2025 (8) TMI 659 - HC - Customs

HC orders CESTAT to decide if imports are E-Rikshaw parts; reduces pre-deposit to Rs 5.5 lakhs under financial constraints

The HC directed the CESTAT to adjudicate on the merits regarding whether the imported goods constituted E-Rikshaws or their components and the validity of ... Re-classification of imported goods - consignment would constitute components of E-Rikshaw or E-Rikshaw themselves - confiscation of the E-Rikshaw - HELD THAT:- Considering the facts that there is an enormous push being given to environmentally safer and friendly vehicles in the country, the confiscation of the E-Rikshaw in this matter would benefit no one in the prima facie opinion of this Court. The matter deserves adjudication on merits by the CESTAT. Under such circumstances and bearing in mind the financial constraints of the Petitioner-company, which is engaged in importing E-Rikshaw/ components, this Court is of the view that pre-deposit can be reduced to a sum of Rs 5.5 lakhs. Accordingly, let the pre-deposit of Rs.5.5 lakhs be made within a month from today, i.e., 31st July, 2025 before the CESTAT. Let this appeal along with the appeal filed by the Director be adjudicated against the Order-in-Original dated 20th August, 2020, on merits. The question of applicability or the validity of the impugned Office Order and the question as to whether the imported components constituted E-Rikshaw themselves shall also be adjudicated by the CESTAT - Since the goods are lying with the Customs, the CESTAT shall pass the orders in this matter by 15th November, 2025, once the pre-deposit is made. List before the CESTAT on 04th September, 2025 - Petition disposed off. 1. ISSUES PRESENTED AND CONSIDERED Whether the impugned Office Order dated 12th March 2014, clarifying the number and nature of components constituting a complete E-Rikshaw under the Motor Vehicles Act, 1988, is valid and applicable to the imported consignments. Whether the imported consignments comprising various components amount to a complete E-Rikshaw or merely parts/components for assembly. Whether the classification of the imported goods under Customs Tariff headings (CTSH) by the Department as complete vehicles (CTSH 87038040) instead of components (various other CTSHs) is justified. Whether the confiscation of the consignments under Section 111(m) of the Customs Act, 1962 and imposition of penalties under Sections 112(a)(ii), 114A, and 125(1) of the Customs Act, 1962 are legally sustainable. Whether the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) erred in dismissing the appeal for non-compliance of the statutory pre-deposit requirement. Whether the pre-deposit amount fixed by the CESTAT in the appeal is reasonable and whether it can be reduced considering the financial constraints of the importer. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity and Applicability of the Impugned Office Order dated 12th March 2014 Legal Framework and Precedents: The Office Order relies on Rule 2(a) of the Interpretation Rules to the First Schedule of the Customs Tariff Act, 1975, and the Motor Vehicles Act, 1988, to determine when a consignment of components constitutes a complete motor vehicle. The order identifies five major components-transmission, motor, axle, chassis, and controller-as essential to classify a consignment as a complete E-Rikshaw under Chapter 87 (CTSH 8703). Court's Interpretation and Reasoning: The Court examined the Office Order and noted it creates a classification guideline that if the motor and at least two other essential components are present, the consignment qualifies as a complete vehicle. Conversely, if two or more essential components are missing, the consignment is considered parts and classified under CTSH 8708. Key Evidence and Findings: The Court reviewed photographs of the imported parts and the description of goods in the impugned Order-in-Original. The Department found the consignments contained multiple essential components, including axles, transmission gears, brake drum assemblies, and chassis, suggesting integration towards a complete vehicle. Application of Law to Facts: The Office Order serves as a binding departmental guideline for classification. However, the Court recognized that whether the imported goods are complete vehicles or components is a factual and legal question requiring adjudication by the CESTAT. Treatment of Competing Arguments: The Petitioner contended that the Office Order caused confusion and that the goods were only components, not complete vehicles. The Department argued that the presence of multiple essential components justified classification as complete vehicles attracting higher duty and confiscation. Conclusions: The Court held that the determination of classification under the Office Order is a matter for the CESTAT to decide on merits. The validity of the Office Order itself was not challenged but its applicability to the facts requires adjudication. Issue 2: Classification of Imported Goods as Complete E-Rikshaws or Components Legal Framework and Precedents: Classification under the Customs Tariff Act depends on the nature and use of goods. Complete vehicles fall under CTSH 8703, while parts and components fall under other headings such as 8708. The Motor Vehicles Act, 1988, also defines a motor vehicle and its components. Court's Interpretation and Reasoning: The Court noted the Department's position that the consignments contained CKD (Completely Knocked Down) or SKD (Semi Knocked Down) kits with essential components sufficient to constitute complete vehicles under the Motor Vehicles Act. The Petitioner classified the goods under various parts headings, contending they were incomplete and not subject to the higher duty applicable to vehicles. Key Evidence and Findings: The Department's Order-in-Original detailed the components found, including axles, transmission assemblies, chassis, and motor, which