DLF Southern Homes (P) Limited Vs Commissioner of Customs (Imports) (CESTAT Chennai)
In a significant decision dated January 4, 2024, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Chennai favored DLF Southern Homes (P) Limited in a classification dispute against the Commissioner of Customs (Imports), Chennai. The case revolved around the import of deformed Steel Bars Grade HRB 500 (TMT Bars) and their eligibility for exemption under Notification No. 21/2002-Cus. This ruling clarifies the application of customs notifications and the importance of expert opinions in the classification of imported goods.
Background: DLF Southern Homes imported 477 MTs of TMT Bars under Customs Tariff Heading (CTH) 7213 1090, claiming exemptions from Basic Customs Duty (BCD) and Counter-vailing Duty (CVD) under specific entries of Notification No. 21/2002-Cus. dated March 1, 2002. Doubts regarding the classification of these bars prompted the Revenue to send samples for analysis to the National Metallurgical Laboratory (NML), which confirmed the goods as ‘TMT Bars Grade 500 Prime Quality’ and non-alloy steel as per IS 7598:1990. Despite this, the final assessment classified 20mm, 25mm, and 32mm TMT Bars as alloy steels, denying them the claimed exemptions.
Legal Proceedings and High Court Directive: Challenging the final assessment, DLF Southern Homes approached the Madras High Court, which remitted the case for re-assessment in accordance with the law, emphasizing the need to provide an opportunity to the importer for representation.
CESTAT Chennai’s Decision: Upon review, CESTAT Chennai identified the core issue as the entitlement of the imported goods to Nil rate of BCD under Notification No. 21/2002-Cus. The tribunal noted discrepancies in the Revenue’s approach, particularly the disregard for the expert opinion provided by NML and the arbitrary re-classification of the TMT bars without substantial evidence.
Key Observations and Ruling:
- Expert Opinion: CESTAT underscored the importance of expert opinions, criticizing the Revenue for not accepting NML’s findings, which clearly identified the TMT bars as non-alloy steels.
- Classification and Benefit Denial: The tribunal found no justification for denying the benefit of the cited notification for 20mm, 25mm, and 32mm TMT bars, particularly when similar 16mm bars were classified as non-alloy and granted exemptions.
- Misinterpretation and Non-application of Mind: The tribunal pointed out the first appellate authority’s error in calculating the average silicon content and its baseless observation regarding the applicability of Indian Standards.
Conclusion: The tribunal set aside the impugned order in totality, allowing the appeal with consequential benefits as per law. This judgment reaffirms the critical role of expert analyses in customs classification disputes and the necessity for authorities to adhere to evidentiary standards and principles of natural justice. It serves as a precedent for importers facing classification challenges, emphasizing the value of scientific evidence in determining product classification for customs purposes.
FULL TEXT OF THE CESTAT CHENNAI ORDER
The present appeal has been filed against Order-in-Appeal C. Cus. No. 395/2014 dated 10.03.2014 passed by the Commissioner of Customs (Appeals), Chennai.
2.1 Facts that emerge from the orders of the lower authorities are that appellant had imported 477 MTs of deformed Steel Bars Grade HRB 500 (TMT Bars) under CTH 7213 1090, claiming exemption under Notification No. 21/2002-Cus. dated 01.03.2002 vide Sl. No. 190C for exemption from Basic Customs Duty (BCD) and Sl. No. 202A for exemption from Counter-vailing Duty (CVD).
2.2 Entertaining a doubt as to whether the impugned goods were alloy steels or non-alloy steels and prime or secondary, the Revenue drew samples and sent the same to National Metallurgical Laboratory (NML), Thereafter, basing on the letter dated 30.06.2008 filed by the importer, the Bill- of-Entry was assessed provisionally pending the outcome of the test result, with BCD at the rate of 5% and nil rate of CVD. Accordingly, the importer had paid the quantified duty under protest after filing a letter of protest dated 08.07.2008.
