2024 (2) TMI 1508 - AT - Customs

Classification of imported goods - front cover middle cover and back cover and few other parts of the mobile phones - to be classified under CTH 85177090 or under CTH 39209999? - front lenses and camera lenses imported by the appellants classifiable under CTH 90021100/85177090 (as claimed by the appellants) or under CTH 39209999? - determination of classification of goods by exemption notification issued by the Government under Section 25 of the Customs Act - scheme notified by the MeiTY determine the classification of the goods or not - demand be raised under section 28 by the department without filing an appeal before the Commissioner (Appeals) against the selfassessment or not - recovery of differential duty - confiscation - interest - penalty. Assessment of Customs Duty - HELD THAT - Assessment concludes the determination of the liability of the importer to pay duty and is similar to a decree under the Civil Procedure Code 1908 CPC Section 2 (2) of CPC defines decree as It means the formal expression of an adjudication which conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit. Assessment differs from decree inasmuch as the determination of what is due from the importer as duty is not made by a Court of law but the duty is determined through a quasi-judicial process by the proper officer who re-assesses the duty or is self-determined by the importer. Just like a decree in Civil suits there is a provision for appeal against assessment. It is appealable by both sides to the Commissioner (Appeals) under section 128 and also to further higher judicial fora. The Commissioner (Appeals) does not assess but either affirms modifies or annuls the assessment order. In this process the Commissioner (Appeals) may also decide the issue of classification of the goods. Similarly on appeals the Tribunal or Supreme Court either sustain or set aside the orders of the Commissioner (Appeals) and in the process they may also decide the classification. The Risk Management System RMS of the Indian Customs Electronic Data Interchange EDI system clears many consignments of imported goods based on selfassessment by the importer without the proper officer ever getting an opportunity to examine the self- assessment and reassess the goods. Some such cases the Bills of Entry are subject to Post Clearance Audit PCA while others are not even subjected to such audit. A question which arises is if a Bill of Entry which is only self-assessed by the importer without any re-assessment can it also be appealed against to the Commissioner (Appeals) under Section 128. Demands under Section 28 - HELD THAT - The power to assess duty lies with the importer and the proper officer. Classification valuation and applying an exemption notification are all part of the process of this assessment. Hence the power to decide the classification lies with the importer during self- assessment with the proper officer during re-assessment and while issuing an SCN under Section 28 and while adjudicating with the Adjudicating Authority and with any appellate authority in the judicial hierarchy who deals with the appeals. Classification cannot be decided by anybody else (such as a MeITY in these cases) for two reasons. First they do not have the authority to assess under Section 17 nor have any appellate powers to modify the assessment. Second their orders letters notifications etc. are executive actions performed at the discretion of the government and are not quasijudicial or appealable decisions. Therefore any HSN code indicated against any goods in any policy of MeITY or any other Ministry cannot determine the classification of the goods under the Customs Tariff. Of the three grounds on which the classification is proposed to be changed in these SCNs the policy of MeITY as a ground cannot therefore be sustained. Exemption notifications - HELD THAT - During assessment the goods must be first classified and thereafter it must be examined if the notification applies or not and not the other way round. Issue or withdrawal or modification of a notification cannot determine the classification. The proposals in the SCNs to re-classify the goods relying on a notification are not correct. The reasoning in the SCNs is that since the front cover middle cover and back cover will be exempted under the notification if they fall under CTH 39209999 it means all front cover back cover and middle covers fall under CTH 39209999. This logic cannot be accepted because the issue of exemption notification is a quasi-legislative function of the Government (and is not appealable) and is not a quasi-judicial function of assessment including classification which is appealable. A plain reading of the exemption notification also does not show that it intends to decide the classification of the goods under any heading. It only says that if the goods which match the description also fall under the tariff heading they will be exempt. Confiscation of goods under Section 111(m) and consequent penalty under Section 112 - HELD THAT - The case of the Revenue in this appeal is that the classification of the goods by the importers in self assessment was not correct. Even if the classification was not correct it does