2025 (8) TMI 1572 - AT - Customs

Classification of Hub Assembly under CTI 8708 5000 upheld; differential duty limited to two-year s.28(1) period; penalties set aside

Commissioner of Customs, Chennai Versus M/s. ILJIN Automotive Private Limited

Commissioner of Customs, Chennai Versus M/s. ILJIN Automotive Private Limited - TMI 1. ISSUES PRESENTED AND CONSIDERED 1. Whether 'Hub Assembly' and 'Parts/components of Hub Assembly' are classifiable under CTH 8708 99 00 (residual) or under CTH 8708 50 00 (drive-axles / parts thereof) for customs duty and FTA benefit purposes. 2. Whether the extended limitation period under Section 28(4) of the Customs Act, 1962 (five-year period for collusion/wilful mis-statement/suppression) is invocable against the importer for the disputed imports, or whether the demand must be confined to the normal two-year period under Section 28(1). 3. Whether confiscation of the imported goods under Section 111(m) & (q) and imposition of penalties under Sections 112(a), 114A and 114AA of the Customs Act, 1962 are sustainable on the facts. 4. Ancillary question: whether materials relied on by the revenue (WCO HS Committee opinions, foreign customs rulings, supplier invoices, marketing literature, statements under Section 108, COOs) are legally decisive or persuasive for classification and for invoking extended limitation/penalties. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification of Hub Assembly and its parts (CTH 8708 50 00 v. 8708 99 00) Legal framework: Classification is governed by the General Rules for Interpretation (GIR) of the Harmonized System (Rule 1-6) together with chapter/section notes and explanatory notes; residual entries (e.g., 8708 99 00) apply only after ruling out specific preceding entries. Precedent treatment: Explanatory notes of the Harmonized System and Supreme Court authority give strong persuasive value to WCO Explanatory Notes where ambiguity exists; WCO HS Committee opinions are persuasive but not automatically binding domestically unless adopted by national law or tariff amendments. Interpretation and reasoning: The Tribunal examined the construction of heading 8708 (detailed subheadings) and determined that 8708 50 00 covers drive-axles (driving and non-driving) and parts thereof; the question is whether a wheel hub assembly is a 'part' of an axle. Technical description of wheel hub units (hub, bearing, mount to axle, enabling wheel rotation on axle) and Explanatory Notes grouping of 'Hubs' with axles led the Tribunal to conclude that hub assemblies perform the function of completing the axle's purpose and are not functionally independent assemblies. The Tribunal treated WCO HS Committee recommendation (63rd session) and Korea's subsequent reclassification as persuasive corroboration; it rejected the contention that WCO opinions have no persuasive value, noting India is a WCO member and that no contrary CBIC clarification was produced. US cross-rulings and older foreign rulings were weighed but found not dispositive where explanatory notes and technical function support classification as parts of axles. Ratio vs. Obiter: Ratio - where a part is functionally integrated with and completes the function of a broader heading's item, it should be classified as a part thereof; Explanatory Notes can resolve ambiguity in classification; parts of a 'part' follow the classification of the principal item. Obiter - extended discussion on comparative foreign rulings and supplier invoice inconsistencies are addressed as evidentiary factors but not foundational legal rules. Conclusion: Hub assemblies and their constituent parts are classifiable under CTH 8708 50 00 (parts of drive-axles) and thus not eligible for the concessional BCD under the cited FTA notification; parts-of-part principle applies to components of the hub assembly. Issue 2 - Invocation of extended limitation under Section 28(4) (five-year period) Legal framework: Section 28(4) permits a five-year limitation where non-levy/short-levy arises by reason of collusion, wilful mis-statement or suppression of facts (with intent to evade duty). Jurisprudence requires strict construction of this proviso and positive proof of wilful intent; mere classification disputes or divergent reasonable views do not suffice. Precedent treatment: Supreme Court and Tribunal authorities require proof of deliberate concealment/intent to evade; cases where classification was interpretational or where the assessee consistently used a classification historically normally do not attract extended limitation. Interpretation and reasoning: The Tribunal found long-standing practice (imports since 1997) of using CTH 8708 99 00, verification of many consignments by customs officers without objection, and Country of Origin Certificates reflecting the same classification. The revenue's