2024 (6) TMI 717 - AT - Customs

CESTAT allows import of Round Ridge Cement Tiles without US$ 50 per square meter value restriction under Notification 77

M/s. Monier Roofing Pvt. Ltd. Versus Commissioner of Customs, Bangalore

CESTAT Bangalore allowed the appeal regarding import of Round Ridge Cement Tiles valued at US$ 6.98 per square meter. The appellant sought clarification ... Misinterpretation of DGFT Notification No.77(RE-2008)/2004-2009 - import of Round Ridge Cement Tiles declaring its value as US$ 6.98/- - to be allowed free or is to be considered as ‘processed tiles / slabs of agglomerated / artificial stones’ and subjected to the restrictions prescribed under DFGT NN. 77(RE-2008)/2004-2009 dated 09.01.2009 - whether its importation can be allowed only if the value is US$ 50 and above per square meter? HELD THAT:- It is found that after the objection of the Customs Department in assessing the Bills of Entry filed during the period March 2013 about applicability of the said notification to the imported goods, the appellant wrote to DGFT seeking for clarification on the stand of the Customs Department on the applicability of N/N. 77(RE-2008)/2004-2009 dated 09.01.2009 to imported Round Ridge Cement Tiles. The DGFT communicated its opinion through letter dated 27.12.2013 observing that the import of cement tiles under ITC(HS) Code No.68101990 is free for import and such cement tiles would not come within the ambit of N/N. 77(RE-2008)/2004-2009 dated 09.01.2009. It is found that in the impugned orders, the learned Commissioner(Appeals) did not have the opportunity to examine the said clarification issued by the DGFT after the order was passed, whereas in the subsequent order dated 22.01.2015 before the learned Commissioner(Appeals) the said opinion of the DGFT was placed by the Appellant. However, it was discarded by the learned Commissioner(Appeals) observing that in absence of issuance of any amendment or clarification to the said Notification, the opinion is not binding on the Department. Consequently, adopting the said opinion of DGFT on the applicability of the said Notification No.77(RE-2008)/2004-2009 dated 09.01.2009 and applying to the facts of the present case, it can safely be held that the appellants are entitled to import the Round Ridge Cement Tiles free and the restriction applicable to processed tiles as held in the impugned orders cannot be sustained. The impugned orders are set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether imported 'Round Ridge Cement Tiles' declared under CTH 68101990 fall within the restriction in DGFT Notification No.77(RE-2008)/2004-2009 (i.e., are they 'processed tiles/slabs of agglomerated/artificial stones' subject to a CIF value threshold of US$50 per sq. meter) or are they freely importable and to be assessed on transaction value. 2. Whether the Director General of Foreign Trade's (DGFT) clarification/opinion on the scope and applicability of the Foreign Trade Policy/Notification is binding on the Customs authorities when determining importability and classification under that Policy. 3. Whether reliance on a show-cause notice issued prior to finalisation of assessment (and adjudication following such notice) renders the adjudication irregular (i.e., procedural impropriety in issuing SCN before assessment is finalised). 4. Whether enhancement of penalty to include interest (as part of the penalty computation) on departmental appeal was permissible in the circumstances presented. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of DGFT Notification to Round Ridge Cement Tiles Legal framework: The import restriction in the Foreign Trade Policy/Notification prohibits import of rough blocks/slabs of agglomerated/artificial stones and allows processed tiles/slabs subject to a minimum CIF value (US$50 per sq. meter). Customs valuation and classification are governed by Customs Act provisions and assessment based on transaction value unless restricted by Policy. Precedent Treatment: Tribunal and High Court authorities have considered whether Customs may independently interpret FT P/notifications or must seek DGFT clarification; earlier decisions (referred to by the parties) support deference to DGFT on policy interpretation where scope of notification is determinative. Interpretation and reasoning: The Court examined the notification language and the practical distinction drawn in the Policy between 'rough blocks/slabs' (restricted) and processed 'tiles/slabs' (permitted subject to value threshold). The Court accepted DGFT's contemporaneous clarification that cement tiles under ITC(HS) 68101990 do not fall within the restricted category contemplated by Notification No.77 and are freely importable. The Tribunal found the Customs interpretation treating the tiles as processed agglomerated/artificial stone subject to the US$50 threshold to be a misapplication of the Policy when DGFT's view was to the contrary. Ratio vs. Obiter: Ratio - Where the scope of a Foreign Trade Policy provision is determinative of importability, the DGFT's interpretation that a specific tariff item (here, cement tiles under 68101990) is not subject to the restriction is binding on Customs and precludes treatment of such goods as restricted processed agglomerated/artificial stones subject to the US$50 per sq. meter threshold. Conclusions: The imported Round Ridge Cement Tiles are freely importable under ITC(HS) 68101990 and are to be assessed on transaction value; the impugned orders treating them as restricted processed agglomerated/artificial stones (and applying the US$50 threshold and confiscation) are unsustainable and set aside. Issue 2 - Binding