ONCE THE CLASSIFICATION OF THE CUSTOMS/EXCISE DEPARTMENT FAILS THE CONSEQUENCE PROCEEDINGS ARE TO BE SET ASIDE

[Mr. M. GOVINDARAJAN]

In case of export the duty is levied on the classification of the products concerned.  The Customs Tariff Act under various Chapters prescribes the rate of duty indicating on which goods the said rate is applicable.  There is always a dispute between the exporters and the Department on the classification of the goods.  The exporter may classify some head while the Department takes the view of another head.  This results in disputes.  Normally the Adjudicating Authority decides on the classification of their own and confirm demand.  The Exporter is to go in for appeal and may or may not get remedy.

The Authorities are to consider the correct head once there is a dispute between the exporter and the Department.  If the classification of the department is correct then the Appellate Authorities may confirm the demand.  If the Appellate Authorities observe that the classification is not correct then the exporter will succeed in his case.  In such a case the further proceedings, if any, taken by the Department will be set aside, unless it is challenged in the Appellate Tribunal or High Court.

The same is the position in the Central Excise laws.

In WARNER HINDUSTAN LTD. VERSUS COLLECTOR OF CENTRAL EXCISE, HYDERABAD - 1999 (8) TMI 75 - SUPREME COURT, the appellant manufactures what it calls "Halls Ice Mint tablets". It classified these tablets as "Ayurvedic medicines" under Heading 3003.30 of the Central Excise Tariff.  It was issued a notice to show cause why these tablets should not be classified under Tariff Heading 3003.19 as "patent or proprietary medicines". The Assessing officer held that the said tablets fall under the heading 3003.19.  The assessee filed an appeal before the first Appellate Authority, held that the tablets fall under 3003.30.  Therefore, the Department filed an appeal before the Tribunal.  The Department, for the first time, took the stand that the tablets were correctly classifiable under Heading 17.04 as "confectionery". The Tribunal accepted the said head and allowed the appeal.  The assessee filed an appeal before the Supreme Court against the order of the Tribunal.  In the opinion of the Supreme Court, the Tribunal was quite wrong in these circumstances in allowing the appeal of the Excise authorities and classifying the mint tablets as items of confectionery under Heading 17.04. The correct course for the Tribunal to have followed was to have dismissed the appeal of the Excise authorities making it clear that it was open to the Excise authorities to issue a fresh show cause notice to the appellant on the basis that the tablets were classifiable under Heading 17.04 as items of confectionery.   The Supreme Court allowed the appeal and directed the department to issue a fresh show cause notice to the assessee and to decide the case according to the provisions of law.

In PRECISION RUBBER INDUSTRIES (P) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI - 2016 (4) TMI 841 - SUPREME COURT, according to the assessee, the manufactured goods are classifiable under Chapter Heading 4009.99 of the Central Excise Tariff Act, 1985. The Revenue issued seven show cause notices to the assessee seeking to classify the goods under Chapter Heading 4016.99 and demanding consequential duty.  During the course of the case the Department took the view that the goods fall under Heading 8448.00, the conclusion of which was arrived at on the basis of an order passed by the Tribunal at Bangalore in the case of the assessee itself.  The Supreme Court held that no new case could have been set up or decided contrary to the show cause notices that the goods fall under Chapter Heading 8448.00 without issuing a fresh show cause notice to the assessee in this regard.  The Supreme Court set aside the impugned order passed by the Tribunal and remanded the matter to the Adjudicating Authority to decide the correct head.

