2025 (5) TMI 1034 - AT - Customs

Classification of the imported goods - hydrocarbon solvent can be treated as Mixed Xylene Isomers - invoking extended period of limitation under Section 28 - demands of differential customs duty along with interest and penalties - misdeclaration and suppression - HELD THAT - From the test report submitted by the appellants we observe that the test report clearly indicates that the solvent imported by the appellants contains isomers of Xylene as well as Ethyl Benzene . The Ld. adjudicating authority has not considered Ethyl Benzene as an Isomer of Xylene and excluded its weight for the purpose of weight of Isomers in the solvent imported. Accordingly he has concluded in the impugned order that the impugned goods contained less than 95% by weight of Isomers of Xylene. In view of the HSN Explanatory Notes reproduced supra the Ld. adjudicating authority accordingly concluded that the imported goods are not classifiable as Mixure of Xylene Isomers under the CTH 29024400. We find that the molecular formula of Ethyl Benzene is C8H10. It has the only two atoms C and H common to Xylene and molecular formula is same as that of Xylene i.e. C8H10. We find that the molecular formula of all other Isomers of Xylene classified under the CTH2902 are C8H10. The molecular formula of Ethyl benzene is also C8H10. We also find that the structure of o-Xylene m-xylene and p-xylene and Ethyl Benzene are all different from each other. Thus as per the definition of Isomers mentioned above we observe that o-Xylene m-xylene and p-xylene and Ethyl Benzene all are Isomers of Xylene. From the test report submitted by the appellants we observe that the imported goods is a mixture of Xylene Isomers and has more than 95% of weight of all Isomers of Xylene. Hence we observe that as per the HSN Explanatory Notes the goods imported are appropriately classifiable under the CTH 29024400. Thus we hold that the reclassification of the imported goods under the CTH 27073000 in the impugned order is legally not sustainable. Accordingly we hold that the differential customs duty along with interest confirmed in the impugned order is not sustainable and hence we set aside the same. From the Invoice extracted we find that the same goods are domestically classified under the CTH 29024400 which has been accepted by the Central Excise/GST authorities. Accordingly we hold that the goods imported by the appellant are appropriately classifiable under the CTH 2902400. Thus we hold that the differential custom duty along with interest confirmed in the impugned order by re-classifying the imported goods under the CTH 27073000 is not sustainable and accordingly we set aside the same. It is seen that the appellant M/s. Kunjal Synergies have been importing the same goods since 2011 and cleared said goods by declaring the same as Mixed Xylene Isomers under the CTH 29024400 and no questions have been raised. In the present case also we observe that no classification issue was raised when the importer M/s. Kunjal Synergies have filed the warehousing Bills of Entry and warehoused the goods. Thus we find that the appellants have not suppressed any information from the Department. Hence we hold that the Show cause Notice issued on 04.04.2016 demanding differential customs duty for the clearances effected from 2011 onwards by invoking extended period of limitation as provided under Section 28(4) of the Customs Act 1962 is not sustainable. Thus the demands confirmed in the impugned order by invoking extended period of limitation is liable to be set aside on the ground of limitation also. Regarding the penalties imposed on the appellants we observe that the allegation of mis-declaration raised against the appellants is not sustained. We also find that suppression of facts with intention to evade the payment of customs duty has not been established in this case. Accordingly we hold that the penalties imposed on the appellant companies as well as its Directors under section 114A and 114AA of the Customs Act 1962 are not sustainable and accordingly we set aside all the penalties imposed on the appellants in the impugned order. Thus we set aside the impugned order and allow the appeals filed by the appellants with consequential relief if any as per law.

The core legal questions considered by the Tribunal in this matter are:

1. Whether the imported goods classified by the appellants under Customs Tariff Heading (CTH) 29024400 as "Mixed Xylene Isomers" were correctly classified, or whether the reclassification under CTH 27073000 by the Customs Authorities was justified.

