2025 (6) TMI 608 - AT - Customs

Classification of the goods pertaining to provisionally assessed BE s has been done without the authority of law - Correctness in not confiscating and imposing a redemption fine in respect of the impugned goods provisionally assessed - eligibility for benefit of concessional rate of BCD based on the COO Certificate as per a Bilateral Free-Trade Agreements (FTA) even after re-classification - redetermination of classification of Oil Control Valve (OCV) Assembly - re-determination of classification of the other 13 imported items - imported PIO AVN Audio is appropriately classifiable under CTH 8526 9190 and is eligible for the benefit of concessional rate of BCD @ Nil in terms of Serial No.1389 (I) of Notification No. 46/2011 Customs dated 01.06.2011 instead of claimed Serial No.1390 (I) - re-determination of classification of the imported Computer Bracket Assembly / Electronic Control Unit (ECU) - relevant date as defined under Section 28 of CA 1962 is the date of clearance of the imported ECU or not - suppression of facts or wilful misstatement of facts or not - invocation of extended period of limitation. Whether the classification of the goods pertaining to provisionally assessed BE s has been done without the authority of law? - HELD THAT - The classification of goods under the Customs Tariff is a part of assessment. Assessment of duty involves the determination of the dutiability of exim goods. It involves determining the import permissibility in terms of the EXIM policy and any other laws regulating imports/exports determining the classification and duties leviable on the goods on import (Basic Additional Anti-dumping Safeguards etc.). Permissibility of various benefits of duty-free clearances under different schemes or applicability of any exemption notification benefits checking the quantity and value of the goods (where the duties are assessable on value basis) etc. The determination of dutiability hence creates special rights and liability and should not be finalised in a piece meal manner - the action of piece meal finalizing the classification of provisionally assessed goods has led to the department filing an appeal on the non-confiscation of the goods and non-imposition of fine and penalty which shall be examined separately - the fiinalisation of classification of provisionally assessed BE s without concluding the dutiability of the imported goods is not proper in law and merits to be set aside. The classification of the said goods can be done at the time of finalizing the provisional assessment without being prejudiced by the findings in the impugned order. Whether it is legal and proper on the part of the AA in not confiscating and imposing a redemption fine in respect of the impugned goods provisionally assessed and cleared under a bond and in not imposing a penalty on the assessee? - HELD THAT - Revenue has relied on CESTAT Larger Bench decision in Collector of Central Excise Vs P.M.T Machine Tools 1991 (3) TMI 163 - CEGAT NEW DELHI-LB wherein it is held that when provisional assessment is made it should be treated as provisional for all purposes and not necessarily provisional in respect of particular grounds only. Hence it was open to the AA to finalise the classification. It is found that before goods can be confiscated fine and penalty imposed the procedures laid down in the Act must be complied with. The submission put forward by revenue does not address the core issue. An adjudication order should be the final decision in the dispute resolution process as formulated in the Act/Rules/Instructions which conclusively puts to rest all the rights and liabilities of the parties to the lis. The seminal purpose is to avoid piece-meal adjudication. When assessment has not been completed and the classification of the goods has itself been finalised prematurely and irregularly the question of confiscation or imposition of fine on the goods or penalty on persons would not arise. There could be no question of confiscation penalty or interest till after final assessment otherwise there could be a situation whereby the goods are later alleged to have been undervalued or later being involved in some other blame worthy act and be subject to further rounds of similar piece-meal penal proceedings. This is untenable. Whether the impugned goods are eligible for benefit of concessional rate of BCD based on the COO Certificate as per a Bilateral Free-Trade Agreements (FTA) even after re- classification and hence no demand of duty is sustainable? - HELD THAT - In case the AIFTA Certificate of Origin is not accepted by the Customs Authority of the importing party it shall be returned to the Issuing Authority within a reasonable period but not exceeding two months duly notifying the grounds for the denial of preferential tariff treatment. As per para 16 the importing party may request a retroactive check at random and/or when it has reasonable doubt as to the authenticity of the document or as to the accuracy of the information regarding the true origin of the goods in question or of certain parts thereof. In case of reasonable doubt as to the authenticity or accuracy of the document the Customs Authority of the importing party may suspend provision of preferential tariff treatment while awaiting the result of verification. As per Para 17 if the importing party is not satisfied with the outcome of the retroactive check it may under exceptional circumstances request verification visits to the exporting party. Rule 5 of the CAROTAR allows the Principal Commissioner of Customs or the Commissioner of Customs to disallow the claim of preferential rate of duty without further verification for the reasons to be recorded in writing where the importer relinquishes the claim or the information and documents furnished by the importer and available on record provide sufficient evidence to prove that goods do not meet the origin criteria prescribed in the respective Rules of Origin. However the present issue does not involve a dispute on the origin criteria but only on the classification of the goods and is hence not applicable. Whether the redetermination of classification of Oil Control Valve (OCV) Assembly is legal and proper? - HELD THAT - HSN along with the explanatory notes provide a safe guide for interpretation of an Entry. As per the HSN Explanatory Notes taps cocks valves etc. remain under heading 84.81 even if specialized for use on a particular machine or apparatus or on a vehicle or aircraft. Hence the cryptic conclusion in the impugned order that CTH 8481 as the heading suggests is for valve used in pipes boilers etc is not correct - As per the Explanatory Notes Heading 84.81 includes devices designed to regulate the pressure or the flow velocity of a liquid or a gas. Valves remain in this heading even if specialized for use on a particular machine or