2025 (6) TMI 1517 - AT - Customs

Classification of imported goods - air filter elements - classifiable under Customs Tariff Item entry 84219900 of the Customs Tariff Act 1975 as parts of filters attracting concessional rate of duty of BCD @ 7.5% or otherwise? - extended period of limitation - HELD THAT - Pursuant to the clarification by Circular issued by the Board on 27.06.2013 the appellant has declared the classification of the imported elements of filter in accordance with the constituent material. There has been no requirement to submit the constituent material of the filter elements in the Bill of Entry and the appellant had filed all relevant documents pertaining to import like invoice catalogue technical write-up etc. at the time of import. In these circumstances it is difficult to accept the finding of the lower authorities that the appellant had suppressed facts from the knowledge of the Department or mis-declared leading to invocation of extended period of limitation for confirming the demand for the previous imports. Conclusion - i) The classification of filter elements under constituent material headings from July 2013 onwards is correct and upheld. ii) The demand for differential duty for the period prior to July 2013 invoking extended limitation is set aside. iii) The imposition of interest and penalty related to the differential duty demand is quashed. The impugned order is modified to the extent of confirming the classification of the filter element as per the constituent material which attracts basic customs duty (BCD) for the period from July 2013 and the differential duty demand invoking extended period of limitation with interest and penalty is set aside - Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the classification of imported air filter elements under Customs Tariff Heading (CTH) 84219900 as 'parts' of filters prior to July 2013 was correct, and whether the subsequent reclassification based on constituent material was justified.
• Whether the invocation of the extended period of limitation for recovery of differential duty on past imports was legally sustainable.
• Whether the imposition of interest and penalty on the appellant for alleged short payment of duty due to misclassification was justified.
• Whether the appellant suppressed any material facts or mis-declared information in the Bills of Entry to warrant invocation of extended limitation and penalties.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Imported Air Filter Elements

Relevant legal framework and precedents: The classification of goods under the Customs Tariff Act, 1975 is governed by the Harmonized System of Nomenclature (HSN) and the Customs Tariff Act. The Board's Circular No. 24/2013 dated 27.06.2013 clarifies classification norms for filter elements, referring to the World Customs Organization's Harmonized Commodity Description and Coding System Explanatory Notes. The Circular mandates classification of filter elements according to their constituent material rather than as parts of filters under Heading 8421.

Court's interpretation and reasoning: The Tribunal noted that prior to June 2013, the appellant classified the imported air filter elements under CTH 84219900 as parts of filters, which attracted a concessional BCD rate of 7.5%. However, the Board issued Circular No. 24/2013 clarifying that filter elements should be classified based on their constituent material (e.g., paper, textile, glass), which fall under different tariff headings such as 4812, 4823, 5911, or 7019. This classification would attract different duty rates.

Key evidence and findings: The appellant complied with the Circular from July 2013 onwards, classifying the imported filter elements based on constituent material and discharging duty accordingly. The appellant submitted Bills of Entry, invoices, catalogues, and technical write-ups substantiating the constituent materials of the filter elements. The Tribunal observed that the appellant did not conceal any material facts and provided all relevant documentation at the time of import.

Application of law to facts: The Tribunal held that the Circular issued by the Board is binding and clarifies the correct classification method. The appellant's initial classification prior to July 2013 was based on a bona fide understanding and was consistent with the prevalent practice. Post-Circular, the appellant correctly adopted the classification based on constituent material. Therefore, the classification from July 2013 onwards was proper and in accordance with the law.

Treatment of competing arguments: The Revenue contended that the classification under CTH 84219900 was incorrect and that differential duty was payable. The appellant argued that the classification was bona fide, and the Circular clarified the issue only later. The Tribunal accepted the appellant's argument that there was no deliberate misclassification or suppression of facts.

Conclusion: The Tribunal confirmed the classification of filter elements based on constituent material from July 2013 onwards as correct and lawful.

Issue 2: Invocation of Extended Period of Limitation for Recovery of Differential Duty

Relevant legal framework and precedents: The extended period of limitation under customs law can be invoked only if there is evidence of fraud, willful misstatement, or suppression of facts by the importer. The limitation period for demand of duty is ordinarily three years from the date of clearance; beyond that, extended limitation applies only on such grounds.

Court's interpretation and reasoning: The Tribunal examined whether the appellant suppressed any material facts or mis-declared information to justify invocation of extended limitation. It was noted that the appellant had declared the classification in good faith prior to the Circular and thereafter complied with the Circular. All relevant documents were filed with the Bills of Entry. There was no evidence of concealment or fraud.

Key evidence and findings: The appellant's submission that there was no suppression of facts or mis-declaration was supported by documentary evidence including invoices and technical write-ups. The Revenue failed to produce any material to prove deliberate concealment or fraud.

Application of law to facts: Since there was no suppression or fraud, the extended period of limitation could not be invoked for recovery of differential duty for the period prior to July 2013.

Treatment of competing arguments: The Revenue relied on the short payment of duty to justify extended limitation. The Tribunal rejected this, emphasizing the bona fide classification and absence of malafide intent.

Conclusion: The extended period of limitation for recovery of differential duty was not sustainable and was set aside.

Issue 3: Imposition of Interest and Penalty

Relevant legal framework and precedents: Interest and penalty under customs law are generally imposed for delayed payment of duty, misclassification, suppression of facts, or fraud. The imposition must be justified by evidence of wrongdoing or negligence.

Court's interpretation and reasoning: The Tribunal found that since the appellant's classification was bona fide and there was no suppression of facts or fraud, the imposition of penalty and interest for the period prior to July 2013 was not justified. The appellant had complied with the law as clarified by the Circular and had not attempted to evade duty deliberately.

Key evidence and findings: The appellant's timely filing of relevant documents and compliance with the Circular were noted. The absence of any evidence of wrongdoing weighed against imposition of penalty and interest.

Application of law to facts: The Tribunal applied the principle that penalty and interest cannot be imposed where there is no willful default or suppression of facts.

Treatment of competing arguments: The Revenue's argument for penalty based on short payment of duty was rejected due to lack of evidence of malafide intent.

Conclusion: The penalty and interest imposed for the period prior to July 2013 were set aside.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The appellant in the present appeal chose not to dispute the classification of the filter element on the basis of constituent material; however, the challenge relates to confirmation of differential duty invoking extended period of limitation and imposition of penalty on the appellant besides direction for imposition of fine in lieu of confiscation."

"It is difficult to accept the finding of the lower authorities that the appellant had suppressed facts from the knowledge of the Department or mis-declared leading to invocation of extended period of limitation for confirming the demand for the previous imports."

"The impugned order is modified to the extent of confirming the classification of the filter element as per the constituent material which attracts basic customs duty (BCD) for the period from July 2013 and the differential duty demand invoking extended period of limitation with interest and penalty is set aside."

Core principles established include:

• Classification of filter elements must be based on constituent material as clarified by Board Circular No. 24/2013.
• Bona fide classification based on prevailing understanding prior to such clarification cannot be faulted retrospectively.
• Extended period of limitation for recovery of duty cannot be invoked absent suppression of facts, fraud, or willful misstatement.
• Penalty and interest are not leviable where there is no evidence of deliberate wrongdoing or concealment.

Final determinations:

• The classification of filter elements under constituent material headings from July 2013 onwards is correct and upheld.
• The demand for differential duty for the period prior to July 2013 invoking extended limitation is set aside.
• The imposition of interest and penalty related to the differential duty demand is quashed.
• The appeal is partly allowed accordingly.