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2014 (5) TMI 754 - AT - CustomsClassification of goods - Classification of activated Bentonite clay imported from abroad - whether under CTH 2508 or under CTH 3802 of the Customs Tariff - Duty demand - Bar of limitation - Held that - A careful reading of Note 1 to Chapter 25 read with HSN Explanatory Notes to CTH 25.08 and 38.02, make it abundantly clear that activated Bentonite merits classification under Heading 38.02. As per technical literature, activation of Bentonite by acid or alkali results in changes in the molecular structure of the product. C.B.E. & C. vide Circular 32/2002, dated 10-6-2002, after examining the issue in depth, has clarified that activated Bentonite merits classification under CTH 3802. Therefore, the correct classification of activated Bentonite is CTH 38.02 and not CTH 25.08. - Decided against the assessee. Mistake in the tariff classification entries as introduced w.e.f. 1-2-2003 - Held that - for the period from 1-2-2003 to 31-12-2006, activated Bentonite has to be classified under CTH 2508 10 90 (because of its specific inclusion in the tariff description). However, for the period prior to 1-2-2003 and from 1-1-2007 onwards, when there is no specific inclusion, in view of Note 1 to Chapter 25 which excludes products whose structure has undergone a change, the said product merits classification under CTH 3802 90 19 and we hold accordingly. Extended period of limitation - Section 28(1)(a) stipulates that whenever there is a short levy or non-levy or erroneous refund of duty, then the proper officer shall, within one year from the relevant date, serve notice on the person chargeable with the duty or interest which has not been so levied or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice. Thus it is not date of issue of show cause notice but service of notice that is relevant for computing the time period. Further, as per the definition of relevant date, for reckoning the time period, it is not the date of filing of the bill of entry, but the date of payment of duty that would be relevant. If the show cause notice has been served on the party within a period of six months/one year, as the case may be, from the date of payment of duty, the demands would be valid and sustainable. Decided partly in favour of assessee.
Issues Involved: Classification of activated Bentonite clay under CTH 2508 or CTH 3802, time-barred demands, and the implications of tariff description changes.
Issue 1: Classification of Activated Bentonite Clay Arguments by Appellants: - Activated Bentonite should be classified under CTH 2508 as it includes both unprocessed and processed Bentonite. - Activation by acid/alkali is a process, making it processed Bentonite under CTH 2508. - CTH 2508 is more specific than CTH 3802, thus should be preferred. - If classified under CTH 3802, demands are time-barred due to extended period invocation. - Changes in tariff description by notification do not alter duty rates, so differential duty demands are invalid. Revenue's Contention: - Activation changes Bentonite's structure, excluding it from CTH 2508 as per Chapter Note 1 to Chapter 25. - Cited three Tribunal decisions (Manek Chemicals Pvt. Ltd., Adani Wilmar Ltd., Divya Enterprises) supporting classification under CTH 3802. Tribunal's Analysis: - Pre-2003 Tariff: CTH 2508 included "Other clays" and Bentonite; CTH 3802 included "Activated natural mineral products." - Post-2003 Tariff: Specific inclusion of activated Bentonite in CTH 2508 10 90 until 2007. - Post-2007: "Activated" omitted from CTH 2508 10 90, aligning with Chapter Note 1 and HSN Explanatory Notes excluding products with structural changes from Chapter 25. - Activated Bentonite, due to structural changes, merits classification under CTH 3802 as per technical literature and C.B.E. & C. Circular 32/2002. Conclusion: - Correct classification is CTH 3802 for periods before 1-2-2003 and after 1-1-2007. - From 1-2-2003 to 31-12-2006, due to specific inclusion, it falls under CTH 2508 10 90. Issue 2: Time-Barred Demands Appellants' Argument: - Demands for differential duty are time-barred as they invoke the extended period without valid suppression claims. - Misclassification based on understanding does not constitute suppression. Tribunal's Analysis: - Board's Circular 32/2002 alerted officers about misdeclarations. - Department's failure to ascertain correct classification cannot justify extended period invocation. - Classification disputes do not warrant penal consequences. Conclusion: - Demands beyond the normal period of limitation are unsustainable. - Demands within normal period or provisional assessments are valid. Issue 3: Notification and Duty Rates Appellants' Argument: - Changes in tariff description effective from 1-1-2007 should not alter duty rates as per Section 5 of the Central Excise Tariff Act, 1985. Tribunal's Analysis: - Argument valid only for the short period between 1-1-2007 to 28-2-2007. - Imports in 2008 render this argument irrelevant. Conclusion: - Argument has no relevance for the periods in question. Issue 4: Date of Show Cause Notice Appellants' Argument: - Relevant date for computing limitation is the service date of the show cause notice, not the issue date. Tribunal's Analysis: - Section 28(1)(a) of the Customs Act supports this view. - Larger Bench decision in Margra Industries Ltd. aligns with this interpretation. Conclusion: - Demands are valid if served within the normal period from the date of duty payment. Outcome of Appeals: - Allowed (Time-Barred): C/418/2007, C/439/2007, C/440/2007, C/441/2007, C/442/07, C/444/2007, C/448/2007, C/449/2007, C/452/2007, C/706/2007, C/411/2010, C/412/2010, C/413/2010, C/414/2010, C/415/2010, C/416/2010, C/423/2010, C/424/2010, C/11/2010 & C/CO/8/2010. - Duty Demand Confirmed (Provisional Assessments): C/719/2007. - Duty Demand Upheld (Normal Period): C/720/2011, C/721/2011, C/722/2011, C/723/2011, C/724/2011, C/725/2011. Final Orders: - Differential duty and interest upheld for valid demands. - No confiscation, fine, or penalty due to classification dispute. - Consequential reliefs as per law, including unjust enrichment bar. Disposition: - Appeals disposed of as per the above terms. - Stay applications and cross objections also disposed of.
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