2024 (5) TMI 1156 - AT - Customs

Imports product as I-MAS POs-Nickel Compound (Compound of Nickel Hydroxide) - Misdeclaration of foods - Demand - Confiscation - interest - Penalty - benefits of Customs Notification No. 50/2017 - Applicability of Advance Rulings - Non-compliance to the Pre-notice Consultation Regulations before issuance of the Show Cause Notice - What is the appropriate classification of the imported goods declared as I-MAS Pos-Nickel Compound (Compound of Nickel Hydroxide) whether under CTH 28254000 as declared by the appellant or under CTH 38249900 as classified by the Revenue? Classification - HELD THAT - The product that is imported I-MAS POs-Nickel Compound (Compound of Nickel Hydroxide) is predominantly consisting of Nickel Hydroxide which is a separate chemically defined compound, but also containing Cobalt Hydroxide which is also a separate compound and also Graphite an element / metal. It has been admitted that these were added to enhance the conductivity of the Nickel Hydroxide Compound which is meant to be used for manufacture of Nickel Cadmium batteries. Cobalt Hydroxide Compound is neither a solvent nor a stabiliser or anti-dusting agent or colouring substance and is not introduced for any safety or transport or as permissible additive in terms of the relevant Chapter Notes 1 to Chapter 28. The aim of addition of Graphite which is a separate chemical / element / metal to the Nickel Hydroxide is said to be for flowability and also to enhance the conductivity of the compound. The appellant has submitted that Graphite is used as an anti-caking agent in the imported goods. In these facts of the case, it appears that the addition of these two substances make the Nickel Hydroxide Compound so obtained more suitable for Nickel Cadmium battery manufacture. Thus, these are added to make the imported product more suitable for Nickel Cadmium cells and thus the general use of Nickel Hydroxide compound is restricted or the product imported is made more suitable for Nickel Cadmium battery manufacturing. Thus, we are of the considered opinion that appropriate classification of the imported product is not under CTH 28254000 as classified by the appellant. After going through the provisions of the Customs Tariff Act and after considering the nature and composition of imported product I-MAS POs-Nickel Compound (Compound of Nickel Hydroxide) we hold that it is more appropriately classifiable under CTH 38249900 and not under CTH 28254000 as adopted by the appellant. Since the imported item contains other natural materials such as Graphite and Cobalt. The Customs Notification has to be interpreted in a plain and simple manner and the technical literature available in public domain is to be taken into account for determining the eligibility of exemption and on application of the above analogy, the appeal fails on two counts that neither the description of the product imported matches with the description of the product as notified in the Notification nor the CTH as mentioned in Column (2) of the Notification matches. As such, the appellant is not eligible for the benefit of Notification No. 50/2017- Customs dated 30.06.2017. Applicability of Advance Rulings - HELD THAT - Any Advance Ruling is mandatorily applicable to the applicant and the concerned field formation and will have only persuasive value in respect of third parties. The provisions of the Customs Tariff Act and the correct interpretation of applicable GIRs, Section and Chapter Notes as applicable to the facts of the case are essential requirements for determination of any classification of any imported product under the Customs law. Non-compliance to the Pre-notice Consultation Regulations - We have gone through the provisions of the Customs Act, 1962 and Pre-notice Consultation Regulations, 2018. The Department has incorporated alternative dispute resolution mechanism by way of Pre-consultation process to reduce the litigation. Such pre-consultation facilitates resolution of disputes obviating the necessity of issuance of the Show Cause Notice and for speedy settlement of the dispute between the Department and the tax-payer. The Adjudicating Authority should have scrupulously followed the administrative directions in the Board s Circular and also the provisions of the Pre-notice Consultation Regulations, 2018. It is noticed that the appellant has been continuously contesting the classification of the imported product all along leading to issuance of the Show Cause Notice and its adjudication. As such, we are of the opinion that no prejudice is caused to the appellant due to omission on the part of the Adjudicating Authority in not complying with the Pre-notice consultation process. Had the appellant accepted the classification adopted by the Revenue, he would have opted to pay the differential duty along with interest for settling the issue. Imposition of fine and penalties could be avoided. However, as even now the appellant is contesting the classification of the imported product, we are of the considered view that there is no justification for setting aside the adjudication proceedings already completed as strict observance of the principle of natural justice have been complied with by according an opportunity of personal hearing and by considering the submissions made by the appellant before passing the impugned order dated 31.03.2022 by the Commissioner of Customs. Confiscation - fine and penalty - Considering the facts that the appellant is a regular importer of the product which is used in the manufacture of Nickel Cadmium batteries and also considering that the supplier is reportedly adopting the above classification globally, we are of the opinion that attributing any malafide intention or motive for adopting such classification or claiming exemption benefit of the Notification is not justified in the facts of this case. Further, appreciating the ratio decidendi in the Hon ble Supreme Court s decision of Northern Plastic Ltd. Vs. Collector of Customs Central Excise 1998 (7) TMI 91 - SUPREME COURT , we hold that the imposition of fine and penalty is not justified and so ordered to be set aside. Consequently, the appellant is not eligible for the benefit of the Notification No. 50/2017-Cus. and demand of duty along with interest is confirmed. However, the fine and penalties imposed are set aside. Classification is rejected but in respect of confiscability of the goods and imposition of fine and penalty is set aside. Thus, the appeal is partly allowed on the above terms.

Summary

Issues Involved:
1. Classification of the imported goods.
2. Justification of confiscation, redemption fine, and penalty.

Summary:

Issue 1: Classification of Imported Goods

Customs Appeal No. C/40347/2022 was filed by the Appellant challenging the classification of imported goods under CTH 38249000 by the Commissioner of Customs (Imports), Chennai, which resulted in a demand for differential duty of Rs. 4,38,82,768/- along with interest u/s 28(1) and 28AA of the Customs Act, and the imposition of a redemption fine of Rs. 6,25,000/- and a penalty of Rs. 22,00,000/- u/s 112(a) of the Customs Act, 1962.

The Appellant argued that the goods should be classified under CTH 28254000, benefiting from a 'Nil' rate of Basic Customs Duty (BCD) under Sl.No. 180 of Notification No. 50/2017-Customs. The Department, after testing the samples, concluded that the goods consisted of Nickel Hydroxide, Carbonaceous matter, and Cobalt, thus not classifiable under CTH 28254000.

The Tribunal considered the General Rules for Interpretation of Import Tariff, Section and Chapter Notes, and HSN Explanatory Notes. It concluded that the imported product, being a mixture of Nickel Hydroxide, Cobalt Hydroxide, and Graphite, does not fit the criteria for classification under Chapter 28. The correct classification was determined to be under CTH 38249900 as a chemical product or preparation of chemical or allied industries not elsewhere specified or included.

Issue 2: Confiscation, Redemption Fine, and Penalty

The Appellant contended that there was no wilful mis-declaration, and mere short payment of duty by adopting a particular classification does not render the goods liable for confiscation u/s 111(m) of the Customs Act, 1962. The Tribunal agreed, citing various judicial precedents, and held that the imposition of fine and penalty was not justified as there was no malafide intention or motive on the part of the Appellant.

The Tribunal also addressed the issue of non-compliance with the Pre-notice Consultation Regulations, concluding that no prejudice was caused to the Appellant due to the omission, as the principles of natural justice were observed during the adjudication process.

Conclusion:

The Tribunal upheld the classification of the imported goods under CTH 38249900, rejecting the Appellant's classification under CTH 28254000. Consequently, the demand for duty along with interest was confirmed. However, the confiscation of goods and the imposition of fine and penalty were set aside. The appeal was partly allowed on these terms.