2025 (7) TMI 228 - AT - Customs

Classification of imported goods - levy of duty of customs at the rate corresponding to tariff item 8502 3990 of First Schedule to Customs Tariff Act 1975 - denial of benefit of exemption under N/N. 12/2012-Central Excise dated 17th March 2012 at (serial no. 332) - HELD THAT - The impugned exemption notification permits additional duty of customs to be exempted subject to goods of any chapter being non-conventional energy devices or systems enumerated in list 8 which inter alia incorporates bio-gas plant and bio-gas engine at serial no. 15 therein. The appellant had classified goods as aptly conforming to description corresponding to tariff item 8501 6410 of First Schedule to Customs Tariff Act 1975 while customs authorities preferred classification under residuary category of generating sets and rotary convertors other than those with spark ignition and compression-ignition internal combustion piston engines to be more appropriate description. There is nothing on record either in the N/N. 12 / 2012 - Central Excise dated 17th March 2012 or anywhere else that goods within 8502 of First Schedule to Customs Tariff Act 1975 or 8501 of First Schedule to Customs Tariff Act 1975 would not get the benefit of exemption. Even if the goods were covered by the re-determined tariff item and more especially as these were admittedly not internal combustion piston engines it was necessary to examine the characteristics of the imported goods to determine if these be non-conventional energy devices or systems. In the absence of such finding the re-classification and consequent denial of benefit of exemption as well as detriments under section 111 and section 112 of Customs Act 1962 does not find favour. In view of the deficiency in the adjudication the impugned order set aside and the matter remanded back to the original authority for a fresh decision after hearing the appellant herein on coverage by the impugned notification. Appeal allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the imported goods are correctly classifiable under tariff item 8502 3990 of the First Schedule to the Customs Tariff Act, 1975, or under tariff item 8501 6410.

- Whether the imported goods qualify as 'non-conventional energy devices or systems' covered by the exemption notification no. 12/2012-Central Excise dated 17th March 2012, specifically at serial no. 332, which exempts 'bio-gas plant and bio-gas engine'.

- Whether the denial of exemption benefits under the said notification was justified.

- Whether the confiscation of goods under section 111 of the Customs Act, 1962, imposition of redemption fine under section 125, and penalty under section 112 were legally sustainable.

- The correctness and legality of the original authority's and first appellate authority's orders upholding classification, denial of exemption, and imposition of penalties.

2. ISSUE-WISE DETAILED ANALYSIS

Classification of Imported Goods

Relevant Legal Framework and Precedents:

The classification of goods for customs duty purposes is governed by the Customs Tariff Act, 1975. The classification must be in accordance with the Harmonized System of Nomenclature (HSN) and relevant explanatory notes. The goods in question were initially declared under tariff item 8501 6410, which covers electric motors and generators excluding generating sets. The customs authorities reclassified the goods under tariff item 8502 3990, which includes generating sets and rotary converters other than those with spark ignition and compression-ignition internal combustion piston engines.

The HSN note (c) to tariff item 8501 excludes electric generators combined with prime movers from classification under 8501.

Court's Interpretation and Reasoning:

The original authority, after examining product literature and catalogue, found that the imported goods were electric generator sets using biogas as fuel. Since the goods combined a biogas engine (prime mover) and a generator (alternator), they did not fall under tariff item 8501 but were correctly classifiable under 8502 3990. The Tribunal affirmed this classification, holding that the goods were not merely generators but complete generating sets.

The appellant's contention that the goods should be classified as generators only, and thus eligible for exemption, was rejected on the ground that the goods are a combination of engine and generator and cannot be split into separate items for classification.

Key Evidence and Findings:

The product literature/catalogue clearly indicated the goods as electric generator sets using biogas as fuel. The invoices showed separate values for generator and engine, but the authorities held that the goods were imported as a combined generating set, not as separate components.

Application of Law to Facts:

The Tribunal applied the HSN explanatory notes and the Customs Tariff Act provisions to conclude that the goods fell within tariff item 8502 3990, not 8501 6410, based on their composite nature.

Treatment of Competing Arguments:

The appellant argued for classification under 8501 6410 to avail exemption, emphasizing the separate invoicing of components. The authorities and Tribunal dismissed this, emphasizing the physical and functional combination of the goods as generating sets.

Conclusions:

The classification under tariff item 8502 3990 was upheld as correct.

Eligibility for Exemption under Notification No. 12/2012-Central Excise

Relevant Legal Framework and Precedents:

The exemption notification no. 12/2012-Central Excise dated 17th March 2012 exempts 'bio-gas plant and bio-gas engine' under serial no. 332. The exemption applies to additional customs duty on goods that are non-conventional energy devices or systems, specifically those enumerated in list 8 of the notification.

