2019 (3) TMI 524 - AT - Customs

Classification of imported goods - Kapok - While appellants claimed the classification under chapter 52, show cause notice was issued classifying the same under chapter 53, However on appeal Commissioner (Appeal) held that the said goods would classified under Chapter 14 - whether classified under Chapter Heading 1404 or otherwise? - Held that - As per the rules of interpretation of tariff, classification of the goods has to be decided on the basis of terms of Chapter Headings and Sub-headings & relevant Section Note and Chapter Notes. Further it has been held in various judicial pronouncements that the product should be classified as per the market and trade under-standing of the goods. In the present case the goods have been imported by the appellants for being supplied to Ministry of Defence and not for sale in local market. These goods have been supplied as Cotton to the Ministry Of Defence. Even the overseas supplier has also clarified that the goods supplied by them were Kapok Fiber (Java Kapok) was prime grade and super fine quality but not carded or combed. Commissioner has upheld the classification of the imported goods under heading 1404, by totally ignoring the chapter note 1 to Chapter 14. From the said Chapter Note, it is quite evident that vegetable materials or fibres of vegetable materials of a kind used primarily in the manufacture of textiles , get classified in Section XI. Commissioner (Appeal) has in his order not rendered any finding to this effect that the goods under importation were other than of a kind used primarily in the manufacture of textiles. It is quite evident that adjudicating authority has classified the goods considering them of a kind used primarily in the manufacture of textiles. Commissioner (Appeal) has not rendered any finding in this regards, but on the contrary held that goods are classifiable under heading 1404, after holding that Kapok Fibres prepared for use as textile material are classifiable in heading 5305 - Thus Commissioner (Appeal) was required to render a finding in this regards whether the imported goods namely Kapok was of a kind used primarily in the manufacture of textiles - the order of Commissioner (Appeal) without rendering such a finding cannot be sustained. The matter needs to be remitted back to Commissioner (Appeal) for determining the correct classification of goods as claimed by the Appellants or as adjudged by the adjudicating authority - appeal allowed by way of remand.

Summary

Issues Involved:
1. Classification of imported goods (Kapok).
2. Scope of Show Cause Notice and appeal.
3. Adjudication principles and adherence to Chapter Notes.

Detailed Analysis:

1. Classification of Imported Goods (Kapok):
The primary issue revolves around the correct classification of "Kapok." The appellants claimed classification under Chapter 52, heading 5201 (Cotton, not carded or combed), whereas the Show Cause Notice suggested Chapter 53, heading 5305 (Other vegetable textile fibres). The adjudicating authority upheld the classification under Chapter 53. However, the Commissioner (Appeal) modified this classification to Chapter 14, heading 1404 (Vegetable products not elsewhere specified or included).

The appellants argued that the classification under heading 1404 was beyond the scope of the Show Cause Notice and the appeal. They maintained that heading 5201 should include all varieties of cotton, including Kapok, citing technical literature and previous judicial decisions. They also contended that the goods were sold to the Ministry of Defence as "cotton."

The adjudicating authority, relying on technical literature, concluded that Kapok, also known as Java Cotton, is distinct from the cotton plant genus Gossypium and thus classified it under Chapter 53. The Commissioner (Appeal) held that Kapok should be classified under heading 1404, referencing HSN Explanatory Notes which specifically mention Kapok under this heading.

2. Scope of Show Cause Notice and Appeal:
The appellants contended that the Commissioner (Appeal) exceeded the scope of the Show Cause Notice and the appeal by classifying the goods under heading 1404 without prior notice. They argued that the classification should be confined to the headings discussed in the Show Cause Notice and the adjudication order. The appellants cited multiple judicial precedents and CBEC Circular No. 1053/2/2017 CX, which state that adjudication findings should not exceed the scope of the Show Cause Notice.

The Revenue argued that the appellants had themselves mentioned Chapter 14 in their reply to the Show Cause Notice and in their appeal memo, thus the Commissioner (Appeal) did not make a new case.

3. Adjudication Principles and Adherence to Chapter Notes:
The Tribunal emphasized that classification must be based on the terms of Chapter Headings, Sub-headings, and relevant Section and Chapter Notes. It noted that Chapter Note 1 to Chapter 14 explicitly excludes "vegetable materials or fibres of vegetable materials of a kind used primarily in the manufacture of textiles." The Commissioner (Appeal) failed to render a finding on whether the imported Kapok was of a kind used primarily in the manufacture of textiles, which was necessary to determine the correct classification.

The adjudicating authority had recorded that Kapok is conventionally used for stuffing pillows and insulation packing and can be blended with cotton for spinning yarn, indicating its use in textiles. The Tribunal found that the Commissioner (Appeal) overlooked this aspect and incorrectly classified the goods under heading 1404 without addressing whether they were primarily used in textiles.

Conclusion:
The Tribunal set aside the order of the Commissioner (Appeal) and remanded the matter back for redetermination of the correct classification, emphasizing the need to adhere to the scope of the Show Cause Notice and the principles of classification as per the Chapter Notes. The Commissioner (Appeal) was directed to decide the matter within four months, considering all material on record and rendering a clear finding on the primary use of the imported goods.