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2025 (5) TMI 672 - AT - CustomsShort-payment of customs duty - classification of imported goods - various types of fruit pulp or fruit juices or fruit juice-based drinks including inter alia Lemoneez - to be classified under Tariff Item 2009 31 00 (juice of a single citrus fruit) or under residuary item 2106 90 19 as a soft drink concentrate? - levy of penalties - HELD THAT - It is observed that initially the appellant had inadvertently classified the impugned goods under Tariff Item No. 2202 99 20 but during the course of hearing have submitted that the impugned goods are appropriately classifiable under Tariff Item 2009 31 00 instead of the inadvertent classification made by them earlier while filing bills of entry for home consumption. In this regard it is seen that although the appellant no. 1 had inadvertently mis-classified the goods under an incorrect Tariff Item since the GST rates for both the classification are the same and thus there is no revenue loss for such mistake committed by the appellant no. 1. Classification under CTH 2009 and/or 2106 is determined on the basis the composition of the product and the methodology involved in preparing or extracting the same. The classification is not based on end usage of the products. Had the intention been to classify the goods on the basis of end use then even lemons would have been classified under CTH 2106 as the same can also be used for preparation of salads Indian curries marinade chicken/ meat etc. It has also been alleged in the impugned order that the appellant no. 1 has wilfully mis-stated / suppressed the fact by way of misclassifying the goods so as to avoid payment of IGST @18% as applicable on the impugned goods and that the appellant no. 1 working under the regime of self- assessment failed to place correct facts and figures before the assessing authority. It is observed in this regard that mere misclassification of goods cannot be held to be suppression more so when there is no allegation of incorrect description of goods and other material particulars in the Bills of Entry filed by the appellant no. 1.Merely because the appellant no. 1 operates under self-assessment regime that does not automatically make the charges of suppression valid against the appellant no. 1 - the appellant no. 1 has rightly classified the impugned goods under CTH 2009 and hence the demand confirmed vide the impugned order classifying the same under CTH 2106 is unsustainable and liable to be set aside. Only those preparations which are used to make lemonade or other beverages where the concentrated fruit juice is added with citric acid (to take its acidic content more than that of natural juice) essential oils of fruit synthetic sweetening agents etc. would be classifiable under tariff heading 2106 unlike the instant case where no citric acid or essential oils or synthetic sweetening agents etc. are added - the classification adopted by the Ld. Commissioner under Tariff Item No. 2106 90 19 to confirm the demand in the instant case is not acceptable. Since the demand itself does not survive the question of demanding interest or imposing penalties on the appellant no. 1 does not arise. Regarding the penalty imposed on the appellant no. 2 namely Shri Ashok Kumar Sinha under Section 117 of the Act we find that the said penalty has been imposed on the appellant no. 2/CHA on the allegation that he had not properly advised the client regarding classification of the product. Since there is no infirmity in the classification of the product we do not find any merit any merit in the penalty imposed on the appellant no. 2. Accordingly the penalty imposed on the appellant no. 2 is set aside. Conclusion - i) The impugned goods are rightly classifiable under Tariff Item No. 2009 31 00 being the juice of a single citrus pulp as claimed by the appellant. Accordingly the differential IGST demanded in the impugned order is set aside. Since the demand is held to be not sustainable the question of demanding interest or imposing penalties on the appellant no. 1 does not arise. ii) The order of confiscation of the impugned goods along with imposition of redemption fine is set aside. iii) The penalty imposed on the appellant no. 2 is also dropped. Appeal allowed.
The core legal questions considered in this case revolve around the correct classification of imported goods under the Customs Tariff Act, 1975, specifically whether the imported product 'Lemoneez' should be classified under Tariff Item 2009 31 00 as fruit juice or under Tariff Item 2106 90 19 as a soft drink concentrate. Ancillary issues include the validity of the demand for differential Integrated Goods and Services Tax (IGST), the imposition of penalties on the importer and the Custom House Agent (CHA), and the appropriateness of confiscation of goods and redemption fine.
