2024 (9) TMI 188 - AT - Customs

Classification of imported goods - Vitamin AD3 (1000 200) IU/G (Feed grade/Feed additive) - to be classified under CTH 2309 as 'Preparations of a kind used in animal feed or under CTH 2936? - demand of interest - levy of penalty - HELD THAT - In the case of M/s Thermax Ltd Vs Commissioner of Central Excise, Pune 2022 (10) TMI 468 - SUPREME COURT , the Supreme Court has reiterated the view that the HSN code is the bedrock of custom controls and procedures. It has also been held that as per the HSN, classification is done by placing the goods under the most apt and fitting sub-heading. Accordingly, the impugned product is appropriately classifiable under CTH 2936. It is also noted that the chemical composition of the impugned goods is synthetic and the product is not derived out of processing of vegetable or animal material, in order to render its classification in Chapter 23. Further, it is seen that they serve a specific purpose as feed additives, which is also consistent with the goods described under CTH 29362100. Further, the presence of stabilizers, antioxidants, or solvents does not alter the vitamins' character but ensures their preservation and efficacy as feed additives, which is in line with the guidelines that additives should not exceed the quantity required for preservation or transport and should not alter the essential character of the vitamins. In the instant case, it is seen that as per the Material Safety Data Sheets (MSDS) of its supplier Xiamen Kingdom way Vitamins Ltd clearly establishes that the impugned goods contain Vitamins to the tune of 53.2% and the remaining elements are various carriers, stabilizers, etc. In view of the above factual position, there are no reason to differ from the impugned order with regard to the classification of Vitamin AD3 in Chapter 2936. Demand of interest - HELD THAT - It is noted that once the exigibility to tax is established, interest is payable, as per the statutory provision - in the case of Pratibha Processors v. Union of India 1996 (10) TMI 88 - SUPREME COURT the Supreme Court held that Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable . Accordingly, as the differential duty demand is upheld, the demand of interest in the impugned order is correct. Levy of penalty - HELD THAT - As there were several contrary decisions with regard to the classification of the said product Vitamin AD3 during the relevant time, there was confusion amongst the importers. Consequently, the imposition of penalty in not warranted in the instant case. The classification of Vitamin AD3 under CTH 2936 upheld - the demand along with interest confirmed in the impugned order upheld - the penalty imposed on the appellant set aside - appeal allowed in part.

Summary

Issues Involved:
1. Correct classification of the imported goods (Vitamin AD3).
2. Applicability of interest on the differential duty.
3. Imposition of penalty on the appellant.

Issue-wise Detailed Analysis:

1. Correct Classification of the Imported Goods (Vitamin AD3):
The primary issue was whether Vitamin AD3 should be classified under Customs Tariff Heading (CTH) 2309 or CTH 2936. The appellant argued for classification under CTH 2309, which pertains to "Preparations of a kind used in animal feeding," based on previous judgments, trade usage, and technical literature. The department contended that Vitamin AD3, being an intermixture of vitamins, should be classified under CTH 29362100, which specifically covers "provitamins and vitamins, natural or reproduced by synthesis, derivatives thereof used primarily as vitamins, and intermixtures of the foregoing, whether or not in any solvent."

The tribunal examined the Material Safety Data Sheets (MSDS) and found that the impugned goods contain 53.2% vitamins with the remaining elements being various carriers and stabilizers. The tribunal noted that Chapter 23 covers products obtained by processing vegetable or animal materials, which was not the case here. The HSN explanatory notes to heading 23.09 exclude vitamins, whether or not chemically defined or intermixed, from this chapter. Conversely, Chapter 29 includes intermixtures of vitamins, even when not separate chemically defined compounds. The tribunal concluded that the impugned goods are more appropriately classified under CTH 2936, as they are synthetic vitamins intended for use as feed additives, not complete animal feed or fodder.

2. Applicability of Interest on the Differential Duty:
The tribunal upheld the demand for differential duty and confirmed the interest under Section 28AA of the Customs Act, 1962. It was noted that once the exigibility to tax is established, interest is payable as per statutory provisions. The tribunal cited the Supreme Court's decision in Pratibha Processors v. Union of India, which held that "Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable." Therefore, the demand for interest was deemed correct.

3. Imposition of Penalty on the Appellant:
The tribunal addressed the imposition of a Rs. 5,00,000/- penalty under Section 112(a)(iii) of the Customs Act. Considering the existence of several contrary decisions regarding the classification of Vitamin AD3 during the relevant period, the tribunal acknowledged the confusion among importers. Consequently, it held that the imposition of a penalty was not warranted in this case and set aside the penalty.

Conclusion:
The tribunal upheld the classification of Vitamin AD3 under CTH 2936 and confirmed the demand for differential duty along with interest. However, it set aside the penalty imposed on the appellant, partially modifying the impugned order. The appeal was allowed to the extent indicated above.