2020 (6) TMI 94 - AT - Customs

Classification of imported goods - Squalene - whether classified under CTSH 15042090 or CTSH 29012990? - penalty - HELD THAT - The chemical reports issued by CIFT and Customs Laboratory indicated the impugned product to be of marine origin. It is also confirmed by CIFT that the sample analysis was done using Perkin Elmer Gas Chromatograph FID equipped with a column specific for the analysis of fatty acids and hydrocarbons in oils. Therefore, it was confirmed that the sample was of marine origin and rich in Squalene. We find that whereas heading 1504 covers fats and oils of fish or marine mammals 2901 covers acyclic hydrocarbons - Heading 2901 refers to saturated and unsaturated acyclic hydrocarbons like ethylene, propene, butene, acetylene, heptane etc. which are organic compounds. Going by the literature available and the chemical reports, the impugned products is of marine origin and therefore can appropriately be classified under 1504 rather than 2901. The appellants have taken a plea that their product contains unsaponifiable matter in the range of 85% and therefore, it cannot be classified under 1504 as oil - We find that there is no reference to the percentage of unsaponifiable matter with respect to the classification under heading 1504. Even going by the principles of ejusdem generis‟ or Noscitur a sociis‟, the impugned goods being of animal origin are rightly classifiable under Chapter 1504. The test reports give a fair idea of the nature and characteristics of the product. In the instant case, CIFT and Customs Laboratories have reported that the impugned product is fish oil. Therefore, we find that it cannot be classified under Chapter 2901 as saturated or unsaturated acyclic hydrocarbons along with ethylene, propene, butene, acetylene, heptene etc. It is of a great common sense that any organic matter would contain hydrocarbons and for that very reason, it cannot be classified under the heading applicable to hydrocarbons. If such an approach is taken entire Customs Tariff as far as it deals with living beings, goods or plant or animal origin would become redundant. Moreover, there is no reason as to why a report given by a professional institute such as CIFT and accredited laboratory such as Customs Laboratory - the report given by CIFT and Customs Laboratory cannot be ignored. The importers, on the other hand, did not produce any test report in their favour. The appellants have taken the plea that they have been importing the impugned products over the years and the classification of the same was being accepted by the Customs authorities. There is no estoppel in revenue matters and Customs are not bound by any contradiction taken in the past owing to different set of circumstances and facts of the case. Based on the submissions of established practice penalty cannot be imposed just because Customs authorities have taken steps to correct the classification. During the course of arguments, learned counsel for the appellants, have requested that in case it is held that the goods are not permissible to be imported, the same may be allowed to be re-exported - such a request needs to be made before the proper authority who will take a decision in accordance with law and facts of the case. The appeal is allowed to the extent of setting aside the penalty - other pats upheld.

Summary

Issues Involved:
1. Classification of imported Squalene under the correct Harmonized System (HS) code.
2. Compliance with the conditions of the Advance Authorisation.
3. Validity of test reports and the authority of Customs in determining classification.
4. Dispute over the applicability of the prohibition clause under the Import Policy.

Detailed Analysis:

1. Classification of Imported Squalene:
The primary issue is whether the imported Squalene should be classified under HS code 15042090 (as claimed by the Department) or HS code 29012990 (as claimed by the appellants). The appellants argue that Squalene is an acyclic unsaturated hydrocarbon and should be classified under Chapter 29, which deals with organic chemicals. They provided chemical definitions and international trade data to support their claim. Conversely, the Customs Department, based on test reports from CIFT and Customs Laboratory, classified the product under Chapter 15, which deals with animal or vegetable fats and oils. The Tribunal found that the product, being of marine origin and rich in Squalene, is more appropriately classified under HS code 15042090.

2. Compliance with the Conditions of Advance Authorisation:
The appellants imported Squalene 80% under Advance Authorisation with the condition to export Squalene 99% within 18 months. They argued that the classification under Chapter 29 was necessary to meet the export requirements. The Tribunal noted that the classification of goods is determined by their nature and characteristics, not by the conditions of the Advance Authorisation. The Tribunal upheld the Customs' classification under Chapter 15, noting that the product did not meet the purity criteria for Chapter 29.

3. Validity of Test Reports and Authority of Customs:
The appellants challenged the validity of the test reports from CIFT and Customs Laboratory, arguing that they should not form the sole basis for classification. The Tribunal, however, emphasized that these accredited laboratories provided reliable and consistent results confirming the marine origin of the product. The Tribunal also reiterated that the Customs authorities have the final say in determining the correct classification of imported goods, as supported by precedents like the cases of CCE vs. BHEL and SKOL Breweries Ltd vs. CCE.

4. Dispute Over the Applicability of the Prohibition Clause:
The Tribunal addressed the appellants' claim that the product should not be classified under Chapter 15 to avoid the prohibition clause under the Import Policy for goods falling under HS code 15042090. The Tribunal found that the classification must be based on the product's characteristics, not on the import policy's prohibition clause. The Tribunal cited the Foreign Trade Policy and the DGFT's clarification, which stated that the Customs authorities have the authority to determine the correct classification. The Tribunal upheld the Customs' classification and noted that the prohibition clause was correctly applied.

Conclusion:
The Tribunal concluded that the imported Squalene is correctly classified under HS code 15042090, as it is of marine origin and rich in Squalene, fitting the description of fats and oils of fish or marine mammals. The appeal was allowed to the extent of setting aside the penalty, but the impugned order was upheld in all other respects. The Tribunal also noted that the appellants could request re-export of the goods from the proper authority.