apparatus or on a vehicle or aircraft. This being so the department has not been able to discharge their burden of proof on the merits of classification the impugned goods under CTH 8409.9111 / 8409.99911 (depending upon the type of engine) and thus HMIL s classification of the goods cannot be disturbed. Whether the re-determination of classification of the other 13 imported items i.e. Vacuum Assembly; Water Pump Assembly; Cap Sealing; Case Assembly Timing Chain; Nut Flange; Nut Washer; Oil Seal; V-Ribbed Belt; Junction Box; Piston and Piston Assembly; Connecting Rod Assembly; Camshaft Assembly; PIO AVN Audio is legal and proper? - HELD THAT - The normal rule is that in any litigation the rights and obligations of the parties are adjudicated upon as they obtain at the commencement of the lis. When allegations of facts are admitted before the Original Authority there was no need for him to prove what was admitted and orders have come to be passed. The Tribunal has an inherent power to prevent the right of appeal being abused by an appellant who keeps back till the stage of appeal points of law or fact which he could have raised before the lower authority without showing any reason and thus places the other side at a disadvantage. Persons with good causes of action should pursue the remedy with reasonable diligence at every available opportunity. When a person even by tacit or passive acceptance or by implied consent to an act when he has a duty to speak or oppose / deny a fact or law does not do so with full knowledge of its consequences then he cannot exercise that right at a later stage. The doctrine of non-traversal as per Order VIII Rule 5 of the Code of Civil Procedure (CPC) in the case of civil litigation asserts that any factual averment in a plaint if not specifically denied by the defendant is deemed admitted. Whether the imported PIO AVN Audio is appropriately classifiable under CTH 8526 9190 and is eligible for the benefit of concessional rate of BCD @ Nil in terms of Serial No.1389 (I) of Notification No. 46/2011 Customs dated 01.06.2011 instead of claimed Serial No.1390 (I)? - HELD THAT - As regards HMIL s plea that PIO AVN Audio are appropriately classifiable under CTH 8526 9190 and are eligible for the benefit of concessional rate of BCD @ Nil in terms of Serial No.1389 (I) of Notification No. 46/2011 Customs dated 01/06/2011 instead of claimed Serial No.1390 (I). It is already stated that once the COO Certificate covers the imported goods which satisfies the requirement of the exemption notification and is not challenged and modified as per the procedure established by the Rules of 2009 the benefit of concessional duty cannot be denied. Further there is nothing brought out in the SCN to show that the certificate was fraudulently obtained so as to taint its acceptability. The said goods are hence eligible for BCD concession @ Nil rate as initially claimed at the time of import i.e. prior to their re-classification. Whether the re-determination of classification of the imported Computer Bracket Assembly / Electronic Control Unit (ECU) is legal and proper? - HELD THAT - As per a reading of Note 3 to Section XVII when any part or accessory can fall in Section XVII as well as in another Section its classification has to be determined by its sole or principal use. First of all Note 3 to section XVII states that references in Chapters 86 to 88 to parts or accessories do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part of accessory. Hence the note deals with goods which answers to a description in two or more of the headings of the Chapters falling under Section XVII and not between goods which answers to a description in two or more of the headings of the different Sections as wrongly stated in the impugned order. The department has not discharged the burden of proof to show that the ECU is taxable in the manner claimed by them under CTH 8708 9090 and hence the classification as adopted by HMIL must prevail. Whether the relevant date as defined under Section 28 of CA 1962 is the date of clearance of the imported ECU whereby part of the demand is outside the ambit of two years normal period pertaining to goods covered by Order-in-Original dated 11/12/2023 and is unsustainable? - HELD THAT - It is found that any duty referred to in section 28(1)(a) is wide enough to cover demand of all types of duty under CA 1962 whether the assessments were correctly done or not. Section 28(3) ibid states that when the amount paid under clause (b) of sub-section (1) falls short of the amount actually payable then the proper officer shall proceed to issue the notice as provided for in clause (a) of that sub- section in respect of such amount which falls short of the amount actually payable in the manner specified under that sub-section and the period of two years shall be computed from the date of receipt of information under sub-section (2). Hence the said relevant date has to be understood as per section 28(3) read with Explanation-1 (d) to section 28(11) under of the Customs Act 1962. This being so the relevant date cannot begin from the date of clearance of the imported ECU s and must be calculated from the date of receipt of information under sub-section (2) of section 28. Where there is no suppression of facts or willful misstatement of facts hence demand and confirmation of duty liability beyond the normal period of 2 years from the date of import as per Order-in-Original dated 04/10/2023 is unsustainable and no fine on the goods or penalty on the individual can be imposed? - HELD THAT - This is a case where the allegation of suppression has been made only because the Ld. Adjudicating Authority does not agree with some of the classification of the imported goods made by HMIL who in respect to some goods have agreed to change the classification made after DRI started its investigation and have paid the differential duty involved. This has led to the conclusion that HMIL has failed to comply with the procedures as set out in the CA 1962. However it is settled law that the extended period cannot be invoked when the case involves a genuine interpretative issue which is not merely an excuse given by HMIL who has short paid duty due to a change in classification of the imported goods. In any case HMIL has not been found committing a blame worthy act and the demand has been restricted to the normal period. Hence the appeal filed by Revenue is rejected. No question of confiscation fine and penalty hence arises. Conclusion - The impugned orders modified by setting aside premature classification of provisionally assessed goods rejecting revenue s appeal for confiscation and penalties upholding HMIL s classification of ECU under Chapter 90 confirming eligibility for concessional BCD based on COO Certificates under FTAs and clarifying the relevant date for limitation. Appeal disposed off.

