2025 (4) TMI 1414 - AT - Customs

Classification of imported silicon steel scraps - classifiable under Customs Tariff Heading (CTH) 7204 49 00 as claimed by the appellants or under CTH 7225 19 00 as held by the adjudicating and appellate authorities - requirement of import authorization under Para 2.17 of the Foreign Trade Policy (FTP) - redetermination of value of impugned goods from 400 PMT to 650 PMT - confiscation - penalty. Whether the silicon steel scraps imported by the appellants is classifiable under CTH 72044900 as declared by the appellants are under CTH 72251900 as arrived at by the impugned order and as to whether the appellants require import authorization from DGFT in terms of Para 2.17? - HELD THAT - The report of the Chartered Engineer appointed by the Department itself is categorical in holding that the impugned goods are not scrap in view of the Para 8A of Section XV of the Customs Tariff Act 1975 which states that metal waste and scrap from manufacture or mechanical working of metals and metal goods definitely not usable as such because of breakage cutting up wear and other reasons. The original authority finds that there is variation between the Chartered Engineer certificate and the re-examination report by customs officers; Chapter Head 72.04 excludes articles which can be used for their former purposes or can be adopted for other uses with or without repair or renovation. Though the classification of the goods shall not depend on the end use it will be in the fitness of things to view the claim of the importer in the facts and circumstances of each case. In the instant case the fact that the Chartered Engineer has reported that the such kind of goods cannot be are not re-used directly in the present condition for original purposes and are used as scrap cannot be ignored. Also the request of the appellant for mutilation gives credence to the claim. Moreover the impugned goods fulfill the condition of Note 8(a) of Section XV of the Tariff Act that metal waste and scrap from the manufacture or mechanical working of metals and metal goods definitely not usable as such because of breakage cutting-up wear or other reasons in view of the Chartered Engineer Certificate. The Appellate Authority is not a metallurgical expert to give a finding of this nature when the Chartered Engineer and the Shed Officer have given categorical report on the condition of the impugned goods. In view of this we find that the impugned goods are rightly classifiable as other waste and scrap falling under CTH 7204 49 00. In any case the classification determined in the Impugned Order is incorrect as the goods have a width of 0.20 mm to 0.30 mm i.e. less than 600 mm and mostly grain oriented taking them out of the ambit of CTH 7225 19 00 - the Impugned Order is liable to be set aside both the rejection of classification under CTH 7204 49 00 and classifying the same CTH 7225 19 00 are without any basis reason and evidence. Re-determination of value as done by the impugned order - HELD THAT - There was no misdeclaration of classification no grounds arise for redetermination of the value. The appellants submit that the value of the impugned goods cannot be rejected under rule 12 of the valuation rules and arbitrarily valued at USD 650 per MT; transaction value is not liable to be rejected as it is in consonance with the contract; essential element in valuation is that each transaction has to be assessed independently. The transaction value under Section 14 of the Customs Act 1962 is the price actually paid or payable. As per Rule 3(2) of the Valuation Rules transaction value cannot be rejected except when the circumstances mentioned in the proviso to Rule 3(2) exist. It is not proved that the exceptions exist in this case - there is force in the appellants submission that enhancing the value of the imported goods solely on the basis of the CE report is not one of the methods provided in Valuation Rules 2007 - the original authority as well as first appellate authority have arbitrarily determined the value at 650 USD per metric ton (C F) without showing any basis to arrive at the valuation. Whether the impugned goods are rendered liable for confiscation and the appellant are rendered liable for penalty? - HELD THAT - On the issue of applicability of BIS certificate for the impugned goods as per CBEC iinstructions read with the Quality Control Order 2012 it applies to CTH 7225 1100 or CTT 7226 1100 and not to the impugned goods falling under CTH 7204 49 00. We are of the opinion that for the same reasons Para 2.17 of the FTP 2009-14 is also not applicable to the impugned goods which are in the nature of Scrap and not second-hand Goods. As there is no mis-declaration of either the classification or the value of the goods the question of imposing fines and penalties does not arise and therefore it is not found necessary to discuss the appellants submissions in this regard. Conclusion - i) The impugned goods are rightly classifiable as other waste and scrap falling under CTH 7204 49 00. ii) The declared transaction value cannot be rejected merely on suspicion or on the basis of the Chartered Engineer s report which does not provide a basis for valuation. The Revenue has failed to discharge the burden of proof to establish undervaluation. iii) There being no misdeclaration or violation of law the goods are not liable for confiscation under Section 111(d) or 111(m) and no penalty or redemption fine is imposable on the appellants. The impugned orders are not sustainable and are liable to be set aside - Appeal allowed.

Summary

The core legal questions considered by the Tribunal in this appeal are:

(i) Whether the imported silicon steel scraps are correctly classifiable under Customs Tariff Heading (CTH) 7204 49 00 as claimed by the appellants or under CTH 7225 19 00 as held by the adjudicating and appellate authorities, and whether import authorization under Para 2.17 of the Foreign Trade Policy (FTP) is required;

(ii) Whether the Revenue was justified in re-determining the assessable value of the imported goods from USD 400 per metric ton to USD 650 per metric ton;

(iii) Whether the impugned goods are liable to confiscation and whether penalties are imposable on the appellants under the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Classification of Imported Goods

Legal framework and precedents: The classification dispute centers on whether the goods fall under CTH 7204 49 00 (ferrous waste and scrap) or CTH 7225 19 00 (silicon steel strips). Section XV Note 8(a) of the Customs Tariff Act, 1975 defines "metal waste and scrap" as metal goods "definitely not usable as such because of breakage, cutting-up, wear or other reasons." The Harmonized System of Nomenclature (HSN) Explanatory Notes to heading 7204 exclude articles which, with or without repair or renovation, can be re-used for their former purposes or adapted for other uses without first being recovered as metal. The Tribunal referred to several precedents including Naveen Impex (2018), Ansun Systems Consulting (2015), and Patiala Castings (2003), which emphasize usability as a key criterion for classifying goods as scrap.

