2025 (7) TMI 163 - AT - Customs

Classification of goods - 26 Mixtures of Odoriferous (MOS) compound flavoured preparation - to be classified under heading 3302.10 of the Customs Tariff Act or under heading 3302.90.90 of the Customs Tariff Act? - HELD THAT - In the decision of the Bangalore Bench in GIAVUDAN INDIAN PVT. LTD. VERSUS COMMISSIONER OF CUSTOMS BANGALORE 2009 (12) TMI 786 - CESTAT BANGALORE which has been relied on by the appellate authority as well as the adjudicating authority it has been held that The imported flavours impugned in the show cause notice are compound alcoholic preparations and the same are not entitled to concessional rate of duty as provided in Notification No. 21/2002-Cus. dated 1-3-2002 and accordingly M/s GIPL are liable to pay the differential duty in respect of those flavours. Thus even as per the above decision of the Bangalore Bench of the Tribunal it was necessary to determine whether the imported flavours were of a kind used for the manufacture of beverages. The Tribunal finding that as regards the flavours not sold to manufacturers of beverages it is not established in the order that they are of a kind used for the manufacture of beverages found it necessary that the Commissioner therefore has to examine and categorically find if these compounds are also of a kind used for the manufacture of beverages. Therefore the tribunal remanded the dispute relating to the remaining flavour compounds to the Commissioner for a fresh decision. Given the fact that both parties are ad idem that the matter requires examination and reconsideration by the Original authority afresh we are of the view that the interest of justice will be served if the matter is remitted back for decision afresh. Accordingly without expressing any opinion on the merits of the matter we set aside the impugned order and remit the matter back to the jurisdictional Adjudicating Authority for denovo adjudication with specific directions to give a reasoned order on the contention on facts that the appellant had raised and render a categorical finding as to whether or not the goods imported by the appellant in the present case are of a kind used for the manufacture of beverages. Needless to say the adjudicating authority has to adhere to the principles of natural justice. The appeals are allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

(a) Whether the 26 Mixtures of Odoriferous Substances (MOS) compound flavoured preparations imported by the appellant company were correctly classified under the Customs Tariff Act, or whether they were misclassified and should be reclassified under a different heading attracting differential customs duty.

(b) Whether the imported goods were of a kind used for the manufacture of beverages, thereby affecting their eligibility for exemption under relevant customs notifications.

(c) Whether the goods were liable to confiscation under Section 111(m) of the Customs Act, 1962, and whether penalties under Sections 114A and 112(a) of the Customs Act were rightly imposed on the appellant company and its ex-director respectively.

(d) Whether the lower authorities failed to consider crucial factual contentions raised by the appellants regarding the nature and use of the imported goods, necessitating remand for fresh adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) - Classification of the imported goods under the Customs Tariff Act

The imported goods were initially classified under sub-headings of headings 1302 and 2906 as vegetable extracts and aromatic chemicals, and under heading 3302.90.90 as perfumery compounds. The Department contended that these goods were in fact compound alcoholic preparations containing ethyl alcohol and other alcohols, with alcoholic strength exceeding 0.5%, and should be reclassified under heading 3302.10, which pertains to compound alcoholic preparations of a kind used in the manufacture of beverages.

The legal framework involves the Customs Tariff Act and the classification principles under the Harmonized System, as well as the applicability of exemption notifications which exclude goods used for beverage manufacture.

The adjudicating authority and the appellate authority upheld the reclassification, denial of exemption benefits, and consequent duty demands. However, the appellants challenged this, asserting that the goods were raw materials used in the manufacture of finished flavours and not themselves of a kind used directly in beverage manufacture.

The Tribunal noted that the lower authorities had relied on a precedent from the Bangalore Bench which had held that flavours used in beverage manufacture are not eligible for exemption. However, the Tribunal distinguished the facts, emphasizing that in the precedent case, the imported flavours were sold as finished products ready for beverage manufacture, whereas in the present case, the appellants used the imported goods as inputs in further manufacturing.

The Tribunal recognized that the classification and exemption entitlement hinge critically on whether the goods are of a kind used in beverage manufacture, a factual determination not conclusively made by the lower authorities.

Issue (b) - Whether the imported goods are of a kind used for the manufacture of beverages

This issue is central to the dispute. The Show Cause Notice and subsequent orders treated the goods as being of a kind used in beverage manufacture, thereby excluding them from exemption.

The appellants contended that the goods were further processed by them as registered manufacturers before sale and were not directly used in beverage manufacture. They submitted excise returns and RG 23 Registers as evidence of further processing, which were not considered by the lower authorities.

The Tribunal referred to the Bangalore Bench decision which had remanded similar issues for fresh determination, emphasizing that mere admissions or confessional statements cannot be the sole basis for classification or denial of exemption.

The Tribunal held that it is imperative for the adjudicating authority to examine and categorically find whether the goods are of a kind used for beverage manufacture before deciding on exemption and classification issues.

The Tribunal underscored that such factual examination is beyond the scope of the appellate Tribunal and must be undertaken by the original adjudicating authority with the benefit of evidence and documents.

Issue (c) - Liability for confiscation and penalties

The Show Cause Notice proposed confiscation under Section 111(m) of the Customs Act and penalties under Sections 114A and 112(a) for acts of omission and commission.

The adjudicating authority confirmed confiscation with redemption option and imposed penalties on the appellant company and its ex-director.

The Tribunal did not express any opinion on the merits of confiscation and penalties, noting that these issues are contingent upon the determination of classification and use of the goods.

Since the matter was remanded for fresh adjudication on the core factual issues, the related penalty and confiscation issues would also require reconsideration in light of the fresh findings.

Issue (d) - Failure of lower authorities to consider crucial factual contentions and need for remand

The appellants argued that the lower authorities mechanically applied the precedent without addressing their specific contentions and evidence regarding the nature and use of the imported goods.

The Tribunal observed that the Appellate Authority had recorded the appellants' stand and request for remand but did not adequately address the factual contentions.

Both parties agreed that a remand for denovo adjudication was appropriate.

The Tribunal emphasized the principles of natural justice and the necessity for the adjudicating authority to consider all relevant evidence, including documents filed by the appellants, and to give a reasoned and categorical finding on whether the goods are of a kind used for beverage manufacture.

The Tribunal directed completion of the fresh adjudication within 90 days and urged the appellant to cooperate to avoid delay.

3. SIGNIFICANT HOLDINGS

The Tribunal set aside the impugned order and remanded the matter to the original adjudicating authority for fresh adjudication with the following crucial directions and principles:

"It is imperative, in order for this Tribunal to arrive at a decision, to at first have the benefit of a determination of the fact whether the goods imported by the appellant in the present case are of a kind used for the manufacture of beverages."

"It is not for this Tribunal to go into the initial factual matrix of the contentions, to come to any conclusion whether the evidence on these aspects are correct or not. Such an examination would be better left to the adjudicating authority who is equipped to look into the documents, records, other evidences and any other relevant aspect."

"The adjudicating authority has to adhere to the principles of natural justice. The appellant is also permitted to produce the documents and records that have been filed along with the miscellaneous application filed before this Tribunal, before the Original authority for due consideration. The appellants are granted liberty to adduce evidence to substantiate their contentions."

"The Adjudicating Authority is directed to complete the denovo adjudication proceedings within 90 days from the date of receipt of this order."

These holdings establish the principle that classification and exemption issues involving mixed-use goods require a detailed factual inquiry into the nature and use of the goods, and that appellate authorities should not substitute their own findings on disputed facts without remanding for fresh adjudication. The decision underscores the necessity of reasoned orders based on evidence and adherence to natural justice in customs adjudications.