2025 (7) TMI 1346 - AT - Customs

Exemption under Section 25(1) Customs Act applies to orthopedic implants without extra conditions

CESTAT Mumbai allowed the appeal, holding that the exemption notification under Section 25(1) of the Customs Act, 1962, granting duty exemption on ... Exemption from payment of Customs duty vide Serial No. 578 of the N/N. 50/2017-Customs dated 30.06.2017 [List 30, Sl. No. B(1), E(9)] read with N/N. 01/2017-Integrated Tax (Rate) dated 28.06.2017 [Serial No.257 of Schedule-I, List 3, Sl. No. B(1), E(9)] - import of knee, hip implants such as ‘Screw Biosure, Regenesorb, Legion etc. - imposition of redemption of fine and penalty - HELD THAT:- On plain reading of the legal provision under Section 25 of the Customs Act, 1962, it transpires that sub-section (1) of said Section provides that the Central Government has powers for issue of duty exemption notification(s) in public interest so as to prescribe duty rates lower than the tariff rates prescribed in the Schedule to the Customs Tariff Act, by providing either partial or full exemption from payment of such duties, either absolutely or subject to certain conditions to be fulfilled. These are called ‘general exemption’ which are applicable to all persons or importers/exporters as they are issued in public interest in general and not restricted to individual person specific - It is a fact on record that the notifications under which exemption is claimed and in which the department had raised the dispute had been issued under Section 25(1) ibid. Therefore, it transpires that the exemption is applicable subject to the conditions, if any, specified in the said notifications and is not subjected to any general conditions of ad-hoc exemption issued under Section 25(2) ibid or the condition that it should be for use by ‘disabled’. It also transpires from plain reading of the exemption entry at Serial No.578 of Notification No. 50/2017-Customs (supra), that there is no condition prescribed by the government in availing the said exemption, as the respective column(5) indicate ‘Nil’ by mentioning “ – ” therein. In order to determine the appropriate duties of customs payable on any imported goods one has to make an assessment of the imported goods for its correct classification under the First Schedule to Customs Tariff Act, 1975 in accordance with the provisions of the Customs Tariff Act by duly following the General Rules for Interpretation (GIR) and the General Explanatory notes (GEN) contained therein. Further, appropriate classification of the goods also aid in understanding the scope of goods, covered under the exemption notification, in particular the issue of dispute in the present case, where the scope of goods covered by specific description and specified heading/sub-heading/ tariff item is required to be determined - while classifying goods, the foremost consideration is the 'statutory definition', if any, provided in the Customs Tariff Act. In the absence of any statutory definition, explanation or any guideline provided by HS explanatory notes or customs tariff or in the notification, the trade parlance theory is to be adopted for ascertaining as to how the goods are known in the common trade parlance for the purpose of dealing between the parties. In respect of the present entry in dispute, exemption has been given for the goods of the description specified in column (3) of the Table, read with the List-30 appended thereto, and falling within the specified Chapter of the First Schedule to the said Customs Tariff Act, 1975. Since there is no dispute with respect to classification, as all chapters have been covered by stating that ‘Chapter 90 or any other chapter’, we need to closely look at the description of the goods given under column (3) of the Table read with the list of goods mentioned in List-30, for arriving at proper conclusion on the applicability of exemption on the impugned goods. In respect of the disputed exemption entry under Serial No. 578 the description of goods covered are given as “Assistive devices, rehabilitation aids and other goods for disabled, specified in List 30”. If it has to be understood that the scope of coverage of goods is restricted to only those goods specified in List 30, then the use of the expression ‘Assistive devices, rehabilitation aids and other goods for disabled’ becomes otiose; and as seen above, the appropriate expression in such case would be “goods specified in List 30” - The meaning of the word ‘disabled’ cannot be understood differently by restricting the meaning given under Section 2(s) of The Rights of Persons with Disabilities Act, 2016 or Persons With Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1985 or any other Act, particularly when there is no such specific meaning or explanation provided under the exemption entry, for arriving at the construction of the meaning ‘disabled’ in the exemption entry. The goods itemized under the