2025 (6) TMI 934 - AT - Customs

Classification of imported goods - Rubber Process Oil (RPO) - classifiable under Customs Tariff Item (CTI) 2707 9900 or under CTI 2713 9000? - applicability of Sr. No. 130 of N/N.12/2012-Customs dated 17.03.2012 and Sr. No. 147 of N/N. 50/2017-Customs dated 30.06.2017 - demand of differential duty u/s 28(4) of the Customs Act 1962 - confiscation - redemption fine - penalty - disputed period involved in this case is from 19.01.2017 to 09.08.2019. HELD THAT - On the issue of classification of the impugned goods other than those covered in the above B/Es the learned adjudicating authority had come to the conclusion that the goods are classifiable under CTI 2713 9000 on the basis of the following findings as recorded in the impugned order. It is found that the procedure prescribed in Circular No.30/2017Customs dated 18.07.2017 for re-testing as a measure of trade facilitation either on production of in-house test reports submitted by the appellants in support of the classification claimed by them or for denying their claim have not been followed by the departmental authorities. Further there is no justification shown by the adjudicating authority for out right rejection of the in-house test reports submitted by the appellants where the aromatic constituents were more than 50% by simply stating that it is an afterthought. In an illustrative case of B/E No. 3456252 dated 30.05.2019 covering import of RPO at JNCH Nhava Sheva port the appellants had submitted the chemical analysis report showing aromatic constituents as % of mass of 72.58% the extract of which is placed below. However such factual detail which is crucial in determination of the classification of impugned goods has not been examined in the impugned order. There are no merits in such findings recorded by the adjudicating authority for classification of the imported goods under CTI 27139000 in the rest of the B/Es. Extended period of limitation - whether the appellants have made misleading declarations misclassified the imported goods and claimed ineligible exemption benefits? - HELD THAT - From the facts on record it clearly transpires that in respect of all the imported goods the appellants have filed the B/E providing the description of the goods along with supporting documents such as suppliers invoice etc. and have claimed the customs tariff classification of the goods as per their understanding and also claimed concessional rate of custom duty by availing the notification benefits. The knowledge of the classification of imported goods in the earlier cases of imports under the business entity M/s Sah Petroleums Limited and the Tribunal s order dated 26.04.2017 in that case has also been shown as the ground for deliberate act of misdeclaration. It is also a fact on record that the adjudicating authority on re-assessment of finally assessed B/Es had confirmed the differential duty by invoking the extended period of limitation under Section 18(4) ibid. In view of the above factual position and as there is no specific grounds or evidences placed on record by the investigation in the SCN dated 23.02.2021 and that there is no specific findings recorded in the impugned order proving the ingredients of mis-declaration or suppression of facts with an intention to evade duty the invocation of extended period in the present case does not stand the scrutiny of law. Since the demand of duty under Section 18 ibid on re-assessment of provisionally assessed B/Es did not place on record any specific chemical test report(s) as evidence in support of the fact that non-aromatic constituents exceeds that of aromatic constituents and further had outrightly rejected the in-house test reports produced by the appellants the basis for its re-assessment under CTI 2713 9000 and consequent demand of differential duty under Section 18 ibid in our considered opinion does not stand the scrutiny of law. On the identical issues of classification of Rubber Process Oil demand of duty by invoking extended period we find that the Coordinate Bench of the Tribunal in the case of Sah Petroleums Limited Vs. Commissioner of Customs (Import) JNCH Nhava Sheva 2017 (5) TMI 1281 - CESTAT MUMBAI have examined the issue of classification of Rubber Process Oil (RPO) in identical set of facts and have held that raw RPO merit classification under Chapter Heading 2713 90. The impugned order dated 07.12.2024 confirming the adjudged demands by invoking the extended period of limitation under Section 28(4) of the Customs Act 1962 and consequent confiscation of imported goods imposition of redemption fine penalties on the appellants is not legally sustainable. Since the demand of duty under Section 18 ibid on re-assessment of provisionally assessed B/Es did not place on record any specific chemical test report(s) as evidence in support of the nonaromatic constituents exceeding that of aromatic constituents and further had outrightly rejected the in-house test reports produced by the appellants the demands confirmed in this regard and the demand of duty which could be computed under Section 28(10B) ibid also does not stand the scrutiny of law. The impugned order dated 07.12.2024 confirming the adjudged demands by invoking the extended period of limitation under Section 28(4) of the Customs Act 1962 and consequent confiscation of imported goods imposition of redemption fine penalties on the appellants is not legally sustainable. Since the demand of duty under Section 18 ibid on re-assessment of provisionally assessed B/Es did not place on record any specific chemical test report(s) as evidence in support of the nonaromatic constituents exceeding that of aromatic constituents and further had outrightly rejected the in-house test reports produced by the appellants the demands confirmed in this regard and the demand of duty which could be computed under Section 28(10B) ibid also does not stand the scrutiny of law. Conclusion - The impugned order confirming differential duty under extended period confiscation redemption fine and penalties is set aside to the extent it is unsustainable. The classification of imported goods is to be determined based on the relative aromatic content with differential duty demands upheld where appellants accepted classification under CTI 2713 9000. Appeal allowed in part.

