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TMI Blog2024 (5) TMI 1156X X X X Extracts X X X X X X X X Extracts X X X X ..... de plates used in Nickel Cadmium batteries. The imported item was declared as "I-Mass POs Big Bag-Nickel Compound (Compound of Nickel Hydroxide (For Manufacturing Nickel-Cadmium Batteries)" classifying it under CTH 28254000 (Bill of Entry No. 4021025 dated 24.05.2021 refers). The issue involved in the present appeal pertains to the classification of the imported Nickel Hydroxide Compound. The Appellant preferred to classify the goods under CTH 28254000 as above. The Department entertained the view that the appellant mis-classified the subject import goods claiming undue benefit of 'Nil' rate of Basic Customs Duty (BCD) under Sl.No. 180 of Notification No. 50/2017-Customs. During the course of investigation, the Department drew and sent samples for testing and obtained a test report dated 16.06.2021 from the Custom House Laboratory as per which the subject imports consisted of Nickel Hydroxide along with Carbonaceous matter and small amount of Cobalt. Therefore it appeared as per the GIR, Section and Chapter Notes and the relevant HSN Explanatory notes to Chapter Heading 28, the imports were not classifiable under CTH 28254000. 1.3 In view of the above, the Department was of reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Tripura Ispat Vs. Union of India & Others wherein it was held by the Hon'ble Tripura High Court that if the Department was aggrieved by the order passed by the Assistant Commissioner, it was open for the Department to file an appeal against the order. It was contended that a Notice could not have been issued without going through the process of appeal under Section 128 as evident from the second proviso to Section128 A(3) of the Customs Act, 1962. 2.4 It was averred that the Appellant was denied the opportunity of responding to the pre-notice consultation process and hence the impugned notice was issued in contravention of the accepted principles of natural justice. 2.5 It was pointed out that the Hon'ble Supreme Court in Prathibha Processors Vs. Union of India [1996 (88) ELT 12(SC)] has held that when the duty is not payable due to exemption, there is no occasion or basis to levy any interest either. In view of the above, it was submitted that the demand for interest under the impugned order is not sustainable. 2.6 It was also contended that the impugned order has not reasoned as to how the appellant indulged in wilful mis-declaration rendering the imported goods liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d arise only if the department is able to sustain the demand. Similarly in the case of Commissioner of Central Excise, Aurangabad Vs. Balakrishna Industrioes [2006 (201) ELT 325 (SC)], the Hon'ble Supreme Court held that penalty is not imposable when differential duty is payable. In view of the above submissions, it was averred that penalty is not imposable as the demand itself was not sustainable. It was also pointed out relying on the decisions in Whiteline Chemicals Vs. Commissioner of Commissioner of Central Excise, Surat [2008 (229) ELT 95(Tri.-Ahmd.)] and Vadial Industries Ltd. Vs. Commissioner of Central Excise, Ahmedabad [2007 (213) ELT 157 (Tri.-Ahmd.)], that it is now a settled position that no penalty is imposable under Section 112(a) of Customs Act, 1962 in cases where the issue involves classification/exemption and the importer has acted bona fide. It was further submitted that in terms of the various decisions of the Hon'ble Supreme Court and various High Courts and Tribunals, penalty cannot be imposed on the assesse in the absence of mens rea on the part of the assessee. 2.8 It was submitted that the Appellant had clearly established the classification of the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iple of law laid down in the advance ruling though of a persuasive value in respect of third parties, it cannot be said that the principle of law will not be followed in future. 3.4 It was further submitted that in the Appellants own case reported in [2023 (12) CENTAX 21 (AAR-Cus-Mum)], it was held that the impugned goods are classifiable under CTH 28254000 and the jurisdictional Commissioner of Customs, Bangalore agreed to the above classification. 