduced the penalty from Rs. 2000,000.00 to Rs.1000,000.00.
4. Still feeling aggrieved, the appellant filed the present appeal.
5. The case \yas heard on 14.1.1998. Mr. M. Tariq Najeeb, Advocate, along with Engineer Tariq Ahmed appeared on behalf of the appellant. Mr. Taqi Mirza, Law Officer along with Mr. Ahmed Nawaz Shah, Senior Intelligence Officer appeared on behalf of the respondent Collector.
6. The learned Counsel for the appellant submitted that the respondents had erred in holding mother printed circuit board as a sub-assembly. He submitted that the subject board comprised a printed plate indicating the position of certain fixtures which were to be affixed to it in the appellant's factory. .The printing also indicated the flow of electric current. The board was to be mounted with over 500 pieces of "diodes' resisters and other electrical elements for the purpose of producing, rectifying, detecting, modulating or amplifying electric signals and that these functions could be performed only when all the mountings were chemically and electrically connected and properly soldered. He explained that the subject boards had been imported not with proper mounting of all or most of these diodes and resisters but only with some plain elements clinched (stapled) on its back side with the primary function to by-pass electric current or signal at crossings or junctions and these elements had not yet been soldered or mechanically and electrically connected. So these clinching did not change the basic status of the printed circuit board into a sub-assembly as it functionally remains a mere printed circuit unless elements are mounted and connected and it becomes capable of producing or changing electric signal. He demonstrated with reference to a fully mounted printed circuit board produced before the Bench as sample that the actual functional diodes and resisters are mounted on the front side of the printed circuit board and all are properly connected electrically and mechanically with proper soldering as per design. This principal mounting and soldering work is done within the factory and it is after completion of this work that the diodes and resisters perform the requisite functions of "producing, rectifying, detecting, modulating or amplifying electric signals". He explained with the help of a manual that the mountings on the back of the board were elementary in nature, permitting the current/signal to pass without coming in contact with another and since these had merely been clinched but not yet solder Ed these were incapable of passing signal/current or rectifying, detecting and modulating any signal/current. As such the mere mounting of a few diodes for by-passing signal did not convert the printed circuit board into a sub-assembly.
7. The learned Counsel further submitted that this position had been properly explained to the Directorate of Survey of the Central Board of Revenue and it was in appreciation of this position that printed circuit board was allowed as an input for manufacturing of T.V. Sets at 10% concessional rate of duty under SRO 505(I)/95. On these grounds he contends that the impugned order had been passed without appreciation of true facts and that it was therefore not maintainable either on facts or in law.
8. Mr. Taqi Mirza, appearing on behalf of the prosecution submitted that printed circuit board was to have been imported as plain printed board with no mountings on it whatsoever. He also submitted that once any mounting of any elements had been done on the printed circuit board it became a sub-assembly and therefore was not entitled to levy of concessional duty at 10% as envisaged in SRO 505(I)/95. He admitted that the record of the Survey Directorate pertaining to grant of Form 'S' to the appellant had not been consulted to check whether the fact of import of printed circuit board with back mounting of power jumpers was in the knowledge of the Directorate of Survey when Form 'S' was issued. He also could not explain if mere clinching of certain elements (diodes etc.) on the said board could be construed as complete mounting.
9. We have examined the case record and given consideration to the submissions of both the sides. The scope of SRO 505(I)/95 apparently is not in dispute. The dispute is whether the mounting of some diodes on the back of the printed circuit board are in the nature of mountings which changes the status of t^e printed circuit board within clause (ii) of the Table under the said RO. The subject mountings, on physical inspection of the sample produced, show that the diodes and resisters have only been clinched or stapled on one side (back side) of the board. These elements have not been connected with one another and not soldered. These are thus individual fittings and do not constitute an assembly creating a circuit for producing or modulating electric current or signal. As such these mountings do not transform the printed circuit board into a distinct sub- assembly capable of performing any of the functions of "producing, rectifying, detecting, modulating or amplifying electric signals". On the other had the appellant's Counsel produced in the court a fully mounted printed circuit board which contained besides the above mentioned fittings on its back, a large number of mountings and fittings with many elements (diodes, resisters etc.) larger in size, and more complex in design on the other side of the board which were interconnected and soldered. It was glaringly visible that the back mountings too were more in number and connected with one another and properly soldered in contrast to the limited number of clinched mountings seen on the printed circuit board at import stage. When Mr. Taqi Mirza was confronted with this position, no meaningful rebuttal of the appellant's explanation could be offered by him.
10. The learned Counsel for the appellant also filed technical literature on the subject. The Explanatory Note to the Harmonized System of Coding which provides the rationale for the classification of goods under the PCT, describes printed circuit boards falling under 85.34 as follows:- "... This heading covers the circuits which are made by forming on an insulating base, by any printing process (conventional printing or embossing, plating-up, etching etc.), conductor elements (Wiring), contacts or other printed components such as inductances, resistors and capacitors ("passive" elements), other than elements which can produce, rectify, detect, modulate or amplify electric signals, such as diodes, triodes or other ''active" elements. Some circuits may comprise only one of the elements listed above. Others combine several elements according to a pre-established pattern."
"Printed circuits may be provided with holes or fitted with non- printed connecting elements either for mounting mechanical elements or for .The connection of electrical components not obtained during the printing process. Film circuits are generally supplied in metallic, ceramic or plastic capsules which are fitted with connecting leads or terminals."
"Circuits on which mechanical elements or electrical components have been mounted or connected are not regarded is printed circuits within the meaning of this heading. . .
" This note makes it obvious that printed board is not fitted with active elements making it capable of "producing, rectifying, detecting, modulating or amplifying electric signals".
It has also been stated in para 2 that printed circuits may be provided with non-printed connecting elements "producing, rectifying, detecting, modulating or amplifying electric signals" for connection of electrical components not obtained during the printing process.
12. We have to see whether the clinched elements are active elements for "producing, rectifying, detecting, modulating or amplifying electric signals" or elements for connection of electrical components. The position emerging from the foregoing discussion is that these are clinched mountings of such diodes which will help in jumping of power i.e. By-passing current over another current or signal running in another direction i.e. These are passive elements. Moreover, these have not yet been soldered and thus not yet electrically or mechanically connected. In the clinched form these elements are not capable of either passing current or producing or altering electric signal and do not affect the status of printed circuit boards to oust the subject imported goods from the classification of printed circuit board under 85.34 of PCT.
13. In the light of above discussion we see no material grounds on which to support the view taken by the respondents in the impugned orders. These orders are therefore set aside and the appeal is accepted.