2024 (10) TMI 17 - AT - Customs

Classification of imported goods - Binding Material, Parts for Brake, disc brake pads, tool for mould, etc . - to be classified under CTH 38249090 / 38247900 or CTH 68138900? - benefit of N/N. 152/2009-Cus. dated 31.12.2009 and also N/N. 50/2017-Cus. dated 30.06.2017 - invocation of Extended Period of limitation. HELD THAT - Considering the composition of the materials and their usage in the manufacture of the brake pads indicate that imported materials are more appropriately classifiable under Chapter Heading 6813 as friction material. Even the Material Safety Data Sheet also indicates the name of the material as friction material and by synonyms as friction lining and brake lining as evidenced by the material safety data sheet. It is evident that Friction Material in the form consisting of mineral materials with or without textiles are classifiable under CTH 6813 if they are not mounted. But when they are mounted including friction material fixed to a metal plate provided with circular cavities or similar fittings for disc brakes, these are classified as parts of the machines or vehicles for which they are designed. In the present case, the product consists of a friction material (made up of organic and inorganic chemicals and minerals, graphite) which is bonded with a steel backing plate forming an integrated component. It is used in automotive vehicle brakes to stop or slow down the vehicle. From a perusal of the Tariff sub-heading 6813 we observe that friction materials and articles thereof (e.g. sheets, rolls, strips, segments, discs, washers, pads) not mounted for brakes or for clutches or the like is mentioned in the said heading. It is, therefore, clear that the friction material alone without any steel plate backing would fall under Tariff Heading 6813. The claim of the Appellant that the friction material is only in powder form and not in a particular shape necessitating its classification not under CTH 6813 is rejected as we find that such a condition is not a requirement for such classification. Further Chapter subheading 6813 reads as friction material and article thereof . The chapter heading 6813 includes both friction materials and also articles of friction materials. As such the contention of the Importer Respondent that Friction Materials unless they become an article cannot be classified under Chapter heading 6813 is not acceptable. Thus, appropriate classification of the imported product is not under CTH 3824 9090/3824 7900 as classified by the importer respondent. The Revenue was seeking to classify the product under CTH 6813 8900 as friction materials. After going through the provisions of the Customs Tariff Act and after considering the nature and composition of imported product and its essential character and the use to which this material is put to, we hold that it is more appropriately classifiable under CTH 6813 and not under CTH 3824. In view of the above, the impugned order dated 26.6.2019 passed by the Commissioner of Customs (Imports), Customs House, Chennai cannot be sustained and so is ordered to be set aside. Invocation of extended period - HELD THAT - In the absence of any finding of positive suppression by the Appellant in the impugned order, it is found that the allegation of wilful misclassification and intention to evade duty by the Respondent is not at all tenable and misclassification could not be equated with misdeclaration within the meaning of Section 28(4) of the Customs Act, 1962. Considering the above facts that the Respondent is a regular importer of the product which is used in the manufacture of Brake pads and also considering that they were adopting the above classification consistently, it is opined that attributing any malafide intention or motive for adopting such classification or claiming exemption benefit of the Notification is not justified, considering the facts of this case. As such invocation of extended period for demand of duty in terms of provision of section 28(4) of Custom Act 1962 is not legal or justified. The issue of limitation is answered in favour of the Respondent importer. The Respondent s classification of the impugned goods under Chapter Heading 3824 9090/3824 7900 is rejected and the department s classification under CTH 6813 8900 is upheld. Consequently, the appellant is not eligible for the benefit of the Notification No. 50/2017-Cus. dated 30.06.2017 and Notification no.152/2009-Cus dated 31.12.2009. However, the demand for the normal period along with interest is only upheld and the demand for the extended period is decided in favour of the Respondent importer - Appeal of Revenue is partly allowed.

Summary

Issues Involved:
1. Classification of imported "Materials (Binding material for manufacture of Automobile Brakes)" under CTH 38249090 / 38247900 or CTH 68138900.
2. Invocation of the extended period for the demand of duty under Section 28(4) of the Customs Act, 1962.

Detailed Analysis:

Issue 1: Classification of Imported Materials

The core issue revolves around the classification of the imported materials used for manufacturing brake pads. The Respondent had classified the materials under CTH 38249090 / 38247900, while the Department argued they should be classified under CTH 68138900 as friction materials.

Respondent's Argument:
The Respondent contended that the imported goods, in powder form, do not qualify as friction materials under CTH 6813. They emphasized that HSN explanatory notes to heading 6813 specify that friction materials should be in specific shapes like sheets, rolls, strips, disks, rings, washers, pads, etc. Since the imported goods are in powder form and not in any specific shape, they argued that these should not be classified under CTH 6813.

Department's Argument:
The Department argued that the imported item is a friction material in powder form, formed by a high level of processing and ready to be bonded directly to manufacture brake pads. They stressed that the imported item qualifies as a friction material and should be classified under CTH 6813, as the exclusions specified in the explanatory notes to Chapter 68 are not applicable.

Tribunal's Findings:
The Tribunal examined the relevant provisions of the Customs Tariff Act, including Section Notes, Chapter Notes, and HSN Explanatory Notes. They concluded that there is no exclusion of the imported materials' classification under Chapter Heading 3824 or 6813. They referred to the General Rules for Interpretation (GRI) of Import Tariff, particularly Rule 3, which stipulates that the heading providing the most specific description should be preferred.

The Tribunal noted that the imported materials, being a mixture of various organic and inorganic materials, are used in the manufacture of brake pads and have the essential character of friction materials. They concluded that the materials are more appropriately classifiable under CTH 6813 as friction materials.

Conclusion:
The Tribunal rejected the Respondent's classification under CTH 3824 and upheld the Department's classification under CTH 6813. Consequently, the Respondent is not eligible for the benefit of Notification No. 50/2017-Cus. dated 30.06.2017 and Notification No. 152/2009-Cus. dated 31.12.2009.

Issue 2: Invocation of Extended Period

The second issue concerns whether the extended period for the demand of duty under Section 28(4) of the Customs Act, 1962, is invokable.

Respondent's Argument:
The Respondent argued that the issue is regarding classification, which is a question of interpretation. They contended that there was no mis-declaration of goods, and hence, invoking the extended period by alleging misclassification and suppression is not legally tenable.

Department's Argument:
The Department issued a Show Cause Notice on 30.11.2018, invoking the extended period under Section 28(4) for imports from July 2013 to July 2017. They alleged that the Respondent had mis-declared the goods to avail of the benefits of the said Notifications.

Tribunal's Findings:
The Tribunal referred to various judicial precedents, including the Hon'ble Supreme Court's decisions, which held that merely claiming a benefit of exemption or a particular classification does not amount to mis-declaration. They noted that the Respondent had consistently adopted the classification and there was no positive suppression of facts.

The Tribunal concluded that attributing any malafide intention or motive for adopting such classification is not justified. They held that the invocation of the extended period for the demand of duty is not legal or justified.

Conclusion:
The Tribunal decided in favor of the Respondent on the issue of the extended period, holding that the demand for the extended period is not justified. The demand for the normal period along with interest is upheld.

Summary:
The Tribunal upheld the Department's classification of the imported goods under CTH 6813 and rejected the Respondent's classification under CTH 3824. Consequently, the Respondent is not eligible for the benefits of the cited Notifications. However, the Tribunal ruled in favor of the Respondent on the issue of the extended period, holding that the invocation of the extended period for the demand of duty is not justified. The Department's appeal is partly allowed, with the demand for the normal period upheld and the demand for the extended period set aside.