2025 (6) TMI 1284 - AT - Customs

Classification of imported goods under the Customs Tariff Act 1975 - imported goods comprising LED panels and other components - benefit of N/N. 12/2012-Cus dated 17th March 2012 - invocation of rule 2 of General Rules for Interpretation of the Tariff appended to Customs Tariff Act 1975 - HELD THAT - The appellants had imported several articles in the impugned consignments that were neither available for examination during the course of adjudication which however did not hinder the adjudicating authority from concluding that the goods put together constituted fully functional television sets. The appellant on the other hand insisted that only LED panels had been imported along with other parts in the 171 impugned bills of entry. No one knows because there is no record of the goods having been inventorized and examined. To presume that the present was the past is neither logical nor legal. Furthermore having arrived at a dead end in the earlier notices it would appear that with intent to deny exemption available to LED panels and which was not refuted for presence in the consignment eligible goods had to be made to vanish an impossibility in fact made possible by deeming the panels to be within a television even if the television was not yet a thing. Rule 2 of General Rules for Interpretation of the Tariff appended to Customs Tariff Act 1975 is not an absolute rule of its own but is an extension of rule 1 which places emphasis on the description as the test for placement and at each of three levels of enumeration. Thus there is no bar on merit classification of parts of the whole; there is no illegality there either. The Rules are a guide to placement of rates for formulation of tax policy and as well to fitment of imported goods - Rule 2 of General Rules for Interpretation of the Import Tariff appended to Customs Tariff Act 1962 is not a criminalizing law to test import for misdeclaration; as a guidance principle it must be read in its totality for adherence to legislative intent. The Explanatory Notes makes no bones about the manner and circumstances in which this particular rule was to be applied. There is no evidence that the 171 consignments as imported and presented on each occasion was capable of being assembled into specific number of television sets by very basic operations. That three consignments of later occasion could have been was not tested and neither was the evidence gathered during the investigation then subjected to relevancy test and acceptability test for determining the outcome in adjudication as legal and proper - the classification as television sets must lie upon evidence of inventory of each individual consignment as presented or upon fresh documented or deposed evidence. Both are palpably not present. The consignments did contain inter alia LED panels entitled to be cleared on rate of duty noted in the impugned notification. With the parts meriting appropriate classification the basis of denial viz. treatment of the goods as finished articles is no longer available to be pressed into service. The differential duty was not to have been ordered for recovery. There is also no misdeclaration of value or any other particular in the impugned bills of entry. The confiscation of goods is not in order and must be aside. Conclusion - The impugned order imposing differential duty penalties and confiscation was legally unsustainable and was set aside - The imported goods including LED panels were entitled to exemption as per the relevant notification and joint and several liability was not tenable under the Customs Act. The impugned order is bereft of any legal and factual sustenance and is set aside - Appeal allowed.

Summary

The core legal questions considered by the Tribunal in this appeal primarily revolve around the classification of imported goods under the Customs Tariff Act, 1975, the applicability of exemption notifications, and the imposition of differential duty and penalties. The issues include:

(a) Whether the imported goods, comprising LED panels and other components, could be classified as complete television sets under Rule 2(a) of the General Rules for Interpretation of the Tariff, thereby denying exemption available for LED panels;

(b) Whether the adjudicating authority was justified in invoking Rule 2(a) to treat parts and components as complete or finished articles presented unassembled or disassembled;

(c) The validity and applicability of evidence relied upon by the adjudicating authority, especially evidence previously considered by the Settlement Commission, and whether such evidence could be re-examined in the present proceedings;

(d) The legality of imposing joint and several liability for differential duty and penalties on all the noticees;

(e) The correctness of confiscation of goods and imposition of penalties under the relevant provisions of the Customs Act, 1962;

(f) The interpretation and application of the Customs Tariff Act, 1975, the Customs Act, 1962, and relevant notifications, particularly notification no. 12/2012-Cus dated 17th March 2012, in the context of the imported goods.

Issue-wise Detailed Analysis

1. Classification of Goods and Applicability of Rule 2(a) of the General Rules for Interpretation of the Tariff

The legal framework governing classification is the Customs Tariff Act, 1975, supplemented by the General Rules for Interpretation of the Tariff. Rule 2(a) states that any reference in a heading to an article shall include a reference to that article incomplete or unfinished, provided the incomplete article has the essential character of the complete or finished article. It also includes articles presented unassembled or disassembled.

The Tribunal examined authoritative precedents, notably the Supreme Court's decision in Commissioner of Customs, New Delhi v. Sony India, which clarified that the essential character of the article is the sine qua non for applying Rule 2(a). The Court emphasized that components lacking the essential character of the finished article cannot be treated as complete articles merely because they are unassembled or disassembled. The Tribunal reiterated that the mere presence of LED panels and other parts in the consignments does not automatically classify them as complete television sets.

The Tribunal noted the absence of inventory or examination records for the 171 impugned consignments, which precluded any conclusive finding that the goods were capable of being assembled into television sets by simple operations. It underscored that the evidence relied upon to treat the goods as complete sets was drawn from investigations related to different consignments and prior proceedings before the Settlement Commission, which cannot be transposed without fresh evidentiary support.

