Appellant wins PVC Regrind classification dispute as CIPET test confirms correct declaration under tariff heading

CESTAT Chennai allowed appeal regarding import of PVC Regrind. Appellant correctly declared goods as PVC Regrind in bills of entry, confirmed by CIPET test report. Revenue's reclassification under Heading 3904 was unjustified without supporting evidence. Concealed poppy seeds were confiscated and destroyed, but no penalty imposed on appellant as import was inadvertent. Both PVC Regrind consignments allowed for domestic clearance on payment of appropriate duties. Redemption fine applicable only to first consignment due to poppy seeds presence. Penalties on PVC Regrind set aside.

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The core legal questions considered by the Tribunal in this appeal are as follows:

(i) Whether the appellant was liable to be penalized for the import of concealed poppy seeds;

(ii) Whether the penalty imposed for the import of PVC Regrind weighing 23,978 kgs was justified;

(iii) Whether the PVC Regrind in the first consignment deserves to be allowed for domestic clearance on payment of an appropriate redemption fine;

(iv) Whether the separately imported PVC Regrind weighing 56,080 kgs deserves to be allowed for domestic clearance;

(v) Whether the import of the said PVC Regrind invites any fine or penalty.

Issue-wise Detailed Analysis

1. Liability for Import of Poppy Seeds

The importer declared the goods as 'PVC Regrind' in the Bill of Entry. However, upon inspection by the Special Intelligence and Investigation Branch (SIIB), 3,062 kgs of poppy seeds were found concealed behind the declared PVC Regrind. The appellant admitted the presence of poppy seeds but contended that these were supplied by mistake by the foreign supplier and were unknown to them until the container was opened by the authorities. The appellant submitted e-mail correspondence with the supplier to support this claim.

The Original Authority held that poppy seeds could only be imported from specified countries and required a certificate from the competent authority of the exporting country under the Foreign Trade Policy (FTP) 2015-2020. Since no such certificate was produced, the poppy seeds were liable for confiscation under Sections 111(d), 111(l), 111(m), and 119 of the Customs Act, 1962.

The appellant did not dispute the confiscation and destruction of the poppy seeds but sought relief from penalties and fines relating to the PVC Regrind consignment.

The Tribunal noted that the appellant's bonafides were not in doubt regarding the poppy seeds, as the appellant was not responsible for their import. The concealment was attributed to the foreign supplier's error. The Tribunal upheld the confiscation and destruction order but held that the appellant's liability was limited to the cost of destruction. The appellant was not liable for penalties in respect of the poppy seeds.

2. Penalty Imposed on PVC Regrind of 23,978 kgs (First Consignment)

The Original Authority rejected the declared value of the PVC Regrind and redetermined it under Rule 5 of the Customs Valuation Rules, 2007. Additionally, penalties under Sections 112(a) and 114AA were imposed, and confiscation was ordered, treating the goods as prohibited or restricted plastic waste/scrap under Public Notice No. 392 (1997) and Policy Circular No. 20/2002-2007.

The appellant argued that the goods were correctly declared as PVC Regrind, a thermoplastic material obtained from used PVC products or manufacturing rejects, not plastic waste or scrap. The appellant relied on a test report from CIPET, Chennai, which confirmed the goods as 'PVC Regrind' and 'single thermoplastic material' and not prime material. The appellant contended that PVC Regrind is freely importable under ITC HSN heading 3904, whereas plastic waste/scrap falls under heading 3915 and is restricted.

The Tribunal observed that the test report was not disputed and supported the appellant's declaration. The Revenue's presumption that the goods were plastic waste/scrap was not supported by documentary evidence. The Tribunal emphasized the settled legal principle that the Revenue must prove its case when challenging the declared classification and that allegations cannot substitute proof.

Accordingly, the Tribunal held that the penalties and confiscation imposed on the first consignment's PVC Regrind were not justified. The appellant had acted in good faith, and the declaration was accurate. The Tribunal modified the order to delete the penalties and allow the goods for home consumption on payment of appropriate duty and fine.

3. Allowance of PVC Regrind for Domestic Clearance

The Tribunal accepted that the PVC Regrind in both consignments was not prohibited or restricted under the Foreign Trade Policy or Customs law. The goods were classified under heading 3904, which permits free import. The test report and visual inspection confirmed the goods as regrind PVC material, not waste or scrap.

For the first consignment (BE No. 8695228), the Tribunal allowed clearance subject to payment of appropriate duty and redemption fine, given the presence of concealed poppy seeds in the same consignment.

For the second consignment (BE No. 7777460), the Tribunal allowed clearance without penalty, as the goods were correctly declared and no violation was found. The Tribunal noted the absence of any incriminating documents or evidence of wrongdoing by the appellant in relation to this consignment.

4. Penalty and Fine on the Second Consignment of PVC Regrind (56,080 kgs)

The Original Authority did not impose confiscation or penalty on the second consignment, recognizing it as permissible import. The Tribunal concurred with this view and held that no penalty or fine was warranted. The goods were properly declared, tested, and found to be compliant with applicable laws and policies.

Treatment of Competing Arguments

The Revenue relied heavily on the Public Notice and Policy Circular prohibiting import of plastic waste/scrap except PET bottle waste and contended that PVC Regrind fell within the prohibited category. However, the Tribunal found this argument unpersuasive in light of the test report and classification under the ITC HSN. The Revenue's reliance on visual appearance and presumption was rejected as insufficient to override expert evidence.

The appellant's argument that the PVC Regrind was a single thermoplastic material, not scrap, was supported by expert testing and consistent declarations. The Tribunal found no evidence of misdeclaration or concealment by the appellant regarding PVC Regrind.

Conclusions

The Tribunal concluded that:

- The poppy seeds found concealed were liable for confiscation and destruction, which the appellant did not contest. However, no penalty was imposed on the appellant for this, as the import was inadvertent and caused by the supplier.

- The penalty and confiscation imposed on the PVC Regrind in the first consignment were unjustified. The goods were correctly declared and classified, and penalties were set aside.

- The PVC Regrind in both consignments was allowed for domestic clearance on payment of appropriate duties, with a redemption fine applicable only to the first consignment due to the presence of poppy seeds.

- No penalty or fine was warranted on the second consignment of PVC Regrind.

Significant Holdings

"It is the settled position of law that it is the responsibility of the Revenue to prove its case when the classification declared by an importer is sought to be meddled with. It is also the settled position of law that allegations how-soever grave or strong, cannot take the place of proof."

"We find that there is sufficient material to hold that the appellant had acted in good faith and hence, its bonafides regarding the contents of the consignments cannot be doubted. We find that to be a sufficient reason to delete the penalties as the levies are clearly for no fault."

"The appellant is not contesting the confiscation and destruction of Poppy Seeds which were found to be concealed in the imported consignment. The action of the Original Authority in ordering confiscation and destruction of the same is justified and since the same was part of the same import of PVC Regrind, the only liability on the appellant would be the cost insofar as the destruction of the poppy seeds are concerned."

"The PVC Regrind imported vide Bill of Entry No. 7777460 dated 11.09.2023 deserves to be allowed for home consumption however, subject to the payment of appropriate duty since we agree that there is no violation to any Foreign Trade Policy."

"The penalties are set aside. The impugned order is modified to this extent."

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