List-30 of Serial No. 578 of the Notification No. 50/2017-Customs (supra)/List-3 of Serial No.257 to Schedule-I of Notification No.01/2017-Integrated Tax (Rate) [supra] inter alia cover Orthopaedic appliances falling under heading No.90.21 of the First Schedule in (B)(1); Instruments and implants for severely physically handicapped patients and joints replacement and spinal instruments and implants including bone cement in (E)(9). Since, the implants such as repair of knee, hip and other joints, shoulder and various other parts of the body; repair of soft tissue injuries and degenerative conditions of the shoulder etc., are in the nature of instruments/implants described in item (B)(1), the impugned goods are also specifically covered under the List-30 and List-3 of the notifications No. 50/2017-Customs and No.01/2017-Integrated Tax (Rate). The impugned order dated 28.02.2024 in confirmation of the adjudged demands by invoking the extended period of limitation under Section 28(4) of the Customs Act, 1962 and consequent confiscation of imported goods, imposition of redemption fine, penalties on the appellants is not legally sustainable. Appeal allowed. ISSUES: Whether the imported orthopaedic and medical implants are eligible for exemption from Customs duty under Serial No. 578 of Notification No. 50/2017-Customs dated 30.06.2017 read with Notification No. 01/2017-Integrated Tax (Rate) dated 28.06.2017.Whether the imposition of redemption fine and penalty under Sections 125(1) and 114A of the Customs Act, 1962 on the importer is legally sustainable.Interpretation of the term 'disabled' in the context of the exemption notification and its applicability to goods used for injured persons as opposed to disabled persons.Whether the extended period of limitation under Section 28(4) of the Customs Act, 1962 was rightly invoked for demand of differential duty. RULINGS / HOLDINGS: On eligibility for exemption: The impugned goods are 'eligible for customs duty exemption' under Serial No. 578 of Notification No. 50/2017-Customs dated 30.06.2017 and Notification No. 01/2017-Integrated Tax (Rate) dated 28.06.2017, as they fall within the categories of 'assistive devices' and 'orthopaedic appliances' specified in List 30/List 3, and are used for treatment involving repair of bodily deformities and disabilities.On interpretation of 'disabled': The term 'disabled' in the exemption notification must be understood in its 'plain grammatical meaning' and not restricted by definitions under other statutes such as the Rights of Persons with Disabilities Act, 2016; the exemption covers (i) assistive devices, (ii) rehabilitation aids, and (iii) other goods for disabled, as distinct categories.On penalty and confiscation: The imposition of redemption fine and penalty under Sections 125(1) and 114A of the Customs Act, 1962 is 'not legally sustainable' as the exemption claim was valid and the goods were properly classified and cleared.On extended period invocation: The extended period under Section 28(4) was wrongly invoked as the exemption was rightly claimed and the goods were not misclassified or improperly declared. RATIONALE: The Court applied Section 25 of the Customs Act, 1962, which empowers the Central Government to grant exemptions from customs duty by notification in the public interest, and examined the exemption notifications No. 50/2017-Customs and No. 01/2017-Integrated Tax (Rate) along with their appended lists (List 30 and List 3).The Court emphasized the importance of strict construction of exemption notifications as per precedent but held that the exemption must be interpreted purposively and harmoniously by reading the description and appended lists conjointly.The Court rejected the narrow interpretation of 'disabled' based on other disability laws, holding that such statutory definitions are not applicable to customs exemption notifications absent explicit reference.The Court relied on the definition of 'orthopaedic appliances' under Note 6 to Chapter 90 of the Customs Tariff Act, 1975, which includes appliances for 'preventing or correcting bodily deformities' and supporting parts of the body after injury or illness, supporting the inclusion of the imported implants within the exemption.The Court distinguished prior case law relied upon by Revenue, noting different product descriptions and contexts, and affirmed consistency with earlier Tribunal decisions recognizing similar implants as eligible for exemption.The Court noted that the importer had declared and cleared the goods under the relevant tariff headings and exemption notifications, and that subsequent investigation and denial of exemption based on usage for injured rather than disabled persons was not legally justified.The Court also clarified procedural issues regarding the Tribunal's jurisdiction and timelines as directed by the High Court, allowing disposal of the appeal beyond the initially suggested deadline.