2021 (12) TMI 13 - AT - Customs

Entitlement for concessional rate of duty - coated paper - classified under tariff item 4810 29 00 of the First Schedule to Customs Tariff Act, 1975 or not - legality and propriety of the approach adopted by the first appellate authority in the impugned order for upholding the classification redetermined by the assessing authority to deny eligibility to concessional rate of duty - HELD THAT - The decisions in HPL CHEMICALS LTD. VERSUS CCE, CHANDIGARH 2006 (4) TMI 1 - SUPREME COURT and in HINDUSTAN FERODO LTD. VERSUS COLLECTOR OF CENTRAL EXCISE, BOMBAY 1996 (12) TMI 49 - SUPREME COURT mandate that it is for Revenue to discharge the burden of justifying the appropriateness of the proposed alternative classification in conformity with the General Rules for Interpretation of the Harmonized System and it does not secure acceptance merely by discrediting the classification claimed by the assessee. In the present dispute, that onus can be discharged only by establishing that at least 90% of the fibre content of the pulp used for manufacture of the impugned goods has been derived from chemical processing of wood. The certification evincing the origin of the goods, and based on production process intimated by the manufacturer, is the threshold qualification for preferential rate of duty. The rules of origin stipulate ascertainment of the source, and extent, of content in a manufactured. The partial acceptance of origin in the certificate while casting aspersions on the classification therein is not consistent with treaty mandate of presumption of authenticity unless expressly established otherwise - The first appellate authority did not consider it necessary to ascertain the methodology of that determination even though the report was bereft of any explanation. Nor is there any submission that standard tests for determination of the pulp as having been extracted by chemical process was available in the laboratory. Such unqualified reliance on a single sentence in the test report which abdicates the statutorily empowered determination in favour of the laboratory certification is not dissimilar to the abdication of empowerment to assess in favour of the investigation agency as both remain in the lee of statutory accountability. Evolving technology in the paper industry, and particularly in qualitative improvement for catering to existing uses as well as new applications, has had to focus attention on the yellowing and brittleness associated with passage of time that affect paper made from pulp obtained by mechanical processing of wood - The mechanical processing of wood does little to the lignin content in pulp and, while chemi-mechanical processing has some impact, only chemical processing can render lignin free fibre. It is, therefore, the presence of lignin in paper that is the distinction for differentiating between that manufactured from pulp obtained by mechanical process or chemi-mechanical process and from chemical processing of wood. The descriptions in the relevant tariff items are emphatically unambiguous, the rules of classification clearly delineate the distinction and the onus for disturbing classification is unequivocally enunciated as the law of the land. The classification can be revised only by determination of the process by which the pulp was extracted - The coated paper , as certified by the competent authority designated under the Comprehensive Economic Partnership Agreement (CEPA), does not conform to the description corresponding to sub-heading 8410.13 of First Schedule to Customs Tariff Act, 1975. The denial of the benefit of the concessional rate of duty being improper, the impugned order is set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Entitlement for concessional rate of duty on the import of coated paper under the Indo-Japanese Comprehensive Economic Partnership Agreement (CEPA).
2. Classification of imported coated paper under the appropriate tariff heading in the Customs Tariff Act, 1975.
3. Validity of the test report and the evidence provided by the importer regarding the composition of the imported paper.
4. The impact of the statements made by the proprietor of the importing entity during the investigation.
5. The role and authority of the investigating agency and the customs authorities in determining the classification and duty rate.

Issue-wise Detailed Analysis:

1. Entitlement for Concessional Rate of Duty:
The primary issue revolves around whether the imported coated paper qualifies for a concessional rate of duty under the Indo-Japanese CEPA. The agreement stipulates that paper manufactured from pulp obtained by chemical processing or containing no more than 10% of fibre content obtained by mechanical or chemi-mechanical process is not entitled to the concessional rate. The appellant claimed the concessional rate under tariff item 4810 29 00, but the customs authorities reclassified the goods under tariff item 4810 13 90, denying the concessional rate.

2. Classification of Imported Coated Paper:
The dispute centers on the classification of the imported coated paper. The appellant declared the goods under tariff item 4810 29 00, which covers paper and paperboard coated on one or both sides with kaolin or other inorganic substances. The customs authorities, however, reclassified the goods under tariff item 4810 13 90, which applies to paper and paperboard used for writing, printing, or other graphic purposes, containing more than 10% of fibres obtained by mechanical or chemi-mechanical process. The reclassification was based on the assertion that the imported paper was manufactured entirely from chemically processed pulp.

3. Validity of the Test Report and Evidence Provided:
The customs authorities relied on a test report from the Central Revenue Control Laboratory (CRCL) which indicated that the paper was composed wholly of chemical pulp. The appellant contested the validity of the test report, arguing that it was incomplete and did not provide the methodology for determining the pulp content. The appellant also provided several documents from the manufacturer and the Japanese Chamber of Commerce certifying the composition and classification of the paper. However, these documents were dismissed by the customs authorities as insufficient.

4. Statements Made by the Proprietor During Investigation:
The customs authorities placed significant emphasis on the statements made by the proprietor of the importing entity, who allegedly admitted that the imported paper was manufactured from chemical pulp only. The appellant argued that this admission was not used with proper notice and that the context of the admission was not clear. The first appellate authority used this admission to validate the test report and justify the reclassification.

5. Role and Authority of Investigating Agency and Customs Authorities:
The customs authorities and the Directorate of Revenue Intelligence (DRI) played crucial roles in the investigation and reclassification of the imported paper. The appellant argued that the customs authorities abdicated their statutory responsibility by deferring to the investigating agency's influence and failing to conduct an independent and thorough assessment. The first appellate authority's approach was criticized for overstepping its jurisdiction by assuming investigatory functions and not adhering to the statutory mandate.

Conclusion:
The judgment concluded that the customs authorities failed to provide tenable evidence to justify the reclassification and denial of the concessional rate. The reliance on the test report, which lacked detailed methodology, and the proprietor's admission, which was not properly scrutinized, was deemed insufficient. The documents provided by the appellant, including certifications from the manufacturer and the Japanese Chamber of Commerce, were not given due consideration. The judgment emphasized the need for strict conformity with the conditions of the relevant notification and the proper burden of proof on the customs authorities. The impugned order was set aside, and the appeal was allowed with consequential relief.