2025 (6) TMI 547 - AT - Customs

Cassification of imported Styrene Butadiene Copolymer (SBC) - to be classifiable under CTH 39039010/39039090 or CTH 40021990? - wrongful availment of benefit of Sr. No. 262/266 of Not. No. 50/2017-Cus dated 30.06.2017 - demand of differential duty with interest and penalty - extended period of limitation. HELD THAT - The learned Adjudicating Authority has confirmed classification of the product under CTH 4002 mainly for the reasons that the entries under CTH 3903 do not cover styrene butadiene copolymer and entry claimed by the appellant does not cover copolymer at all. The entry under CTH 4002 covers styrene butadiene rubber specifically and also because of the certificate dt.27.09.2023 of the former supplier INEOS Solutions of Singapore with respect to styrene butadiene copolymer with proprietary name KR99HG cannot be relied as the importer has not produced any evidence that the goods covered in the present three notices were supplied by INEOS Solutions Singapore. The importer has also not produced any technical literature to support claimed classification. Similarly the certificate dated 08.04.2008 issued by Chevron Philips Chemical Singapore is irrelevant. Therefore he held classification of the imported goods under 40021990. It is found that revenue had not conducted any lab testing on their own to find out if the conditions of Chapter 40 are satisfied or not. It only disputed various certificates provided by the appellant on the ground of same being not related etc. It is also found that the earlier product classification entry 39039010 is not in contention as neither the appellant nor the respondent is seeking classification under this entry. Appellant submitted that only due to clerical mistakes the old tariff entry was indicated on some of the Bills of entry though revenue wise there is no difference in classification now being treated under Tariff Entry 39039090 or the earlier entry of 39039010 if taken into consideration but it was pleaded that the Tariff entry of 40021990 being indicated by the Revenue was incorrect. The product is essentially a copolymer of styrene and butadiene where styrene monomer is more than 70% by weight. For the product KR99HG grade of SBC which has been predominantly imported styrene monomer is 75% and butadiene monomer is 25%. Thus it is clear that in copolymer where every monomer is 95% of weight classification shall be determined as polymer of that monomer which predominates by weight. Therefore in the instant case since styrene predominates which is more than 70% in all grades of SBC the same has to be treated as polymer of styrene and has to be classified as such. CTH 3903 covers polymers of styrene specifically. Admittedly Revenue has not conducted any tests nor sought any expert technical opinion in support of satisfaction of above requirements. Revenue has simply relied upon the document of 2008 of Chevron Phillips Singapore which is the predecessor company of INEOS Solutions Singapore which transferred its K-Resin SBC business/manufacturing facilities to INEOS Solutions in 2016. Appellant has relied upon the certificate issued by INEOS Solutions Singapore the group which has supplied the products in question during the relevant period. Appellant has also relied upon test reports given by IRMRA as per which the conditions of Note 4 of Chapter 40 are not satisfied. In the present case no application of the product as a non-thermoplastic (i.e.) thermoset) material has been brought on record in sync with requirement of note 4 to chapter 40. It has been submitted that product is used as thermoplastic material in various industries including footwear industries. The properties are akin to more of a plastic which can be recycled. Therefore it can be said that the product draws its essential characteristics as a plastic and not as rubber and thus by referring to Rule 3(b) also the product needs to classified under CTH 3903. The impugned order classifying the product under CTH 4002 cannot be sustained. Extended period of limitation - HELD THAT - The extended period of limitation has been invoked in a situation where product is admittedly correctly declared on the commercial invoices and bills of entry where generic name styrene butadiene copolymer as well as the proprietary grade name has been mentioned - The correct classification in a situation like the present one requires significant understanding of chemistry-and-customs law including HSN explanatory notes. The factual details of the products were not mi declared at all. In the circumstances it cannot be said that there is any misdeclaration of product by the Appellant and thus extended period of limitation cannot be invoked. Conclusion - The Revenue has failed to establish that the goods are not classifiable in Customs Tariff Heading 3903 and are classifiable under Customs Tariff Heading 4002. As the Revenue has failed to discharge it s burden the goods are rightly classified by the importer under Customs Tariff Heading 3903 as copolymer of styrene butadiene. Consequently demand of duty interest confirmed on the importer vide impugned order cannot be sustained. The penalties imposed confiscation of goods and imposition of redemption fine are also set aside. Appeal allowed.

