Functional classification under Customs Tariff, absence of enabling interest provision, and EPCG confiscation limits shaped the outcome.

Imported particle counters used to determine the number of particles in gas were classified by functional character under heading 90.26 rather than 90.29, and differential duty was to be worked out on that basis. Interest could not be recovered because the exemption notification contained no express enabling provision for such recovery during the relevant period. Confiscation and penalty under the EPCG scheme were not sustainable where failure to fulfil export obligations was not found to be a deliberate violation, the importer had furnished a bank guarantee, and differential duty had been paid; the appeals were therefore allowed and the impugned order set aside.

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Issues: (i) Whether the imported particle counter was classifiable under heading 90.26 or 90.29 for the purpose of determining the differential duty under the EPCG licence. (ii) Whether interest was recoverable in the absence of a provision in the exemption notification. (iii) Whether confiscation and penalty could be sustained for failure to fulfil export obligations under the EPCG scheme.

Issue (i): Whether the imported particle counter was classifiable under heading 90.26 or 90.29 for the purpose of determining the differential duty under the EPCG licence.

Analysis: Heading 90.26 covers instruments and apparatus for measuring or checking variables of liquids or gases, while heading 90.29 covers counters that count events such as revolutions or similar occurrences. The imported goods were used to determine the number of particles in gas and were therefore functionally closer to measuring equipment than to event-counting devices. The lower authorities had not examined the classification issue properly, and the reasoning adopted for placing the goods under heading 90.29 was found insufficient.

Conclusion: The goods were held to be more appropriately classifiable under heading 90.26, with the result that the differential duty was to be worked out on that basis.

Issue (ii): Whether interest was recoverable in the absence of a provision in the exemption notification.

Analysis: The relevant notification did not contain any provision enabling recovery of interest during the period in question. In the absence of such an enabling clause, the demand for interest could not be sustained.

Conclusion: The demand for interest was held to be unsustainable.

Issue (iii): Whether confiscation and penalty could be sustained for failure to fulfil export obligations under the EPCG scheme.

Analysis: The failure to fulfil the export obligation was not found to be a deliberate violation of the notification conditions. The importers had executed a bank guarantee and, on failure of the export obligation, paid the differential duty. In these circumstances, confiscation and penalty were not warranted, and once confiscation was set aside, penalty could not survive.

Conclusion: Confiscation and penalty were set aside.

Final Conclusion: The appeals succeeded and the impugned order was set aside, with consequential relief to follow.

Ratio Decidendi: Classification depends on the functional character of the imported goods, and in the absence of an express enabling provision in the exemption notification, interest cannot be demanded; where there is no deliberate violation, confiscation and penalty are not sustainable.

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