2024 (2) TMI 560 - AT - Central Excise

PP FIBC bags classified under Chapter 6305 3200 not 3923 2990, classification demand set aside

M/s. Bishen Saroop Ram Kishen Agro (P) Limited Versus Commissioner of Central Excise, Bangalore

The CESTAT Bangalore ruled on classification of PP FIBC bags, holding they are properly classifiable under Chapter 6305 3200 rather than 3923 2990, ... Classification of goods - PP FIBC bags - to be classified under Chapter Heading 3923 2990 or under 6305 3200? - undervaluation with an intention to evade payment of duty - period from February 2009 to July 2009 - HELD THAT:- With regard to classification, this Bench has already taken a view in the case of M/s. Big Bags Inda (P) Ltd. [2023 (6) TMI 1361 - CESTAT BANGALORE] wherein it has been clearly held that items PP FIBC bags are rightly classifiable under Chapter 6305 3200. The demand of Rs.83,96,616/- along with interest and penalty is set aside - appellant has not disputed the issue of undervaluation and therefore, the demand of Rs.1,80,403/- along with interest and penalty is upheld. Appeal allowed in part. ISSUES PRESENTED AND CONSIDERED 1. Whether PP Flexible Intermediate Bulk Containers (FIBC) are classifiable under Chapter 6305 32 00 (sacks and bags of a kind used for packing of goods, of manmade textile materials) or under Chapter 3923 29 90 (articles for the conveyance or packing of goods, of plastics). 2. Whether sales between the manufacturer and buyers constituted transactions of undervaluation intentionally effected to evade duty, warranting demand for differential duty, interest and penalty for the period in question. ISSUE-WISE DETAILED ANALYSIS Issue 1: Classification of PP FIBC - Chapter 6305 32 00 v. Chapter 3923 29 90 Legal framework: Tariff headings and HSN explanatory notes govern classification; Board circulars and DGFT/administrative clarifications interpreting HSN headings are relevant. Chapter 63 covers sacks and bags used for packing of goods including Flexible Intermediate Bulk Containers of manmade textile material; Chapter 39 covers articles for conveyance or packing of goods of plastics, with exclusions noted in HSN explanatory notes. Precedent Treatment: The Bench relied upon its prior decision on the same question, administrative clarifications including Board Circular No. 42/2011-Cus. and DGFT meeting minutes, and judicial treatment in which courts/tribunals have held FIBC made of manmade textile material classifiable under Chapter 63 (e.g., Karur KCP Packaging decisions and international rulings such as US ITC determinations). Interpretation and reasoning: The Court examined the character and manufacturing process of the goods: extrusion of polypropylene into strips/tapes followed by weaving to produce a textile-like FIBC. HSN explanatory notes expressly exclude FIBC of heading 6305 from Chapter 39 and specifically identify FIBC under 6305 32 00. Administrative guidance (Board Circular and DGFT minutes) classifies FIBCs of manmade textile material under Chapter 63, while FIBCs made wholly of polymeric film (polymers of ethylene) remain under Chapter 39. The Department had not produced test reports or evidence to show that the FIBCs in question were polymeric-plastic containers rather than manmade textile articles. The Bench therefore applied the descriptive scope of the headings, the explanatory notes and authoritative administrative clarifications to conclude Chapter 63 classification was appropriate. Ratio vs. Obiter: Ratio - The dispositive legal principle is that FIBCs manufactured from manmade textile materials, produced by extrusion into strips/tapes followed by weaving, are properly classifiable under Chapter 6305 32 00; absence of departmental evidence showing the goods are plastic articles prevents classification under Chapter 3923. Obiter - References to international rulings and historical tariff alignment provide supportive context but are not independently determinative beyond their persuasive value. Conclusion: The goods are classifiable under Chapter Subheading 6305 32 00 and not under Chapter 3923 29 90. Consequently, demand premised on the alternative classification is set aside to the extent it relates to classification (demand of Rs.83,96,616/- along with interest and penalty reversed). Issue 2: Undervaluation - Existence, Adjudication and Consequences Legal framework: Valuation rules and anti-evasion provisions permitting demand for differential duty, interest and penalty where sales do not represent normal commercial transactions or where price is not sole consideration. Precedent Treatment: The appeal record shows the appellant did not dispute the Department's finding on undervaluation. The Bench applied standard principles that where undervaluation is established and undisputed, the demand for differential duty and attendant interest and penalty is sustainable. Interpretation and reasoning: The Tribunal noted that the appellant did not contest the finding on undervaluation. Given the absence of challenge to that factual and legal finding, the demand for Rs.1,80,403/- along with interest and penalty on account of undervaluation was maintained. There was no need for further evidentiary or legal elaboration by the Bench because the issue was not controverted by the appellant. Ratio vs. Obiter: Ratio - Where the finding of undervaluation is unchallenged on appeal, the corresponding demand for differential duty, interest and penalty stands. Obiter - No additional guidance was provided on standards for proving or rebutting undervaluation because the issue was not contested on merits. Conclusion: The demand on account of undervaluation (Rs.1,80,403/- with interest and penalty) is upheld. Interrelationship and Disposition Legal framework and reasoning linking issues: Classification and valuation/duty demands are separable; reversal of classification-based demand does not automatically vitiate demands arising from undervaluation where the latter is independently established or uncontested. The Tribunal applied prior authoritative clarifications and precedent to limit classification liability, while allowing non-classification-related fiscal demands to stand when not disputed. Conclusion: The appeal is partially allowed - classification-based demand set aside; undervaluation-based demand sustained. The operative order sets aside the demand related to classification and affirms the demand related to undervaluation, with interest and penalty as adjudicated.