2025 (6) TMI 1976 - AT - Customs

Imported multifunctional relay systems classified under CTH 8537 not CTH 8536, exemption denied but appeal allowed on limitation

CESTAT Bangalore held that imported relays were correctly classified under CTH 8537 1000 rather than CTH 8536 4900 as claimed by appellant. The tribunal ... Classification of imported relays - to be classified under CTH 8536 4900 as claimed by the appellant or under CTH 8537 1000 as claimed by Revenue - eligibility of exemption under N/N. 21/2002-Customs dated 01.03.2002 - Extended period of limitation - HELD THAT:- It is found that Relays falling under CTH 8536 are used in telecommunication apparatus, road or rail signaling apparatus, for the control or protection of machinetools, etc., and includes various kinds of Relays such as electromagnetic relays, permanent magnet relays, thermoelectric relays, induction relays, electro-static relays, photoelectric relays, electronic relays, etc. and also includes contractors. While 8537 speaks of boards, panels, consoles, desk, etc., equipped with two or more apparatus of 8535 or 8536 which is meant for electric control or distribution of electricity and it states that the goods of this Heading vary from small switchboards with only a few switches, fuses, etc. (e.g., for lighting installations) to complex control panels for machine tools, rolling mills, power stations, radio stations, etc., including assemblies of several of the articles cited in the text of this heading and includes Numerical control panels which are used to control machine-tools and 'Programmable controllers' for storage of instructions for implementing specific functions such as logic, sequencing, timing, counting and arithmetic, to control, through digital or analog input/output modules, various types of machines. Thus, it is very clear that while CTH 8536 includes simplicitor relays CTH 8537 includes complex controls with multiple functions. Based on the N/N. 21/2002-Cus. dated 01.03.2002, the impugned products being multifunctional product which cannot be considered as a simple relay are rightly classifiable under CTH 8537 and not eligible for the benefit of the N/N. 21/2002-Cus. dated 01.03.2002 since they do not fall under the category of simplicitor relays that are exempted. Extended period of limitation - HELD THAT:- The present products in the impugned order are also described as F650 Feeder Protection and Bay Controller System, hence, there is no question of suppression, misclassification or misdeclaration as alleged by the Revenue. Having accepted classification based on the expert opinion and on the technical literature, there cannot be element of suppression or misdeclaration; hence, the demand vide impugned Order-in-Original cannot be sustained since the entire demand is beyond the normal period. Appeal allowed. The core legal questions considered by the Tribunal in these appeals pertain to the classification of imported electrical apparatus, specifically relays, under the Customs Tariff Headings (CTH) 8536 4900 versus 8537 1000. The issues also encompass the eligibility of the imported goods for exemption under Notification No. 21/2002-Customs dated 01.03.2002, which provides duty exemptions for certain goods, including relays with contact ratings up to 7 amperes. The key questions addressed include:1. Whether the imported goods, described as numerical or multifunctional relays by the appellants, are correctly classifiable under CTH 8536 49 00 as relays or under CTH 8537 10 00 as multifunctional electrical apparatus or numerical control apparatus as contended by the revenue authorities.2. Whether the imported goods qualify for exemption under Notification No. 21/2002-Cus., specifically Sl. No. 244 of the Notification, which exempts relays of contact rating up to 7 amperes.3. Whether the departmental demand for differential customs duty and penalty under extended limitation provisions is sustainable, considering the nature of classification disputes and the absence of wilful misstatement or suppression of facts by the appellants.Issue-wise Detailed Analysis1. Classification of Imported Goods under CTH 8536 or 8537The legal framework governing classification is primarily the Customs Tariff Act, 1975, along with the First Schedule, specifically Chapters 84 and 85 under Section XVI, which covers electrical machinery and equipment. Section Notes to Section XVI and General Interpretative Rules (GIR), especially Rules 1 and 3(a), guide classification based on the terms of headings, chapter notes, and the principal function of multifunctional machines.CTH 8536 covers electrical apparatus for switching or protecting electrical circuits, including relays, fuses, and circuit breakers, for voltages not exceeding 1,000 volts. Relays under 8536 include various types such as electromagnetic, electronic, and other relays used for protection and control of electrical circuits.CTH 8537 covers boards, panels, consoles, desks, cabinets, and other bases equipped with two or more apparatus of headings 8535 or 8536 for electric control or distribution of electricity, including numerical control apparatus and programmable controllers. These are generally assemblies or complex control panels with multiple integrated functions.The appellants argued that their imported goods, numerical relays with advanced microprocessor-based technology, multiple protection functions, disturbance recording, measurement, display, and communication capabilities, are still fundamentally relays as per technical literature and authoritative definitions. They contended that the principal function remains protection and control of electrical circuits, thus falling under CTH 8536 49 00.The revenue contended that the goods are multifunctional apparatus performing various integrated functions beyond simple relay operations, including control, monitoring, metering, and