Summary

The core legal questions considered in this appeal are: (i) the correct classification of the imported goods-whether the goods merit classification under Customs Tariff Item (CTI) 2707 9900 as 'Rubber Processing Oil (RPO)' claimed by the appellants, or under CTI 2713 9000 as 'Other residues of Petroleum oils or oils obtained from bituminous minerals' as determined by the adjudicating authority; (ii) the legality of confirming differential duty demand under Section 28(4) of the Customs Act, 1962 by invoking the extended period of limitation; and (iii) the sustainability of confiscation of goods, imposition of redemption fine in lieu of confiscation, and penalties on the appellants.

Regarding the classification issue, the legal framework involves the Customs Act, 1962, and the Customs Tariff Act, 1975, particularly the First Schedule thereto, which enumerates tariff headings and items. The General Rules for Interpretation (GIR) and Chapter Notes, especially Chapter Note 2 to Chapter 27, are pivotal. The relevant statutory provision, Section 12 of the Customs Act, mandates that customs duties be levied as per the Customs Tariff Act. The classification must be determined according to the tariff headings, chapter notes, and GIRs, with the essential character of the goods and specific descriptions guiding the classification.

Chapter 27 of the Customs Tariff Act covers mineral fuels, mineral oils, and products of their distillation. Chapter Heading 2707 pertains to oils and other products of the distillation of high-temperature coal tar and similar products where the weight of aromatic constituents exceeds that of non-aromatic constituents. Subheadings under 2707 include benzol, toluol, xylol, naphthalene, other aromatic hydrocarbon mixtures, creosote oils, and others. Conversely, Chapter Heading 2713 covers petroleum coke, petroleum bitumen, and other residues of petroleum oils or oils obtained from bituminous minerals.

Chapter Note 2 to Chapter 27 clarifies that references in heading 2710 to petroleum oils include similar oils provided the weight of non-aromatic constituents exceeds that of aromatic constituents. Thus, the classification hinges on the relative proportions of aromatic and non-aromatic constituents in the imported product.

The appellants argued that their imported goods, Rubber Process Oil, are correctly classifiable under CTI 2707 9900 because the aromatic constituents exceed 50% by weight, consistent with trade practice and CBIC Circular No. 11/89 dated 13.02.1989. They submitted in-house test reports for 64 Bills of Entry (B/Es) indicating aromatic constituents above 50%. They contended that the Department's reliance on departmental test reports for only 10 samples, many of which did not specify aromatic content or showed aniline points below the BIS standard, was insufficient to reclassify all imports. They also invoked judicial precedents establishing that test reports apply only to the samples tested and cannot be extrapolated to other consignments without specific evidence.

The Department, supported by the adjudicating authority, relied on test reports from Customs laboratories indicating aromatic constituents below 50%, and aniline points not meeting BIS IS 15078:2001 standards for petroleum-based oils for the rubber industry. The adjudicating authority rejected the appellants' in-house test reports as afterthoughts and held that all consignments were identical in quality and origin, thus justifying classification under CTI 2713 9000. The authority also relied on a prior Tribunal decision involving the appellants' predecessor company, which had held the classification under 2713 9000.

