2014 (5) TMI 1094 - CGOVT - Customs

Demand of excess drawback on the ground of wrongly classifying the products - Classification of item under drawback schedule Exported fish maws under claim of drawback under drawback schedule Sr. No. 0305 claiming drawback @ 2% which was initially sanctioned to them but department classified it under drawback heading 0511 attracting drawback @ 1% - Held that - the Fish Maws is a bladder/part of fish which is fit for human consumption as the same is used in Chinese food preparations. The chapter-3 of drawback schedule covers fish and crustaceans, Molluses and other Aquatic Invertebrates whereas chapter-5 covers products of Animal organ not elsewhere specified or included and are unfit for human consumption. Since the fish/fish maws specifically covered in chapter-3, its classification is to be considered in chapter-3 itself. Fish maws is a fish dried product and fit for human consumption and therefore it cannot be classified in Sr. No. 0511. There is no logic for classifying said item differently during the period prior to and after 1-1-2012. Moreover the drawback schedule entry in Sr. No. 0305 has remained the same before 1-1-2012 and after 1-1-2012 though rate of drawback has changed. As per reference Note 1 of Notification No. 92/2012-Cus. (N.T.), dated 4-10-2012 and earlier Notification No. 68/11-Cus. (N.T.), dated 22-9-2011, the duty drawback schedule is aligned with the first schedule to Customs Tariff Act 1975 at the four digit level only. The drawback schedule entry 0305 remained unchanged before and after 1-1-2012 and therefore classification of fish maw in Sr. No. 0511 before 1-1-2012 is not legally sustainable. Fish maws is rightly classifiable under drawback schedule Sr. No. 0305 for the period prior to 1-1-2012 also. Therefore, fish maws is rightly classifiable under drawback schedule heading 0305 during the period prior to 1-1-2012 and after 1-1-2012. The drawback claims initially sanctioned to the applicants were in order and order for recovery of drawback claim @ 1% is not legally sustainable. Therefore the orders sanctioning drawback claim @ 2% is upheld. - Decided in favour of appellant with consequential relief

Issues Involved:

1. Classification of Fish Maws for duty drawback purposes.
2. Correct duty drawback rates applicable to Fish Maws.
3. Validity of the demand-cum-show cause notices issued for excess drawback recovery.
4. Interpretation of relevant customs tariff headings and drawback schedules.
5. Impact of amendments in customs tariff and drawback schedules on classification.

Issue-wise Detailed Analysis:

1. Classification of Fish Maws for Duty Drawback Purposes:

The applicants, merchant exporters of fish and fish products, classified Fish Maws under drawback schedule Sr. No. 0305, claiming a drawback rate of 2%. The Department contended that Fish Maws should be classified under Sr. No. 0511, attracting a 1% drawback rate. The applicants argued that Fish Maws, being an edible product of fish origin, should be classified under Chapter 3 of the duty drawback schedule, which covers fish and crustaceans. The government observed that Fish Maws is a fish product fit for human consumption and should be classified under Chapter 3, not Chapter 5, which covers animal products unfit for human consumption.

2. Correct Duty Drawback Rates Applicable to Fish Maws:

The applicants initially received a 2% drawback rate for Fish Maws classified under Sr. No. 0305. The Department later demanded recovery of excess drawback, arguing that Fish Maws should be classified under Sr. No. 0511 with a 1% rate. The government noted that the drawback schedule Sr. No. 0305 covers fish products fit for human consumption, and Fish Maws, being an edible product, should be classified under this schedule. The government concluded that the initially sanctioned 2% drawback rate was appropriate.

3. Validity of the Demand-cum-Show Cause Notices Issued for Excess Drawback Recovery:

The Department issued demand-cum-show cause notices to the applicants, asking them to deposit the "excess" drawback received. The applicants argued that the classification of Fish Maws under Sr. No. 0511 was incorrect and that the notices were based on a wrong premise. The government found that Fish Maws was rightly classifiable under Sr. No. 0305, making the demand notices for excess drawback recovery unsustainable.

4. Interpretation of Relevant Customs Tariff Headings and Drawback Schedules:

The government examined the customs tariff headings and drawback schedules, noting that Fish Maws was classified under various tariff items of Chapter 03 for drawback claims. The Finance Bill 2011-12 introduced changes in the customs tariff, effective from 1-1-2012, including a specific tariff item for Fish Maws (03057200). The government observed that the classification of Fish Maws should remain consistent before and after 1-1-2012, as the nature and use of the product did not change.

5. Impact of Amendments in Customs Tariff and Drawback Schedules on Classification:

The government noted that the amendments to the customs tariff heading 0305, effective from 1-1-2012, included a specific entry for Fish Maws. Despite these changes, the drawback schedule Sr. No. 0305 remained unchanged. The government concluded that Fish Maws should be classified under Sr. No. 0305 for the period before and after 1-1-2012, and the initially sanctioned 2% drawback rate was appropriate.

Conclusion:

The government set aside the impugned orders and upheld the orders sanctioning the 2% drawback claim for Fish Maws. The revision applications succeeded, and the applicants were granted consequential relief.

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