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TMI Blog2025 (1) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... not be classifiable separately but will become part and parcel of the communication hubs and they should be classified as such. Further, if the communication hubs are fitted in the smart meters, the communication hubs become part of the smart meters and will not be classifiable separately. The entire structure will be a smart meter and it must be classified as such and communication module will be its child part. Smart meters are composite machines of which one part records the consumption of electricity or gas and the other part (communication hub) communicates the readings. Undisputedly, the primary function of the smart meter is measuring the consumption and the communication is a secondary function which gives it additional functionality. The smart meters (including the communication hubs in them), therefore, are classifiable as smart meters. Evidently, note (2) deals with three kinds of parts and accessories- the first are parts and accessories which are goods covered in any of the headings and they should be classified as such as per note 2(a). Other parts, if suitable with a particular machine or apparatus must be classified with it as per note 2(b). If there are parts whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Bareja, Ms. Anisha Arya and Shri Anurag Kapoor, Advocates for the respondent. ORDER These two cross appeals have been filed by M/s Secure Meters Ltd. [importer] and the Revenue assailing the order-in-original dated 28.5.2020 [impugned order] passed by the Principal Commissioner whereby he decided the proposals made in the Show Cause Notice dated 18.12.2018 [SCN] issued by the Directorate General of Revenue Intelligence [DRI]. 2. In the impugned order, the Principal Commissioner rejected the importer's claim that the communication modules imported by it were classifiable under Customs Tariff Item [CTI] 8517 70 90 as parts of communication hubs and held that they were classifiable under CTI 9028 90 10/ CTI 9028 90 90 as parts of electricity meters / gas meters. Consequently, he held that the importer was ineligible for exemption Notification No. 24/2005-Cus. dated 01.03.2005 (till 30.6.2017) and Notification No. 57/2017-Cus. (S. No. 5) (from 01.07.2017). He confirmed demand of differential Customs duty of Rs. 45,83,88,872/- under section 28 of the Customs Act, 1962 [Customs Act] invoking extended period of limitation along with interest under section 28AA of the Customs Act. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the importer 8. Shri V. Lakshmikumaran, learned counsel for the importer assisted by Ms. Rubel Bareja, Ms. Anisha Arya and Shri Anurag Kapoor made the following submissions: (i) The communication modules/interface cards are correctly classifiable under CTI 8517 70 90 as they are parts of the communication hubs falling under CTH 8517. (ii) Communication hub receives data from the attached metering unit or through rotary motion of the crankshaft for Gas meter electrically, which is then transmitted to the utility company, the consumer or any other remotely connected device. (iii) Since communication hubs are apparatus for reception and transmission of data, these are appropriately classable under CTI 8517 62 90 by virtue of Note 2(a) to Section XVI of the Customs Tariff. Section Note 2(b) would apply only if note 2(a) would not apply. Reliance is listed on the following decisions: (a) Secure Meters versus Commissioner of Customs, New Delhi [2015 (319) E.L.T. 565 (S.C.)] (b) Collector of Central Excise versus Delton Cables Ltd. [2005 (181) E.L.T. 373 (S.C.)] (c) Modern Communications and Broadcasting Systems P. Ltd. Versus Commissioner of Customs, Ahmedabad [2019 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e officers of DRI, Bangalore received intelligence that the importer was mis-classifying them under CTI 8517 70 90 to avail the benefit of Notification No. 24/2005-Cus. dated 01.03.2005 (Sl. No. 13) and under Notification No. 57/2017-Cus. dated 30.06.2017 (Sl. No. 5) to evade duty. Both notifications apply only to goods falling under CTH 8517 whereas the appellant's goods were classifiable under CTI 9028 9010 (in case of electricity meters) and CTI 9028 9099 (in case of gas meters). (ii) After investigation, DRI found that the importer has been classifying LCD Modules of the meters as part of electricity meters or gas meters, but had mis-classified communication modules and their parts under CTH 8517. (iii) Accordingly, a show cause notice was issued proposing the recovery of differential duty invoking extended period of limitation under section 28 (4) of the Customs Act, 1962 along with interest under section 28AA. It was also proposed to impose penalties under section 112 or 114A and section 114AA on Shri Sridhar Radhakrishnan, Vice President (Operations) and Shri Rajesh Golechha, Manager Indirect Taxation of the importer. (iv) In the impugned order, the Principal Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment, through the Show Cause Notice issued under section 28 and its adjudication. Assessment can also be modified through an appeal to Commissioner (Appeals) under section 128 or through appeals to higher judicial fora. If the assessed duties are not paid, recovery proceedings are provided for in section 142. 13. Neither the assessment nor other adjudicatory nor appeal proceedings creates any charge but they only determine how much is the charge in the case. As his Lordship Justice Sanjiv Khanna (the present Chief Justice of India) held in Freezair India (P) Ltd. vs Commissioner of Central Excise, Delhi-I [2014 (304) E.L.T. 360 (Del.)]: Tax statutes can be divided into three parts. The first part relates/creates a charge, tax becomes payable. The second part relates to adjudication or computation and is procedural in nature. Adjudicatory machinery qualifies the amount of duty payable as per the charging section but the assessment does not create the charge. The charge is created by the statute, i.e., charging section. The third part relates to recovery of the tax or duty. (emphasis supplied) 14. The demand of duty under section 28 is a modification of the assessment if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uties only on the goods imported into India. Once the proper officer clears the goods for home consumption, they cease to be imported goods and there cannot be any assessment of duty on the goods. As a corollary, the assessment also cannot be based on what may happen to the goods after they are cleared for home consumption because they cannot be assessed in that form. 19. Of course, on some goods there are end-use based exemptions which are available subject to the installation or use of goods in a particular manner after their import. Even in such cases, the charge is only on the goods which are imported. The conditions of installation or specific use after their import are only conditions of the exemption notification which, if fulfilled, will entitle the goods to exemption and not otherwise. The conditions of the exemption notification do not alter the charge of duty. "Exemption" from tax comes later to levy for "exemption" can only operate when there is a valid levy; if there was no levy at all, there would be nothing to exempt [Principles of Statutory Interpretation (15th edition), Justice G P Singh citing Peekay Re-rolling Mills (Pvt.) Ltd. vs Assistant Commissioner (2007) 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause, once they are cleared for home consumption, they cease to be imported goods and no duty can be assessed on them in that form. Similarly, the value of the goods also cannot include any post importation costs (such as installation costs of plant and machinery). 