Summary

The core legal questions considered by the Tribunal in this matter are as follows:

(A) Whether classification of goods pertaining to provisionally assessed Bills of Entry (BEs) was done without lawful authority;

(B) Whether it was legal and proper for the Adjudicating Authority (AA) to refrain from confiscating provisionally assessed goods, imposing redemption fine, and levying penalty on the assessee;

(C) Whether the impugned goods are eligible for concessional Basic Customs Duty (BCD) rates based on valid Country of Origin (COO) Certificates under Bilateral Free Trade Agreements (FTAs), even after re-classification, thus rendering the duty demand unsustainable;

(D) Whether the redetermination of classification of the Oil Control Valve (OCV) Assembly was legal and proper;

(E) Whether the redetermination of classification of thirteen other imported items (Vacuum Assembly; Water Pump Assembly; Cap Sealing; Case Assembly Timing Chain; Nut Flange; Nut Washer; Oil Seal; V-Ribbed Belt; Junction Box; Piston and Piston Assembly; Connecting Rod Assembly; Camshaft Assembly; PIO AVN Audio) was legal and proper;

(F) Whether the imported PIO AVN Audio is classifiable under CTH 8526 9190 and eligible for concessional BCD @ Nil under Serial No.1389(I) of Notification No. 46/2011 Customs, instead of the claimed Serial No.1390(I);

(G) Whether the redetermination of classification of the imported Computer & Bracket Assembly / Electronic Control Unit (ECU) was legal and proper;

(H) Whether the "relevant date" for limitation under Section 28 of the Customs Act, 1962 (CA 1962) is the date of clearance of the imported ECU, and thus part of the demand is barred by limitation;

(I) Whether there was suppression or willful misstatement of facts to justify demand and penalties beyond the normal two-year period.

Issue-wise Detailed Analysis:

(A) Classification of Goods Pertaining to Provisionally Assessed BEs

HMIL contended that classification of provisionally assessed goods was finalized prematurely without authority, as per Section 18(1A) of CA 1962 and Customs (Finalisation of Provisional Assessment) Regulations, 2018. The impugned orders demanded differential duty only on finally assessed BEs; thus, classification of provisional BEs in the impugned orders was ultra vires.

