2024 (7) TMI 1123 - HC - Customs

Classificaton of goods - Violation of principles of natural justice - challenge to assessment order - contentions raised by the petitioner were not taken into consideration - order is non-speaking with regard to certain heads of claim - exercise of discretionary jurisdiction - Whether the impugned order warrants interference in exercise of discretionary jurisdiction? - HELD THAT - The judgments relied upon by learned Additional Government Pleader in Bhagath Raja v. Union of India Ors 1967 (3) TMI 105 - SUPREME COURT and S.N.Mukherjee v. Union of India 1990 (8) TMI 345 - SUPREME COURT indicate that a quasi-judicial authority is required to record reasons. The rationale behind insisting on reasons is also set out in the said judgments. The judgments also add that such reasons need not be as elaborate as those in judgments of courts of law. By taking note of these principles, whether the order impugned herein contains reasons and whether the contentions raised by the petitioner were dealt with therein should be examined. Classification of goods - to be classified under CTH 8301 of the Customs Tariff Act or not - HELD THAT - The reasons were specified in support of the conclusion, but vital contentions regarding GRI and the Explanatory Notes were not considered. In order to balance revenue interest, the impugned order dated 04.04.2024 is set aside on condition that the petitioner remits a sum of Rs. 1.75 crore as agreed to within four weeks from the date of receipt of a copy of this order. The sum of Rs. 1,75,00,000 exceeds 5% of the disputed tax demand under this head. The other heads of tax demand are not being reckoned in this regard because unreasoned conclusions were recorded - Subject to being satisfied that the said amount was received, the assessing officer is directed to provide a reasonable opportunity to the petitioner, including a personal hearing, and thereafter issue a fresh order within three months from the date of receipt of the petitioner's reply. Petition disposed off.

Issues Involved:
1. Non-speaking order and non-consideration of contentions.
2. Inadequate show cause notice.
3. Incorrect classification of goods under Customs Tariff Act.
4. Non-consideration of General Rules for Interpretation (GRI).
5. Ineligible claim of Input Tax Credit (ITC).
6. Principles of natural justice and requirement to record reasons.

Issue-wise Detailed Analysis:

1. Non-speaking order and non-consideration of contentions:
The petitioner challenged the assessment order dated 04.04.2024, arguing that the contentions raised were not taken into consideration, rendering the order non-speaking with regard to certain heads of claim. Specifically, the petitioner asserted that the assessing officer did not provide reasons for rejecting their arguments, particularly concerning the classification of goods and ITC claims. The court found that the impugned order lacked detailed reasons and failed to address critical contentions raised by the petitioner, necessitating interference.

2. Inadequate show cause notice:
The petitioner contended that a detailed show cause notice was not issued. The tax proposal details were only set out in the intimation dated 22.02.2023 and not in the show cause notice dated 20.07.2023. The court did not specifically address this issue in isolation but implicitly considered it while evaluating the overall procedural fairness and adherence to principles of natural justice.

3. Incorrect classification of goods under Customs Tariff Act:
The petitioner classified the smart key and lock system intended for use in motor vehicles under Chapter 83, sub-heading 83012000, which deals with "Locks of kind used for motor vehicles." The assessing officer, however, classified the goods under CTH 8708, subjecting them to a higher tax rate of 28% instead of 18%. The court noted that the assessing officer's finding that the goods were made of both metal and plastics was not adequately reasoned, and the relevant General Rules for Interpretation (GRI) were not considered, potentially impacting the classification outcome.

4. Non-consideration of General Rules for Interpretation (GRI):
The petitioner argued that the assessing officer failed to consider Rules 3(a) and 3(b) of the GRI, which state that goods should be classified based on the most specific description and the material or component that gives the goods their essential character. The court found that the non-consideration of these rules was a significant omission, as it could have led to a different classification outcome. The court emphasized that the GRI should have been considered and discussed in the impugned order.

5. Ineligible claim of Input Tax Credit (ITC):
The petitioner contested the finding of ineligible ITC claims, arguing that no reasons were provided for deeming the ITC ineligible. The court found that the impugned order merely set out the petitioner's reply and recorded conclusions without supporting reasons. For example, in the case of Defect No.4, the order stated that the taxpayer availed ineligible ITC without providing a basis for this conclusion. Similarly, for Defect No.15, the order confirmed the tax demand without adequately addressing the petitioner's arguments regarding canteen expenses.

6. Principles of natural justice and requirement to record reasons:
The respondent contended that the order was detailed and that principles of natural justice were not violated. Citing various judgments, the respondent argued that a quasi-judicial authority is required to provide reasons, but these need not be as elaborate as a court judgment. The court agreed that reasons must be recorded to show how the adjudicating authority applied its mind to the materials on record. However, the court found that the impugned order lacked sufficient reasoning, particularly concerning the GRI and the Explanatory Notes to HSN, which were critical to the classification issue. The court concluded that the non-consideration of these factors could have impacted the verdict, warranting interference.

Conclusion:
The court set aside the impugned order dated 04.04.2024, subject to the petitioner remitting Rs. 1.75 crore within four weeks. The assessing officer was directed to provide a reasonable opportunity to the petitioner, including a personal hearing, and issue a fresh order within three months from the date of receipt of the petitioner's reply. The Writ Petition was disposed of on these terms, and the connected miscellaneous petitions were closed.

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