2020 (10) TMI 289 - AT - Customs

Classification of imported goods - Sucrose (pharmaceutical grade) - classified under CTH 17029090 of Customs Tariff Act, 1975 or under CTH 17019990? - contention of the Revenue is that the imported sugar spheres or Non-pareil seeds 40-60 Mesh Sugar sphere (pharmaceutical grade) are classifiable under CTH 17019990 whereas the appellant while filing the Bill of Entry declared classification under CTH 17029090, but later during the appellate/adjudication proceedings claimed its classification alternatively under 17049090 of Customs Tariff Act, 1975. HELD THAT - In confirming the classification under Chapter heading 1701, the learned Commissioner (Appeals) in the impugned order held that chemically pure sucrose as mentioned under the Tariff Heading cannot be construed that it should consist of chemically pure sucrose only; but the chemically pure sucrose could also be in mixture with other materials like starch and water as in the present case. It is his reasoning that what is to be seen in classifying the mixture is the essential character of the product i.e. among all the elements the one that provides the essential character to the said product. He has observed that in the present case, it is sucrose, which is present in the range of 80 to 90% provides the essential character to the imported product Non-pareil seeds 40-60 Mesh Sugar sphere (pharmaceutical grade). In arriving at the said conclusion the Ld. Commissioner (Appeals) referred to rule 3(b) of General Rules of Interpretation, applicable to classification of products in mixture. There are merit in the observation of the learned Commissioner (Appeals). The argument of the appellant that the product chemically pure sucrose specified under chapter heading 1701 if mixed with any other ingredients except with flavouring or colouring agent, it would fall outside the scope of the said heading - The contention of the appellant that chemically pure sucrose mixed with other items would fall outside the scope of the said heading as it is not designed to bring within its scope other than pure sugar except when added with colouring or flavouring agent therefore devoid of merit. The Ld. Commissioner (Appeals) in determining the classification of the chemically pure sucrose mixed with starch and water, correctly applied Rule 3(b) of General Rules of Interpretation. He has observed that the classification of principal constituent in the mixture which provides essential character to the product be adopted for the mixture - In the present case chemically pure sucrose is the main constituent and provides the essential character to the mixture as neither the starch which acts as binder nor water which is used in the process can be called as the essential item to be used in the pharmaceutical industry, the purpose for which the mixture is manufactured. The products enumerated in the said Explanatory Notes clearly indicates that confectionary are mostly for immediate consumption and sometimes added with therapeutic value classified under Chapter 30 as pharmaceutical products. Also, applying the common parlance test, it cannot be claimed that the imported sugar spheres/neutral pellets are used by a common man like the use of a confectionary even if the same manufacturer manufactures both these items. The use of the imported pellets is in pharmaceutical industry not as confectionary by the common man - it can safely be concluded applying the aforesaid tests that the imported product in question common in both the Appeals fall under CTH 17019990 - the demand of duty and interest confirmed for the normal period is upheld. Penalty - HELD THAT - Since the issue relates to classification of goods between two competing Headings being a question of interpretation of law, hence, imposition of penalty is uncalled for and unwarranted, accordingly set aside. Time Limitation - HELD THAT - On a change of view by the department, allegation of mis-declaration or suppression of facts in classifying the product at the times of its import under CTH 17029090 is incorrect and cannot be sustained. The Revenue, on the other hand, argued that in the era of self-assessment, it is burden of the assessee to classify and discharge duty properly, hence, failure of classifying the product under correct sub-heading amounts to mis-declaration. Hence, invoking the extended period of limitation is justified. The appellant have been continuously declaring classification of the product under Heading 1702 after providing full and description of the goods in their Bills of Entry; duly filed all literatures on process of manufacture, its usage etc. as and when called for by the department during assessment proceedings. In such circumstance, allegation of suppression of facts or mis-declaration solely on the basis that the correct classification which according to the Department would fall under different Tariff Heading i.e. 1701 attracting higher rate of duty during the period under dispute cannot be sustained - the demand confirmed in the impugned Order invoking extended period is set aside on the ground of limitation. Appeal disposed off.

Summary

Issues Involved:
1. Classification of imported goods (sucrose/pharmaceutical grade and neutral pellets).
2. Applicability of extended period of limitation for demand of differential duty.
3. Imposition of penalty under Section 112(a) and 114A of the Customs Act, 1962.

Detailed Analysis:

1. Classification of Imported Goods:
The core issue revolves around the classification of "Non-pareil seeds 40-60 Mesh Sugar sphere (pharmaceutical grade)" also described as "Sugar Spheres" or "Neutral Pellets." The Department classified these goods under CTH 17019990, while the appellant initially classified them under CTH 17029090 and later claimed classification under CTH 17049090.

The appellant argued that the goods should be classified under Heading 17.02 as they are sugar preparations containing sucrose, starch, and water, and not pure sucrose or sugar simplicitor. They contended that these goods are used in the pharmaceutical industry and not as confectionery.

The Tribunal found merit in the Department's classification under CTH 17019990. It was observed that the product's essential character is provided by sucrose, which constitutes 80-90% of the mixture. The addition of starch and water does not change the essential character of sucrose. The Tribunal upheld the application of Rule 3(b) of General Rules of Interpretation, which states that the classification of a mixture should be based on the principal constituent that provides the essential character. Therefore, the classification under CTH 17019990 was upheld.

2. Applicability of Extended Period of Limitation:
The appellant contended that the demand for differential duty in Appeal No. C/85493/2019 for the period March 2012 to February 2015 is barred by limitation. They argued that they had consistently declared the classification of the goods under CTH 17029090, provided full descriptions, and complied with the assessment procedures. The Department was aware of the classification, and there was no suppression of facts or mis-declaration.

The Tribunal agreed with the appellant, stating that the extended period of limitation cannot be invoked solely on the basis that the correct classification falls under a different heading. The appellant's consistent declaration and transparency in the assessment process negate the allegation of suppression or mis-declaration. Consequently, the demand for the extended period was set aside on the ground of limitation.

3. Imposition of Penalty:
The Tribunal found that the issue of classification between two competing headings involves an interpretation of law. Given this, the imposition of a penalty was deemed uncalled for and unwarranted. The penalty imposed under Section 112(a) was set aside.

Conclusion:
The appeals were disposed of with the following key points:
- The classification of the imported goods was upheld under CTH 17019990.
- The demand for differential duty for the normal period was confirmed, but the demand for the extended period was set aside due to the limitation.
- The imposition of the penalty was set aside, considering the issue involved an interpretation of law.