2020 (7) TMI 239 - AT - Customs

Classification of goods - water signal / sensors, pressure sensors, heart film air mass meters / air mass sensors and temperature sensors - whether classified under Heading 9026 or under 9032? - HELD THAT - It is not categorically stated anywhere that the impugned instruments are capable of controlling the main machines; it is stated that the measurement is accurate and improves the engine performance. It is not coming forth from the literature that these are capable of triggering the stop or start of the engines. Thus, the Revenue could not establish the controlling feature of the instruments. Therefore, Revenue has not discharged its final responsibility to establish the correctness of the classification proposed by them. It was open to the Department to investigate the matter further to establish with cogent evidence to substantiate their contention. Revenue was within their rights to obtain any technical opinion to establish the classification of the instruments under Heading 9032 and to counter the claim of the appellants about the classification under Heading 9036. The same having not been done, there is no evidence to contradict the claim of the appellants. The appellants should be eligible to classify the goods under 9026 - Also, as it is not evidenced that the instruments do not have any mechanism to control or trigger, start or stop of the engine, in view of the HSN Explanatory Notes, they cannot be classified under 9032. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of imported water sensors under the Customs Tariff Act.
2. Burden of proof for reclassification of goods by the Revenue.
3. Validity of demand for differential duty and interest without challenging the original Bill of Entry assessments.

Detailed Analysis:

1. Classification of Imported Water Sensors:
The primary issue revolves around whether the imported water sensors should be classified under Tariff Item 9026 80 90 or 9032 89 90 of the Customs Tariff Act. The appellants argued that the water sensors are measuring devices, classifiable under Tariff Item 9026 80 90, which pertains to instruments for measuring or checking the flow, level, pressure, or other variables of liquids or gases. They emphasized that the water sensors measure the water level in the fuel system and signal the driver when it reaches a predetermined level, without automatically controlling or regulating the system.

Conversely, the Revenue proposed reclassification under Tariff Item 9032 89 90, which covers automatic regulating or controlling instruments and apparatus. They contended that the water sensors, by monitoring and regulating the water level, fall under this category as per Chapter Note 7(a) of Chapter 90 and the HSN Explanatory Notes, which require such instruments to measure, compare with a desired value, and actuate a regulating device.

2. Burden of Proof for Reclassification:
The appellants maintained that the burden of proof lies with the Revenue to justify the reclassification. They cited several precedents, including Hindustan Ferrodo Ltd Vs CC Bombay, Singhla Sales Corporation Pvt Ltd Vs CC Amritsar, and M.P. Dyechem Industries Vs CCE, Bhopal, to assert that the onus is on the Department to provide substantial evidence for any change in classification.

The Tribunal agreed with the appellants, noting that the Revenue failed to conclusively prove that the water sensors possess the automatic regulating or controlling capabilities required for classification under Tariff Item 9032 89 90. The Tribunal emphasized that the literature provided by the Revenue did not categorically state that the sensors could control the main engines, thus failing to meet the criteria outlined in the HSN Explanatory Notes.

3. Validity of Demand for Differential Duty and Interest:
The appellants argued that the demand for differential duty and interest under Section 28 of the Customs Act, 1962, was unsustainable as the original assessments in the Bills of Entry were not challenged. They referenced the case of Pratibha Processors v. Union of India, which held that interest demand is not sustainable if the duty recovery itself is not justified.

The Tribunal concurred, stating that since the Revenue did not challenge the original assessments and failed to provide sufficient evidence for reclassification, the demand for differential duty and interest was invalid. The Tribunal further noted that the appellants' classification under Tariff Item 9026 80 90 was appropriate, given the lack of evidence to the contrary.

Conclusion:
The Tribunal concluded that the appellants' classification of the water sensors under Tariff Item 9026 80 90 was correct. The Revenue did not discharge its burden of proof to justify reclassification under Tariff Item 9032 89 90. Consequently, the demand for differential duty and interest was not sustainable. The appeal was allowed with consequential relief as per law.