2025 (5) TMI 2015 - AT - Customs

Classification of the imported goods - ink and ink related consumables - Under Chapter 32 Or Customs Tariff Item (CTI) 29141200 as Methyl Ethyl Ketone (MEK) - mandatory pre-deposit under section 129E of the Customs Act 1962 - whether an NOC from the Narcotics Commissioner as per the RCS Order is also required to import goods which according to the appellant are ink and ink consumables which are not MEK but which contain MEK to extent of 35% to 99% - confiscation - Recovery of duty interest and penalty - HELD THAT - Applying Interpretation Rule 1 we proceed to examine the chapter notes of the two chapters. Chapter note 1(a) states that Except where the context otherwise requires the headings of this chapter apply only to separate chemically defined organic compounds where or not containing impurities . Chapter Note 1(a) to Chapter 32 states that this chapter does not cover separate chemically defined elements or compounds except those of heading 3203 or 3204 inorganic products of a kind used as luminophores (heading 3206) glass obtained from fused quartz or other fused silica in the forms provided for in heading 3207 and also dyes and other colouring matter put up in forms or packings for retail sale of heading 3212). ne ingredient may be overwhelming by quantity quite a different ingredient may give the good it its essential character and if so the latter is relevant for classification. For example a tablet of 500 mg of say Amoxycillin will actually weigh several grams. The active ingredient Amoxycillin will be only 500 mg and the rest will be inert materials such as talc glue etc. The overwhelming ingredient of such a tablet will be talc but what gives the tablet its essential character is the miniscule quantity of Amoxycillin. It has to be classified as Amoxycillin and not as talc. Similarly most tonics are just alcohol or some sugar syrup by weight most injections are just water by weight but they should be classified as per the active ingredient which though in a miniscule quantity give the essential character of the good. An easy way of identifying the essential character of a good is knowing how it is being sold and bought in the market. Is it being sold as a piece of talc or as Amoxycillin? Similarly in this case what needs to be seen is if the imported goods were being sold as inks or ink consumables as claimed by the appellant or is there any evidence that they are being sold as MEK? We do not find anything on record to justify the change of classification of the goods to CTI 29141200. This classification of the goods by the Joint Commissioner which was upheld in the impugned order needs to be set aside for this purpose. The case of the Revenue is that the appellant had imported the disputed goods which are MEK without obtaining the NOC from the Narcotics Commissioner they were liable to confiscation under section 111(d). In this case the limited question before us is the confiscation under section 111(d). As per this section goods will be liable to confiscation if they are imported contrary to any prohibition imposed under the Customs Act or any other law for the time being in force. There cannot be any dispute that the RCS Order being a sub-ordinate legislation under the NDPS Act is a law for the time being in force. Clearly salts or preparations or goods containing MEK were not included in Schedule C of the RCS Order. The Narcotics Commissioner also clarified in paragraph 13 of his order that salts or preparations containing MEK are not included in Schedule C to the RCS Order. We therefore find that the undisputed legal position is that an NOC from the Narcotics Commissioner was not required to import goods which contain MEK and such an NOC is required only to import MEK. The Joint Commissioner confiscated the goods under section 111(d) referring to not just the RCS Order but to the Order passed by the Narcotics Commissioner. Thus the order passed by the Narcotics Commissioner cannot be called any other law for the time being in force as per section 111(d). Law can only mean a law passed by the legislature or a subordinate legislation (such as the RCS Order). The confiscation of the goods under section 111(d) therefore cannot be sustained and is liable to be set aside and is set aside. Section 112 renders one liable to penalty for acts or omissions which rendered some goods liable to confiscation under section 111. Since we have found that the confiscation of the goods under section 111 cannot be sustained the penalty under section 112 cannot also be sustained and needs to be set aside. No reasons were given by the Joint Commissioner in his OIO or by the Commissioner (Appeals) in the impugned order for imposing penalty under section 114AA. Nothing in the records shows that the appellant had made any declaration or statement or produced any document which is false or incorrect let alone doing so knowingly. The appellant had declared the goods as inks/ink consumables and they were seized as such. The appellant was always open about the fact that they contain MEK and had also declared so to the Narcotics Commissioner in its representations made well before the imports were made. Penalty under section 114AA cannot be sustained and needs to be set aside. In view of the above the impugned order cannot be sustained and needs to set aside. The impugned order is set aside and the appeal is allowed. The appellant will be entitled to consequential relief.

Summary

The core legal questions considered by the Tribunal are:

(a) Whether the classification of the imported goods as inks and ink consumables under Chapter 32 of the Customs Tariff was correct or whether they should be reclassified under Customs Tariff Item (CTI) 29141200 as Methyl Ethyl Ketone (MEK);

(b) Whether the imported goods were liable to confiscation under section 111(d) of the Customs Act, 1962 for being imported without a No Objection Certificate (NOC) from the Narcotics Commissioner as required under the Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act) and the Regulation of Controlled Substances (RCS) Order, 2013;

(c) Whether the appellant was liable to penalty under section 112 of the Customs Act consequent to the alleged violation;

(d) Whether penalty under section 114AA of the Customs Act for use of false or incorrect material in declarations was justified.