3. NML, after chemical analysis, has vide their test report 20095 dated 05.08.2008 issued in F. No. NML/DQM/MC/F-03, stated that the impugned goods are ‘TMT Bars Grade 500 Prime Quality’.
4. It appears that the Bill-of-Entry was thereafter assessed finally on 08.2008, however, without giving any opportunity to the importer. The appellant- importer appears to have requested for re-assessment of the subject Bill-of-Entry, which request was not entertained by the Revenue.
5. The appellant then appears to have approached the Hon’ble High Court of Madras with a prayer to quash the final assessment order in respect of the subject Bill-of-Entry, with a further request for re-assessment of the same. The Hon’ble High Court vide Order in P. No. 13230 of 2010 dated 17.02.2011 having set aside the order of assessment, remitted the case for re-assessment in accordance with law after giving opportunity to the importer.
6. In terms of the above direction of the Hon’ble High Court, the original authority has passed the Order-in-Original No. 17848/2011 dated 13.12.2011 whereby he has granted the benefit of nil rate of BCD in terms of Sl. No. 190C of Notification No. 21/2002- dated 01.03.2002 in respect of 16mm TMT Bars treating the same as ‘non-alloy’, however, denying the same in respect of the 20mm, 25mm and 32mm TMT Bars, holding that the same were ‘alloy’ eligible for concessional rate of BCD at the rate of 5% in terms of Sl. No. 207. The original authority has however held that both alloy and non-alloy TMT bars were eligible for Nil rate of CVD in terms of Sl. No. 202A of the said Notification.
7. Aggrieved by the above, the importer preferred an appeal before the Commissioner of Customs (Appeals), Chennai, who vide Order-in-Appeal C. Cus. 395/2014 dated 10.03.2014 has rejected their appeal and it is against this order that the present appeal has been filed before this forum.
8. Heard Smt. S. Yogalakshmi, Ld. Advocate for the appellant and Shri Satyanarayanan, Ld. Assistant Commissioner for the Revenue.
9. After hearing both sides, we find that the only issue to be decided by us is: whether the appellant is entitled to the benefit of Nil rate of BCD in terms of No. 190C of Notification No. 21/2002-Cus. dated 01.03.2002, as claimed, for the goods in question?
10.1 The Ld. Advocate would submit that the report of NML clearly indicated that the samples drawn were non-alloy steel as per IS 7598:1990 and hence, the imported material being TMT bar as opined even by the scientists at NML, the same should have been classified as non-alloy steel, thereby extending exemption from Basic Customs Duty to the importer.
10.2 She would further contend that the authorities below have clearly ignored the expert opinion; it was the Revenue which doubted the classification and thus sought for an opinion from the expert and hence, there was no reason for them to disbelieve the said expert It is thus contended by the Ld. Advocate that the stand of the Revenue is clearly contrary to the decision of the Hon’ble Supreme Court in the case of M/s. Polyglass Acrylic Mfg. Co. Ltd. v. Commissioner of Customs, Vishakhapatnam [2003 (153) E.L.T. 276 (S.C.)].
10.3 It is further submitted that the authorities below have held that the TMT bar is not a non-alloy steel on the ground that it contained 0.6% or more of silicon; however, in respect of TMT rod of 20mm, the silicon content ranged between 37 to 0.62% and in respect of TMT rod of 25mm, the silicon content ranged between 0.57 to 0.66%; that without considering this crucial finding of the expert, the first appellate authority has, without any basis, observed that the average silicon content was more than 0.6%; if the average silicon content is considered, then the same would be 0.58% in respect of 20mm TMT rods, which is much below the standard requirement.
11. Per contra, the Assistant Commissioner supported the findings of the lower authorities.
12. We have considered the rival contentions and we have carefully gone through the documents placed on record.
13. This is a case where apparently the demand has been raised by the Revenue by re-classifying the TMT bars under CTH 72279090, which action is not at all supported by any evidence. Thus, the very demand appears to be only on assumptions and presumptions of the adjudicating authority.
