2025 (1) TMI 1383 - AT - Customs

Classification of imported communication modules - classifiable under Customs Tariff Item CTI 8517 70 90 as parts of communication hubs or under CTI 9028 90 10/ CTI 9028 90 90 as parts of electricity meters / gas meters? - benefit of exemption N/N. 24/2005-Cus. dated 01.03.2005 (till 30.6.2017) and Notification No. 57/2017-Cus. (S. No. 5) (from 01.07.2017) - suppression of facts or not - extended period of limitation. Classification - HELD THAT - The goods whose classification is in dispute in this case are imported communication modules. There is no dispute that their only function and purpose is as a part of communication hubs which in turn become part of the smart meters manufactured by the importer. Thus communication modules have their own identity as parts of communication hubs but if they are fitted in and become part of communication hubs they will not be classifiable separately but will become part and parcel of the communication hubs and they should be classified as such. Further if the communication hubs are fitted in the smart meters the communication hubs become part of the smart meters and will not be classifiable separately. The entire structure will be a smart meter and it must be classified as such and communication module will be its child part. Smart meters are composite machines of which one part records the consumption of electricity or gas and the other part (communication hub) communicates the readings. Undisputedly the primary function of the smart meter is measuring the consumption and the communication is a secondary function which gives it additional functionality. The smart meters (including the communication hubs in them) therefore are classifiable as smart meters. Evidently note (2) deals with three kinds of parts and accessories- the first are parts and accessories which are goods covered in any of the headings and they should be classified as such as per note 2(a). Other parts if suitable with a particular machine or apparatus must be classified with it as per note 2(b). If there are parts which do not fall under either of the above must be classified under 9033 as per note 2(c). The expression other parts and accessories in note 2(b) shows that it refers to those which are not covered by the previous part of the note i.e. note 2(a). If the parts and accessories are goods which fall under any heading under Chapter 85 they are covered by note 2(a) and therefore note 2(b) cannot apply because such parts are not other parts . - Section note 3 to Section XVI as made applicable to Chapter 90 is also not relevant to the case because it deals with composite machines. If the communication hub is installed in the smart meter this note would apply. But what are imported in this case are merely communication modules and not composite machines. These are parts of communication hubs and they are goods which fall under CTI 8517 70 90. The classification of communication modules under CTI 9028 90 10/CTI 9028 90 90 in the impugned order is not correct and deserves to be set aside. Consequently the demand of duty and interest and imposition of penalty under section 114A in the impugned order also need to be set aside. Extended period of limitation - suppression of facts or not - penalties - HELD THAT - The allegations in the SCN that the importer had suppressed facts is completely baseless. The Commissioner has in the impugned order recorded that the importer had recorded that these glaring facts of intentional non-payment of actual duty leviable on the impugned goods contravention of the provisions of self-assessment and the act of manipulating the classification of the goods in order to fall under the category of goods covered under the above notifications was sufficient to have a reasonable belief that there was short levy or duty on the impugned goods. - the demand for duty invoking the extended period of limitation was not justified and penalties under sections 114A 112 and 114AA were not applicable. Conclusion - The correct classification of the communication modules is CTI 8517 70 90. The allegations of mis-declaring and mis-classifying with an intent to evade against the importer are completely unfounded. Extended period cannot be invoked. Appeal of importer allowed.

Summary

Issues Presented and Considered

The core legal issues considered in this judgment were:

• Whether the imported communication modules should be classified under Customs Tariff Item (CTI) 8517 70 90 as parts of communication hubs or under CTI 9028 90 10/9028 90 90 as parts of electricity meters/gas meters.
• Whether the importer was eligible for exemption notifications based on the classification of the imported goods.
• Whether the demand for differential customs duty invoking the extended period of limitation was justified.
• Whether penalties under sections 114A, 112, and 114AA of the Customs Act were applicable.

Issue-wise Detailed Analysis

Classification of Imported Communication Modules

• Relevant Legal Framework and Precedents: The classification was contested between CTI 8517 70 90 (parts of communication hubs) and CTI 9028 90 10/9028 90 90 (parts of electricity/gas meters). The legal framework involved interpretation of Section Notes and Chapter Notes of the Customs Tariff Act, specifically Section XVI and Chapter 90.
• Court's Interpretation and Reasoning: The Tribunal emphasized that classification should be based on the form in which goods are imported. The communication modules, being parts of communication hubs, should be classified under CTI 8517 70 90. The Tribunal found that Section Note 2(a) to Section XVI was applicable, which mandates classification of parts that are goods included in any headings of Chapter 85 in their respective headings.
• Key Evidence and Findings: The Tribunal noted that the communication modules were imported as parts of communication hubs and not as parts of smart meters. The importer's previous exports of communication hubs classified under CTH 8517 were accepted by the department.
• Application of Law to Facts: The Tribunal applied the principle that goods should be assessed as they are imported. Since the communication modules were imported as parts of communication hubs, they should be classified accordingly.
• Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the modules should be classified as parts of smart meters, finding that the communication modules had their own identity as parts of communication hubs.
• Conclusions: The Tribunal concluded that the correct classification of the communication modules was under CTI 8517 70 90, not CTI 9028 90 10/9028 90 90.

Eligibility for Exemption Notifications

• Relevant Legal Framework: The eligibility for exemption notifications was contingent upon the classification of the imported goods under the correct CTI.
• Court's Interpretation and Reasoning: Since the Tribunal determined that the communication modules were correctly classified under CTI 8517 70 90, the importer was eligible for the exemption notifications applicable to goods under CTH 8517.
• Conclusions: The Tribunal found the importer eligible for the exemption notifications based on the correct classification of the goods.

Extended Period of Limitation and Penalties

• Relevant Legal Framework: The extended period of limitation under section 28(4) of the Customs Act can be invoked only in cases of collusion, willful misstatement, or suppression of facts. Penalties under sections 114A, 112, and 114AA require similar conditions.
• Court's Interpretation and Reasoning: The Tribunal found no basis for invoking the extended period of limitation, as the importer had been transparent with the classification and the department had previously accepted it. The Tribunal noted that the importer could not be expected to anticipate future views of the department or DRI.
• Key Evidence and Findings: The Tribunal found that the importer had been consistently classifying the goods under the same CTI since 2017, and the department had accepted this classification.
• Conclusions: The Tribunal concluded that the demand for duty invoking the extended period of limitation was not justified, and penalties under sections 114A, 112, and 114AA were not applicable.

Significant Holdings

• The Tribunal held that the charge of duty of customs under section 12 is only on the goods imported into India and not on what the goods may become after their import.
• The Tribunal emphasized that classification of goods is a part of assessment and must be done based on the form in which goods are imported.
• The Tribunal concluded that the communication modules were correctly classifiable under CTI 8517 70 90, making the importer eligible for the exemption notifications.
• The Tribunal found that the demand for duty and penalties based on the incorrect classification under CTI 9028 90 10/9028 90 90 could not be sustained.
• The Tribunal dismissed the Revenue's appeal and allowed the importer's appeal with consequential relief.