3.5 Further reliance was placed on the following judgements: (i) Saft India Pvt. Ltd. order dated 21.09.2023 by the Customs Authority for Advance Rulings, Mumbai (ii) Victory Electric Vehicles International Pvt. Ltd. Vs. Union of India [2022 (1) CENTAX 29 (Del.)] (iii) Damodar J. Malpani Vs. Collector of Central Excise [2002(146) ELT 483 (SC)] (iv) Hewlett Packard India Sales Pvt. Ltd. Vs. Commissioner of Customs (Import), Nhava Sheva [2023 (2) CENTAX 238 (SC)] (v) Western India Plywoods Ltd. Vs. Collector of Customs [2005 (188) ELT 365 (SC)] (vi) Commissioner of Commercial Tax, U.p Vs. Thermosets (Pvt.) Ltd. [2016 (339) ELT 500] (vii) Whirlpool Corporation Vs. Registrar of Trademarks, Mumbai [1998 (8) SCC 1] (viii) Am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of imported goods under the first schedule of Customs Tariff Act, 1975 is governed by the General Rules for Interpretation of Import Tariff. As per Rule 1 of GRI, classification of goods shall be determined according to the terms of the headings and any relative Section or Chapter Notes. If such headings or notes do not otherwise require then the classification is to be determined in accordance with Rule 2 to 6 of said Rules. Rule 6 of GRI stipulates that the classification of goods in the sub-headings of a heading shall be determined according to the terms of those sub-headings and any related sub-headings Notes and, mutatis mutandis, to the above rules, on the understanding that only sub-headings at the same level are comparable. For the purposes of Rule 1 of GIR, the relative Section and Chapter Notes apply, unless the context otherwise requires. This is the first Rule to be considered in classifying any product. In other words, if the goods to be classified are covered by the words in a heading and the Section and Chapter Notes do not exclude classification in that heading, that heading would apply to the said goods. As required under Rule 1 of GIRs, the classification of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Nickel Hydroxide is the main raw-material used in the manufacture of Nickel-Cadmium Batteries to make Positive plates. This Nickel Hydroxide is the main constituent with a small portion of co-precipitated Cobalt Hydroxide (Co(OH)2) and Graphite and balance % contain moisture for density. 12. Representative samples drawn of the item declared as I-MAS POs-Nickel Compound (Compound of Nickel Hydroxide) from the impugned Bills of Entry No. 4021025 dated 21.05.2021 and No. 4066865 dated 24.05.2021 were tested by the Customs laboratory which has given a report that the product as Nickel Hydroxide (60%-80%), Graphite and Cobalt Hydroxide with additives. The appellant has submitted that the imported goods were classified under CTH 28254000 adopting the classification globally by the supplier. 13. Main allegation of the Department is that imported product is a mixture of Nickel Hydroxide, Graphite and Cobalt Hydroxide and being a mixture of chemical compounds and an element cannot be classified under Chapter 28 of CTA, 1975. In terms of provisions of Note 1 to Chapter 28, only separate chemical element or separate chemically defined compound, whether or not containing impurities are cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is being repeated for clarity. 16. The Chapter Heading 28.25 to HSN explanatory notes reads as under:- "28.25 - Hydrazine and hydroxylamine and their inorganic salts; other inorganic bases; other metal oxides, hydroxides and peroxides. 2825.10 - Hydrazine and hydroxylamine and their inorganic salts 2825.20 - Lithium oxide and hydroxides 2825.30 - Vanadium oxides and hydroxides 2825.40 - Nickel oxides and hydroxides 2825.50 - Copper oxides and hydroxides 2825.60 - Germanium oxides and zirconium dioxide 2825.70 - Molybdenum oxides and hydroxides 2825.80 - Antimony oxides 2825.90 - Other This heading covers: A. Hydrazine and hydroxylamine and their inorganic salts. B. The metal oxides, hydroxides and peroxides of this Chapter not included in preceding headings. The most important products are : 1) .... 2) .... 3) ... 4) Nickel oxides and hydroxides. a) Nickelous oxide (NiO) is obtained by thoroughly calcining the nitrate or the carbonate. A greenish-grey powder, the density and shade of which vary with the method of preparation. It is used in the enamel industry, in the glass industry as colouring matter and in organic synthesis as a catalyst. