2016 (4) TMI 621 - HC - Customs

Legality/validity of Circular No. 19/2013-CUS dated 9th May, 2013 - classification of Filters referred to as Disposable Sterilized Dialyzer and Microbarrier for filtering blood - Originally the goods being Dialysers were classified under CTH 90189031 which pertain to Renal dialysis equipment (artificial kidneys, kidney machines and dialysers) but after the circular dated 9th May, 2013, classified as above under Tariff Item 84212900, attracting a higher rate of customs duty Held that - CTH 90189031 specifically provides for dialysers whereas CTH 84212900 provides for generic description of articles. Heading 9018 under Chapter 90 pertains to medical instruments whereas heading 8421 under Chapter 84 pertains to goods which are generally used for industrial purposes and do not appear to have any medical use. Hence, the natural classification of dialysers should be under CTH 90189031 as it was prior to issuance of the impugned circular. When a specific tariff heading for classification is available, the goods concerned cannot be classified under a generic tariff heading. In the instant case, the onus was on the department to justify the change of classification sought to be made by the impugned circular, which onus, in my opinion, has not been discharged by the Department. Thus, it is evident that the impugned circular is blatantly contrary to the said Rule and is thus, not sustainable. Challenge to circular - Department contended that once agreed to the assessment made by the Department, the petitioner cannot be permitted to challenge the said assessment or the impugned circular on the basis whereof the assessment was made - Held that - non-mentioning of any and every fact does not amount to suppression of material facts. A material fact is one that would have a bearing on the decision of the court. Even if the petitioner mentioned in the writ petition about the factum of he having initially agreed with the Department s assessment, my decision would not have been any different. This is so because there can be no estoppel against the statute. S. 11A of the Customs Tariff Act does not countenance amendment of the First Schedule to the said Act by issuance of a mere departmental circular. The method in which the First Schedule has been sought to be amended is contrary to the method prescribed by S. 11A and as such the circular cannot be sustained. Hence, the fact that the petitioner initially agreed with the Department s assessment is not a material fact and accordingly the respondent s first point is rejected. Validity of Show cause notice - Department contended that the petitioner has not challenged the show cause cum demand notice dated 21 April, 2014 - Held that - this is a point without any substance. The said show cause notice is admittedly based on the impugned circular. If the circular is quashed, the show cause notice automatically goes. Hence, the impugned circular is bad in law being without jurisdiction and cannot be sustained. The Circular No. 19/2013-CUS dated 9 May, 2013 is quashed and set aside. - Decided in favour of applicant

Issues Involved:
1. Legality and validity of Circular No. 19/2013-CUS dated 9th May, 2013.
2. Classification of 'Disposable Sterilized Dialyzer' and 'Microbarrier' under Customs Tariff Heading (CTH) 84212900 versus CTH 90189031.
3. Refund of differential duty collected under CTH 84212900.
4. Ultra vires nature of the circular in relation to the Customs Act and the Constitution of India.
5. Applicability of Rule 3(a) of the General Rules for Interpretation of the First Schedule to the Customs Tariff Act.
6. Procedural validity of changing tariff headings via circular versus notification under Section 11A of the Customs Tariff Act.
7. Impact of executive instructions and circulars on statutory provisions.
8. Petitioner's initial agreement with the Department's assessment and its legal implications.
9. Non-challenge of the show cause cum demand notice dated 21st April, 2014.

Detailed Analysis:

1. Legality and Validity of Circular No. 19/2013-CUS:
The petitioner challenged the circular issued by the Central Board of Excise and Customs, which reclassified 'Disposable Sterilized Dialyzer' and 'Microbarrier' from CTH 90189031 to CTH 84212900, attracting a higher customs duty. The petitioner argued that the circular was ultra vires the Customs Act and violated Articles 14, 19(1)(g), and 265 of the Constitution of India.

2. Classification of Medical Devices:
The petitioner imported 'Hollow Fiber Dialyzer' and 'Blood Tubing Line' under CTH 90189031, which pertains to "Renal dialysis equipment." The Department reclassified these goods under CTH 84212900 based on the impugned circular. The petitioner contended that the goods are medical instruments and should remain classified under CTH 90189031, which specifically covers renal dialysis equipment.

3. Refund of Differential Duty:
The petitioner paid the higher duty under protest and sought a refund of the differential amount. The Department's delay in assessing the bill of entry caused the petitioner to incur additional costs.

4. Ultra Vires Nature of the Circular:
The petitioner argued that the circular could not override the statute and that classification changes should be made through notifications as per Section 11A of the Customs Tariff Act. The petitioner cited Rule 3(a) of the General Rules for Interpretation, which states that specific descriptions should prevail over general ones.

5. Rule 3(a) Interpretation:
The petitioner relied on the Supreme Court's decision in HPL Chemicals Ltd. v. Commissioner of Central Excise, which emphasized that specific headings should be preferred over general ones. The circular's reclassification was contrary to this rule.

6. Procedural Validity Under Section 11A:
Section 11A allows the Central Government to amend the First Schedule of the Customs Tariff Act via notification, which must be laid before Parliament. The petitioner argued that the circular did not follow this procedure and was thus invalid.

7. Impact of Executive Instructions:
The petitioner contended that executive instructions, such as the circular, cannot override statutory provisions. The Supreme Court's ruling in Sandur Micro Circuits Ltd. v. Commissioner of Central Excise supported this view.

8. Petitioner's Initial Agreement:
The Department argued that the petitioner initially agreed to the reclassification and assessment, which should preclude them from challenging the circular. However, the court held that there could be no estoppel against the statute, and the initial agreement did not affect the legal challenge.

9. Non-Challenge of Show Cause Notice:
The Department noted that the petitioner did not challenge the show cause cum demand notice dated 21st April, 2014. The court found this irrelevant, as quashing the circular would nullify the show cause notice.

Court's Conclusion:
The court held that the impugned circular was invalid, as it attempted to amend the Customs Tariff Act without following the prescribed procedure under Section 11A. The circular was quashed, and the writ application succeeded. The court emphasized that specific tariff headings should prevail over general ones, and executive instructions cannot override statutory provisions. The petitioner's initial agreement with the assessment did not preclude the legal challenge, and the non-challenge of the show cause notice was immaterial.

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