In PEPSICO HOLDINGS PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE PUNE – III - 2019 (4) TMI 320 - CESTAT MUMBAI, the dispute of classification of goods in this case, is on ‘3D’s choco filled snacks.  Appellant classified the said goods under heading no. 1905 90 90 of the First Schedule to the Central Excise Tariff Act, 1985 with ‘nil’ rate of duty.  The Department considered the same under heading no. 1905 3211 of the First Schedule to the Central Excise Tariff Act, 1985.  The heading claimed by the appellant was the residual entry in ‘bread, pastry, cakes, biscuits and other bakers’ wares, other than crispbread, ginger bread and the like and sweet biscuits, waffles and wafers and communion wafers, pastries and cakes, extruded or expanded products and papad’. Contrarily, central excise authorities proposed classification under the sub-heading of ‘sweet biscuits, waffles and wafers’ and specifically under heading no. 1905 32 11 pertaining to ‘communion wafers coated with chocolate or containing chocolate’.   The Tribunal observed that the product in question is not a wafer which, by its very definition, is a thin product of baking process/drying process which is a far cry from the solidity of the impugned goods. It would appear that the adjudicating authority was more impressed by the reference to ‘chocolate or containing chocolate’ in the proposed classification which the impugned goods, admittedly, contained, without paying attention to the dimension intended by the description.  The Tribunal relied on Supreme Court judgment in WARNER HINDUSTAN LTD. VERSUS COLLECTOR OF CENTRAL EXCISE, HYDERABAD - 1999 (8) TMI 75 - SUPREME COURT  The Department pleaded that the original authority should be permitted to attempt another alternative classification as the declared heading is not appropriate.   The Supreme Court held that the correct course for the Tribunal to have followed was to have dismissed the appeal of the Excise authorities making it clear that it was open to the Excise authorities to issue a fresh show cause notice to the appellant on the basis that the tablets were classifiable under Heading 17.04 as items of confectionery.  The Tribunal held that it cannot decide on a classification that has not been pleaded before it. Once the classification proposed by Revenue is found to be inappropriate, that claimed, while clearing the goods, will sustain even if it may appear to be inappropriate.  The Tribunal set aside the order and allowed the appeal.

In KITCHEN XPRESS OVERSEAS LTD VERSUS COMMISSIONER OF CUSTOMS - KANDLA CUSTOMS - 2024 (11) TMI 1239 - CESTAT AHMEDABAD, the appellant being SEZ unit engaged in importing pulses and processing them i.e. sorting, grading and polishing. After carrying out the said process, Pulses that were of exportable quality were exported. Non-exportable coarse pieces of pulses “the impugned product” namely offspecs pulses, tukdi of pulses- broken pulses, bhushi/ bhuki of pulses mixed with impurities/ pulses waste (not of export quality) were cleared into Domestic Tariff Area.  As per the appellant the classification of the said goods is under chapter heading 0713 which is eligible for duty exemption under Notification No. 12/2012 (Sr. No. 21).  The case of the Department is that the classification of the said goods is under sub heading 23025000.  the appellant was forced to pay the duty.  The appellant paid the duty under protect.  A show cause notice was issued to the appellant.  The adjudicating authority vide order-in-original No. KDL/ADC/RHM/19-2021-22 dated 11.03.2022 decided the classification under Custom Tariff item 23025000 and confirmed the duty or Rs. 15,21,135/-.  The appeal filed by the appellant before the Commissioner of Customs was rejected.  Therefore, the appellant filed the present appeal before the Tribunal.  The appellant submitted the following before the Tribunal-

• The heading 2302 applies only to the Bran, Sharps and other residues derived from shifting, milling or other working of cereals or leguminous plants. 
• it can be seen that the residue should arise from working of either a cereal or leguminous plant.
• in the present case the waste arise from pulses and pulses are not covered either as cereal or leguminous plant and therefore they are outside the scope of the said entry. 
• there is no process or working of leguminous plant. The process or working is of leguminous vegetable.

The Department reiterated the findings of the impugned order.

The Tribunal considered the submissions of the appellant and the Department.  The Tribunal analysed the entries in the heading 0713 and 2302.  The Tribunal observed that from the plain reading of the chapter heading 2302, it is found that the same is applicable for the goods such as Bran, Sharps and others residues whether or not in the form of palates derived from the sifting, milling or other working cereal or of leguminous plants. That means it applies to the goods namely, cereals of leguminous plant. In the present case the waste arise from the pulses and pulses are not covered either as cereals or leguminous plant. Therefore, on this basis, it is clear that the appellant’s product being a waste arise from the pulses does not cover under the tariff heading 2302. It is a settled legal position that irrespective of the position whether the assessee’s claim of classification is right or wrong but if the classification proposed by the department fails than the entire proceeding is vitiated and no consequential demands will sustain.  The entry of the 0713 reads as “DRIED LEGUMINOUS VEGETABLES, SHELLED, WHETHER OR NOT SKINNED OR SPLIT”. The Tribunal found that as against the cereal and vegetable plants, the goods is appropriately classifiable as dried leguminous vegetables. Therefore, in our considered view, we hold that the appellant has correctly classified the goods under 0713.  The Tribunal allowed the appeal and set aside the impugned order.

It is settled that once the claim of the department on any classification gets failed than the entire proceeding consequential to the said proposals will also be set aside.