2009 (12) TMI 786 - AT - Customs

Classification of imported flavour compounds - classified under CTH 33.02 or 33.01 - benefit of N/N. Sl. No. 119 of Notification No. 21/02-Cus., dated 1-3-02 - Held that - On a careful reading of the exclusion clause of the notification, it would be clear to qualify for exemption three conditions are to be satisfied i.e., (i) it should be a compound, (ii) it should also be of a kind used for the manufacture of beverages and (iii) the same should have an alcoholic strength by volume exceeding 0.5 percent determined at 20 degrees centigrade. Thus, even though there is no specific mention or explanation either in the chapter heading 33.02 or Section Notes/Chapter Notes in the Customs Tariff from the exclusion clause in Notification No. 21/2002-Cus., dated 1-3-2002, it could be made out as to what the item compound alcoholic preparation is - In the instant case M/s GIPL fairly admit in their reply dated 28-2-2007 that the alcoholic strength by volume in the imported flavours in question is exceeding 0.5% and such flavours are used for the manufacture of beverages. However they claim that the Customs exemption Notification No. 76/86-Cus., dated 17-2-1986 explains about the compound alcoholic preparations . There is no doubt that the flavours in dispute comprise of two or more elements, to call them a compound . Further, M/s. GIPL have admitted that such flavours are used in beverage industry and the alcoholic strength therein by volume exceeds 0.5%. Accordingly the imported flavours in this case satisfy all the criteria to call them compound alcoholic preparations. M/s GIPL have not advanced any other argument to substantiate their claim that the imported flavours are not compound alcoholic preparations. 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. Commissioner may examine if the appellant was aware of the misdeclaration involved and yet did not bring the same to the notice of the authorities and facilitated misdeclaration of the description of the goods - appeal allowed by way of remand.

Summary

Issues Involved:
1. Classification of imported goods.
2. Eligibility for concessional duty under Notification No. 21/02-Cus.
3. Validity of invoking a longer period for demand.
4. Penalties imposed on GIPL and its employees.
5. Penalty imposed on the Customs House Agent (CHA).

Detailed Analysis:

1. Classification of Imported Goods:
The primary issue was whether the imported flavour compounds fell under Chapter Heading 33.02 as "compound alcoholic preparations" used for the manufacture of beverages. GIPL admitted the classification under Chapter Heading 33.02 but argued that the goods were raw materials and not compound alcoholic preparations. The Tribunal found that the goods were indeed compounds of odoriferous substances in alcohol, used for the manufacture of beverages, and thus classified correctly under Chapter Heading 33.02.

2. Eligibility for Concessional Duty under Notification No. 21/02-Cus:
The Tribunal examined whether the imported goods qualified for the concessional duty under Sl. No. 119 of Notification No. 21/02-Cus. The notification excluded "compound alcoholic preparations of a kind used for the manufacture of beverages, of an alcoholic strength by volume exceeding 0.5%." The Tribunal found that the imported goods met all three conditions: they were compounds, used for manufacturing beverages, and had an alcoholic strength exceeding 0.5%. Therefore, they did not qualify for the concessional duty and GIPL was liable to pay the differential duty.

3. Validity of Invoking a Longer Period for Demand:
GIPL argued that the longer period could not be invoked due to the assessing officer's mistake. However, the Tribunal found that GIPL had misdeclared the goods and manipulated documents to evade duty. The Tribunal upheld the invocation of the longer period, noting that GIPL had deliberately suppressed facts and misdeclared the goods to avail undue benefits.

4. Penalties Imposed on GIPL and Its Employees:
The Tribunal upheld the penalties imposed on GIPL and its employees under Section 114A of the Customs Act, 1962. The employees, being responsible functionaries, were found to have suppressed facts and facilitated the evasion of duty. The penalties were sustained to the extent of the revised duty liability. The Tribunal remanded the matter to the Commissioner for a fresh decision on the penalties for the remaining flavour compounds.

5. Penalty Imposed on the Customs House Agent (CHA):
The Tribunal examined the penalty imposed on the CHA, Shri Veeresh Gowda, under Section 112(a) for not advising the importer as per Rule 13 of the Custom House Agents Regulations, 2004. The Tribunal noted that unless it was proven that the CHA knowingly entered false details in the import documents, he could not be held liable for abetting the misdeclaration. The Tribunal remanded the matter to the Commissioner to examine if the CHA was aware of the misdeclaration and facilitated it.

Conclusion:
The Tribunal partly allowed the appeal filed by GIPL by way of remand for a fresh decision on the remaining flavour compounds and the penalties for its employees. The appeal filed by the CHA was also allowed by way of remand for further examination. The Tribunal upheld the decision that the beverage flavours used for manufacturing beverages were not eligible for the concessional duty under Notification No. 21/02-Cus. The penalties imposed on GIPL and its employees were sustained to the extent of the revised duty liability.