2. Whether "Ethyl Benzene" qualifies as an isomer of Xylene for the purposes of classification under CTH 29024400.

3. Whether the extended period of limitation under Section 28(4) of the Customs Act, 1962, could be invoked for demand of differential customs duty on the ground of alleged deliberate misclassification.

4. Whether penalties under Sections 114A and 114AA of the Customs Act, 1962, imposed on the appellants and their directors for alleged misdeclaration and suppression are sustainable.

Issue-wise Detailed Analysis:

1. Classification of Imported Goods under CTH 29024400 vs. CTH 27073000

Legal Framework and Precedents: The classification of goods under the Customs Tariff is governed by the Customs Tariff Act and the Harmonized System Nomenclature (HSN). The HSN Explanatory Notes published by the World Customs Organization (WCO) provide guidance on classification. CTH 29024400 covers "Mixed Xylene Isomers" under Chapter 29 (Organic Chemicals), while CTH 27073000 falls under Chapter 27 (Mineral Fuels and Oils) and covers certain aromatic hydrocarbons.

Precedents cited by the Revenue included decisions where mixtures containing Ethyl Benzene with less than 95% Xylene Isomers were held to be classifiable under CTH 2707, such as in Addisons Paint and Chemicals Ltd. and Jay Polychem India Ltd.

Court's Interpretation and Reasoning: The Tribunal examined the chemical composition of the imported goods, focusing on whether the mixture contained 95% or more by weight of Xylene Isomers as required by the HSN Explanatory Notes for classification under CTH 29024400. The Customs Authorities excluded Ethyl Benzene from the Xylene Isomers, leading to a conclusion that the mixture contained less than 95% Xylene Isomers, justifying reclassification under CTH 27073000.

The Tribunal analyzed the definition of "Isomer" from a chemical dictionary, which states that isomers have the same molecular formula but differ in arrangement or configuration of atoms. Ethyl Benzene and Xylene isomers share the molecular formula C8H10, differing only in structure. Accordingly, Ethyl Benzene qualifies as an isomer of Xylene.

Based on the test reports submitted, the mixture contained more than 95% by weight of all Xylene isomers, including Ethyl Benzene. Therefore, the Tribunal held that the goods were correctly classified under CTH 29024400.

Key Evidence and Findings: The test reports detailing chemical composition, the molecular formula and structure of Ethyl Benzene and Xylene isomers, and domestic classification practices by Reliance Industries (which classifies similar solvents under CTH 29024400) were critical.

Application of Law to Facts: Applying the chemical definition of isomers and the HSN Explanatory Notes, the Tribunal concluded that Ethyl Benzene is an isomer of Xylene, and the mixture met the threshold of 95% or more by weight of Xylene isomers, justifying classification under CTH 29024400.

Treatment of Competing Arguments: The Tribunal distinguished the precedents cited by the Revenue on the basis that those cases involved mixtures with less than 95% Xylene isomers and different factual matrices. It also noted that the appellants' contention that Ethyl Benzene is an isomer of Xylene was not accepted in those cases but was applicable here due to the chemical definition and facts.

Conclusion: The reclassification of the imported goods under CTH 27073000 by the Customs Authorities was not legally sustainable. The goods were properly classifiable under CTH 29024400.

2. Classification of Ethyl Benzene as an Isomer of Xylene

Legal Framework and Precedents: The classification depends on scientific and chemical principles, as well as the HSN Explanatory Notes. The definition of "Isomer" from chemical literature was central.

Court's Interpretation and Reasoning: The Tribunal emphasized the chemical definition of isomers as molecules with the same molecular formula but different arrangements. Ethyl Benzene (C8H10) shares the molecular formula with Xylene isomers (o-, m-, p-xylene), differing only in structure. Therefore, Ethyl Benzene qualifies as an isomer of Xylene.

Key Evidence and Findings: Chemical dictionary definition, molecular formula comparisons, and test reports confirming the presence of Ethyl Benzene in the mixture.