communication, which align with the description of goods under CTH 8537. The presence of microprocessors and the multifunctional nature exclude them from the simpler relay classification.The Tribunal examined the technical literature, product catalogues, and expert opinions, including those from Indian Institutes of Technology and Indian Institute of Science, which confirmed that the impugned products incorporate multiple integrated functions and are not merely relays. The goods perform complex automation, control, and monitoring functions, consistent with numerical control apparatus or programmable controllers under CTH 8537.While the appellants relied on the principle of classification by principal function (Note 3 to Section XVI), the Tribunal found that the principal function of the impugned goods is not solely that of a relay, but a multifunctional system integrating protection, control, monitoring, and communication. Therefore, classification under CTH 8537 was appropriate.2. Eligibility for Exemption under Notification No. 21/2002-Cus.Notification No. 21/2002-Cus. exempts certain goods under Chapters 84, 85, or 90, including relays of contact rating up to 7 amperes (Sl. No. 244, List 26, Sl. No. 12). The appellants claimed exemption on the basis that their imported goods are relays under CTH 8536 and have contact ratings within the prescribed limit.The revenue denied exemption on two grounds: (i) the goods are not relays but multifunctional apparatus under CTH 8537, and (ii) the contact rating of the goods exceeds 7 amperes or was not demonstrated to be within the limit.The Tribunal noted that exemption applies only to simplicitor relays classified under CTH 8536. Since the impugned goods were classified under CTH 8537 as multifunctional apparatus, they do not qualify for exemption under the said Notification. The Tribunal also observed that the contact rating criterion is relevant only if the goods qualify as relays under CTH 8536.In the case of some goods (F-650 family without MOD feature and URL-C family), the appellants accepted duty liability and paid customs duty, but for others, the exemption claim was contested. The Tribunal upheld the denial of exemption for goods classified under CTH 8537.3. Limitation and PenaltyThe appellants contended that the demand for differential duty and penalty under extended limitation provisions is barred by limitation, as there was no suppression or wilful misstatement. Classification disputes and claims of exemption are matters of legal interpretation, which do not attract mens rea. The appellants had been importing similar goods since 2004 under the claimed classification, and the department was aware of this practice.The revenue maintained that the demands are within the normal period and penalty is justified.The Tribunal referred to settled legal principles and precedents that classification disputes and exemption claims do not constitute suppression or misdeclaration unless there is clear evidence of wilful intent. The Tribunal found no such evidence and held that demands beyond the normal limitation period cannot be sustained, thus setting aside the demand and penalty in the appeal of M/s. GE India Industrial Pvt. Ltd.4. Treatment of Competing Arguments and PrecedentsThe appellants relied on multiple decisions emphasizing classification by principal function, binding circulars from the Central Board of Excise & Customs clarifying classification of multifunctional machines, and authoritative technical literature defining numerical relays as relays with additional features. They also cited precedents affirming that classification disputes are legal questions not attracting penalty unless suppression is proven.The revenue cited decisions underscoring strict interpretation of exemption notifications and the necessity for goods to meet all conditions of the Notification to claim benefit. The revenue also relied on expert opinions and technical assessments to support classification under CTH 8537.The Tribunal carefully balanced these arguments, giving due weight to technical expert opinions, product descriptions, and the legal framework. It distinguished cases where the principal function was relay protection from those where multifunctionality and integration of control and monitoring functions predominated.Significant Holdings'The goods are rightly classifiable under Chapter heading 8537 as multifunctional apparatus and not under CTH 8536 as simple relays.''The benefit of Notification No. 21/2002-Cus. dated 01.03.2002 is only available to simplicitor relays classifiable under CTH 8536 with contact rating up to 7 amperes, and does not extend to multifunctional apparatus under CTH 8537.''Classification disputes and claims of exemption are matters of legal interpretation and do not attract penalty or extended limitation unless there is clear evidence of wilful misstatement or suppression of facts.''The impugned demand and penalty in the appeal of M/s. GE India Industrial Pvt. Ltd. are set aside as barred by limitation and lacking evidence of suppression.''The impugned demands and classification under CTH 8537 in the appeals of M/s. ABB Ltd. are upheld, and exemption under Notification No. 21/2002-Cus. is rightly denied.'The Tribunal thus established that multifunctional numerical relays with integrated protection, control, monitoring, and communication features are to be classified under CTH 8537 as multifunctional electrical apparatus or numerical control apparatus. Simple relays with the principal function of protection and contact rating up to 7 amperes alone qualify for exemption under the relevant Customs Notification. The Tribunal's decisions clarify the scope of classification and exemption for advanced electrical apparatus, emphasizing reliance on technical expert opinions and strict adherence to statutory provisions and Notifications.