2024 (1) TMI 465 - AT - Customs

Classification of imported goods - Flanges - to be classified under CTH 85030090/84839000 or CTH 7307? - HELD THAT - The claim of the importer that the flanges that were imported were for its specific use needs to be accepted since the same were claimed to be used in the manufacture of gearboxes/gear motors and secondly, that the same was not of the likes of couplings or elbows. The claim of the appellant was based on the usage of the imported goods in its industry, for specific purposes, which is required to be considered primarily, before brushing aside the same. This is apparently not done by the Revenue and the original authority Additional Commissioner chose only to go by the word flanges , thereby seriously ignoring whether the same was for specific/special use or for general use. Be that as it may, the original authority having rejected the classification under CTH 8503 and proposed to re-classify under CTH 7307, it was incumbent upon him to at least place on record that the flanges in question were in fact for general use alone and not for specific purpose as claimed by the appellant. If every flange available in the market could be used in any industry, then perhaps the classification under a single CTH would have served that purpose, but since one size does not fit all, different classifications are provided. The classification thus depends on, inter alia, functionality as well. Hence, when an item is imported for a specific purpose, if the Revenue does not believe in the classification declared by such importer, then the same could be rejected on some palpable evidence and if required, the Revenue could always insist upon further details / explanation insofar as the function / end-use claimed by such importer is concerned, in order to ascertain the chief/primary function, to arrive at the proper classification, otherwise the purpose of having two Customs Tariff Headings loses its significance, which is not the intention of legislature. There are no substance or merits in the impugned order, to sustain the re-classification attempt made by the original authority as sustained in the impugned order, for which reason the same deserves to be set aside - appeal allowed.

Summary

Issues Involved:
1. Classification of imported goods.
2. Demand of differential duty.
3. Demand of interest on short-levied duty.
4. Confiscation of imported goods.
5. Imposition of penalty.

Summary:

1. Classification of Imported Goods:
The primary issue was whether the imported item "Flanges" should be classified under CTH 85030090/84839000 or CTH 7307. The appellant argued that the flanges were specifically designed for use in manufacturing gear motors and gearboxes, thus falling under CTH 8503. The adjudicating authority reclassified the goods under CTH 7307, which led to a higher duty rate. The Tribunal found that the original authority did not provide a sufficient basis for reclassification and did not consider the specific use claimed by the importer. The Tribunal concluded that CTH 8503 is more specific to the imported goods' use, whereas CTH 7307 is a general category.

2. Demand of Differential Duty:
The Show Cause Notice demanded a differential duty of Rs.10,88,434/- under Section 28(1) of the Customs Act, 1962, based on the reclassification. The Tribunal set aside this demand, finding no merit in the reclassification attempt.

3. Demand of Interest on Short-levied Duty:
Interest on the short-levied duty was demanded under Section 28AA of the Customs Act, 1962. This demand was also set aside by the Tribunal due to the incorrect reclassification.

4. Confiscation of Imported Goods:
The imported goods valued at Rs.3,35,42,154/- were ordered to be confiscated under Section 111(m) of the Customs Act, 1962. The Tribunal found no basis for confiscation as the reclassification was not justified.

5. Imposition of Penalty:
A penalty was imposed on the importer under Section 112(a) of the Customs Act, 1962. The Tribunal set aside the penalty, finding that the original classification by the importer was made in good faith and supported by the specific use of the goods.

Conclusion:
The Tribunal allowed the appeal, setting aside the reclassification, differential duty, interest, confiscation, and penalty imposed by the lower authorities. The Tribunal emphasized the importance of considering the specific use and functionality of the imported goods in classification disputes.