Application of Law to Facts: Since Ethyl Benzene qualifies as an isomer of Xylene, it must be included in calculating the percentage of Xylene isomers in the mixture for classification purposes.

Treatment of Competing Arguments: The Revenue's argument that Ethyl Benzene is not an isomer of Xylene was rejected based on the chemical definition and molecular formula identity.

Conclusion: Ethyl Benzene is an isomer of Xylene and must be considered as such for classification under CTH 29024400.

3. Invocation of Extended Period of Limitation under Section 28(4) of the Customs Act, 1962

Legal Framework: Section 28(4) allows invoking an extended period of limitation for demand of customs duty if there is a case of suppression or fraud.

Court's Interpretation and Reasoning: The Tribunal observed that the appellants had been importing and clearing the goods under the same classification since 2011 without any objection from Customs Authorities. No suppression of facts or deliberate misdeclaration was established. Classification is a matter of claim of right and law, not a declaration of fact, and thus a wrong claim of classification does not amount to suppression.

Key Evidence and Findings: Consistent classification and clearance of goods since 2011, absence of any prior objections or queries by Customs, and no evidence of suppression or fraud.

Application of Law to Facts: Since no suppression or fraud was established, the extended period of limitation could not be invoked.

Treatment of Competing Arguments: The Revenue's reliance on extended limitation was rejected due to lack of evidence of suppression.

Conclusion: The Show Cause Notice invoking extended limitation period was not sustainable.

4. Penalties under Sections 114A and 114AA of the Customs Act, 1962

Legal Framework: Sections 114A and 114AA provide for penalties in cases of misdeclaration or suppression with intent to evade customs duty.

Court's Interpretation and Reasoning: The Tribunal found that the allegation of misdeclaration was not established. The appellants had not suppressed any information or acted with intent to evade duty. Therefore, penalties imposed on the appellants and their directors were not justified.

Key Evidence and Findings: Absence of evidence of suppression or intent to evade duty, consistent classification practice, and acceptance of similar classification by domestic authorities.

Application of Law to Facts: Without proof of misdeclaration or suppression, penalties under Sections 114A and 114AA cannot be sustained.

Treatment of Competing Arguments: The Revenue's imposition of penalties was set aside due to lack of supporting evidence.

Conclusion: Penalties imposed on appellants and their directors were not sustainable and were set aside.

Significant Holdings:

"We observe that the molecular formula of Ethyl Benzene is C8H10. It has the only two atoms C and H common to Xylene and molecular formula is same as that of Xylene i.e. C8H10... as per the definition of 'Isomers'... o-Xylene, m-xylene and p-xylene and Ethyl Benzene all are Isomers of Xylene."

"From the test report submitted by the appellants, we observe that the imported goods is a mixture of Xylene Isomers, and has more than 95% of weight of all Isomers of Xylene. Hence, we observe that as per the HSN Explanatory Notes the goods imported are appropriately classifiable under the CTH 29024400."

"We hold that the reclassification of the imported goods under the CTH 27073000 in the impugned order is legally not sustainable."

"The appellants have not suppressed any information from the Department. Hence, the Show cause Notice issued... by invoking extended period of limitation as provided under Section 28(4) of the Customs Act, 1962, is not sustainable."

"The allegation of mis-declaration raised against the appellants is not sustained... suppression of facts with intention to evade the payment of customs duty has not been established... penalties imposed... are not sustainable and accordingly, we set aside all the penalties imposed on the appellants."

The Tribunal established the principle that chemical composition and scientific definitions are paramount in tariff classification disputes involving organic chemicals. It clarified that Ethyl Benzene is an isomer of Xylene for classification purposes and that classification errors, absent suppression or fraud, do not justify extended limitation or penalties. The Tribunal reversed the reclassification and demand of differential customs duty, interest, and penalties, allowing the appeals with consequential relief.

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