2012 (4) TMI 446 - AT - Customs

Confiscation of lieu of redemption fine - Alloy or non alloy steel - definition of alloy steel - testing of samples - held that - What is surprising in this case is that the concerned Scientist from NML has indicated an error margin which is as high as 200%. - It is a pity that the Board has directed the field officials to apply the borrowed definition of alloy steel from the Import Schedule of the Customs Tariff for the purpose of applying export duty in its letter dt. 3.6.2008, but has not made arrangements for proper testing of boron content as is glaringly observed in this case. A test method giving results which are uncertain to the extent of 200% is of no value for the purpose of tariff determination. The test results obtained by the customs authorities in this case indicate that 42 samples satisfied the tariff breakpoint of 0.0008%. Other 31 samples would also cross the tariff breakpoint when the positive error margin of 0.0006% indicated by NML Scientist is applied. We also note that some of these 31 had crossed the tariff breakpoint earlier in the testing done by NML the first time. Under the circumstances, it cannot be held that the appellants have misdeclared the impugned goods in regard to the declared boron content. The arguments made on behalf of the department suggesting that the appellants should show that they had plant and machinery to produce boron steel and that they have not shown any proof that they have manufactured any standard grades of alloy steel etc. cannot be pressed against the appellants when the department has failed to discharge its initial burden to prove the alleged misdeclartion on the basis of chemical test undertaken at the NML. No reason to uphold the confiscation of the impugned goods, imposition of redemption fine and imposition of penalties on the appellant-company and the appellant-Managing Director.

Summary

Issues Involved:

1. Classification of goods as alloy steel or non-alloy steel.
2. Validity of test reports and error margins.
3. Alleged misdeclaration to evade export duty.
4. Burden of proof.
5. Imposition of penalties and fines.

Issue-wise Detailed Analysis:

1. Classification of Goods as Alloy Steel or Non-Alloy Steel:

The core issue was whether the impugned goods were alloy steel or non-alloy steel. The appellants declared the goods as "alloy steel billets of prime quality," while the customs authorities classified them as non-alloy steel based on test reports. The Tribunal noted that the export tariff schedule does not define alloy and non-alloy steel, but the Board's clarification stated that the description should be borrowed from the import schedule of the Customs Tariff. According to the import schedule, alloy steel must contain specific elements in certain proportions, with boron content being the least at 0.0008%.

2. Validity of Test Reports and Error Margins:

The appellants and the customs authorities had conflicting test reports from M/s. Kidao Laboratories and M/s. National Metallurgical Laboratory (NML). The Tribunal found that the NML test results showed significant uncertainty, with error margins up to +/-0.0006%. The Tribunal emphasized that applying the positive error margin would bring all samples above the required 0.0008% boron content, thus classifying them as alloy steel. The Tribunal criticized the high error margin of 200% as unacceptable for tariff determination and highlighted the need for accurate testing methods, as seen in other countries.

3. Alleged Misdeclaration to Evade Export Duty:

The customs authorities alleged that the appellants misdeclared the goods to evade a 15% export duty on non-alloy steel. The Tribunal noted that the appellants had ample time to renegotiate their sales contracts after the tariff change and had reorganized their documentation accordingly. The Tribunal found that the chemical tests did not support the claim of misdeclaration, as the boron content met the required criteria after applying the error margins. The Tribunal also dismissed the circumstantial evidence provided by the department, stating that it had little value compared to the chemical test results.

4. Burden of Proof:

The Tribunal reiterated that the burden of proof lies on the revenue department to show that the goods fall under a particular tariff. The Tribunal found that the department failed to provide sufficient evidence to prove the misdeclaration. The appellants' consistent claim of adding boron to the steel billets and the chemical test results supporting this claim led the Tribunal to conclude that the department did not meet its burden of proof.

5. Imposition of Penalties and Fines:

The adjudicating Commissioner had confiscated the goods and imposed penalties under Sections 114 and 114A of the Customs Act, 1962. The Tribunal found no basis for confiscation, redemption fine, or penalties, as the department failed to prove the alleged misdeclaration. The Tribunal noted that the impugned goods had already been taken back into town and set aside the confiscation and penalties imposed on the appellant-company and the appellant-Managing Director.

Conclusion:

The Tribunal allowed the appeals, set aside the impugned order, and found that the department's case was not proved beyond doubt. The benefit of doubt went in favor of the appellants, and the penalties and fines were deemed unwarranted. The judgment emphasized the need for accurate testing methods and proper determination of boron content for tariff purposes.