2022 (5) TMI 1319 - AT - Customs

Classification of goods - Air conditioners with both heating and cooling functions under Custom Tariff - parts of Air Conditioner - admissibility of exemption under Notification No. 85/2004 (Cus) dated 31 August 2004 or Notification No. 46/2011 (Cus) dated 1 June 2011 - whether Air Conditioners need to be assessed on the basis of MRP/ RSP for the purpose of levy of countervailing duty - Confiscation - penalties - HELD THAT - The impugned goods namely RAC and CMVRF air conditioners are classified under the heading 841501010 and 84159000 as claimed by the appellants while filing the Bill of entry benefit of the exemption notifications as claimed under the Notifications 85/2004 CUS dated 31/08/2004 (S1.No.49), notification no.46/2011-Cus dated 01/06/2011 (SI.No. 1103 (1)) will be admissible to them. Adjudicating authority in para 6.2.4.1, 6.2.4.2 and 6.2.4.3 has after referring to the said notifications opined stating that the benefit of exemption under these notifications is admissible to the all goods classified under heading 8415010 and since he has held that these goods are classifiable under headings 84158110, 84158190, 84158210 i.e. the headings not specified under these exemption notifications, hence benefit of these exemption notification is not admissible to them. Since we have held that the classification of the impugned goods as determined by the adjudicating authority cannot be upheld, and the classification as claimed by the appellants at the time of filing the Bill of Entry is correct classification, benefit of exemption Notification No 85/2004-Cus as claimed by the appellants under heading 84151010 and 84151090 is admissible to them. Applicability of RSP based assessment for determination of the countervailing duty - HELD THAT - The demand that arises on the basis of RSP based assessment and determination of countervailing duty needs to be upheld. As the same has not be quantified separately the matter needs to be remanded back to the original authority for re-quantification of the demand on this account. In the analysis specific references have been made to mis-declarations etc, in respect of the declaration of RSP for the purpose of determination of the countervailing duty. In view of the specific findings recorded for determining the demand on account of mis-declaration/ non-declaration of RSP while determining the countervailing duty we are of the view that extended period of limitation will be invokable as per proviso to section 28 (1)/ Section 28 (4) of the Customs Act, 1962. The issue of classification of RAC and CMVRF air conditioners, upholding the classification as claimed by the appellants while filing the bill of entry, to be correct - benefit under the exemption notifications as claimed by them under notification No 85/2004-Cus to be admissible to them - the assessment for determination of countervailing duty to be made on the basis of the RSP, and not on the basis of the transaction value as claimed by the appellant. The matter needs to be remanded back to adjudicating authority for determination and re-quantification of demand accordingly - Appeal allowed by way of remand.

Summary

Issues Involved:
1. Classification of Air Conditioners with both heating and cooling functions under Custom Tariff.
2. Classification of the parts of Air Conditioner.
3. Admissibility of exemption under Notification No. 85/2004 (Cus) dated 31 August 2004 or Notification No. 46/2011 (Cus) dated 1 June 2011.
4. Whether the Air Conditioners need to be assessed on the basis of MRP/ RSP for the purpose of levy of countervailing duty.
5. Whether the goods are liable for confiscation and whether the importers, their employees, and the Custom Broker are liable to penalties.

Detailed Analysis:

I. Classification of Air Conditioners with both heating and cooling functions under Custom Tariff:
The Principal Additional Director General concluded that air conditioners with both heating and cooling functions should be classified under sub-heading 841581, as they incorporate a refrigerating unit and a valve for reversal of the cooling/heat cycle (reversible heat pumps). The adjudicating authority applied the General Rules for the Interpretation of Import Tariff, stating that classification should be made in the heading which is more specific. The tribunal, however, disagreed with this conclusion, emphasizing that the classification should be under heading 84151010, as claimed by the appellant, aligning with the Harmonized System of Nomenclature (HSN) and previous tribunal rulings in similar cases.

II. Classification of the parts of Air Conditioner:
For the parts of CMVRF imported separately post-2013, the adjudicating authority classified these as complete units under heading 84158110, applying the "test of essential character." The tribunal found this classification unsustainable, emphasizing that parts imported separately should be classified under heading 84159000. The tribunal cited the Supreme Court’s ruling in Sony India Pvt Ltd, which held that goods presented separately cannot be treated as complete units.

III. Admissibility of exemption under Notification No. 85/2004 (Cus) dated 31 August 2004 or Notification No. 46/2011 (Cus) dated 1 June 2011:
The adjudicating authority denied the benefit of these notifications, as the goods were classified under headings 84158110, 84158190, 84158210, which are not specified under the exemption notifications. The tribunal reversed this decision, granting the exemptions under Notification No. 85/2004-Cus and Notification No. 46/2011-Cus, as the correct classification should be under heading 84151010 and 84159000.

IV. Whether the Air Conditioners need to be assessed on the basis of MRP/ RSP for the purpose of levy of countervailing duty:
The adjudicating authority determined that the goods should be assessed on the basis of MRP/RSP for countervailing duty, as they are pre-packaged commodities under the Legal Metrology Act, 2009. The tribunal upheld this determination, noting the appellant’s admission and agreeing that the goods were liable for RSP-based assessment. The matter was remanded back to the original authority for re-quantification of the demand.

V. Whether the goods are liable for confiscation and whether the importers, their employees, and the Custom Broker are liable to penalties:
The adjudicating authority ordered the confiscation of goods and imposed penalties under Sections 112(a) and 114AA of the Customs Act, 1962. The tribunal set aside the order of confiscation and penalties related to classification and exemption issues, as these were determined in favor of the appellants. The tribunal also set aside penalties on the functionaries and the Custom Broker, citing the lack of specific roles assigned to them and the nature of the dispute being interpretative.

Conclusion:
The tribunal allowed the appeals partly, setting aside the orders of classification under heading 84158110 and penalties related to classification and exemption issues. The matter was remanded back to the adjudicating authority for re-quantification of the demand based on RSP assessment. The tribunal also upheld the Commissioner (Appeals) order for reassessment and issuance of a speaking order under Section 17(5) of the Customs Act, 1962, considering the tribunal’s observations on classification and exemption issues.