Court's Interpretation and Reasoning:

The authorities found that the imported goods, being electric generating sets comprising a biogas engine and generator, did not qualify as 'bio-gas plant and bio-gas engine' within the meaning of the exemption notification. The Tribunal noted that the goods were generating sets and not solely bio-gas engines, thus not covered by the exemption.

However, the Court observed that the re-classification and consequent denial of exemption appeared to be based on the premise that 'generating sets' are excluded from the exemption. The Court found no explicit exclusion of goods under tariff items 8501 or 8502 from the exemption notification. Moreover, since the goods were admittedly not internal combustion piston engines, it was necessary to examine whether they qualified as non-conventional energy devices or systems under the notification.

Key Evidence and Findings:

The product literature and classification records confirmed the goods' nature as generating sets using biogas as fuel. The notification's text and list 8 were examined to determine coverage.

Application of Law to Facts:

The Court emphasized that the exemption notification must be interpreted in light of the characteristics of the goods, not merely their tariff classification. The absence of a clear exclusion of generating sets from the notification meant that the denial of exemption required a detailed examination of whether the goods were non-conventional energy devices or systems.

Treatment of Competing Arguments:

The authorities treated the goods as not qualifying for exemption due to their classification as generating sets. The appellant argued for exemption based on the nature of the goods as bio-gas energy devices. The Court found that the authorities failed to adequately analyze this aspect.

Conclusions:

The Court found the denial of exemption premature and lacking proper adjudication on whether the goods fell within the scope of the notification as non-conventional energy devices or systems.

Confiscation, Redemption Fine, and Penalty under Customs Act, 1962

Relevant Legal Framework and Precedents:

Section 111 of the Customs Act, 1962 provides for confiscation of goods in cases of misdeclaration or contravention of customs laws. Section 125 allows redemption of confiscated goods on payment of a fine. Section 112 provides for imposition of penalties for contraventions.

Court's Interpretation and Reasoning:

The authorities imposed confiscation under section 111(m) for wrong declaration, redemption fine of Rs. 6,00,000 under section 125(1), and penalty of Rs. 2,00,000 under section 112(a). The Court observed that since the classification and denial of exemption were not conclusively established due to the lack of proper examination of the goods' nature vis-`a-vis the exemption notification, the imposition of these detriments could not be sustained without proper adjudication.

Key Evidence and Findings:

The wrong declaration was premised on classification and exemption claim. Since these were under challenge and found to be inadequately adjudicated, the basis for confiscation and penalties was also questioned.

Application of Law to Facts:

The Court held that penal consequences flowing from classification and exemption denial must be based on sound and complete adjudication. The deficiency in adjudication on exemption coverage vitiated the imposition of penalties and confiscation.

Treatment of Competing Arguments:

The authorities relied on the classification and exemption denial to justify penalties. The appellant challenged the correctness of these findings and the consequent penalties. The Court found merit in the appellant's contention due to procedural and substantive gaps.

Conclusions:

The Court set aside the confiscation, redemption fine, and penalty imposed, remanding the matter for fresh adjudication.

3. SIGNIFICANT HOLDINGS

"There is nothing on record either in the notification [ no. 12 / 2012 - Central Excise dated 17th March 2012 ] or anywhere else that goods within 8502 of First Schedule to Customs Tariff Act, 1975 or 8501 of First Schedule to Customs Tariff Act, 1975 would not get the benefit of exemption."

"Even if the goods were covered by the re-determined tariff item and, more especially, as these were, admittedly, not 'internal combustion piston engines', it was necessary to examine the characteristics of the imported goods to determine if these be non-conventional energy devices or systems."

"In the absence of such finding, the re-classification and consequent denial of benefit of exemption, as well as detriments under section 111 and section 112 of Customs Act, 1962 does not find favour."

Core principles established include the necessity of a thorough examination of the nature and characteristics of imported goods vis-`a-vis exemption notifications, rather than relying solely on tariff classification for denial of exemption benefits. Penal consequences under Customs law must be predicated on sound and complete adjudication.

Final determinations:

- Classification under tariff item 8502 3990 was upheld as correct.

- Denial of exemption under notification no. 12/2012-Central Excise was set aside due to inadequate examination of the goods' nature.

- Confiscation, redemption fine, and penalty imposed were set aside.

- Matter remanded to the original authority for fresh adjudication on exemption eligibility after hearing the