2023 (7) TMI 447 - AT - Customs

Classification of imported goods - coal of Indonesian origin - to be classified under tariff item 2701 1920 of First Schedule to Customs Tariff Act, 1975 or not - benefit of notification no. 12/2012-Cus dated 17th March 2012 - contention of Learned Authorized Representative is that the claim of precedence for steam coal at the tariff item level over bituminous coal at the sub-heading level, though dressed up as tariff item, is not consistent with the General Rules for Interpretation of the Import Tariff in Customs Tariff Act, 1975. HELD THAT - Coal is a bounty of Nature that occurs as localised concentrations and, by its very remoteness from places of deployment, implies voluminouos shipments with appropriate commercial stake. Coal draws worth from its combustion capacity by direct application of heat in manufacturing process or indirectly by generation of steam used for deriving energy of one sort or another. The heating capacity is proportional to carbon content which, being a natural element, not only varies from source to source but is also contingent upon presence of retarding extraneous matter - Anthracite coal is considered superior and relatively scarce; its characteristic of very high carbon permits deployment at the high end of the spectrum in sophisticated equipment. Bituminous coal is most widespread and is primarily used in heating for generation of thermal power; the oozing of the tarry substance, from which the name is derived, renders such coal unsuitable in direct application that would clog equipment. The sub-headings in chapter 27 of First Schedule to Customs Tariff Act, 1975 adopted definitions consistent with the standards developed, and accepted, over the long period of increasing dependence on coal for industry, transportation and energy. The evaluation of fixed carbon , at or more than 86% (on dry, mineral matter free basis) with volatile matter constituting the remaining 14% or less, as the determinant of anthracite bears the insignificance of heating value insofar as coal of this rank is concerned - The adjudicating authority has placed too much premium on the said expressions in the sub-heading notes without considering relevance to the certificate of sampling and analysis (CoSA) or the significance of formula, and more especially, in conversion. Doubtlessly, the investigation, and use of the word advisedly as there has been no scrutiny of the tabulated information by the adjudicating authority who has merely approved the arrangement in Annexure B to the show cause notice, are happy with their mathematical reformulation which carries that derived gross calorific value (GCV) beyond the threshold to reaches of higher duty liability. There is no controversy for the proximate analysis , undertaken at load port and conforming to ASTM, indicated gross calorific value (GCV) to be below the threshold for classification as bituminous coal in chapter 27 of First Schedule to Customs Tariff Act, 1975. However, the notation ARB/ADB for gross calorific value (GCV) and ADB for inherent moisture and volatile matter did. However, the adjudicating authority has not ventured to consider the chicken and egg analysis of the method adopted for measuring gross calorific value (GCV) of coal. That this is a mathematical value , expressed in per kilogram terms to a specific outcome, viz., the raising of temperature of a kilogram of water by one degree on the Celsius scale a theoretically cumbersome and haphazard process save for the invention by Marcellin Berthelot, the founder of organic chemistry in bomb calorimeter appears to have been ignored; that such determination from a sample of powder, bereft of moisture and mineral matter, needed adjustment only for the missing element in the qualification was also equally ignored in the eagerness to carry out algebraic permutation for arriving at the desired result to charge higher rate of duty. Several fatal errors have been committed in the impugned proceedings in consequence. There is, in addition, lack of comprehension about the conversion of gross calorific value (GCV) in load port certification of sampling and analysis (CoSA) for being on as received basis (ARB) into gross calorific value (GCV) on air dry basis (ARB) by application of factor that coal with inherent moisture bears to moisture free coal which should have sufficed to arrive at gross calorific value (GCV) on moist basis ; that, however, would not have suited the investigators for that proved to be below the threshold of 5833 kcal/kg in the sub-heading notes. Therefore, even going by their own calculation, the investigators carried out a superfluous exercise beyond gross calorific value (GCV) on air dry basis (ADB) to contrive a measure that has no rationale. Without ascertaining the method by which gross calorific value (GCV) was determined for inclusion in the certificate of sampling and analysis (CoSA) issued at load port and in the absence of any finding that this was not directly deduced from bomb calorimeter and as content of moisture , ash volatile matter and fixed matter in coal sample will not, of itself, derive the heating capacity as kcal/kg , there is no reason to suppose that it was not steam coal to be classified elsewhere - Consequently, the formula devised for reverse working from moisture free mineral matter free basis gross calorific value (GCV) for computation in terms of any one or other description in sub-heading notes in chapter 27 of First Schedule to Customs Tariff Act, 1975 is not required to be worked out sequentially as the table in Annexure B has done to obtain outcomes that are inexplicable, unfounded and lacking in rationale. It is, thus, clear that, on as received basis (ARB) and air dry basis (ADB) , the gross calorific value (GCV) comprising both types of moisture and inherent moisture respectively are below the threshold of bituminous coal in all the samples . The attempt by the adjudicating authority to classify the impugned goods within the description bituminous coal , corresponding to tariff item 2701 1200 in the First Schedule to Customs Tariff Act, 1975, fails. The claim for classification as steam coal corresponding to tariff item 2701 1920 of First Schedule to Customs Tariff Act, 1975 remains undisturbed. Eligibility for benefit of notification no. 12/2012-Cus dated 17th March 2012 cannot be denied. The impugned order set aside - appeal allowed.