Summary

The core legal issues considered in this case revolve around the classification of imported goods, specifically "Styrene Butadiene Copolymer" (SBC), under the Customs Tariff Act. The primary questions addressed include:

(a) Whether the imported SBC should be classified under Customs Tariff Heading (CTH) 39039010/39039090 (Polymers of Styrene in primary forms) or under CTH 40021990 (Synthetic Rubber, specifically Styrene-Butadiene Rubber (SBR));

(b) Whether the importer was entitled to the benefit of exemption notifications applicable to the claimed classification;

(c) Whether differential customs duty along with interest was rightly demanded under the extended period of limitation;

(d) Whether the goods were liable for confiscation under Sections 111(m) and 111(o) of the Customs Act, 1962;

(e) Whether penalties under Sections 112(a), 114A, and 114AA of the Customs Act were justifiably imposed;

(f) Whether the extended period of limitation was correctly invoked in the case.

Issue-wise Detailed Analysis:

Classification of Styrene Butadiene Copolymer (SBC) under CTH 3903 or CTH 4002:

The legal framework primarily involves the Customs Tariff Act, 1975, the General Rules for Interpretation of the Import Schedule, Chapter and Section Notes, and HSN Explanatory Notes. Precedents include the Supreme Court judgment in Commissioner of C. Ex, Bhubaneshwar vs Champdany Industries Ltd, which establishes the principle that when a specific tariff heading exists, goods should be classified under that heading rather than a residuary one.

The Adjudicating Authority initially held that the imported goods were misclassified under CTH 39039010/39039090 and should be classified under CTH 40021990. The Authority reasoned that CTH 39039010 specifically covers copolymers solely of styrene with allyl alcohol of a certain acetyl value, which the imported goods did not contain, as they included butadiene. CTH 39039090 was deemed a residuary entry for polymers of styrene, not covering styrene-butadiene copolymers. CTH 4002, on the other hand, specifically covers Styrene-Butadiene Rubber (SBR), and since the goods contained styrene and butadiene monomers, classification under CTH 40021990 was appropriate.

The importer contested this, relying on scientific definitions and technical data. They argued that SBC is an engineering thermoplastic material with over 70% styrene content, possessing thermoplastic elastomer properties, distinct from thermoset synthetic rubber (SBR). The importer cited Rule 2(b) and Rule 3(a) & (b) of the General Rules for Interpretation, and Chapter Notes 4 of Chapters 39 and 40, to demonstrate that classification should be based on the predominant monomer by weight and essential character of the product.

HSN Explanatory Notes clarify that most styrene-butadiene copolymers with substantial butadiene amounts complying with Note 4 to Chapter 40 are synthetic rubbers classified under Chapter 40. However, the term "substantial" is not defined, and the importer submitted test reports from the Indian Rubber Manufacturers Research Association (IRMRA) showing that the imported SBC grades did not satisfy the conditions of Note 4 to Chapter 40, including vulcanization and elastic recovery tests.

The Court noted that the Revenue had not conducted any laboratory testing or sought expert opinion to verify compliance with Note 4 conditions. The Revenue relied mainly on dated certificates from suppliers, which were either irrelevant or not directly linked to the goods in question. The Court emphasized that classification must consider the essential character of the goods, which, based on the evidence and expert reports, is that of a polymer of styrene (plastic) rather than synthetic rubber.

Consequently, the Court held that the imported goods are correctly classifiable under CTH 3903 as polymers of styrene, given the predominance of styrene monomer (over 70%) and failure to meet synthetic rubber criteria under Note 4 of Chapter 40.

Entitlement to Exemption Notifications:

Since the importer was found to be correctly classifying the goods under CTH 3903, they were entitled to the benefit of exemption notifications No. 50/2017-Cus and 69/2011-Cus applicable to that heading. The Revenue's denial of exemption was based on misclassification, which the Court rejected.