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roxide (Ni (OH)2) with a small quantity of co-precipitated Cobalt Hydroxide. To enable electricity to percolate well formation of an electrically conductive network is imperative for an efficient utilization of the Nickel Hydroxide-based active material. The cobalt hydroxide is added mainly to impart electric conductivity to the Nickel Hydroxide and is readily oxidized at the time of initial charging to form an electrically conductive micro scale network comprising of Cobalt Oxyhydroxide. The graphite addition is mainly to aid in flowability of the Nickel Hydroxide Powder while being transported to briquetting machines or powder filling machines. It is the contention of the appellant that the mixture of Cobalt Hydroxide does not form any distinctive new product and remains Nickel Hydroxide of higher order and these additions do not render the product particularly suitable for a specific use. I-MAS POs-Nickel Compound (Compound of Nickel Hydroxide) even when mixed with Graphite and Cobalt, which are minor additions or additives, does not change its constituent material is their contention. The appellant further referred to the specific description criteria as per Rule 3(b) of GIR to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition or not has not been proved. Graphite was informed to act as an anti-caking agent in the imported product. It is also on record that both these will enhance the conductivity of the impugned product. It is also on record that the imported goods are meant for use in Nickel Cadmium Battery manufacturing. 22.1 In support of the contention that the imported product is classifiable appropriately under Chapter 28254000 of the Customs Tariff Act, 1975. The Ld. counsel has referred to two Advance Rulings as follows:- i. Ruling No. CAAR/Mum/ARC/2/2022 dated 19.01.2022 in the case of Smartage Projects Pvt. Ltd. and, ii. Ruling No. CAAR/Mum/ARC/65/2023 dated 21.09.2023 in the appellant's own case i.e, Saft India Private Limited, Karnataka. 22.2 An analysis of the above Advance Rulings indicate that in the first Advance Ruling in the case of Smartage Projects Pvt. Ltd., the applicant has stated that he intended to import Nickel Hydroxide (I-MAS Pos), (containing 78% to 80% of Nickel Hydroxide, 2% to 2.5% of Cobalt Hydroxide and balance Graphite) and wanted to classify the subject goods under Tariff Heading 28254000. The applicant therein has submitted as follows:- "3. The applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive electrode plates used in NICKEL CADMIUM batteries. Nickel-Cadmium batteries have two electrodes (Nickel and Cadmium Hydroxides) immersed in a Potash solution. The positive electrode consists of Nickel Hydroxide, while the negative one is made from Cadmium. The electrolyte is generally based on potash. The applicant has submitted that the NICKEL HYDROXIDE compound is majorly NICKEL HYDROXIDE (70-85%) with a small portion of co-precipitated Cobalt Hydroxide - Co(OH)2 (1-5%), and balance contains Graphite (12-18%) along with moisture (2-8%) for density and free flow ability. 8.1.1. Further, they have elaborated the process followed to make Nickel Hydroxide wherein Nickel Sulphate solution and small quantity of Cobalt Sulphate solution is gradually coprecipitated using an aqueous solution of Sodium Hydroxide with constant stirring, forming crystallized Nickel Hydroxide, which is subsequently washed, dewatered, and then dried. Thus, the active material for the positive electrode contains mainly of Nickel Hydroxide (Ni(OH)2) with a small quantity of co-precipitated Cobalt Hydroxide. To enhance electrical connectivity, formation of an electrically conductive network is imperative f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assified under 2825 40 00 at nil rate of duty." It is noted from the above that the basic contention of the appellant is addition of Cobalt Hydroxide and Graphite does not change the character and application of Nickel Hydroxide and Nickel Hydroxide does not act as a reaction initiator, accelerator or catalyst to any product which has been favourably considered by the Advance Ruling Authority in arriving at the issue of classification. 22.3.1 The second Advance Ruling in the case of Saft India Private Limited, Karnataka, the applicant has stated about his intention to import Nickel Hydroxide Compound (containing 92% to 100% of Nickel Hydroxide and balance of Cobalt hydroxide and Sodium Sulphate) and wanted to classify the subject goods under Tariff Heading No. 28254000. 