Issue-wise Detailed Analysis

(a) Classification of Imported Goods

The appellant imported inks and ink consumables containing MEK ranging from 35% to 99%, self-classified under Chapter 32 of the Customs Tariff Act, 1975. The Revenue contended that these goods should be reclassified under CTI 29141200 (MEK) of Chapter 29, as the goods predominantly consisted of MEK. The Joint Commissioner and Commissioner (Appeals) upheld this reclassification.

The Tribunal examined the General Rules of Interpretation (GRI) for tariff classification, particularly Rules 1, 2(b), and 3. Rule 1 mandates classification according to the terms of headings and notes. Rule 2(b) includes mixtures or combinations of substances. Rule 3(a) prefers the heading providing the most specific description, and Rule 3(b) classifies mixtures by the material giving essential character.

Chapter notes clarified that Chapter 29 covers "separate chemically defined organic compounds" while Chapter 32 covers inks, dyes, and related products. The appellant's goods were packaged and sold as inks/ink consumables, not as MEK. Although the goods contained a high percentage of MEK, the test reports indicated that at least one sample contained organic coloring matter and polymeric compounds, indicating a mixture rather than pure MEK.

The Tribunal emphasized that classification depends on the essential character of the goods, not merely the predominant ingredient by quantity. Analogies such as pharmaceutical tablets with minor active ingredients but classified by active substance were cited to illustrate this principle. Since the goods were marketed and sold as inks, the essential character was that of inks, not MEK.

The test memos were designed to detect MEK presence and percentage, not to verify if the goods were inks or MEK. The absence of evidence that the goods were sold as MEK supported the appellant's classification. Thus, the Tribunal concluded that the reclassification to CTI 29141200 was not justified and set aside the classification order.

(b) Confiscation under Section 111(d) of the Customs Act

Section 111(d) provides for confiscation of goods imported contrary to prohibitions under the Customs Act or any other law in force. The Revenue alleged that importing goods containing MEK without obtaining an NOC from the Narcotics Commissioner violated the RCS Order under the NDPS Act, warranting confiscation.

The RCS Order, issued under section 9A of the NDPS Act, lists controlled substances in Schedules A, B, and C. MEK is listed in Schedule C, which regulates import of controlled substances requiring an NOC. The key issue was whether goods containing MEK (preparations or mixtures) fall under the controlled substances requiring an NOC or only pure MEK itself.

The Narcotics Commissioner's order dated 3.11.2017 clarified that "preparations of MEK are not covered by the RCS Order" and that the term "preparation" should be interpreted reasonably in light of the RCS Order's purpose to control substances capable of misuse for narcotic manufacture. The Narcotics Commissioner held that NOC is required if MEK is present in any item and such MEK can be extracted or the item used as a substitute for MEK in narcotic manufacture.

The Tribunal noted that the appellant challenged this order before the Bombay High Court, and the matter was pending. Importantly, the Tribunal analyzed Schedule C of the RCS Order and found that while MEK itself is listed, its salts or preparations are not included, unlike other substances where salts and preparations are explicitly covered. For example, entries for Ephedrine and Norephedrine include salts and preparations, but MEK's entry does not.

Thus, the Tribunal concluded that goods containing MEK (preparations) do not require an NOC under the RCS Order. Further, the Narcotics Commissioner's order is not "any other law for the time being in force" under section 111(d) of the Customs Act, as it is an administrative order and not subordinate legislation.

Accordingly, confiscation under section 111(d) could not be sustained and was set aside.

(c) Penalty under Section 112 of the Customs Act

Section 112 imposes penalty for acts or omissions rendering goods liable to confiscation under section 111. Since the Tribunal held that confiscation under section 111(d) was not sustainable, the penalty under section 112 also could not be sustained and was set aside.

(d) Penalty under Section 114AA of the Customs Act

Section 114AA penalizes knowingly or intentionally making or using false or incorrect declarations or documents in transactions under the Customs Act. The Tribunal found that the appellant had declared the goods as inks and ink consumables and openly disclosed the MEK content in representations to the Narcotics Commissioner before import. No evidence was found that the appellant knowingly made false declarations or documents.

Neither the Joint Commissioner nor the Commissioner (Appeals) provided reasons for imposing penalty under section 114AA. Therefore, the penalty under section 114AA was not sustainable and was set aside.

Significant Holdings

"The essential character of the goods is determinative for classification and not merely the predominant ingredient by quantity."

"Preparations or goods containing MEK are not covered under Schedule C of the RCS Order and hence do not require a No Objection Certificate from the Narcotics Commissioner for import."

"An administrative order such as that passed by the Narcotics Commissioner cannot be considered 'any other law for the time being in force' under section 111(d) of the Customs Act for the purpose of confiscation."

"Since confiscation under section 111(d) is not sustainable, penalties under sections 112 and 114AA consequential thereto cannot be sustained."

"The mere presence of a controlled substance in a mixture or preparation does not automatically subject the entire preparation to the controls applicable to the pure substance unless explicitly provided by law."

Accordingly, the Tribunal set aside the impugned order, restored the classification of the goods under Chapter 32 as inks and ink consumables, quashed the confiscation and penalties imposed, and allowed the appeal with consequential relief.