Summary

Issues Involved:
1. Classification of imported coal.
2. Burden of proof in classification disputes.
3. Relevance of HSN explanatory notes.
4. Interpretation of tariff items and sub-headings.
5. Evaluation of coal quality standards.
6. Validity of customs authorities' recalculations.
7. Forced payment of duties and interest during investigation.

Summary:

1. Classification of Imported Coal:
The appellant, M/s Reliance Infrastructure Ltd, challenged the classification of imported coal by customs authorities, which led to the denial of concessional duty rates. The dispute centered on whether the coal should be classified under tariff item 2701 1920 (steam coal) or 2701 1200 (bituminous coal) based on its gross calorific value (GCV).

2. Burden of Proof in Classification Disputes:
The Tribunal reiterated the principle that the burden of proof in classification matters lies with the Revenue, as established in HPL Chemicals Ltd v. Commissioner of Central Excise, Chandigarh and Hindustan Ferodo Ltd v. Commissioner of Central Excise, Bombay. The customs authorities failed to discharge this burden adequately.

3. Relevance of HSN Explanatory Notes:
The Tribunal emphasized the importance of HSN explanatory notes in classification disputes, citing the Supreme Court's observation in Collector of Customs, Bombay v. Business Forms Ltd. The notes should be given significant consideration in resolving classification issues.

4. Interpretation of Tariff Items and Sub-headings:
The Tribunal rejected the appellant's argument that the specific description of the tariff item (steam coal) should prevail over the sub-heading (bituminous coal). The hierarchical structure of the Customs Tariff Act, 1975, requires goods to correspond to descriptions at each level before moving to the next.

5. Evaluation of Coal Quality Standards:
The Tribunal examined the quality standards, including GCV, moisture content, and volatile matter, as per ASTM/ISO standards. The customs authorities contended that the coal's GCV exceeded the threshold for bituminous coal, while the appellant argued that their tests showed it was below the threshold.

6. Validity of Customs Authorities' Recalculations:
The Tribunal found that the customs authorities' recalculations using the Parr formula were flawed and lacked scientific credibility. The recalculations were based on inappropriate conversions and assumptions, leading to incorrect classification.

7. Forced Payment of Duties and Interest During Investigation:
The Tribunal criticized the customs authorities for forcing the appellant to remit Rs. 34,91,19,404 during the investigation. This action was deemed extra-legal and contrary to Section 28 of the Customs Act, 1962. The Tribunal ordered the refund of the amount with interest at 12% per annum within four weeks.

Conclusion:
The Tribunal concluded that the imported coal should be classified as steam coal under tariff item 2701 1920, making it eligible for the concessional duty rate under notification no. 12/2012-Cus dated 17th March 2012. The impugned order was set aside, and the appeal was allowed on the stated terms.