22.3.2 The applicant therein has stated that he proposed to import a product which is majorly Nickel Hydroxide (ranging from 92% to 100%) as the main constituent in the compound with a very small portion of co-precipitated Cobalt Hydroxide - Co(OH)2 and balance contains Sodium Sulphate (Na2SO4). He has informed that the process followed to make Nickel Hydroxide is -Nickel Sulphate solution and small quantity of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Customs, Bangalore has agreed to the classification of the above product under CTH 28254000. 24. We have considered the above contentions of the Ld. counsel and also the decisions passed by the Advance Ruling Authority, in respect of, Smartage Projects Pvt. Ltd. and Saft India Private Limited, Karnataka as discussed above and also the provisions of GIR, Section Notes, Chapter Notes to Chapter 28 and HSN Explanatory Notes. 25. Any Advance Ruling is mandatorily applicable to the applicant and the concerned field formation and will have only persuasive value in respect of third parties. The provisions of the Customs Tariff Act and the correct interpretation of applicable GIRs, Section and Chapter Notes as applicable to the facts of the case are essential requirements for determination of any classification of any imported product under the Customs law. 26.1 We are of the considered opinion that the decision rendered by the Advance Ruling Authority in the case of Smart Age Projects Pvt. Ltd. (supra), the scope of Note 1 to Chapter 28 of Customs Tariff Act, 1975 has not been properly discussed and applied. How Cobalt Hydroxide is a permissible addition has not been spelt out. How the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Nickel Hydroxide is co-precipitated with Cobalt Hydroxide in order to enhance the conductivity of the end product obtained in the manufacturing process of Nickel Hydroxide and also there is an addition of Graphite. Admittedly, the above addition of Graphite and the process of co-precipitation with Cobalt Hydroxide is to enhance the conductivity of the final material obtained. Graphite has been reportedly added for flowability. 28. The Chapter Note 1 to Chapter Note 28, excludes any mixture of separate chemical elements or separate chemically defined compounds. Two conditions are required to be satisfied in terms of Chapter Note 1 i.e, (i) certain impurities can be left in a compound as long as such substances are not deliberately left in the product with a view to rendering it particularly suitable for specific use and (ii) the product is permitted to be dissolved in water and whenever any solvent is used, the solution obtained should be solely for safety or transport reasons or it should be acting as a stabiliser or anti-caking agent or it can be an anti-dusting agent or colouring substance in order to facilitate their easy identification. However, the addition of any subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... droxide compound is restricted or the product imported is made more suitable for Nickel Cadmium battery manufacturing. 31. In view of the above discussions, we are of the considered opinion that appropriate classification of the imported product is not under CTH 28254000 as classified by the appellant. It is to be pointed out that in terms of Rule 1 of the GIR, classification of goods has to be determined first according to the terms of Headings and relative Sections or Chapter Notes. GIR 2 to 6 are to be resorted only when classification could not be finalised in terms of the Heading, Section and Chapter Notes. As the classification has to be done in terms of the Chapter Heading and relative Section and Chapter Notes, I-MAS POs-Nickel Compound (Compound of Nickel Hydroxide), being a mixture of compounds goes out of Chapter 28 of CTA, 1975. 32. The Revenue has classified the product under CTH 38249900 as chemical products and preparations of the chemical or allied industries not elsewhere specified or included. Chapter 38 deals with Miscellaneous Chemical Products, Headings of Chapter 38 i.e., 3824 covers prepared binders for foundry moulds or cores. As the product consists of mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials such as Graphite and Cobalt. The Customs Notification has to be interpreted in a plain and simple manner and the technical literature available in public domain is to be taken into account for determining the eligibility of exemption and on application of the above analogy, the appeal fails on two counts that neither the description of the product imported matches with the description of the product as notified in the Notification nor the CTH as mentioned in Column (2) of the Notification matches. As such, the appellant is not eligible for the benefit of Notification No. 50/2017- Customs dated 30.06.2017. 