2024 (5) TMI 285 - AT - Customs

Classification of the imported goods - Activity trackers - rate of duty for levy intended by section 12 - enhancement of duty liability - recovery of differential duty - Classification of a product under specific heading or residuary heading - HELD THAT - In the impugned order, appears to have been influenced by reference to wrist bearable devices (otherwise known as smart watches) in several clarifications of Central Board of Indirect Taxes Customs (CBIC) that enunciated these as corresponding to 8517 6290 of First Schedule to Customs Tariff Act, 1975 to suffice for any article capable of being so worn to be so classified. The enormity of chasm of logic between the design of the activity tracker and smart watch , let alone unquestioned acceptance that smart watch is indeed so classifiable, which has not been touched upon in the impugned order demonstrates inadequacy of finding. It is also settled law that a notification giving effect to rate of duty, in whichever manner designed, or prescribing a special procedure cannot substitute for the mandate of the charging section. Here, the premise that the goods are composite should have been followed by selecting the predominating function from among the identified constituents and the description corresponding to each that, along with relevant notes in the chapter and section, would be evaluated for defining the characteristic of the whole taken together without question. That glaring lack precludes us from evaluation of the revised classification as being legal and proper. It would appear that the rules of engagement for revision in classification as required by the General Rules of Interpretation of the Import Tariff appended to Customs Tariff Act, 1975 and the law as determined by the Hon ble Supreme Court in HPL Chemicals Ltd v. Commissioner of Central Excise, 2006 (4) TMI 1 - SUPREME COURT have been observed in their breach. Therefore, it is necessary that the entire dispute should be revisited. To enable that to be done, we set aside the impugned order and remand the matter back to the original authority for a fresh decision on the proposed classification after subjecting it to validation in accordance with law as statutorily enacted and judicially determined.

Summary

Issues Involved:
The appeal involves the incorrect re-classification of 'activity trackers' by the Commissioner of Customs, leading to an increase in duty liability from 7.5% to 20%.

Issue 1: Classification of Imported Goods

The appellant contested the revision of their declaration regarding the rate of duty against tariff items under the Customs Tariff Act, 1975. The re-classification was done without proper consideration for the nature of the goods and the rules of classification. The dispute arose from self-assessed bills of entry that were deemed wrongly declared, leading to enhanced duty liability upon opting for provisional assessment under section 18 of the Customs Act, 1962. The impugned order also included other consignments for recovery of differential duty under section 28 of the Customs Act, 1962, with the entirety of the import being held liable for confiscation under section 111(m) of the Customs Act, 1962.

Issue 2: Legal Niceties in Classification

Upon evaluation of the impugned order and arguments presented, the focus was on adherence to legal niceties in resolving the dispute over the 'rate of duty' as intended by section 12 of the Customs Act, 1962. The adjudicating authority revised the classification based on the description of the goods under specific tariff lines, but the rationale for such classification was found to be lacking. The impugned order failed to properly identify the constituents of the composite article and eliminate unsuitable descriptions, as required under the General Rules for Interpretation of the Import Tariff.

Issue 3: Influence on Classification

The impugned order seemed to be influenced by references to 'wrist wearable devices' and 'smart watches' in clarifications by the Central Board of Indirect Taxes & Customs. However, the significant differences between 'activity trackers' and 'smart watches' were not adequately addressed in the order. Additionally, reliance on a modus operandi alert issued by the Directorate General of Revenue Intelligence was noted to have invalidated the application of mind required by the proper officer in such classification matters.

Resolution:

Given the observed breaches in the rules of engagement for classification and legal precedents, the Tribunal set aside the impugned order and remanded the matter back to the original authority for a fresh decision on the proposed classification. The decision was to be validated in accordance with statutory enactments and judicial determinations, ensuring a more thorough and legally sound classification process.