Demand of Differential Duty, Interest, and Invocation of Extended Period:

The Revenue invoked the extended period of limitation, alleging misdeclaration and suppression of facts by the importer. However, the Court observed that the importer had correctly declared the goods with accurate descriptions and proprietary grade names. The dispute was essentially one of classification and legal interpretation, not misdeclaration. Reliance was placed on Supreme Court precedents establishing that correct declaration negates invocation of extended limitation periods.

Accordingly, the demand for differential duty and interest under the extended period was held unsustainable.

Confiscation of Goods and Imposition of Penalties and Redemption Fine:

The Adjudicating Authority had ordered confiscation under Sections 111(m) and 111(o), imposed penalties under Sections 112(a), 114A, and 114AA, and levied redemption fines in lieu of confiscation. The Revenue contended that misclassification with intent to evade duty justified these actions.

The importer argued that classification disputes are interpretational and do not amount to misdeclaration or suppression, thus penalties and confiscation were unwarranted. The Court noted that the Revenue failed to prove any fraudulent intent or suppression. The classification issue was technical and scientific, not a deliberate attempt to evade duty.

Further, since the goods were not "offending" or misdeclared, confiscation and redemption fines were not legally sustainable. The Court relied on established jurisprudence that penalties under Section 112 cannot be imposed solely for classification disputes.

Treatment of Competing Arguments:

The Revenue argued that the importer had inconsistently classified the goods under different headings at different times, suggesting an attempt to evade duty. The Court acknowledged this but emphasized the lack of evidence of deliberate misdeclaration or suppression. The Revenue's reliance on outdated supplier certificates and absence of testing weakened its case.

The importer's submission of detailed test reports from an autonomous government-affiliated body (IRMRA) was given significant weight. The Court found the importer's scientific evidence more credible than the Revenue's reliance on dated documents and untested assumptions.

The Court also considered the legal principle that classification should be based on the essential character of the goods and predominant composition, applying Rules 2(b) and 3 of the General Rules for Interpretation and relevant Chapter Notes.

Conclusions:

The Court concluded that:

- The imported Styrene Butadiene Copolymer is correctly classifiable under CTH 3903 as a polymer of styrene, based on predominant styrene content and failure to meet synthetic rubber criteria under Note 4 to Chapter 40;

- The importer was entitled to the benefit of exemption notifications applicable to CTH 3903;

- The demand for differential duty and interest under the extended period was not sustainable due to absence of misdeclaration or suppression;

- Confiscation of goods, imposition of penalties, and redemption fines were not justified as the dispute was one of classification and not fraud or evasion;

- The Revenue failed to discharge the burden of proof to establish misclassification or evasion.

Significant Holdings:

"In copolymer where every monomer is less than 95% of weight, classification shall be determined as polymer of that monomer which predominates by weight. Therefore, in the instant case, since styrene predominates which is more than 70% in all grades of SBC, the same has to be treated as 'polymer of styrene' and has to be classified as such."

"HSN Explanatory Notes specifically include styrene butadiene copolymer within the scope of CTH 3903. Thus, findings of the Adjudicating Authority that copolymers of styrene butadiene are not covered under CTH 3903 is erroneous."

"For classification under CTH 4002, the product must satisfy conditions of Note 4 to Chapter 40, including being unsaturated synthetic substances capable of irreversible vulcanisation and elastic recovery tests. The imported products failed to satisfy these conditions as per credible test reports."

"Revenue has not conducted any laboratory testing or sought expert opinion to verify satisfaction of Note 4 conditions, relying only on dated supplier certificates which are irrelevant or not linked to goods in question."

"Classification disputes are interpretational issues and do not amount to misdeclaration or suppression of facts. Therefore, invocation of extended period of limitation and imposition of penalties under Sections 112(a), 114A, and 114AA of the Customs Act are not sustainable."

"Where goods are not misdeclared or offending, confiscation and redemption fines are not legally sustainable."

The Court allowed the appeal, set aside the demand of differential duty and interest, quashed penalties, redemption fines, and confiscation orders, and upheld classification of the imported goods under CTH 3903 as polymers of styrene.