36.1 The appellant has raised the issue of non-compliance to the Pre-notice Consultation Regulations before issuance of the Show Cause Notice dated 26.08.2021. The Adjudicating Authority relying on the Board's Circular No. 1053/2/2017-CX dated 10.03.2017 has concluded that such Pre-notice Consultation is not mandatory, in respect of preventive / offence related cases, and as, in this case, investigation was conducted by SIIB which would fall under the category of preventive / offence cases. The appellant has relied upon the decision in the case of Victory Electric Vehi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the considered view that there is no justification for setting aside the adjudication proceedings already completed as strict observance of the principle of natural justice have been complied with by according an opportunity of personal hearing and by considering the submissions made by the appellant before passing the impugned order dated 31.03.2022 by the Commissioner of Customs. In support of the above, we rely on the following decisions of Higher Judicial Authroities:- (i) Jurisdictional High Court of Madras in the case of Redington (India) Ltd. Vs. Director General of Goods and Service Tax, Intelligence, Chennai [2022 (62) GSTL 406 (Mad.)] held as follows:- "197. As far as challenge to impugned show cause notices on the ground that they have been issued contrary to the C.B.E. & C. Master Circular No. 1053/2/2017-CX, dated 10-3-2017, I am of the view that merely because there was no pre-consultation as per the said circular, it cannot be said that the proceedings are bad. These circulars neither binding on the Court nor are contemplated under the provisions of the Finance Act, 1994. 198. The aforementioned Master Circular is intended to only facilitate the defaulti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of GST and Central Excise, Chennai Outer Commissionerate under the Finance Act, 1994. The respective noticees can file their reply to the impugned show cause notice and meet out the allegations on merits. 10. I am therefore not inclined to interfere with the impugned show cause proceedings. The noticees are directed to file their separate reply to the show cause notices. 11. This writ petition stands dismissed with the above observations. There shall be no order as to costs. 28-1-2022" Part VII - Conclusion 202. The challenge to the proceedings which have been impugned in W.P. No. 24960 of 2021 and W.P. No. 17941 of 2020 (Category-2) on the ground of limitation etc., involves disputed questions of fact. Therefore these issues are best left to be adjudicated by the namely Central Excise Officer such a Central Excise Officer could be a different person from the person issued show cause notice as a Central Excise Officer under Section 73 of the Finance Act, 1994. 203. As long as the show cause notices have been issued by a competent officer under the Finance Act, 1994 read with relevant notification, challenge to the proceeding based on the alleged failure to follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion / mis-declaration on the part of the assessee. 37.2 Also, it has been held in the case of Lewek Altair Shipping Pvt. Ltd. Vs. Commissioner of Customs [2019 (366) ELT 318 (Tri.-Hyd.)] which has been affirmed by the Hon'ble Supreme Court that claiming an incorrect classification or the benefit of an ineligible exemption Notification does not amount to making a false or incorrect statement as it is not an incorrect description of the goods or their value but only a claim made by the assessee. The appellant has contended that he has given the description correctly in the Bills of Entry filed and as such their actions are bonafide and no malafide intention can be attributed to their actions. The Ld. Advocate has vehemently contended that the provisions of Section 111(m) of the Customs Act, 1962 cannot be invoked, even if the allegation against the appellant in respect of the mis-classification is held to be correct. 38. On the issue of imposition of penalty, it is submitted that the issue involved is one of classification or interpretation of terms of an exemption Notification, so penalty cannot be imposed as there was no intention to evade payment of duty. Reliance was placed o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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