2025 (7) TMI 359 - AT - Customs

Classification of imported goods - import of machines for Areca Nut Plant - classifiable under CTH No. 84371000 or under CTH 84798200? - issuance of two SCNs - HELD THAT - The second show cause notice was issued when the first show cause notice the demand proposed therein was neither confirmed under section 28 (4) of Custom Act 1962 nor was being dropped. The second show cause notice dated 07.09.2016 has merely abandoned the first show cause notice dated 08.02.2016. In these circumstances the second show cause notice dated 07.09.2016 is held to be not maintainable. The original adjudicating authority has travelled beyond the classification proposed in the show cause notice by classifying the product under a classification which was neither claimed by the appellant nor was proposed in the show cause notice. The decision beyond the scope of show cause notice is not sustainable. Commissioner (Appeals) also cannot go beyond the show cause notice while classifying Discharge Lock into altogether different entry. Otherwise also the department has not challenged the order in original therefore the classification proposed under the show cause notice is ruled out. Accordingly the contention of the appellant that the Commissioner appeals being an appellate authority cannot revise the classification proposed in the show cause notice is acceptable. Both the adjudicating authorities has committed an error while confirming the impugned demand by travelling beyond the proposal of the show cause notice. Also the demand is confirmed solely on the basis of lack of evidence qua discharging liability of VAT by the appellant when the same was not the issue in the show cause notice. Thus we hold that the order under challenge is liable to be set aside on this technical ground. Classification of imported goods - HELD THAT - The CTH proposed under show cause notice and also those as confirmed under Order-in -Original are with respect to the machineries which are not specified or included elsewhere in the tariff but are meant for general use or for the industrial preparations or manufacture of food or drinks or such machines whose individual functions are not specified anywhere. But from the literature about imported machines as produced by the appellants it is clear that three of these machines are meant for sorting/cutting grinding etc. the seeds/grain/dried leguminous vegetables which are specifically mentioned under CTH 8437200. The machine imported are such as specifically mentioned in CTH 8437. This particular perusal is sufficient to hold that the classification proposed in the show cause notice is wrong. The classification as held by the adjudicating authority is also wrong. The order are already held to have travelled beyond the show cause notice. The above discussion is sufficient to hold that the order under challenge / OIA dated 30.03.2022 has wrongly confirmed the impugned demand against the appellant. The order is therefore not sustainable. The order under challenge is set aside. Consequently the appeal stands allowed.

Summary

The core legal questions considered by the Tribunal are:

1. Whether the adjudicating authorities, including the Commissioner (Appeals), can revise the classification of imported goods beyond the classification proposed in the Show Cause Notice (SCN) under Section 128 of the Customs Act, 1962.

2. Whether the classification of the imported machines under the Customs Tariff Headings (CTH) claimed by the appellant or as proposed in the SCN is correct, specifically whether the machines fall under CTH 84371000 or CTH 84798200 (and related entries).

3. The maintainability of the second Show Cause Notice issued after the first was neither adjudicated nor dropped.

4. The applicability and correctness of the demand of Countervailing Duty (CVD) and penalty based on the classification of the imported machines.

Issue-wise Detailed Analysis

Issue 1: Authority to revise classification beyond the Show Cause Notice

Legal framework and precedents: Section 128 of the Customs Act, 1962 restricts adjudicating authorities from going beyond the allegations made in the SCN. The Supreme Court decisions in CCE, Bhubaneswar-I vs. Chambdany Industries Ltd. and Precision Rubber Industries Pvt. Ltd. vs. CCE, Mumbai, establish that no new case can be set up or decided contrary to the SCN, and the department cannot travel beyond the SCN.

Court's interpretation and reasoning: The Tribunal observed that the original adjudicating authority and the Commissioner (Appeals) had classified the imported goods under tariff entries which were neither claimed by the appellant nor proposed in the SCN. This was held to be beyond the scope of the SCN and thus unsustainable. The Tribunal held that the Commissioner (Appeals), being an appellate authority, cannot revise the classification beyond what was proposed in the SCN, especially since the department did not file any appeal against the Order-in-Original.

Application of law to facts: The SCN proposed classification under CTH 84798200. The adjudicating authority confirmed classification under different CTHs, and Commissioner (Appeals) further changed classification to other headings. Since these were not part of the SCN, the Tribunal ruled these actions as impermissible.