are critical parts. The photographs corroborated the presence of these components. Application of Law to Facts: The Court held that the question of whether the components imported amount to a complete vehicle or parts is factual and requires expert and detailed assessment by the CESTAT. The Court declined to make a prima facie determination. Treatment of Competing Arguments: The Petitioner emphasized the incomplete nature of consignments and the need for assembly, while the Department stressed the integrated nature of the components and their classification as vehicles. Conclusions: The issue of classification is to be adjudicated by the CESTAT on merits, considering the Office Order and the factual matrix of the consignments. Issue 3: Legality of Confiscation and Penalties Imposed under the Customs Act, 1962 Legal Framework and Precedents: Section 111(m) of the Customs Act authorizes confiscation of goods if imported in contravention of the Act. Sections 112(a)(ii), 114A, and 125(1) provide for penalties for wrongful import and non-compliance. Section 17(4) allows re-classification and reassessment of duty. Court's Interpretation and Reasoning: The Department confiscated the consignments and imposed penalties based on the conclusion that the goods were misclassified and attracted higher duty as complete vehicles. The reassessment of duty and imposition of fines followed statutory provisions. Key Evidence and Findings: The Order-in-Original detailed the duty short-paid, the re-classification, and the penalties imposed on the importer, its Director, and Customs Brokers. Application of Law to Facts: The Court observed that the confiscation and penalties are consequential to the classification issue and the finding of misclassification. Since the classification is disputed, the legality of confiscation and penalties is intertwined with the outcome of classification adjudication. Treatment of Competing Arguments: The Petitioner challenged the confiscation and penalties as unjustified, arguing the goods were components and not vehicles. The Department maintained the correctness of the order based on the integrated nature of the consignments. Conclusions: The Court held that the legality of confiscation and penalties must be decided by the CESTAT after adjudication on the classification and factual issues. Issue 4: Dismissal of Appeal by CESTAT for Non-Compliance of Pre-Deposit Requirement Legal Framework and Precedents: Under the Customs Act, appeals to the CESTAT require a statutory pre-deposit of a specified amount unless exempted or reduced by the Tribunal. Non-compliance leads to dismissal of the appeal. Court's Interpretation and Reasoning: The Petitioner filed an appeal without pre-deposit, received a defect notice, and failed to deposit the amount fixed by the CESTAT. Consequently, the appeal was dismissed for non-compliance. Key Evidence and Findings: The Court noted the procedural history and the Petitioner's repeated requests for time to make the pre-deposit, which was not ultimately made. Application of Law to Facts: The Court recognized the statutory mandate for pre-deposit but also acknowledged the financial constraints of the Petitioner engaged in environmentally friendly vehicle importation. Treatment of Competing Arguments: The Petitioner sought reduction or waiver of pre-deposit to enable hearing on merits. The Department insisted on compliance with statutory requirements. Conclusions: The Court exercised discretion to reduce the pre-deposit amount to Rs. 5.5 lakhs to enable the appeal to be heard on merits, balancing statutory requirements and financial hardship. Issue 5: Reduction of Pre-Deposit Amount and Direction for Adjudication on Merits Legal Framework and Precedents: The Court has inherent jurisdiction under Article 226 of the Constitution to grant relief including reduction of pre-deposit in appropriate cases, especially where the appellant faces financial constraints and the case involves public interest. Court's Interpretation and Reasoning: Considering the policy push for environmentally friendly vehicles and the financial impact on the Petitioner, the Court found it just and equitable to reduce the pre-deposit amount fixed by the CESTAT. Key Evidence and Findings: The Court considered the nature of the goods (E-Rikshaws), the impugned order, and the ongoing confiscation causing financial hardship. Application of Law to Facts: The Court directed the Petitioner to deposit Rs. 5.5 lakhs as pre-deposit within a stipulated time to enable the appeal to be heard and adjudicated on merits by the CESTAT. Treatment of Competing Arguments: The Department did not oppose the reduction but emphasized the need for compliance with procedural requirements. Conclusions: The Court ordered reduction of the pre-deposit and directed the CESTAT to adjudicate the appeal and related appeals on merits, including the validity and applicability of the Office Order and classification issues. Issue 6: Directions Regarding Custody of Goods and Timeline for Disposal Legal Framework and Precedents: The Customs Act and procedural rules empower the Tribunal to direct release or retention of goods pending appeal disposal. Court's Interpretation and Reasoning: The goods remain confiscated and in Customs custody. The Court emphasized the need for timely disposal of the appeal given the public interest in promoting environmentally friendly vehicles. Key Evidence and Findings: The Court noted the goods continue to be seized and the financial impact on the Petitioner. Application of Law to Facts: The Court directed the CESTAT to pass orders on the appeal by 15th November 2025 after pre-deposit is made. Treatment of Competing Arguments: No specific opposition to the timeline was recorded. Conclusions: The Court mandated expeditious disposal of the appeal and related appeals by the CESTAT within a fixed timeline to ensure justice and balance public and private interests.