not render them liable to confiscation under Section 111(m). Similarly there could be cases where according to the Revenue the exemption notification claimed during self assessment will not be available to the imported goods. The importer self-assessing the goods must apply his mind when classifying the goods and not predict the mind of the proper officer. Classification of the goods by the importer even if it is not in conformity with the re-assessment by the proper officer or even if it is held to be not correct in any appellate proceedings does not render the goods liable to confiscation under Section 111(m) - no penalty can be imposed under Section 112 on the appellants for the alleged wrong classification. The appellants cannot be penalized for holding a different view than the proper officer. Classification of goods - front cover middle cover battery cover back cover front cover housing middle cover housing and back cover housing of mobile phones - HELD THAT - In Karnataka Power Corporation 2016 (3) TMI 296 - CESTAT CHENNAI the dispute was whether imported parts of Hydro Electric Generator i.e. Epoxy insulated single turn half coils with accessories and Epoxy insulated single turn half coils wave stator windings etc. were classifiable under 8503 or under 8544. Applying Section note 2 (b) to Section XVI it was held that the goods were suitable solely or principally for the generator and hence classified along with them under 8503. This case is on a different issue- whether the parts are to be classified as parts of mobile phones or as articles of plastic under Chapter 39. In General Mills India 2019 (8) TMI 689 - CESTAT MUMBAI the dispute was regarding the classification of granola bars and the classification was decided in favour of the importer. In Atul Kaushik the question was about addition of certain elements in the valuation. The rejection of the appellants classification of the front cover middle cover battery cover back cover front cover housing middle cover housing and back cover housing of mobile phones under CTH 85177090 in the impugned orders and their re-classification under CTH 39209999 cannot be sustained and needs to be set aside. Classification of lenses - HELD THAT - There are no reason to even consider them as being classifiable under 39209999 as plastic sheets blocks etc. because these are not in geometric shapes at all and therefore cannot be classified under CTH 3920 - The learned Commissioner however dismissed the test report and classified them as articles of plastic under CTH 3920 without giving any reasons for doubting the assertion of the appellant that they were made of crystal or the test report produced by the appellant. No samples were drawn or tested by the Customs to demonstrate that they were made of plastic. In the absence of any evidence from the Revenue the appellant importer s declaration regarding the nature of the goods and the test reports that it had submitted must be accepted. If Revenue had a doubt regarding the declaration or the reports it is for the Revenue to produce evidence in support and there is none whatsoever in this case. Thus there are no justification whatsoever to classify lenses of mobile phones under 39209999 in the impugned orders regardless of which material they are made of. The impugned orders insofar as they relate to classification of lenses also need to be set aside. Conclusion - i) Classification of the goods is a part of assessment and the importer the proper officer and appellate authorities alone are competent to decide it. ii)The policy of the MeiTY which is in the nature of an executive policy decision of that Ministry cannot determine the classification of goods under the Customs Act firstly because the authority making the policy is not empowered under Section 17 and secondly because the policy is not a quasi-judicial appealable decision but is a policy decision while classification of goods is a part of assessment and is a quasi-judicial and appealable function. iii) The exemption notification issued by the Government under Section 25 exempts goods and does not determine the classification. If the description of the goods and also the CTH match with the notification its benefit is available and not otherwise. Therefore an exemption notification cannot determine the classification but it must be applied after classifying the goods. iv) Based on the Customs tariff and the nature of the goods we determine the classification of the goods in favour of the appellants and against the Revenue. v) The importer assessees have no obligation under the law to anticipate under which heading the proper officer may classify the goods and match their self-assessment with it. vi) Classification of the goods in the Bill of Entry by the importer is essentially a part of the self-assessment under Section 17 which even if found incorrect does not attract confiscation of the goods under Section 111(m) or the consequential penalty under Section 112. vii) The classification of none of the goods in any of the appeals under CTH 39209999 as held by the Commissioner in the impugned orders can be sustained. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The central issues considered in this judgment are:

a) The classification of front cover, middle cover, battery cover, back cover, front cover housing, middle cover housing, and back cover housing of cellular mobile phones: whether they should be classified under CTH 85177090 (as claimed by the appellants) or under CTH 39209999 (as held in the impugned order).

b) The classification of front lenses and camera lenses: whether they should be classified under CTH 90021100/85177090 (as claimed by the appellants) or under CTH 39209999 (as held in the impugned order).

c) The role of exemption notifications issued by the Government under Section 25 of the Customs Act in determining the classification of goods.

d) The influence of a scheme notified by the Ministry of Electronics and Information Technology (MeITY) on the classification of goods.

e) The legality of raising a demand under Section 28 by the department without filing an appeal before the Commissioner (Appeals) against the self-assessment.

f) The recoverability of differential duty and interest from the appellants.

g) The liability of the imported goods to confiscation under Section 111(m) due to alleged incorrect classification, and the consequent imposition of penalty under Section 112.

ISSUE-WISE DETAILED ANALYSIS

Classification of Mobile Phone Covers and Lenses

Legal Framework and Precedents: The classification of goods under the Customs Tariff Act is governed by the terms of the headings and any relevant Section or Chapter Notes. Rule 1 of the General Rules for the Interpretation of Import Tariff is crucial, which states that classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes.

Court's Interpretation and Reasoning: The Tribunal found that the goods in question, such as the mobile phone covers, were not merely articles of plastic (CTH 39209999) but were parts of mobile phones (CTH 85177090). The manufacturing process involved extrusion, printing, vapor deposition, thermoforming, and CNC milling, which constituted further working beyond mere cutting or surface working, thus excluding them from Chapter 39.

Key Evidence and Findings: The Tribunal noted that the middle covers were laminated with zinc, which excluded them from CTH 3920, as this heading only covers goods not laminated or reinforced with other materials.

Application of Law to Facts: The Tribunal applied Rules 1 and 3 of the General Rules for Interpretation, concluding that the specific entry for parts of mobile phones (CTH 85177090) should prevail over the general entry for articles of plastic (CTH 39209999).

Treatment of Competing Arguments: The Tribunal rejected the Department's argument that the goods were not further worked and thus fell under CTH 39209999, citing the detailed manufacturing processes as evidence of further working.

Conclusions: The Tribunal concluded that the goods were correctly classifiable under CTH 85177090, not CTH 39209999.

Role of Exemption Notifications and MeITY Policy

Legal Framework and Precedents: Exemption notifications under Section 25 of the Customs Act are meant to exempt goods from duty and do not determine classification.

Court's Interpretation and Reasoning: The Tribunal held that classification must be determined independently of exemption notifications or policies from other ministries, such as MeITY, which do not have quasi-judicial authority to decide classification.

Key Evidence and Findings: The Tribunal emphasized that exemption notifications are quasi-legislative and not quasi-judicial, and thus cannot dictate classification.

Application of Law to Facts: The Tribunal found that the reliance on exemption notifications and MeITY policy by the Department to support reclassification was misplaced.

Conclusions: The Tribunal concluded that neither exemption notifications nor MeITY policy could determine the classification of goods under the Customs Tariff.

Legality of Demands Under Section 28 Without Appeal

Legal Framework and Precedents: The Tribunal referred to the Supreme Court's judgments in ITC Ltd. and Flock India, which clarify that assessments can be modified either through appeal or under Section 28.

Court's Interpretation and Reasoning: The Tribunal rejected the argument that demands under Section 28 require prior appeal against self-assessment, noting that Section 28 allows for modification of assessment independently.

Key Evidence and Findings: The Tribunal distinguished between the processes of refund under Section 27 and demand under Section 28, emphasizing the latter's role in reassessing duty.

Conclusions: The Tribunal upheld the legality of demands under Section 28 without necessitating an appeal against self-assessment.

Confiscation and Penalty Under Sections 111(m) and 112

Legal Framework and Precedents: Section 111(m) provides for confiscation of goods that do not correspond with the entry made under the Act, while Section 112 imposes penalties for improper importation.

Court's Interpretation and Reasoning: The Tribunal found that incorrect classification alone, without evidence of intent to evade duty, does not render goods liable to confiscation under Section 111(m).

Key Evidence and Findings: The Tribunal noted that classification is part of self-assessment and differing opinions on classification do not constitute grounds for confiscation.

Conclusions: The Tribunal set aside the penalties imposed under Section 112, finding no basis for confiscation under Section 111(m).

SIGNIFICANT HOLDINGS

The Tribunal established several core principles:

a) Classification of goods is a part of assessment and must be determined by the importer, the proper officer, and appellate authorities, not by exemption notifications or executive policies.

b) Exemption notifications under Section 25 do not determine classification; they apply post-classification.

c) The Tribunal clarified that demands under Section 28 can be issued without prior appeal against self-assessment.

d) Incorrect classification in self-assessment does not automatically render goods liable to confiscation under Section 111(m).

The Tribunal allowed all seven appeals, setting aside the impugned orders and granting consequential relief to the appellants.