Nature of DGFT Clarification on Policy Interpretation Legal framework: The Foreign Trade (Development & Regulation) Act and the administrative scheme vest DGFT with authority to formulate and interpret the Foreign Trade Policy; Customs administers customs law but must apply FT Policy as interpreted by DGFT when scope/eligibility under the Policy is in question. Precedent Treatment: The Tribunal relied on earlier decisions (including a High Court pronouncement) holding that Customs ought not to unilaterally interpret FT Policy in matters of import restrictions and should seek DGFT clarification; such DGFT opinions are binding on Customs for policy interpretation. Interpretation and reasoning: The Tribunal held that DGFT's opinion given in response to a direct query (letter dated 27.12.2013) that cement tiles under 68101990 are freely importable binds the Customs authorities. The Commissioner(Appeals)'s rejection of DGFT's view on the ground that the Notification was not amended was erroneous: administrative clarification by the competent policy authority governs scope in absence of contradictory amendment. Ratio vs. Obiter: Ratio - A clarification/opinion of DGFT on the interpretation and scope of the Foreign Trade Policy/Notification is binding on Customs authorities and must be followed in adjudication affecting importability/classification under that Policy. Conclusions: DGFT's clarification that the subject cement tiles are not within the restricted category was correctly adopted by the Tribunal; the Commissioner(Appeals)'s contrary approach was legally unsustainable. Issue 3 - Procedural Regularity: Issuance of Show-Cause Notice before Finalisation of Assessment Legal framework: Principles of administrative fairness and established practice require proper sequencing of assessment and adjudication; case law cited by appellant holds that issuing a show-cause notice without finalising assessment may be irregular if it circumvents statutory assessment process or prejudices rights. Precedent Treatment: Authorities were cited for the proposition that Customs should follow proper procedure and not commence adjudication on a basis that departs from assessment formalities. Interpretation and reasoning: The Tribunal noted the contention that SCNs were issued prior to finalisation of assessment in some instances and that adjudication confirming demands after such process could be irregular. However, the principal determination turning the matter was the DGFT clarification on policy applicability which rendered the restriction-based confiscation and duty enhancement unsupportable. The judgment does not elaborate a separate finding invalidating adjudication solely on procedural sequencing in the disposed appeals where DGFT clarification was dispositive. Ratio vs. Obiter: Obiter - While procedural points were raised about issuance of SCN before final assessment, the decision rests on the policy interpretation issue; any pronouncement on procedural irregularity is ancillary and not the operative ratio. Conclusions: No independent relief was granted solely on the procedural contention because the appeals succeeded on the substantive finding that DGFT's clarification exempted the goods from the restriction; procedural impropriety was noted but not relied upon as the decisive ground. Issue 4 - Inclusion of Interest in Penalty Computation on Departmental Appeal Legal framework: Penalty computation principles under the Customs Act and statutory provisions govern what amounts may be subject to penalty; appellate corrections can alter penalty quantum to reflect proper legal calculation including legally recoverable components where the appellate authority is empowered. Precedent Treatment: Revenue's appeal sought inclusion of applicable interest in the penalty; Commissioner(Appeals) allowed Revenue's appeal in one instance by enhancing penalty to include interest amounts. Interpretation and reasoning: The Tribunal recorded that Revenue's appeal against the adjudicating authority succeeded before the Commissioner(Appeals) to the extent of including interest in the penalty amount. Since the primary relief granted by the Tribunal set aside confiscation and demand based on DGFT clarification, any computation of enhanced penalty including interest would follow from the specific adjudicatory posture in the particular appeal where DGFT clarification had been considered. The judgment does not provide extended analysis on the legal correctness of including interest in penalty beyond affirming the Commissioner(Appeals)'s action in the separate contested appeal. Ratio vs. Obiter: Obiter/limited ratio - Where appellate power exists to correct penalty computation, inclusion of legally applicable interest in penalty following successful departmental appeal is permissible; however, in the present set of appeals the operative outcome turned on DGFT's binding clarification. Conclusions: Revenue's contention for inclusion of interest in penalty was entertained by Commissioner(Appeals) in the relevant appeal; the Tribunal's operative order disposing the appeals on DGFT clarification leaves any consequential recalculation or refund to be given effect as per law and the final position in each appeal. Overall Disposition and Consequential Relief Applying the DGFT clarification as binding, the Tribunal concluded that the restrictions under Notification No.77(RE-2008)/2004-2009 do not apply to Round Ridge Cement Tiles under 68101990; the impugned orders imposing confiscation, enhancement to US$50 per sq. meter, and related penalties are unsustainable and are set aside. Appeals are allowed with consequential relief as per law.