2024 (7) TMI 1571 - AT - Customs

Re-classification of imported goods - goods claimed by the importer to be penetrating oil 60 (for industrial use) , conforming to description corresponding to tariff item 3403 9900 of First Schedule to Customs Tariff Act, 1975, was held to be diesel oil chargeable to duty corresponding to tariff item 2710 1990 of First Schedule to Customs Tariff Act, 1975 by relying upon test reports of the Central Revenue Control Laboratory (CRCL) and, thereby, in violation of canalising restriction in the Foreign Trade Policy. HELD THAT - From a perusal of the finding of the original authority, and sustained in the impugned order, which relied upon the test reports for overruling the declared classification solely by the content of petroleum oils or oils obtained from bituminous minerals being above 70%, the test report, at serial number 11, offers no clue about the manner of computation or conformity thereof with the heading proposed in the show cause notice. In both the test reports relied upon, besides indicating lack of conformity with IS 1460 in that of their own laboratory and in that of the state level coordinator oil industry of sample not meeting the test of high speed diesel, the possibility of conforming to the other tariff line for diesel oil had not been considered. That is a flaw in the classification exercise which the lower authorities were required to in the light of the reports of non-conformity. The adopted tariff item is not intended to cover adulterated diesel oil but oils and preparations other than light oils and preparations and, in the absence of clear finding of not being light oil as to merit classification under sub-heading 2710 19 of First Schedule to Customs Tariff Act, 1975, the only available fitment is as preparations which was the claim of appellant too, albeit in a different heading - the finding of the impugned goods as preparations has not been subjected to conformity with the text of the adopted description. This is yet another ground for invalidating the classification adopted by the lower authorities. The adopted heading, for preparations , requires the article to comprise not only 70% or more by weight of petroleum oils or oils obtained from bituminous minerals but also of these as the basic constituents; the second qualification is not evident in the reports. The report of the state level coordinator is even lacking in reference to weight and, despite lack of whisper even about basic constituent, the lower authorities were not constrained in presuming so - The test reports are lacking in isolation of the source as petroleum oil or bituminous oil and the lower authorities appear not to have noticed that heading 2710 of First Schedule to Customs Tariff Act, 1975 is not restricted to petroleum or bituminous sources; it was, therefore, necessary to identify the specific source before venturing upon the residual sub-heading below. It is clear that the test for validation of re-classification devolving on the proper officer of customs by judicial mandate and by legislative obligation has not been conformed to and, consequently, the classification adopted by the lower authorities is not in accordance with law. It is found that the classification declared in the bill of entry would suffice for assessment. The lower authorities have ventured upon rejection of declared value under rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 solely on the finding that the impugned goods are diesel oil. It is not required to examine the correctness of the rule applied for re-determination of value inasmuch as the foundation for proceeding to rule 3(4) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 has been displaced. Consequently, re-determination of value as well as re-assessment of the duty liability do not have any basis in law. The goods having been correctly declared, both in terms of description as well as value, case for confiscation under section 111(d) of Customs Act, 1962 and section 111(m) of Customs Act, 1962 as the goods imported are neither adulterated nor canalized, does not have authority of law. The impugned order is set aside and appeal allowed.

Issues Involved:

1. Re-classification of imported goods and its validity.
2. Determination of duty liability and valuation of goods.
3. Legitimacy of confiscation and penalties imposed under the Customs Act, 1962.
4. Compliance with procedural and evidentiary standards in classification and valuation.

Detailed Analysis:

1. Re-classification of Imported Goods and Its Validity:

The core issue revolves around the classification of goods imported by the appellant, initially declared as 'penetrating oil - 60 (for industrial use)' under tariff item 3403 9900 of the Customs Tariff Act, 1975. The authorities reclassified it as 'diesel oil' under tariff item 2710 1990, based on test reports from the Central Revenue Control Laboratory (CRCL). The appellant contested this reclassification, arguing that the test reports did not conclusively match the standards for automotive diesel fuel and that the goods were intended for industrial use, fitting the description under the initially declared tariff heading. The adjudicating authority's reliance on the test reports was flawed, as they failed to conclusively demonstrate the goods as diesel oil. Furthermore, the classification exercise lacked the necessary evidence and did not follow the rules set out by the Supreme Court, which places the burden of proof on the Revenue to justify reclassification. The tribunal found that the classification adopted by the lower authorities was not in accordance with law, as it did not adhere to the General Rules for Interpretation of the Import Tariff.

2. Determination of Duty Liability and Valuation of Goods:

The reclassification led to a differential duty liability, which was contested by the appellant. The authorities rejected the declared value under rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, leading to a re-determination of value under rule 3(4). However, the tribunal found that the foundation for proceeding to re-determination of value was invalid, as the goods were incorrectly reclassified. Consequently, the re-determination of value and the assessment of duty liability lacked any legal basis.

3. Legitimacy of Confiscation and Penalties Imposed Under the Customs Act, 1962:

The goods were ordered to be confiscated under sections 111(d) and 111(m) of the Customs Act, 1962, with penalties imposed under sections 114A and 114AA. The tribunal found that the confiscation and penalties were unjustified, as the goods were neither adulterated nor canalized, contrary to the findings of the lower authorities. The tribunal emphasized that the goods were correctly declared in terms of both description and value, and thus, there was no authority of law for the confiscation and penalties imposed.

4. Compliance with Procedural and Evidentiary Standards in Classification and Valuation:

The tribunal highlighted the procedural lapses and lack of evidentiary support in the classification and valuation process. The adjudicating authority's reliance on inconclusive test reports and failure to provide adequate evidence for reclassification and revaluation were critical points of contention. The tribunal reiterated the need for customs authorities to adhere to procedural standards and judicial mandates, emphasizing that the onus of proof lies with the Revenue in classification disputes. The tribunal's decision to set aside the impugned order underscores the importance of compliance with legal and procedural standards in customs adjudication.

In conclusion, the tribunal allowed the appeal, setting aside the impugned order due to the lack of legal basis for the reclassification, revaluation, and penalties imposed on the imported goods.

← Previous Next →