Court's interpretation and reasoning: The Tribunal examined the Chartered Engineer's report, which certified that the silicon steel strips were obtained from old, used, rejected or damaged transformers and cannot be reused directly in their present condition as transformer cores. The goods were found to be rusted, de-shaped, curved, and crushed, supporting the claim that they are scrap. The appellants' request for mutilation of scrap before clearance further corroborated their classification as scrap. The Tribunal rejected the appellate authority's assumption that the goods could be reused after processing, noting the lack of any evidence or expert metallurgical opinion to support that view.

Application of law to facts and treatment of competing arguments: The Tribunal held that the goods satisfy the statutory definition of scrap under Note 8(a) and the HSN Explanatory Notes. The classification under CTH 7225 19 00 was found incorrect as the goods' width was less than 600 mm and mostly grain oriented, excluding them from that heading. The Tribunal relied on the principle that classification must be based on the condition and nature of goods, not merely on possible end use. It also noted that the identical consignment was earlier cleared as scrap under CTH 7204 49 00, and the Revenue could not take a contradictory stand.

Conclusion: The imported goods are correctly classifiable under CTH 7204 49 00 as silicon steel scrap. The requirement of import authorization under Para 2.17 of the FTP does not apply as the goods are scrap and not second-hand goods.

2. Re-determination of Value

Legal framework and precedents: Section 14 of the Customs Act, 1962, and the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 govern valuation. The transaction value-the price actually paid or payable-is the primary basis for assessment. Rule 3(2) of the Valuation Rules mandates acceptance of transaction value unless circumstances specified in the proviso exist. Rule 12 requires a reasonable basis to doubt declared value before rejection. The burden of proof to establish undervaluation lies on the Revenue. The Tribunal cited several Supreme Court decisions including Aggarwal Industries Ltd. (2011), Eicher Tractors Ltd. (2000), and Sanjivani Non-Ferrous Trading Pvt. Ltd. (2018) to underscore these principles.

Court's interpretation and reasoning: The Tribunal found no cogent material on record to justify rejection of the declared transaction value of USD 400 per metric ton. The Chartered Engineer's report, relied upon by the Revenue to enhance value to USD 650 per metric ton, did not substantiate how the value was determined. The Tribunal noted that the Chartered Engineer, being an expert in machinery, was not competent to determine scrap valuation. The Revenue failed to produce contemporaneous import data or other evidence to establish that the declared value was incorrect.

Application of law to facts and treatment of competing arguments: The Tribunal emphasized that mere suspicion or the presence of factors such as abnormal discounts is insufficient to reject declared value. The Revenue did not discharge its burden to prove undervaluation. The arbitrary enhancement of value was therefore held illegal and unsustainable.

Conclusion: The declared transaction value of USD 400 per metric ton must be accepted. The re-determination of value to USD 650 per metric ton is set aside.

3. Confiscation and Penalty

Legal framework and precedents: Confiscation under Section 111(d) and (m) of the Customs Act requires violation or misdeclaration of material particulars. Penalty under Section 112 is imposable only if there is mens rea or willful misstatement. The Tribunal referred to precedents such as Lotus Beauty Care Products Pvt Ltd (2020) and Kirti Sales Corporation (2008) on confiscation, and H.M.M. Limited (1995), Balakrishna Industries (2006), and others on penalty.

Court's interpretation and reasoning: Since the Tribunal held that there was no misclassification or undervaluation, there was no violation of the Customs Act, Tariff Act, FTP, or other laws. The appellants had disclosed all relevant information and there was no suppression or willful misstatement. The Tribunal also noted that classification disputes involve questions of law and interpretation, which do not attract penalty in absence of mens rea.

Application of law to facts and treatment of competing arguments: The Tribunal found no basis for confiscation or penalty. The imposition of redemption fine under Section 125 was also held unsustainable as it flows from confiscation.

Conclusion: The goods are not liable to confiscation and no penalty or fine is imposable on the appellants.

Additional Observations:

The Tribunal observed that the requirement of BIS certification and import authorization under the Quality Control Order, 2012, and FTP applies only to second-hand or defective CRGO sheets under CTH 7225 1100 or 7226 1100, not to scrap under CTH 7204 49 00. The impugned goods being scrap are exempt from such requirements. The Tribunal relied on Ministry of Steel communications and previous decisions to support this view.

Significant Holdings:

"The impugned goods are rightly classifiable as 'other waste and scrap' falling under CTH 7204 49 00. The classification determined in the Impugned Order is incorrect as the goods have a width of 0.20 mm to 0.30 mm, i.e. less than 600 mm and mostly grain oriented, taking them out of the ambit of CTH 7225 19 00."

"The declared transaction value cannot be rejected merely on suspicion or on the basis of the Chartered Engineer's report which does not provide a basis for valuation. The Revenue has failed to discharge the burden of proof to establish undervaluation."

"There being no misdeclaration or violation of law, the goods are not liable for confiscation under Section 111(d) or 111(m), and no penalty or redemption fine is imposable on the appellants."

"The requirement of BIS certification and import authorization under Para 2.17 of FTP does not apply to scrap goods classified under CTH 7204 49 00."

"Mere suspicion, however strong, is not a substitute for proof."

"Before rejecting the transaction value declared by the importer as incorrect or unacceptable, the revenue has to bring on record cogent material to show that contemporaneous imports were at a higher price."

"Classification disputes involving interpretation of law do not attract penalty in the absence of mens rea."

The Tribunal set aside the impugned orders and allowed the appeal with consequential relief.