2025 (2) TMI 1214 - AT - Customs

Classification of export goods - Indian Refractory Mortar or Chrome Ore Concentrate - classified under CTH 38160000 or under CTH 2610? - imposition of penalty u/s 114AA of the Customs Act 1962 - HELD THAT - The chemical composition of the exported product created by mixture of chromite magnesite (chemical formula MgCO3) and bentonite (Linear Formula Al 2 O 3 -2 SiO 2 -H 2 O) is different than chromite - Further the exported product is not actually used in the metallurgical industry for the extraction of the metals of Section XV (chapter 81 covering chromium). It is going to M/s ITACA Spain which produces frits glazes pigments inks and ceramic additives. The process of mixing chromite with magnesite and bentonite is not normal to metallurgical industry. So it is evident the exported product is not falling under heading 2610 as per chapter note 2 of chapter 26 read with HSN explanatory notes. The goods in question cannot be classified under CTH 2610 therefore no export duty is payable by the respondent - there are no infirmity in the impugned order. Penalty u/s 114AA of the Customs Act 1962 - HELD THAT - It is found that when no demand of duty is sustainable against the respondents therefore no penalty can be imposed on Shri Amandeep Singh Bal on whom a penalty of Rs. 10, 00, 000/- has been imposed u/s 114AA of the Customs Act 1962. Therefore the penalty imposed on Shri Amandeep Singh Bal is dropped. Appeal disposed off.

Summary

ISSUES:

Whether the goods exported as "Indian Refractory Mortar" are correctly classified under Customs Tariff Heading (CTH) 38160000 or should be classified as "Chrome Ore Concentrate" under CTH 2610 attracting export duty.Whether the exported product falls under the definition of ores and concentrates as per Chapter Note 2 of Chapter 26 of the Customs Tariff Act, 1975.Whether the exported goods are subject to export duty under Schedule II of the Customs Tariff Act, 1975.Whether penalty under Section 114AA of the Customs Act, 1962 is justified against the exporter for alleged mis-declaration.Whether the Committee of Chief Commissioners has the power to review the adjudicating authority's order.

RULINGS / HOLDINGS:

The goods exported as "Indian Refractory Mortar" are correctly classified under CTH 38160000 as refractory mortar, not under CTH 2610 as chrome ore concentrate, since the product is a mixture whose chemical composition and use do not conform to the definition of ores and concentrates under Chapter Note 2 of Chapter 26.Chapter Note 2 of Chapter 26 excludes minerals "which have been submitted to processes not normal to the metallurgical industry," and since the exported product is a mixture of chromite, magnesite, and bentonite used in refractory applications rather than metallurgical extraction, it does not qualify as ore or concentrate under CTH 2610.No export duty is payable on the goods classified under CTH 38160000, and the impugned order holding no export duty is upheld.Penalty under Section 114AA of the Customs Act, 1962 imposed on the exporter is dropped as no duty demand is sustainable and the mis-declaration allegation is not established.The objection regarding the power of the Committee of Chief Commissioners to review the order is noted but does not affect the final classification and decision upheld by the Appellate Tribunal.

RATIONALE:

The classification dispute was resolved by applying the General Rules for the Interpretation of the First Schedule of the Customs Tariff Act, 1975, in conjunction with relevant Chapter Notes and Harmonized System of Nomenclature (HSN) explanatory notes.The Court relied on chemical composition analysis and expert laboratory reports indicating the product is a mixture with refractory uses, not a metallurgical ore or concentrate, thus excluding it from Chapter 26 headings.Chapter Note 2 of Chapter 26 was interpreted strictly to exclude minerals subjected to processes not normal to metallurgical industry, such as mixing with magnesite and bentonite for refractory purposes.Precedents from the Supreme Court emphasize that tariff classification must be based on the terms of headings, chapter notes, and internationally accepted HSN nomenclature, not on customer perception or isolated chemical components.The legal principle that classification is to be determined under Rule 1 of the General Rules for Interpretation was applied, and since the heading was determined as 38160000, further rules were not applied.The Court noted that incomplete declarations lacking chemical composition details render exports prone to mis-declaration, but such procedural lapses do not justify penalty absent substantive misclassification.The limitation period under Section 28(9) of the Customs Act was extended in view of the Supreme Court's COVID-19 related orders, affecting the timing of proceedings but not the substantive classification.