2020 (9) TMI 952 - AT - Customs

Classification of imported goods - heavy melting scrap - benefit of concessional rate of duty - serial no. 368 in N/N. 50/2017-Cus dated 30th June 2017 - applicability of note no. 7 in Section XV of the First Schedule to Customs Tariff Act, 1975 - Difference of Opinion - matter placed before Hon ble President for reference. HELD THAT - In view of difference of opinion as to allowing of appeal, as held by Member (Technical), and remanding the matter for re-test, as held by Member (Judicial) in appeal no C/88315/2019, Registry is directed to place the records before Hon ble President for reference, under section 129C (5) of Customs Act, 1962, to Third Member for answering the following points i. In the light of concurrence of finding that the impugned goods are not copper alloy in paragraph no.13, and the show cause notice proposing classification in tariff item no. 74040029 below sub-heading for copper alloy in chapter 74 of First Schedule to Customs Tariff Act, 1975, whether the decision of Member (Technical) that incorrectness thereof of proposed classification leaves no option but to accept the declared classification against tariff item no. 72044900 in chapter 72 of First Schedule to Customs Tariff Act, 1975 for concluding proceedings OR whether the decision of Member (Judicial) that inappropriateness of the classification proposed in the show cause notice notwithstanding re-test and consideration of other submissions made by noticee is warranted is the correct position in law?; ii. Whether direction for re-testing of fresh samples during adjudication proceedings, that may have the consequence of helping the adjuidcator to arrive at the proper decision of the matter, as decided by Member (Judicial), will have the effect of adding facts to the show cause notice? OR that the resolution of dispute cannot go beyond the facts recorded in the show cause notice, as decided by Member (Technical) reflects the statutory competence, under Customs Act, 1962, of the Tribunal in exercise of authority to remand matter back to the original authority? iii. Whether, on the conclusion in the show cause notice, in the light of recorded declining by all laboratories to re-test the samples, the decision of Member (Technical) that no purpose will be served by insisting on re-test OR the decision of Member (Judicial) that re-test must necessarily be carried out in the laboratories suggested by the appellant or at any other laboratory. is the proper procedure to be adopted? iv. Whether, on the facts available on record, the view of the Member (Technical) that the inability expressed by National Metallurgical Laboratory arises reports lack of capacity to perform test sought by customs officers OR that of Member (Judicial) that it should be presumed that it was declined only owing to non-availability of samples is the appropriate conclusion? v. Whether circular no. 30/2017-Cus dated 18th July 2017, relied upon by the adjudicating authority to accept the first report of National Metallurgical Laboratory, authorizes such option where the second report is inconclusive as held by Member (Judicial) OR recourse to choose between tests only when two complete test reports are available as held by Member (Technical), AND vi. Whether the second test report, referred in paragraph no.13, had given erroneous findings, as held by Member (Judicial), in the context of their clarification furnished on 22nd February 2019 OR Whether the result was not erroneous but inconclusive, as held by Member (Technical), in the context of response and clarifications furnished on the reference made by the department.

Summary

Issues Involved:
1. Classification of imported goods.
2. Validity of test reports and re-testing.
3. Applicability of Section 125 of Customs Act, 1962 regarding confiscation.
4. Imposition of penalties under Sections 112 and 114AA of Customs Act, 1962.
5. Adherence to principles of natural justice.
6. Reliance on Circular no. 30/2017-Cus dated 18th July 2017.
7. Resolution of difference in judicial opinions.

Detailed Analysis:

1. Classification of Imported Goods:
The primary issue revolves around the classification of the imported goods, initially declared as 'heavy melting scrap' under heading 72044900. The examining authority reclassified it under heading 74040029 as 'copper waste and scrap' based on the copper content identified in the PMI tests. The appellant contested this reclassification, arguing that the copper content did not alter the nature of the goods as scrap. The Tribunal found that the cylindrical core's copper content did not justify the reclassification under heading 74040029, as it was not an alloy of copper. Consequently, the declared classification under heading 72044900 was upheld.

2. Validity of Test Reports and Re-testing:
The initial test report from the National Metallurgical Laboratory (NML) indicated a copper content of 59.62%, which was disputed by the appellant. Despite the appellant's request for a re-test, the NML and other laboratories expressed their inability to perform the test. The Tribunal noted that the discretion to accept one of the test reports, as per Circular no. 30/2017-Cus, was contingent upon the existence of two reports, which was not the case here. The Tribunal found the reliance on the disputed first report without a conclusive second report to be unjustified.

3. Applicability of Section 125 of Customs Act, 1962:
The adjudicating authority's order implied absolute confiscation of the goods without offering the option for redemption, which is mandatory under Section 125 of the Customs Act, 1962. The Tribunal highlighted this oversight, noting that the adjudicating authority's intent for absolute confiscation was in disregard of the statutory requirement.

4. Imposition of Penalties:
Penalties were imposed under Sections 112 and 114AA of the Customs Act, 1962. The Tribunal found that the imposition of penalties on the Director of the importing company was not substantiated by evidence of deliberate concealment of copper. The Tribunal deemed the penalties to be a casual and irresponsible exercise of power.

5. Adherence to Principles of Natural Justice:
The appellant argued that the principles of natural justice were not followed, as they were not given an opportunity to reply to the show cause notice, and certain documents were not provided. The Tribunal acknowledged these procedural lapses and emphasized the need for re-adjudication to ensure compliance with natural justice.

6. Reliance on Circular no. 30/2017-Cus:
The adjudicating authority relied on Circular no. 30/2017-Cus to justify the acceptance of the first test report. The Tribunal clarified that the circular allows for discretion only when there are two test reports with variations. Since the second report was inconclusive, the reliance on the first report was deemed inappropriate.

7. Resolution of Difference in Judicial Opinions:
There was a difference of opinion between the Member (Technical) and Member (Judicial) regarding the necessity of re-testing and the appropriate classification. The Member (Technical) concluded that the declared classification should be accepted due to the incorrectness of the proposed classification. In contrast, the Member (Judicial) advocated for re-testing to arrive at a just decision. The matter was referred to the Hon’ble President for resolution by a Third Member.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeals. The case was remanded for re-adjudication, emphasizing the need for re-testing and adherence to natural justice principles. The penalties imposed were also set aside due to the lack of evidence supporting deliberate misdeclaration. The difference in judicial opinions was referred to the Hon’ble President for resolution.