2025 (5) TMI 662 - AT - Customs

Change of classification of the imported goods - water meters - to be classified under Customs Tariff Item (CTI) 9026 1010 (flow meters) as claimed by the appellants or CTI 9028 2000 (liquid supply meters) as held by the department in the impugned order? - demand of differential customs duty under section 28(4) of the Customs Act 1962 - invocation of extended period of limitation. Classification of goods - HELD THAT - The Hon ble Supreme Court in Collector of Central Excise Shillong Vs. Wood Craft Products Limited 1995 (3) TMI 93 - SUPREME COURT has held that the tariff entry is patterned on HSN explanatory notes which are preferable even to ISI glossary in case of Conflict. The Hon ble Supreme Court in this case has perused the statements of objects and reasons of Central Excise Tariff Bill 1985 which led to the enactment of Central Excise Tariff Act 1985 and held that the Central Excise Tariff is based on HSN the internationally accepted nomenclature which has been taken into account in the said statement of objects and reasons so as to reduce disputes on account of tariff classification. Accordingly the Hon ble Court held that for resolving any dispute relating to tariff classification a safe guide is the internationally accepted nomenclature emerging from the HSN. The HSN Explanatory note to 9028 clearly states that household water supply meters measuring volumetric units are covered under CTH 9028. HSN Explanatory note to 9026 says that the heading excludes apparatus which merely indicate the total amount of liquid delivered by the period which is classified as supply meters in heading CTH 9028 - both from the entries in the Customs Tariff and the corresponding explanatory notes of HSN it is evident that meters which are primarily designed to measure the rate of flow of the liquids are classifiable under CTI 9026 1010 while those which measure the volume of flow are classifiable under CTI 9028 2000. What is the nature of the meters which were imported? - HELD THAT - The water meters measuring volume per duration of time are simply water meters and the water meters measuring speed of the liquid per unit of time are the flow meters. It has also been observed that all water meters are flow meters but not vice versa. Thus the imported goods were the one to be supplied to Delhi Jal Board for measuring the volume of domestic supply of water and thus the product is water meter clearly covered under CTH 9028. It is also observed that ISO 4064 applies to water meters based on electrical or electronic principles and to water meters which based on mechanical principles incorporating electronic devices are used to measure the actual volume flow of cold portable water and hot water. Thus the imported goods merit classification under CTI 9028 2000. Confirmation of demand under section 28(4) of the Act invoking extended period of limitation - HELD THAT - Assessments can be modified either through an appeal to the Commissioner (Appeals) under section 128 or modified undersection 28. The submission of the learned counsel if accepted will result in absurd consequences. If a notice under section 28 is issued after considering the reply and hearing the noticee the proper officer (commissioner or additional commissioner or joint commissioner or deputy commissioner or assistant commissioner) has to adjudicate the matter and pass an order. If the assessment is already appealed against before Commissioner (Appeals) under section 128 and is either affirmed or annulled or modified the assessment order merges with the order of the Commissioner (Appeals) which must be honoured. The question of the proper officer again issuing a notice under section 28 on the same issue after the Commissioner (Appeals) had decided the matter does not arise because the proper officer cannot sit in judgment over the order of the Commissioner (Appeals). There is no force in the submission of the learned Chartered Accountant that a notice demanding duty under section 28 cannot be issued without first assailing the self-assessment before Commissioner (Appeals) under section 128. It needs to be rejected and is rejected. Considering the facts of the case the intention of the importer to evade paying duty by deliberate mis-classification of the goods is evident and therefore extended period of limitation was correctly invoked in this case. The confirmation of demand invoking extended period of limitation with interest was correct. Confiscation of imported goods under section 111(m) - HELD THAT - The imported goods were classifiable under CTI 9028 2000 and they were instead classified under CTI 9026 1010 in the Bills of Entry (which is an entry made under the Act). Such incorrect classification is usually considered as a matter of opinion and goods are not held liable to confiscation for mis-classification. However in the peculiar facts of the case where the importer had deliberately changed the classification of the goods and engaged a new Customs Broker and gave written instructions to classify the goods under CTI 9026 1010 it is found that Section 111(m) squarely applies to the imported goods and they were liable confiscation. In the impugned order the imported goods were correctly confiscated under section 111(m) wherever they were available. Where they were not available the goods were held to be liable to confiscation but were not actually confiscated. Penalties under section 112 114A 114AA and 117 - HELD THAT - Penalty under section 112 can be imposed for acts which render the goods liable to confiscation. Since we have upheld the confiscation of the goods/holding that the goods were liable to confiscation section 112 squarely applies. Penalty under section 114A can be imposed if the duty was not paid or short paid by reason of collusion or any wilful mis-statement or suppression of facts. These factors are the same as those required to invoke extended period of limitation under section 28. Since considering the peculiar facts of this case the invocation of extended period of limitation is upheld the penalties imposed under section 114A also upheld. Penalty under section 114AA can be imposed for knowingly or intentionally makes signs or uses or causes to be made signed or used any declaration statement or document which is false or incorrect in any material. In this case the appellant deliberately caused incorrect CTI to be indicated in the Bills of Entry and hired a new Customs Broker and instructed him to indicate wrong CTI in the Bills of Entry. Therefore section 114AA squarely applies to this case. As far as penalty under section 117 is concerned it is a residual penalty imposable where there is no other provision. Since penalties were found to be imposable and were imposed under other sections penalty imposed under section 117 cannot be sustained. Conclusion - i) The goods imported under the disputed Bills of Entry at three of the ports were the water meters and NOT flow meters. The correct classification of these meters is CTI 9028 2000. ii) The benefit of nil rate of BCD in terms of Notification No. 24/2005 dated 01.03.2005 entry at Sr. No. 31 was available only to the flow meters under CTH 9026. The rate of duty for water meters under CTH 9028 is @ of 7.5%. iii) The appellant had deliberately changed the classification of the goods from CTI 9028 2000 to CTI 9026 1010 and hired a new Customs Broker and gave him instructions accordingly in order to evade duty; therefore extended period of limitation under section 28 was correctly invoked. iv) The goods were correctly confiscated/held liable to confiscation under section 111(m). v) All penalties except penalty under section 117 were correctly imposed and are upheld. Penalties imposed under section 117 are set aside. Appeal allowed in part.

