2025 (4) TMI 381 - HC - Customs

Department denied access to relied-upon report violating natural justice in customs classification dispute

Bombay HC set aside customs classification order due to violation of natural justice principles. Department failed to provide Analytic Report 24/2022-23 ... Classification of Acadian Seaplants Soluble Seaweed Extracts Powder - to be classified under Customs Tariff Heading (CTH) 1212 by the Respondent, or under CTH 3101 as argued by the Petitioner? - non-furnishing of documents relied upon in the SCN - violation of principles of natural justice - HELD THAT:- One of the documents relied upon to justify the issuance of the Show Cause Notice was the Analytic Report 24/2022-23 dated 15th September 2022 issued by the Additional Director General, DGARM, NCTC, Mumbai on the issue of misclassification of Seaweed under CTH 3101 0010 and 3101 0099. Admittedly, this Analytic Report has not been provided to the Petitioner before the passing of the Impugned Order and which forms the basis for issuing the Show Cause Notice. On this ground alone, it is justified in setting aside the Impugned Order. The very same goods of the Petitioner have been classified under CTH 3101, not only by the Deputy Commissioner (vide his order dated 1st July 2020) but also by the Commissioner of Customs (Appeals) vide his order dated 18th September 2015. These orders have been duly accepted by the Department and have not been challenged. Though these orders have been referred to whilst recording the submissions of the Petitioner, there is absolutely no finding and/or reasoning in relation to these orders and why the present Commissioner is taking a different view. The Impugned Order is completely silent on this aspect. This is yet another reason why the Impugned Order requires interference. The Testing Authority has in fact answered two queries, which are quite telling. One query raised by the Department was whether the goods of the Petitioner were an Organic Fertilizer, and which was answered in the affirmative. The other query raised was whether the SEAWEED EXTRACT imported by the Petitioner are Seaweed or Seaweed extract and whether it can be used as Vegetable Fertilizer or otherwise. The answer to this query was that it is a Seaweed Extract, and it can be used as Vegetable Fertilizer. This Test Report also finds no mention in the impugned order which is another reason why we are inclined to interfere with the Impugned Order. Conclusion - A test report confirmed the product as an organic fertilizer and seaweed extract usable as a vegetable fertilizer, supporting classification under CTH 3101. Matter remanded back to the Adjudicating Authority for giving a De Novo hearing to the Petitioner [after supplying the documents referred to in the SCN] and thereafter pass a reasoned order - petition dispsoed off by way of remand. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment are:1. Whether the classification of 'Acadian Seaplants Soluble Seaweed Extracts Powder' under Customs Tariff Heading (CTH) 1212 by the Respondent was appropriate, or if it should be classified under CTH 3101 as argued by the Petitioner.2. Whether the impugned order was passed in violation of principles of natural justice due to the non-furnishing of documents relied upon in the Show Cause Notice.3. The validity of the procedural actions taken by the Respondents in issuing and adjudicating the Show Cause Notice.4. The treatment of the live consignment and future consignments pending final adjudication.ISSUE-WISE DETAILED ANALYSIS1. Classification of Seaweed Extract- Legal Framework and Precedents: The Customs Tariff Act, 1975, and the Harmonized System of Nomenclature (HSN) Explanatory Notes provide the framework for classification. The dispute centers on whether the product is a fertilizer (CTH 3101) or a seaweed extract (CTH 1212).- Court's Interpretation and Reasoning: The Court noted that previous orders had classified the product under CTH 3101, which the Department had accepted without challenge. The Court found no reasoning in the impugned order for deviating from these precedents.- Key Evidence and Findings: A test report confirmed the product as an organic fertilizer and seaweed extract usable as a vegetable fertilizer, supporting classification under CTH 3101.- Application of Law to Facts: The Court emphasized the need to consider previous unchallenged classifications and test reports in determining the appropriate tariff heading.- Treatment of Competing Arguments: The Respondents argued for classification under CTH 1212 based on the product's nature as a seaweed extract. The Court found this argument unconvincing given the lack of consideration for previous classifications and test reports.- Conclusions: The Court concluded that the impugned order's classification under CTH 1212 was unjustified and required reconsideration.2. Principles of Natural Justice- Legal Framework: The principles of natural justice require that all relevant documents be provided to the party affected by a decision.- Court's Interpretation and Reasoning: The Court found that the failure to provide the Analytic Report and other documents relied upon in the Show Cause Notice constituted a breach of natural justice.- Conclusions: The Court ruled that the impugned order must be set aside due to this procedural violation.3. Procedural Validity of Show Cause Notice- Key Evidence and Findings: Discrepancies in the dates of the Show Cause Notice and issues with document provision were noted.- Conclusions: The procedural irregularities necessitated a de novo hearing.4. Treatment of Live and Future Consignments- Application of Law to Facts: The Court directed provisional release of the live consignment and future consignments upon execution of a bond, without additional security, considering past classification under CTH 3101.SIGNIFICANT HOLDINGS- Verbatim Quotes: 'On this ground alone, we would be justified in setting aside the Impugned Order.'- Core Principles Established: The necessity of adhering to principles of natural justice and the importance of consistency in classification based on prior unchallenged decisions.- Final Determinations: The impugned order was set aside, and the matter remanded for a de novo hearing with directions to consider previous classifications and provide necessary documents.