The Tribunal also referred to other precedents, including decisions of this Tribunal and various High Courts, which consistently held that different consignments of parts imported separately cannot be clubbed together to treat them as complete articles for classification and assessment. The intention of the importer to assemble the parts into finished products is irrelevant for classification under the Customs Tariff Act.

Thus, the Tribunal concluded that the adjudicating authority erred in applying Rule 2(a) to treat the imported LED panels and parts as complete television sets, thereby wrongly denying the exemption notification applicable to LED panels.

2. Validity and Applicability of Evidence Previously Considered by the Settlement Commission

The adjudicating authority relied heavily on evidence gathered during investigations that culminated in proceedings before the Settlement Commission. The Tribunal highlighted that the Settlement Commission's order, by statute, confers immunity and finality, precluding re-opening of the same evidence in subsequent adjudications or appeals. The Tribunal emphasized the need to respect this legislative immunization and declined to evaluate or rely on such evidence.

Furthermore, the Tribunal observed the absence of compliance with statutory provisions requiring certification of electronic evidence under sections 138B and 138C of the Customs Act, 1962, which rendered the electronic evidence inadmissible. Consequently, the Tribunal discarded the evidence relied upon by the adjudicating authority as lacking legal validity.

3. Joint and Several Liability for Differential Duty and Penalties

The Tribunal scrutinized the imposition of joint and several liability for differential duty and penalties on all noticees, including individuals and corporate entities. It found no statutory basis or legal justification for such collective liability under the Customs Act, which contemplates recovery of duty from a singular person liable to pay the duty.

The Tribunal criticized the arbitrary and illogical approach of the adjudicating authority in imposing joint and several liability without any contractual or legal foundation. It questioned the practical implications of such an approach, including the order of recovery and the rights of the parties involved.

Accordingly, the Tribunal held that the imposition of joint and several liability was perverse and contrary to the provisions of the Customs Act, 1962.

4. Confiscation and Penalties

The confiscation of goods under section 111(m) and imposition of penalties under sections 114A and 114AA of the Customs Act were challenged on the grounds of absence of misdeclaration or wrongdoing. The Tribunal found no evidence of misdeclaration of value or particulars in the impugned bills of entry. Given the incorrect classification and denial of exemption, the basis for confiscation and penalties was unsustainable.

The Tribunal set aside the confiscation and penalties, emphasizing that the goods, including LED panels, were entitled to the exemption notification and that no contravention warranting penalties was established.

5. Interpretation of Notifications and Customs Tariff Act

The Tribunal analyzed the impugned notification no. 12/2012-Cus dated 17th March 2012, which grants exemption to 'LCD and LED panels for television sets of 20" and above' under heading 8529. It noted that the notification recognizes LED panels as independently assessable articles on import and that the adjudicating authority's approach of denying exemption by deeming parts as complete television sets was inconsistent with the legislative intent.

The Tribunal observed that the Customs Tariff Act and the Harmonized System of Nomenclature (HSN) framework are designed to provide clarity and certainty in classification and taxation. The denial of exemption based on a broad and discriminatory application of Rule 2 was contrary to the principles of fairness and uniformity in customs law.

6. Treatment of Competing Arguments

The appellants argued the lack of evidence to support the claim that the imported goods were meant for assembly into complete television sets and challenged the admissibility of evidence from prior proceedings before the Settlement Commission. They also disputed the imposition of joint and several liability and penalties.

The respondent contended that the evidence supported classification as complete television sets and justified differential duty and penalties. However, the respondent failed to provide legal basis for joint and several liability when questioned.

The Tribunal found the appellants' arguments more persuasive, particularly given the absence of fresh, admissible evidence and the statutory immunities arising from the Settlement Commission's order.

Significant Holdings

"The sine qua non for the application of this Rule is that any imported article, which is 'as presented', must have the essential character of the complete or finished article."

"The Rule must apply as a whole. ... A mere PCB or a CRT, in our opinion, under any circumstances, cannot be held to have essential character of the CTV."

"There is no evidence that the 171 consignments, as imported and presented on each occasion, was capable of being assembled into specific number of television sets by very basic operations."

"The Settlement Commission's order ... confers not only selective immunity but also, thereby, latches a finality beyond further review on merit ... We have sufficient respect for the law to desist from even venturing to evaluate evidence that was before the Settlement Commission."

"Section 28 of Customs Act, 1962 is replete with references to 'person liable to pay the duty', and only in the singular ... The empowerment to order recovery under section 28 does not envisage concurrent fastening of particular liability on multiple persons."

"The confiscation of goods is not in order and must be aside."

Core principles established include the necessity of examining each consignment individually for classification, the inadmissibility of evidence shielded by Settlement Commission immunity, the singular nature of liability for customs duty, and the proper application of Rule 2(a) requiring the imported article to possess the essential character of the finished product as presented.

Final determinations were that the impugned order imposing differential duty, penalties, and confiscation was legally unsustainable and was set aside. The imported goods, including LED panels, were entitled to exemption as per the relevant notification, and joint and several liability was not tenable under the Customs Act.