The Court analyzed the classification issue by applying the GIR and Chapter Notes. It noted that the classification under 2707 9900 requires aromatic constituents by weight to exceed non-aromatic constituents, while 2713 9000 applies where non-aromatic constituents predominate or aromatic constituents are less than 50%. The Court emphasized the importance of chemical composition evidence, including aromatic content and compliance with BIS standards such as the maximum aniline point of 55^0C.

On the evidence, the Court found that for 18 B/Es, the appellants themselves had accepted that aromatic constituents were less than 50% and had paid differential duty with interest, supporting classification under 2713 9000. For 25 B/Es, the Department's test reports indicated aromatic constituents below 50%, and the adjudicating authority's classification was upheld. However, for the remaining B/Es, the Court found that the Department had not followed prescribed procedures for re-testing as per CBEC Circular No. 30/2017-Cus dated 18.07.2017, which mandates opportunity for a second test upon importer's request and requires reliance on representative samples. The Court observed that the adjudicating authority's outright rejection of the appellants' in-house test reports without proper examination was not justified. An illustrative in-house test report showed aromatic constituents of 72.58%, which was not considered.

Furthermore, the Court noted that the Department's chemical test reports from Customs laboratories at JNCH and Kandla did not specify aromatic content for many samples and showed aniline points below the BIS standard, raising questions on the basis for classification under 2713 9000. The Court held that the Department failed to produce specific chemical evidence for many B/Es to justify reclassification and differential duty demand.

On the issue of invoking the extended period of limitation under Section 28(4) of the Customs Act, the Court examined whether the appellants' conduct amounted to mis-declaration, suppression, or wilful misstatement. The appellants had filed Bills of Entry with description, classification, and claimed exemptions, supported by supplier invoices and test reports. The Court relied on judicial precedents, including a Supreme Court judgment, which held that mere classification disputes or erroneous self-assessment do not amount to deliberate mis-declaration warranting extended period invocation. The Court observed that the appellants' claims were bona fide disputes on classification and that no evidence of fraud, collusion, or wilful default was established.

The Court also addressed the procedural aspect of adjudication within the prescribed time under Section 28(9). The appellants contended that the extension order by the Chief Commissioner was not served on them, violating natural justice. The Court found that the SCN was initially kept under call book category pursuant to CBIC instructions following a Supreme Court judgment, and the extension of time was granted by the proper authority. The appellants were given multiple opportunities for personal hearing, and the adjudication was completed within the extended period. The Court held that the procedural requirements were complied with and the extension was valid.

Regarding confiscation, redemption fine, and penalties, the Court found these measures unsustainable in the absence of evidence of deliberate mis-declaration or suppression. The Court noted that classification disputes do not per se justify confiscation or penalty. The Court relied on prior Tribunal decisions holding that demands raised by invoking the extended period in classification disputes are not sustainable.

The Court referred to a coordinate bench decision involving the appellants' predecessor company, which had held that raw Rubber Process Oil merits classification under Chapter Heading 2713 90, as residues of petroleum oils, and not under 2707 99. This decision was upheld by the Supreme Court, although the question of law on classification was left open. The Court adopted the principle that classification depends on the chemical composition, particularly aromatic versus non-aromatic content, and adherence to BIS standards.

In conclusion, the Court held that: (i) consignments where aromatic constituents exceed 50% by weight are classifiable under CTI 2707 9900; (ii) consignments where aromatic constituents are less than 50% or non-aromatic constituents predominate are classifiable under CTI 2713 9000; (iii) the appellants had accepted and paid differential duty for consignments with less than 50% aromatic content, which is sustained; (iv) the Department failed to justify reclassification and differential duty demand for other consignments due to lack of proper test reports and non-compliance with re-testing procedures; (v) invocation of the extended period for demand of differential duty and imposition of confiscation, redemption fine, and penalties are not sustainable as no deliberate mis-declaration was established; and (vi) the adjudication was conducted within the extended statutory time limit in compliance with procedural requirements.

The impugned order was set aside to the extent of confirming differential duty demands beyond those accepted by the appellants, and the appeal was partly allowed in favor of the appellants.