2022 (9) TMI 1109 - AT - Customs

Classification of imported goods - diagnostic kits ELISA - diagnostic kits CLIA - diagnostic reagents on backing - controls and calibrators - other consumable reagents - to be classified under tariff item 3822 0019 or 3822 0090 of First Schedule to Customs Tariff Act, 1975 - applicability of N/N. 1/2017 Integrated Tax (Rate) dated 28th June 2017 which prescribes the rates at which integrated tax is to be levied on inter-state supply of goods - HELD THAT - It is not the case of Revenue that any or all of the impugned goods do not find fitment in heading 3822 of the First Schedule to Customs Tariff Act, 1975 or that the integrated tax rate at serial no. 80 of Schedule II is, by the corresponding description, unquestionably excluded from every tariff item comprising heading 3822 of the First Schedule to Customs Tariff Act, 1975. Nor is it the case of Revenue that the kits at serial no. 180 of Schedule I of the integrated tax rate notification do not find placement in chapter 38 of First Schedule to Customs Tariff Act, 1975. The exercise in classification undertaken in adjudicating the proposal to take recourse to an alternate entry should have adhered to the judicially established rules of engagement. Instead of deliberating on the validity, and appropriateness, of a tariff item in the First Schedule to Customs Tariff Act, 1975 other than that claimed in the bills of entry after due notice to the importer, the adjudicating authority adopted a process of elimination of the enumeration of descriptions in the Schedules to the integrated tax rate notification, and ignoring the scheme of its presentation, with the erroneous assumption of jurisdiction to place goods within the ambit of the residuary entry in Schedule III of the integrated tax rate notification. Insofar as the imported goods are concerned in the light of statutory circumscribing of levy of integrated tax', and there being no prejudice to interests of revenue thereby, the declared classification of the imported goods prevails. Legislative intent is not imposition of burden of integrated tax on the person importing goods and the onus for altering classification has not been discharged. The charge of misdeclaration of goods does not sustain and hence confiscation and penalty are also set aside. Appeal allowed.

Issues Involved:

1. Classification of imported diagnostic kits and reagents.
2. Applicability of integrated tax rates under the GST regime.
3. Jurisdictional competence of customs authorities to determine GST classification and rates.
4. Legality of reclassification and imposition of higher tax rates.
5. Validity of confiscation and penalty imposed on the importer.

Issue-wise Detailed Analysis:

1. Classification of Imported Diagnostic Kits and Reagents:

The appellant, M/s Ortho Clinical Diagnostics India P Ltd, contested the classification of their imported goods, which included 'diagnostic kits - ELISA', 'diagnostic kits - CLIA', 'diagnostic reagents on backing', 'controls and calibrators', and 'other consumable reagents'. The appellant claimed classification under tariff item 3822 0019 of the First Schedule to the Customs Tariff Act, 1975. The adjudicating authority, however, reclassified the goods under tariff item 3822 0090 to deny the claim for lower tax rates under the GST regime.

2. Applicability of Integrated Tax Rates Under the GST Regime:

The appellant argued for the application of lower integrated tax rates as per notification no. 01/2017 - Integrated Tax (Rate) dated 28th June 2017. Specifically, they sought a 5% tax rate for 'enzyme linked immunoabsorbent assay (ELISA) kits' and 'CLIA diagnostic kits' under serial no. 180 of Schedule I, and a 12% tax rate for 'all diagnostic kits and reagents' under serial no. 80 of Schedule II. The adjudicating authority, however, applied an 18% tax rate under the residuary serial no. 453 in Schedule III, arguing that the goods were not specified in the other schedules.

3. Jurisdictional Competence of Customs Authorities to Determine GST Classification and Rates:

The Tribunal questioned its own statutory competence and that of the subordinate authority to adjudicate on the classification and tax rates under the GST regime. It noted that the integrated tax on imported goods is to be levied and collected in accordance with section 3 of the Customs Tariff Act, 1975, but the rate is determined under section 5 of the Integrated Goods and Services Tax (IGST) Act, 2017. The Tribunal emphasized that the power to dispute the rate claimed by an importer lies with central tax officers, not customs officers.

4. Legality of Reclassification and Imposition of Higher Tax Rates:

The Tribunal found that the adjudicating authority had erred in reclassifying the goods without proper evidence and discussion. It highlighted that the burden of proof for reclassification lies with the Revenue, as per the Supreme Court rulings in HPL Chemicals Ltd v. Commissioner of Central Excise, Chandigarh and Hindustan Ferodo Ltd v. Collector of Central Excise, Bombay. The adjudicating authority's process of elimination and assumption of jurisdiction to apply the residuary entry was deemed inappropriate.

5. Validity of Confiscation and Penalty Imposed on the Importer:

The Tribunal held that the charge of misdeclaration of goods did not sustain, as the Revenue failed to discharge the burden of proof for reclassification. Consequently, the confiscation and penalty imposed under sections 111 and 112 of the Customs Act, 1962, were set aside.

Conclusion:

The Tribunal allowed the appeal, ruling that the declared classification of the imported goods by the appellant prevails. It set aside the confiscation and penalty, providing consequential relief to the appellant. The judgment emphasized the importance of jurisdictional competence and proper adherence to statutory provisions in tax classification and levy.

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