Summary

The core legal questions considered by the Tribunal in these appeals are:

(i) What is the correct classification of the imported water meters - whether under Customs Tariff Item (CTI) 9026 1010 (flow meters) as claimed by the appellants, or CTI 9028 2000 (liquid supply meters) as held by the department in the impugned order?

(ii) If the classification under CTI 9028 2000 is correct, whether the demand for differential customs duty was validly raised invoking the extended period of limitation under section 28(4) of the Customs Act, 1962?

(iii) Whether the demand of interest under section 28AA was correctly invoked?

(iv) Whether the imported goods were rightly confiscated or held liable to confiscation under section 111(m) of the Customs Act?

(v) Whether penalties under sections 112, 114A, 114AA, and 117 were correctly imposed on the appellants?

Issue-wise Detailed Analysis

(i) Classification of the Imported Goods

The legal framework for classification is governed by the Customs Tariff Act and the General Rules of Interpretation, with reliance on the Harmonized System of Nomenclature (HSN) and its explanatory notes, which are internationally accepted and preferred over conflicting national standards. The Supreme Court has held that tariff classification disputes should be resolved with reference to HSN explanatory notes.

The relevant tariff headings are:

• CTI 9026 1010: Instruments for measuring or checking the flow or level of liquids, specifically flow meters that measure the rate of flow (volume or weight per unit time).
• CTI 9028 2000: Liquid meters, including household supply meters, which measure the total volume of liquid delivered over a period.

The HSN explanatory notes clarify that flow meters (CTI 9026) measure the rate of flow, while supply meters (CTI 9028) measure the total quantity of liquid delivered. The heading 9026 excludes apparatus which merely indicate the total amount delivered, which fall under 9028.

In the facts of this case, the imported meters were supplied under a contract with the Delhi Jal Board for installation at domestic premises to measure water consumption for revenue billing. The contract specified compliance with IS 779:1994 or ISO 4064:1993 standards, which pertain to water meters measuring volume of water flow. The contract and related documents did not describe the goods as flow meters but as water meters for domestic consumption.

The appellants argued that the meters measured flow rate and thus fell under CTI 9026 1010, relying on the supplier's catalogue and a recent CESTAT Kolkata decision. However, the department and the Tribunal emphasized the purpose and use of the meters as volumetric measurement devices for billing domestic water supply, fitting the description of liquid meters under CTI 9028 2000.

The Tribunal also noted that the imported goods were identical to previously imported samples classified under CTI 9028 2000, and that the change in classification to CTI 9026 1010 coincided with a change in customs broker and instructions from the appellants, despite the country of origin certificates continuing to mention CTI 9028.

Applying the law to the facts and the HSN explanatory notes, the Tribunal concluded that the meters are correctly classifiable under CTI 9028 2000 as liquid supply meters measuring volume, not flow meters measuring rate of flow.

(ii) Validity of Demand under Extended Period of Limitation (Section 28(4))

The appellants contended that the Bills of Entry were self-assessed and accepted by customs officers at three different ports, and that the department could not issue a Show Cause Notice (SCN) demanding differential duty under section 28 without first challenging the self-assessment through an appeal under section 128. They relied on a Supreme Court decision holding that self-assessment orders are appealable and that refunds cannot be sanctioned unless the assessment is modified.