14.1 It was the Revenue who chose to get the opinion of an expert i.e., National Metallurgical Laboratory (NML) here in this case, to ascertain the true nature / composition of the TMT bars imported by the appellant, which report is also part of the Revenue The expert i.e., National Metallurgical Laboratory, has clearly opined that all the samples drawn and sent for analysis were non-alloy steels as per IS: 7598:1990 (reaffirmed 1998) specifications. It is not the case of the Revenue that the samples for analysis were sent by the importer itself or that it was not aware of the test report issued by National Metallurgical Laboratory.
14.2 Further, when all the samples were specifically opined as “non-alloy steels”, there was nothing left with the Revenue other than to seek a second opinion, if the said report of NML was not acceptable, but that is not the case here.
14.3 Moreover, it was the Revenue who chose to send the TMT bars of 25mm and 20mm for analysis, the reason for which also is not forthcoming, and nothing is brought on record by the original authority as to any difficulty in sending the samples of the 32mm TMT bars for testing nor has it been alleged that it was prevented by sufficient reasons for not doing so.
14.4 Further, it is certain that the adjudicating authority/Revenue is not an expert nor does the appellant claim to be an Hence, it was desirable for the Revenue to have got even the 32mm TMT bars analysed by the expert namely, National Metallurgical Laboratory, since the re-classification has been attempted holding that these 20mm, 25mm and 32mm TMT bars are alloys, after entertaining a fundamental doubt at paragraph 16 of the Order-in- Original, in the following words: –
“16. For the remaining 32 MM TMT bars, there was no NML Report (or) no evidence to prove it was non-alloy steel bar as per available records. I find it could not be possible to ascertain whether these 32 MM TMT bars are alloy (or) non alloy steel to extend the notification benefit. In the absence of any evidence to prove that the imported goods of 32 MM TMT bar are non-alloy steel, the exemption benefit claimed for BCD vide Sl. No. 190C is rejected.”
15.1 In the order, however, the original authority has chosen to treat the 16mm TMT bars as non-alloy eligible for Nil rate of BCD, but, has, for unknown reasons, chosen not to accept the 20mm and 25mm TMT bars as non-alloys, which is clearly contrary to the expert evidence and thus, this discretion of the original authority is baseless and not acceptable.
15.2 Hence, the impugned order to this extent, which has upheld the above findings of the original authority, lacks Moreover, from the test reports placed in the appeal paper book from page 28 onwards reveal that 15 samples of 20mm TMT bar were tested and 14 samples of 25mm TMT bar were tested by NML; the percentage of silicon content of 20mm TMT bar was between 0.37 and 0.62 and in respect of 25mm TMT bar, the same was between 0.57 and 0.66. The average would be 0.58% in respect of the 20mm TMT bar. The Commissioner (Appeals), however, in the impugned order, has held that the average silicon content was more than 0.6%, which is also baseless and it only shows the non-application of mind. Having referred for test analysis, his observation that “the application of Indian Standards guidelines would not be correct” is a misnomer, especially when he is not an expert himself.
16. Chapter 72 prescribes the percentage of each element/constituent in respect of non / other alloy steel and it is not the case of the Revenue that in respect of the 20mm, 25mm and 32mm TMT bars, the percentage of these elements is more than the prescribed limit.
17. Hence, considering the peculiar facts of this case, we are of the view that the Revenue is not justified in denying the benefit of Notification No. 21/2002-Cus. dated 01.03.2002 (Sl. No. 190C) and the consequential demand in respect of the 32mm TMT bars cannot sustain.
18. Hence, the impugned order deserves to be set aside in toto, which we hereby do.
19. The appeal is allowed with consequential benefits, if any, as per law
(Order pronounced in the open court on 04.01.2024)