Treatment of competing arguments: The appellant argued that the authorities cannot revise classification beyond the SCN, while the department contended that the classification confirmed was correct. The Tribunal sided with the appellant based on legal precedents.

Conclusion: The Tribunal held that the demand confirmed by travelling beyond the SCN was liable to be set aside on this technical ground.

Issue 2: Correct classification of imported machines under Customs Tariff Headings

Relevant legal framework: The Customs Tariff Act provides specific headings and sub-headings for classification of goods. CTH 84371000 covers machines for cleaning, sorting, or grading seed, grain or dried leguminous vegetables; CTH 84798200 covers various general use machines such as presses, crushers, grinders, mixers not designed for particular goods or industries; CTH 84386000 covers machinery for preparation of fruits, nuts or vegetables.

Court's interpretation and reasoning: The Tribunal examined the description and function of the imported machines (Crumbler DFZL 1500, Plansifter MPAK 228, and Discharge Airlock MPSJ 22/22) as submitted by the appellant and the department's literature. The Crumbler was described as a milling machinery designed to reduce grains/seeds to a desired size, used in multiple industries but specifically for crushing or grinding seeds.

The Tribunal noted that the appellant manufactures Pan Masala and imported these machines for processing Areca Nuts (supari), which are seeds. The machines' functions-sorting, grading, crumbling-fall within the scope of CTH 84371000, which specifically covers machines for cleaning, sorting, or grading seeds and grains.

The department argued that the machines were general use and not designed for particular goods or industries, thus falling under CTH 84798200. However, the Tribunal found the machines' functions and usage more aligned with the specific heading 84371000.

Key evidence and findings: The appellant's detailed explanation of machine functions, machine literature, and admitted facts about the use of machines for Areca Nut processing were critical. The Tribunal also noted that crushed Areca Nut is used in Pan Masala, which is not a food item sustaining life or growth, thus excluding classification under food preparation machinery headings.

Application of law to facts: The Tribunal applied the specific tariff heading definitions and found that the appellant's classification under CTH 84371000 was correct, and the department's proposed classification under 84798200 was incorrect.

Treatment of competing arguments: The department's general use classification was rejected due to the specific nature of the machines and their use in processing Areca Nuts, which fall under the specific heading. The Tribunal also rejected the department's attempt to classify machines under other headings not proposed in the SCN.

Conclusion: The Tribunal concluded that the classification under CTH 84371000 claimed by the appellant is correct and that the classification proposed and confirmed by the department is incorrect.

Issue 3: Maintainability of the second Show Cause Notice

Legal framework: The Customs Act requires that show cause notices be adjudicated or dropped before issuance of subsequent notices on the same cause.

Court's reasoning: The Tribunal observed that the second SCN dated 07.09.2016 was issued while the first SCN dated 08.02.2016 was neither adjudicated nor dropped. The second SCN merely abandoned the first without adjudication.

Conclusion: The Tribunal held the second SCN not maintainable and liable to be set aside.

Issue 4: Demand of Countervailing Duty (CVD) and penalty

Court's reasoning: Since the classification proposed in the SCN was held incorrect and the adjudicating authorities travelled beyond the SCN, the demand of CVD and penalty based on such classification was unsustainable. The Tribunal also noted that the demand was confirmed on grounds unrelated to the SCN, such as lack of evidence of VAT discharge, which was not an issue in the SCN.

Conclusion: The demand of CVD and penalty was set aside as unsustainable.

Significant Holdings

"The adjudicating authority has travelled beyond the classification proposed in the show cause notice by classifying the product under a classification which was neither claimed by the appellant nor was proposed in the show cause notice. The decision beyond the scope of show cause notice is not sustainable."

"The Commissioner (Appeals) being an appellate authority cannot revise the classification proposed in the show cause notice."

"No new case would be set up or be decided contrary to the show cause notices and the Department is not allowed to travel beyond the show cause notice."

"The second show cause notice dated 07.09.2016 is held to be not maintainable."

"The appellant has rightly classified the product under 8437 1000."

"The classification proposed in the show cause notice is wrong. The classification as held by the adjudicating authority is also wrong."

"The order under challenge is set aside on the technical ground of travelling beyond the show cause notice and on merits for incorrect classification."