2025 (5) TMI 2010 - AT - Customs

Classification of the imported goods - described as Nickel Hydroxide Type M5 under Chapter Heading 2825 4000 Or under the residual heading 3824.90 - imposition of penalty and the invocation of the extended period of limitation - Demand - Mis-declaration Confiscation and Penalty - HELD THAT - We have gone through the ruling of this very Bench in the case of SAFT India Private Limited Vs CC Chennai 2024 (5) TMI 1156 - CESTAT CHENNAI wherein this Bench has considered an almost similar issue and both the parties have in their respective synopsis filed before us relied upon/referred to this specific order. This Bench had very elaborately considered the rival contentions in the context of the rival entries and after detailed analysis has held that the product Nickel Hydroxide is a separate chemically defined compound containing Cobalt Hydroxide which is also a separate compound; also graphite an element/metal which has been admitted that these were added to enhance the conductivity of Nickel Hydroxide Compound which is meant to be used for manufacture of Nickel Cadmium Batteries . Thus it is clear that the classification of the imported compound viz. Nickel Hydroxide as admitted by the appellant is incorrect and hence on merits following the above ruling we dismiss the appeal. In so far as the imposition of penalty and the invocation of the extended period of limitation is concerned the said issue involved interpretation of the Customs Tariff Act and General Rules of Interpretation (GRI) as could be seen from the elaborate analysis by this Bench in the order of SAFT India Pvt. Ltd. supra and hence we are of the view that attributing any mala fide intention or motive in so far as classification or claiming the benefit of Notification supra cannot sustain in the peculiar facts of this case. Therefore imposition of fine or penalty is not justified. For these very reasons even invoking of extended period cannot sustain. Demand if any could be justified only for the normal period. Resultantly the appeal stands partly allowed on the above terms.

Summary

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

1. Whether the imported goods described as "Nickel Hydroxide Type M5" are correctly classifiable under Chapter Heading 2825 4000 ("Nickel Oxides and Hydroxides") as declared by the appellant, or whether they fall under the residual heading 3824.90 as contended by the Revenue.

2. Whether the appellant's claim for exemption under Notification No.12/2012-Cus. dated 17.03.2012 (exempting goods under CTH 28254000 from customs duty) is valid given the classification dispute.

3. Whether the appellant's actions in classification and claiming exemption constitute mis-declaration or suppression under Section 111(m) of the Customs Act, 1962, thereby justifying confiscation, penalty, and invocation of extended limitation period.

4. Whether the imposition of penalty and invocation of extended limitation period are justified in the facts and circumstances of the case.

Issue 1: Classification of the Imported Goods

The relevant legal framework comprises the Customs Tariff Act (CTA), 1975, particularly the Chapter Notes to Chapter 28 and 38, and the General Rules of Interpretation (GRI), especially Rules 3(b) and 4, which govern classification of goods. Chapter Note 1 to Chapter 28 restricts classification under that chapter to separate chemical elements and chemically defined compounds, excluding mixtures. Rule 3(b) of GRI states that when goods are mixtures, they are classified according to the components that give them their essential character, unless specifically excluded by Chapter Notes. Rule 4 provides guidance on classification when goods are prima facie classifiable under two or more headings.

The appellant contended that the imported "Nickel Hydroxide Type M5" is a chemically defined compound classified under CTH 28254000, consistent with their prior imports and accepted by the Revenue until introduction of the exemption Notification. The Revenue argued that the goods are heterogeneous mixtures containing additives such as Cobalt and Graphite, which are not separate chemically defined compounds, and thus excluded from Chapter 28 classification. They contended that the goods are properly classifiable under Chapter 38, heading 3824.90, as chemical preparations not elsewhere specified.