reliance on a small number of supplier/prototype invoices showing alternate coding and the WCO opinion issued in 2019 (effective 2019/2020) did not establish wilful mis-statement or suppression during the disputed period (2017-2022). Where the classification question is technical and interpretational and the importer consistently adopted a classification that was previously accepted by customs officers (including prior adjudication at another port), extended limitation was held not invocable. Ratio vs. Obiter: Ratio - strict standard for invoking extended limitation; absence of evidence of deliberate evasion or concealment where classification is long-standing and subject to interpretational doubt precludes Section 28(4). Obiter - commentary on the relevance of WCO implementation timelines and prototype invoices. Conclusion: Extended period under Section 28(4) is not attracted; duty demand must be confined to the normal two-year period under Section 28(1) (with Section 28(10B) directive applied where notices issued under sub-section (4) are held unsustainable). Issue 3 - Confiscation under Sections 111(m) & 111(q) and imposition of penalties (Sections 112(a), 114A, 114AA) Legal framework: Confiscation and penalties require proof of mis-declaration, suppression of facts, or false origin claims; penalties under 114A/114AA require culpable conduct (wilful mis-declaration or non-disclosure). Precedent treatment: Authorities require clear evidence of misdeclaration, suppression, or intent; mere erroneous classification where facts were disclosed and classification was interpretational does not justify confiscation/penalty. Interpretation and reasoning: The Tribunal held there was no mis-declaration of description, quantity or value; onus for correct classification lies on the department; multiple reassessments and verifications had been conducted without objection; COOs were issued by the exporting authority consistent with the importer's declared classification. In absence of proven mala fide intent or suppression, confiscation and penalties were not sustainable. Ratio vs. Obiter: Ratio - confiscation and penalties cannot be imposed where classification dispute is interpretational and there is no evidence of mis-declaration, suppression or intent to evade duty. Obiter - analysis of supplier invoice discrepancies and collusion allegations deemed insufficient without corroborative proof. Conclusion: Confiscation under Sections 111(m)/(q) and penalties under Sections 112(a), 114A and 114AA are not sustainable and were correctly dropped. Issue 4 - Evidentiary value of WCO opinions, foreign rulings, supplier invoices, marketing literature and statements Legal framework: Explanatory Notes have persuasive value when ambiguity exists; WCO HS Committee opinions and member-country decisions are persuasive but not automatically binding domestically unless implemented by national tariff amendment; foreign customs rulings are relevant but not determinative; supplier invoices and marketing material can be corroborative but cannot supplant GIR and chapter/section notes. Interpretation and reasoning: The Tribunal applied Explanatory Notes to resolve ambiguity in heading 8708 and treated the WCO HS Committee opinion and Korea's notification as persuasive support for reclassification (not as sole determinative proof). US Cross Rulings and prior foreign rulings were considered but found either old, inconsistent with WCO views, or not binding. Supplier invoice inconsistencies and prototype invoices were treated as insufficient to prove intent to evade; internal statements and commercial literature were corroborative but not conclusive against the importer where classification was long-standing and previously accepted by customs. Ratio vs. Obiter: Ratio - Explanatory Notes are highly persuasive to resolve ambiguity; WCO opinions may inform classification but require national adoption to be binding; evidentiary weight of invoices/marketing/COOs is fact-specific and cannot override statutory GIR analysis. Obiter - extended commentary on comparative weight of various foreign authorities and administrative practices. Conclusion: Explanatory Notes and GIR govern classification; WCO and foreign decisions are persuasive aids; supplier invoices and secondary materials are corroborative but insufficient by themselves to establish mis-declaration, suppression or to displace statutory interpretative rules. Overall Disposition Hub assemblies and their parts are held classifiable under CTH 8708 50 00; demand of differential duty limited to two-year normal period; extended limitation, confiscation and penalties are not sustained. The revenue's appeal succeeds only on classification of the hub items, while the adjudicating authority's restrictions on period and rejection of confiscation/penalties are upheld.