Revenue argued that provisional assessment under Section 18 is without prejudice to Section 46, which empowers reassessment. The AA rightly corrected misclassification under self-assessment without prejudice to finalization of provisional assessment. Classification is integral to assessment, and re-assessment includes classification changes.

The Tribunal noted that classification is part of assessment and must not be finalized piecemeal. Neither the Customs Act nor the 2018 Regulations support partial finalization of classification for provisional BEs. The premature classification of provisionally assessed goods without concluding dutiability was improper and was set aside. Classification of such goods should be finalized at the time of finalizing provisional assessment without prejudice to findings in the impugned orders.

(B) Confiscation, Redemption Fine and Penalty on Provisionally Assessed Goods

HMIL argued that goods under provisional assessment cannot be confiscated or fined, as the bond executed related only to valuation issues, not classification. Re-determination of classification and penal consequences were contrary to law and Article 265 of the Constitution.

Revenue relied on judicial precedents holding that provisional assessment is provisional for all purposes, and that goods released under bond can be confiscated with redemption fine and penalty if misclassification or evasion is found.

The Tribunal emphasized that confiscation and penalties require completion of assessment and compliance with procedural safeguards. Premature penalization before final assessment is untenable and leads to piecemeal adjudication, which is arbitrary and prejudicial. The Tribunal relied on Supreme Court and Tribunal precedents holding penalties before finalization of assessment unsustainable. Therefore, revenue's appeal on confiscation and penalties failed.

(C) Eligibility for Concessional BCD Based on COO Certificates Under FTAs

HMIL submitted that all substantive and procedural conditions for preferential tariff treatment under FTAs, including minimum regional value addition, substantial manufacturing process, change in nomenclature, and valid COO Certificates, were met. The COO Certificates were accepted by Customs at import, and no subsequent denial was justified without following prescribed procedures under the Rules of 2009.

Revenue contended that discrepancy between classification in COO Certificates and actual classification justified denial of exemption.

The Tribunal held that international treaties and FTAs have overriding effect, and COO Certificates issued by competent authorities constitute substantive and conclusive evidence of origin. The Customs Department must follow the procedural safeguards under the Rules of 2009, including retroactive checks and verification, before denying preferential treatment. Since revenue failed to demonstrate compliance with these procedures, denial of exemption was improper. The Tribunal distinguished a precedent where fraud was involved, noting no such allegation here. The Tribunal held that once COO Certificates cover the goods, duty concession must be allowed unless properly challenged as per treaty rules.

(D) Classification of Oil Control Valve (OCV) Assembly

HMIL contended that the OCV is a valve regulating oil flow to the Variable Valve Timing system, placed outside the engine, and properly classifiable under CTH 8481 (valves). They paid duty at merit rate without availing exemption.

Revenue argued that OCV is a part of engine and should be classified under CTH 8409 (parts suitable for use with engines).

The Tribunal applied the Supreme Court's test that functional utility, design, and predominant use govern classification. HSN Explanatory Notes confirm that valves regulating fluid flow remain under CTH 8481 even if specialized for vehicles. The OCV is not a simple inlet or exhaust valve but a regulating valve outside the engine. Revenue failed to discharge burden of proof for reclassification under CTH 8409. Thus, HMIL's classification under CTH 8481.8090 was upheld.

(E) Classification of Other Thirteen Imported Items

HMIL did not contest classification of these items in detail before the Tribunal but sought to reverse earlier acceptance before the Original Authority (OA).

Revenue pointed out HMIL's written acceptance of classification changes before OA, which should be binding.

The Tribunal applied the doctrine of non-traversal and principles of implied admission. Since HMIL had consented to classification before OA without justification for reversal, the classification as per impugned order was upheld for these items, and appeals on this ground were rejected.

(F) Classification and Eligibility of PIO AVN Audio

HMIL stated that PIO AVN Audio was imported from Vietnam and claimed exemption under Notification No. 46/2011, while revenue alleged import from Korea and denial of exemption under Notification No. 152/2009. HMIL accepted reclassification under CTH 8526 9190, which is covered by Serial No.1389(I) of Notification No. 46/2011.

Revenue argued that omission of Notification No. 46/2011 in SCN was not fatal and denial of exemption was proper.