The Tribunal relied heavily on a precedent by the same Bench in SAFT India Private Limited v. CC Chennai, where a similar issue was elaborately examined. That precedent held that the imported product was a compound of Nickel Hydroxide containing Cobalt Hydroxide and graphite additives, with the latter enhancing conductivity. The Tribunal noted that Cobalt Hydroxide is itself a separate chemically defined compound, and graphite is an element, supporting classification under Chapter 28. However, the current case's facts and composition were distinguished, and after detailed analysis, the Tribunal concluded that the imported goods in the present appeal are mixtures formulated for specific use and thus excluded from Chapter 28 classification under the Chapter Notes.

The Tribunal applied the legal framework by interpreting the Chapter Notes strictly, holding that mixtures not constituting separate chemically defined compounds fall outside Chapter 28 and must be classified under Chapter 38. The appellant's classification was rejected accordingly.

Issue 2: Claim of Exemption under Notification No.12/2012-Cus.

The Notification exempts goods under CTH 28254000 from Basic Customs Duty (BCD). Since the Tribunal held the goods are not classifiable under this heading, the appellant was not eligible for the exemption. The Revenue's demand for differential duty along with interest was thus upheld.

Issue 3: Allegation of Mis-declaration, Confiscation, and Penalty

The Revenue alleged that the appellant violated Sections 17 and 46 of the Customs Act, 1962 by giving incorrect description and claiming ineligible exemption, thereby attracting confiscation under Section 111(m) and penalties.

The Tribunal examined the issue in light of judicial precedents. It referred to the Supreme Court's decision in Northern Plastic Ltd., which held that mere classification disputes or claiming exemption benefits do not amount to mis-declaration or suppression under Section 111(m). Similarly, the Bombay High Court in Commissioner of Customs v. Gaurav Enterprises held that claiming exemption benefits does not amount to suppression. The Tribunal also cited the Lewek Altair Shipping Pvt. Ltd. case, affirmed by the Supreme Court, which clarified that incorrect classification or claim of exemption is a claim and not a false statement or mis-description of goods.

Applying these principles, the Tribunal found no wilful mis-declaration or mala fide intention on the appellant's part. The appellant had consistently used the classification in good faith and the supplier adopted the classification globally. Therefore, confiscation and penalties were not justified.

Issue 4: Imposition of Penalty and Invocation of Extended Limitation Period

The Tribunal considered the imposition of penalty and the invocation of extended limitation period in the context of the classification dispute. It noted the issue involved interpretation of the Customs Tariff Act and GRI, which is a bona fide difference in interpretation rather than deliberate evasion. The Tribunal relied on decisions such as Whiteline Chemicals and Vadilal Industries Ltd., which held that penalty is not warranted in cases of bona fide disputes on classification or interpretation of exemption notifications.

Consequently, the Tribunal held that imposition of penalty and invocation of extended limitation period were not justified. The demand for duty could only be sustained for the normal limitation period.

Significant Holdings:

"The appropriate classification of the imported product viz., I-MAS POs-Nickel Compound (Compound of Nickel Hydroxide) is determined to be under Tariff Heading 38249900 of CTA, 1975 as a chemical product or preparation of chemical and allied industries not elsewhere specified or included. The appellant's classification of the impugned goods under Chapter Heading 28254000 is rejected."

"Attributing any malafide intention or motive for adopting such classification or claiming exemption benefit of the Notification is not justified in the facts of this case."

"The imposition of fine and penalty is not justified and so ordered to be set aside."

"Demand of duty along with interest is confirmed, however, the fine and penalties imposed are set aside."

"Mere claiming the benefit of exemption or a particular classification under the Bill of Entry does not amount to mis-declaration under Section 111(m) of the Customs Act, 1962."

"Failure to comply with pre-notice consultation process does not invalidate show cause proceedings, and such circulars are not binding on the Courts."

In conclusion, the Tribunal dismissed the appeal regarding classification and duty demand but allowed the appeal in respect of penalty and confiscation, setting aside the latter. The appellant's claim to exemption under the impugned Notification was denied due to incorrect classification. The Tribunal emphasized that classification disputes involving bona fide interpretation do not attract penal consequences or confiscation under the Customs Act.