22. A stream of water remains a stream until it merges with the river and then becomes the river and when the river reaches the sea, it becomes the sea. Similarly, goods classifiable under a particular CTI when imported or cleared from a factory (in case of central excise) may, thereafter, take a different form and may no longer have independent existence but become part of some other goods. An illustration will make this legal position clear. A car, for instance, has several parts, components and accessories when it is cleared from the factory but is cleared as a car and must be classified as such. The car manufacturer imports or procures domestically several parts. For example, he will have to procure four or five tyres without which the car is not complete. In the Bills of Entry the car tyres would have to be classified as car tyres (articles of rubber under Chapter 40); similarly, a domestic manufacturer of tyres wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication is a secondary function which gives it additional functionality. The smart meters (including the communication hubs in them), therefore, are classifiable as smart meters. 26. However, if communication hubs are imported or exported separately, they cannot be classified as smart meters and they should be classified as communication hubs. According to the learned counsel for the importer, the importer itself had exported communication hubs classifying them as such under CTH 8517 and the department accepted the classification and allowed exports. Once the communication hubs are fitted into the smart meters, the composite machine will be the smart meter because measuring the consumption of electricity or gas is its primary function. 27. According to the Revenue, the communication modules which were imported, being parts of the communication hub, which is a part of the smart meter, should be classified as parts of the smart meters. According to the importer, since they were imported as communication modules which are parts of communication hubs, they should be classified as parts of the communication hubs. 28. We find that classification of goods is a part of assessment and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) : …… (m) : articles of Chapter 90 Note 2 : Subject to Note 1 to this section, Note 1 to Chapter 84 and to Note 1 to Chapter 85, parts of machines (not being parts of the articles of heading 8484, 8544, 8545, 8546 or8547) are to be classified according to the following rules: (a) parts which are goods included in any of the headings of Chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466, 8473, 8487, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings; (b) other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate. However, parts which are equally suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to be classified in heading 8517; (c) all other parts are to be classified in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate or, failing that, in heading 8487 or 8548. Note 3 : Unless the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the learned Special Counsel for the Revenue as per Chapter note 2(b) to Chapter 90 parts and accessories, if suitable for use solely or principally with a particular kind of machine, instrument or apparatus must be classified along with the machines, instruments or apparatus. Communication modules being child parts of the smart meters and having been designed specifically for use in them, deserve to be classified along with the meters under CTI 9028 90 90. He also relies on Chapter note 3 to Chapter 90 which makes Section note 3 to Section XVI (under which Chapter 85 falls) also applicable to Chapter 90. Section note 3 to Section XVI states that "unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting of only of that component or as being that machine which performs the principal function." Since the function of the communication modules is only as a part of the smart meters, according to the learned special counsel for the Revenue, they should be classified under CT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er also need to be set aside. 39. Learned counsel for the importer also contested the demand on the ground of limitation. It is his assertion that that importer has been importing the goods since the year 2017 classifying them under the same CTI. When they were first imported, in 2017, there was a query from the assessing officer and after considering the submissions made and holding a personal hearing, the officer agreed with the classification of the goods under CTI proposed by the importer. These facts were brought to the notice of the Senior Intelligence officer of DRI who investigated the matter and copies of correspondence and the Bills of entry cleared from April 2017 to December 2017 were provided. A copy of this letter has been enclosed in pages 1172 and 1173 of the Paper book. Despite all these facts, it has been alleged in the SCN that the importer had 'wilfully and deliberately suppressed facts from the Customs to evade payment of duty' and that it had misclassified the goods with an intention to mislead the department and availing undue customs duty benefits. Learned counsel submitted that there was no basis to make any of the allegations when all facts were known to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for the importer to anticipate if DRI would one day check its classification of goods and if so, what classification it would find correct and then file Bills of Entry conforming to the future anticipated views of DRI. 45. The allegations in the SCN that the importer had suppressed facts is completely baseless. The Commissioner has, in the impugned order recorded that the importer had recorded that "these glaring facts of intentional non-payment of actual duty leviable on the impugned goods, contravention of the provisions of self-assessment and the act of manipulating the classification of the goods in order to fall under the category of goods covered under the above notifications was sufficient to have a reasonable belief that there was short levy or duty on the impugned goods." 46. In other words, according to the Commissioner, the importer was guilty of not anticipating that DRI would one day investigate and come up with a new classification of the goods and file Bills of Entry conforming to such future anticipated views of DRI. 47. We cannot accept the logic of the Commissioner. Just as it would have been humanly impossible for the Commissioner to anticipate if the im ..... X X X X Extracts X X X X X X X X Extracts X X X X
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