The primary issue is the classification of the impugned goods, which affects the applicable IGST rate and consequent demands. The appellants contend that the product is a reconstituted lemon juice concentrate under Tariff Item 2009 31 00, attracting IGST at 12%, whereas the Revenue asserts it is a soft drink concentrate under Tariff Item 2106 90 19, liable to IGST at 18%. The correctness of classification determines the legitimacy of the demand for differential tax, penalties, and confiscation. Issue-wise detailed analysis: 1. Classification of the Impugned Goods: Relevant legal framework and precedents: The classification is governed by the Customs Tariff Act, 1975, and the Harmonized System of Nomenclature (HSN) Explanatory Notes (EN) approved by the World Customs Organization (WCO). The relevant tariff headings are:
Precedents cited include judgments distinguishing beverages from fruit juices and the principle that classification depends on composition and manufacturing process rather than end use. Court's interpretation and reasoning: The Court observed that the impugned product 'Lemoneez' consists of 22.6% frozen lemon concentrate, 77.4% treated water, and 0.28% potassium meta bisulphate preservative. The appellants submitted that the water content does not exceed that in natural lemon juice, and the product undergoes pasteurization, which is a permitted process under HSN EN for fruit juices. The product is marketed as a substitute for real lemon juice, used in culinary preparations rather than consumed as a ready-to-drink beverage. The Court emphasized that classification under CTH 2009 or 2106 depends on the product's composition and manufacturing process, not on its end use. It rejected the Revenue's argument that usage in salads, curries, or marinades transforms the product into a miscellaneous edible preparation under CTH 2106, noting that fresh lemons themselves are used similarly but are classified under different headings. The Court also addressed the Revenue's contention that the product is a 'soft drink concentrate' under CTH 2106 90 19. It referred to Supplementary Note 5 to Chapter 21 and the HSN EN to CTH 2106, which indicate that soft drink concentrates typically contain citric acid, essential oils, synthetic sweeteners, and are intended for dilution into beverages. Since the impugned goods contain none of these additives and are essentially reconstituted lemon juice, the Court found the Revenue's classification untenable. Key evidence and findings: The product's composition, manufacturing process (pasteurization), and marketing materials were critical. The appellants' detailed analysis demonstrated compliance with conditions for classification under CTH 2009, including permissible addition of preservatives and water content not exceeding natural juice levels. The Court found the Revenue's selective reading of the HSN EN incomplete and inconsistent with statutory interpretation principles. Application of law to facts: The Court applied the tariff classification rules and HSN EN to the facts, concluding that the impugned goods are fruit juice under CTH 2009 31 00. The Revenue's classification under CTH 2106 90 19 as a soft drink concentrate was rejected as factually and legally incorrect. Treatment of competing arguments: The Court rejected the Revenue's reliance on end use and the narrow interpretation of 'reconstituted juices' that would exclude blending with water. It held that such interpretation would render parts of the explanatory notes redundant and violate cardinal rules of statutory interpretation. The appellants' argument that inadvertent misclassification under Tariff Item 2202 99 20 did not cause revenue loss was accepted. Conclusions: The impugned goods are correctly classifiable under Tariff Item 2009 31 00 as fruit juice of a single citrus fruit. The demand based on classification under CTH 2106 90 19 is unsustainable. 2. Demand for Differential IGST and Penalties: Relevant legal framework: Sections 114A and 114AA of the Customs Act, 1962, relate to penalties for misclassification and short payment of duty. Section 117 imposes penalties on Custom House Agents for failure to comply with provisions. Court's interpretation and reasoning: Since the classification under CTH 2009 31 00 was upheld, the demand for differential IGST under CTH 2106 90 19 fell away. The Court observed that mere misclassification without suppression or incorrect description does not constitute mens rea or suppression of facts. The appellants operated under self-assessment, but this alone does not imply wrongdoing. Key evidence and findings: No evidence of incorrect description or suppression was found. The appellants' mistake in classification was inadvertent and did not cause revenue loss. Application of law to facts: The Court applied the principle that penalties require mens rea or willful suppression, which was absent here. Therefore, penalties under Sections 114A, 114AA, and 117 were not justified. Treatment of competing arguments: The Revenue's contention that misclassification amounted to suppression was rejected. The penalty on the CHA for allegedly failing to advise correctly was also set aside due to the absence of infirmity in classification. Conclusions: The penalties imposed on the appellants and the CHA are set aside as unsustainable. 3. Confiscation of Goods and Redemption Fine: Relevant legal framework and precedents: Section 125 of the Customs Act empowers confiscation and imposition of redemption fine if goods are available for seizure. The Court relied on precedent where confiscation and redemption fine were held unwarranted if goods had already been cleared for home consumption. Court's interpretation and reasoning: Since the impugned goods were cleared for home consumption, confiscation and redemption fine were inappropriate. The Court cited the decision of the Hon'ble High Court and Supreme Court affirming that redemption fine applies only when goods are available for redemption. Key evidence and findings: The goods were not physically available for confiscation at the time of the order. Application of law to facts: The Court applied the legal principle that confiscation and redemption fine presuppose availability of goods, which was not the case here. Treatment of competing arguments: The Revenue's order for confiscation and fine was not supported by facts or law. Conclusions: The order of confiscation and redemption fine is set aside. Significant holdings include the following verbatim legal reasoning: "Classification under CTH 2009 and/or 2106 is determined on the basis the composition of the product and the methodology involved in preparing or extracting the same. The classification is not based on end usage of the products." "Mere misclassification of goods cannot be held to be suppression more so when there is no allegation of incorrect description of goods and other material particulars in the Bills of Entry filed by the appellant no. 1." "The term 'soft drink' is per se different from the fruit juices inasmuch as the soft drinks are commonly understood to be aerated beverages/ preparations containing merely essences or flavours with no actual juice content. Thus, treating the lemon juice concentrate as soft drink concentrate is factually as well as legally untenable." "The concept of redemption fine arises in the event the goods are available and are to be redeemed. If the goods are not available, there is no question of redemption of the goods." The core principles established are:
Final determinations on each issue are:
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