The Tribunal held that mere non-mention of a notification in SCN does not vitiate the demand if otherwise justified. Since COO Certificates were not challenged and classification under CTH 8526 9190 is covered by Notification No. 46/2011, HMIL was entitled to concessional BCD @ Nil. The Tribunal rejected revenue's denial of exemption.

(G) Classification of Computer & Bracket Assembly / Electronic Control Unit (ECU)

HMIL contended that the ECU is a programmable process controller, an automatic regulating apparatus classifiable under Chapter 90 (CTH 9032) as per CBEC Circular and expert opinion from IIT Madras. It performs multiple electronic control functions in vehicles and is not a mere part of motor vehicle. Prior appellate decisions had upheld classification under Chapter 90.

Revenue contended that ECU is a part of motor vehicle, classifiable under CTH 8708, and the impugned order correctly reclassified it. Revenue disputed applicability of prior orders based on monetary limits and distinguished precedents. Revenue argued that ECU does not maintain a 'desired value' as required under Note 7 to Chapter 90.

The Tribunal examined the legal principles from Supreme Court judgments emphasizing functional utility, design, and predominant use over trade names. It found the ECU to be an apparatus with independent function, satisfying definitions of 'apparatus' and 'automatic regulating instrument'. The Tribunal rejected revenue's narrow interpretation of 'desired value', holding it to include dynamically computed operational parameters in automobiles. The Tribunal held that classification under Chapter 90 is more specific and must prevail over residual Chapter 87. The Tribunal also found that the impugned order's classification under CTH 8708 was beyond the scope of the SCN and hence unsustainable. Accordingly, HMIL's classification under CTH 9032 was upheld.

(H) Relevant Date for Limitation under Section 28 of CA 1962

HMIL argued that the relevant date for limitation is the date of clearance of goods, and part of the demand falls outside the two-year period, rendering it unsustainable.

Revenue contended that voluntary payment of differential duty during investigation triggers limitation from date of receipt of such information under Section 28(3), not clearance date.

The Tribunal held that Section 28(3) and Explanation 1(d) clarify that the relevant date for limitation is the date of receipt of information about duty payment, not clearance date. Thus, the demand was within limitation.

(I) Suppression or Willful Misstatement of Facts

HMIL denied any suppression or misstatement, stating the dispute is about classification and no misdeclaration of value or description was made.

Revenue alleged suppression based on incorrect classification and self-assessment declarations.

The Tribunal found that mere disagreement on classification does not amount to suppression or willful misstatement. The extended period for demand and penalties cannot be invoked for genuine interpretative issues. The Tribunal relied on Supreme Court precedents holding that deliberate deception or blameworthy acts are necessary for invoking extended period and penalties. Since HMIL voluntarily paid differential duty and cooperated, no suppression was established. Hence, penalties, redemption fine, and confiscation were not sustainable.

Significant Holdings:

"The finalisation of classification of provisionally assessed Bills of Entry by piece-meal penal proceedings without concluding the dutiability of the imported goods is not proper in law and merits to be set aside."

"An adjudication order should be the final decision in the dispute resolution process as formulated in the Act/Rules/Instructions which conclusively puts to rest all the rights and liabilities of the parties to the lis. The seminal purpose is to avoid piece-meal adjudication."

"When an importer produces a COO Certificate which covers the imported goods, it has to be considered as substantive and conclusive evidence of being goods as declared and duty concession as eligible should be allowed, in the normal course, as the concession originates from an international treaty entered between the contracting States."

"Functional utility, design, shape and predominant usage have also got to be taken into account while determining classification of an item - these are more important than names used in the trade or common parlance."

"The word 'desired value' in Note 7 to Chapter 90 must be given its plain and broad meaning and includes dynamically computed operational parameters, not a fixed or predetermined value."

"The classification under the Customs Tariff must give preference to the heading which provides a specific description over a general one (Rule 3(a) of General Rules of Interpretation)."

"Extended period of limitation under Section 28 of the Customs Act cannot be invoked for genuine interpretative issues and in absence of suppression or willful misstatement of facts."

"Penalties and confiscation cannot be imposed before finalization of assessment and in absence of blameworthy conduct."

In conclusion, the Tribunal modified the impugned orders by setting aside premature classification of provisionally assessed goods, rejecting revenue's appeal for confiscation and penalties, upholding HMIL's classification of ECU under Chapter 90, confirming eligibility for concessional BCD based on COO Certificates under FTAs, and clarifying the relevant date for limitation. The appeals were disposed accordingly with consequential relief to HMIL.