The department argued that section 28 allows reassessment and demand of duty within the prescribed period, including extended period where there is collusion, wilful misstatement, or suppression of facts. The Tribunal distinguished the Supreme Court decision cited by the appellants, noting it pertained to refund claims under section 27 and not to demands under section 28. The Tribunal held that the department can issue a notice under section 28 without first assailing the self-assessment before Commissioner (Appeals).

Regarding invocation of extended period, the Tribunal examined whether there was suppression, wilful misstatement, or collusion. It found that the appellants deliberately changed classification from CTI 9028 2000 to CTI 9026 1010, engaged a new customs broker, and gave written instructions to misclassify the goods to evade customs duty. This was supported by documentary evidence including invoices, country of origin certificates, and statements of company officials and customs brokers.

The Tribunal relied on a recent Supreme Court judgment which held that deliberate misclassification with intent to evade duty justifies invocation of extended period of limitation. The Supreme Court emphasized that suppression means failure to disclose full information with intent to evade duty, and that wilful misstatement or suppression must be established to invoke extended limitation.

Applying this precedent and the facts, the Tribunal held that the extended period was rightly invoked as the misclassification was deliberate and intended to evade customs duty.

(iii) Demand of Interest under Section 28AA

Since the Tribunal upheld the demand under section 28 invoking extended period of limitation, the consequential demand of interest under section 28AA was also correctly invoked. The interest is payable on the differential duty determined due to the misclassification and short payment.

(iv) Confiscation of Imported Goods under Section 111(m)

Section 111(m) provides for confiscation of goods which do not correspond with the particulars declared under the Act, including value or classification. Normally, mere misclassification is a matter of opinion and does not attract confiscation.

However, the Tribunal found that in this case, the misclassification was deliberate and part of a scheme to evade duty. The appellants changed customs brokers and gave explicit instructions to misclassify the goods. Given these peculiar facts, the Tribunal held that the imported goods were liable to confiscation under section 111(m). Where goods were physically available, they were confiscated; where not available, they were held liable to confiscation.

(v) Imposition of Penalties under Sections 112, 114A, 114AA, and 117

The Tribunal considered the relevant penalty provisions:

• Section 112: Penalty for improper importation of goods liable to confiscation.
• Section 114A: Penalty for short levy or non-levy of duty due to collusion, wilful misstatement or suppression of facts.
• Section 114AA: Penalty for knowingly using false or incorrect documents.
• Section 117: Residual penalty for contraventions not covered elsewhere.

The Tribunal upheld penalties under sections 112, 114A, and 114AA, as the facts established deliberate misclassification, wilful misstatement, and use of false classification in Bills of Entry and invoices. The appellants knowingly caused incorrect CTI to be declared and instructed the customs broker accordingly.

However, penalty under section 117 was set aside as it is a residual provision and penalties were already imposed under specific sections.

Significant Holdings

"It is evident from the above text of the order that the imported meters were supplied to Delhi Jal Board for measuring the volume of domestic supply of water and thus the product is water meter clearly covered under CTH 9028."

"The appellants deliberately changed the classification of the goods from CTI 9028 2000 to CTI 9026 1010 and hired a new Customs Broker and gave him instructions accordingly in order to evade duty; therefore, extended period of limitation under section 28 was correctly invoked."

"Given the peculiar facts of this case, where the importer had deliberately changed the classification of the goods and engaged a new Customs Broker and gave written instructions to classify the goods under CTI 9026 1010, we find that Section 111(m) squarely applies to the imported goods and they were liable confiscation."

"Penalty under section 112 can be imposed for acts which render the goods liable to confiscation. Since we have upheld the confiscation of the goods/holding that the goods were liable to confiscation, section 112 squarely applies."

"The submission of the learned Chartered Accountant that unless the self-assessed Bills of Entry are assailed before Commissioner (Appeals) under section 128, no SCN demanding duty under section 28 can be issued is not correct and the reliance placed by him on ITC Ltd. is misplaced."

The Tribunal's final determinations were:

• The imported goods are water meters measuring volume, correctly classifiable under CTI 9028 2000, not flow meters under CTI 9026 1010.
• The benefit of nil basic customs duty under Notification No. 24/2005 applies only to flow meters under CTI 9026; water meters under CTI 9028 attract 7.5% duty.
• The extended period of limitation under section 28 was rightly invoked due to deliberate misclassification with intent to evade duty.
• The demand of interest under section 28AA was correctly imposed.
• The imported goods were correctly confiscated or held liable to confiscation under section 111(m).
• Penalties under sections 112, 114A, and 114AA were correctly imposed; penalty under section 117 was set aside.
• The appeals were partly allowed only to the extent of setting aside penalty under section 117; the rest of the impugned order was upheld.