2025 (9) TMI 144 - AT - Customs

Imported black sand classed as mineral under CTH 2614 0090, Rule 3(b) GRI applies; valuation enhancement overturned

M/s. Zibal Exim Versus Commissioner of Customs, Tuticorin

M/s. Zibal Exim Versus Commissioner of Customs, Tuticorin - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the imported 'Black Sand' should be classified under Heading 2614 (Titanium ores and concentrates) or under Heading 2505 (Natural/quartz sands) for tariff purposes? 2. Whether the declared transaction value is liable to be rejected and re-determined on the basis of alleged contemporaneous imports, and if so whether the Department discharged its burden to justify such rejection? ISSUE-WISE DETAILED ANALYSIS - Issue 1: Classification of imported Black Sand (Chapter 26 v. Chapter 25) Legal framework: Classification must follow the First Schedule to the Customs Tariff Act read with the General Rules for the Interpretation (GIR) of the tariff. Rule 1 gives precedence to heading text and chapter/section notes. Rule 3(b) (GIR) provides that mixtures or composite goods not classifiable under Rule 3(a) are to be classified according to the material or component which gives them their essential character. Chapter and HSN Explanatory Notes may be referred to for guidance where notes do not explicitly include/exclude. Precedent Treatment: The HSN Explanatory Notes expressly exclude metal-bearing sands (e.g., rutile sands, ilmenite sands, zircon sands) from Heading 2505 and classify such sands under Chapter 26. The court placed weight on internationally accepted HSN nomenclature and prior judicial recognition that HSN notes are a 'safe guide' in tariff interpretation. Interpretation and reasoning: The laboratory analysis of the representative sample showed a composition including Quartz (55-60%) and Rutile (25-30%) with other mineral constituents (limonite/goethite, leucoxene, staurolite, tourmaline, zircon, amphibole). The HSN Explanatory Notes specifically exclude rutile-bearing and other metal-bearing sands from Heading 2505. Applying Rule 3(b), the Tribunal considered which component gives the imported goods their essential character. The presence of rutile (a titanium ore) and other ore minerals was found to impart the essential character of 'ore/mineral-bearing sand' rather than mere silica/quartz sand even though quartz is a numerical majority. The Tribunal rejected classification by numerical predominance alone where the heading expressly excludes metal-bearing sands and where the essential character is determined by the metal-bearing constituent. Ratio vs. Obiter: Ratio - classification must follow GIR and HSN Explanatory Notes; where a sand contains metal-bearing constituents (e.g., rutile) that confer the essential character of ore, such sand falls under Chapter 26 regardless of higher percentage of quartz. Obiter - remarks on the laboratory's instrumentation adequacy (not decisive to classification once lab findings establish rutile presence). Conclusions: The imported Black Sand is properly classifiable under Chapter Heading 2614 (Titanium ores and concentrates / mineral-bearing sands) and not under Heading 2505 (Quartz/silica sands). The Tribunal decided the classification issue in favour of the importer, setting aside the Department's classification as quartz sand. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Validity of rejection and redetermination of declared transaction value Legal framework: Transaction value is to be accepted as assessable value unless proved incorrect per Customs Valuation Rules (including Rules 4 and 12). Rejection/redetermination based on contemporaneous imports or database values requires independent evidence demonstrating that the declared transaction value is incorrect and that contemporaneous imports are comparable in quality, quantity, origin and commercial terms. Principles of natural justice require disclosure of basis and contemporaneous data to the importer for rebuttal. Precedent Treatment: Prior judicial pronouncements establish that NIDB/other database data or a single contemporaneous import cannot alone justify rejection of declared value; the onus lies on the Department to prove the invoice price incorrect with supporting documentary evidence and comparability analysis. Where Department fails to produce adequate evidence or to inform the importer of contemporaneous imports relied upon, the transaction value should be accepted and the benefit of doubt given to the importer. Interpretation and reasoning: The Department rejected the declared FOB value (USD 325/MT) and redetermined value using an allegedly contemporaneous quartz sand import (USD 834/MT). The Tribunal found defects: (a) the Department did not provide sufficient documentary evidence identifying comparable imports (no details on importer, quantity, country of origin, contractual terms); (b) the importer was not given particulars of contemporaneous imports to rebut the Department's case, violating principles of natural justice; (c) the Department relied on valuation of a different classification (quartz sand) whereas the Tribunal held the goods to be rutile-bearing mineral sand (Chapter 26), making the chosen comparable inappropriate; and (d) jurisprudence requires more than database/reference imports to reject declared transaction value. Given these shortcomings, rejection and enhancement lacked legal basis. Ratio vs. Obiter: Ratio - transaction value cannot be rejected and re-determined on the basis of unaudited or undisclosed contemporaneous import data; Department must establish comparability and disclose evidence; NIDB or similar data alone is insufficient. Obiter - observations on the Department's procedural failures and the necessity of communication for rebuttal (illustrative rather than novel legal principle). Conclusions: The rejection and enhancement of the declared transaction value are unsustainable. The declared transaction value must be accepted in the absence of adequate proof to the contrary and procedural fairness. Because the goods are correctly classified under Chapter 26, enhancement on the basis of quartz-sand imports is doubly inappropriate. CONNECTED CONSEQUENCES: CONFISCATION, FINE AND PENALTY Legal framework and reasoning: Confiscation and penalties premised on misclassification, undervaluation and intention to evade duty require sustainable findings on classification/value and evidence of contravention. Having held classification favouring the importer and the valuation enhancement unsupported, the ancillary measures of confiscation, redemption fine and penalty cannot be sustained. Ratio vs. Obiter: Ratio - where underlying findings of misclassification and undervaluation are set aside, resultant confiscation, fines and penalties based on those findings must likewise be set aside. Obiter - none. Conclusions: Confiscation, redemption fine and penalty imposed in the impugned order are set aside as unsustainable in law. OVERALL CONCLUSION Classification of the imported Black Sand under Chapter 2614 is upheld; the Department failed to justify rejection and redetermination of declared transaction value; consequential confiscation, fines and penalties are unsustainable and set aside. The impugned appellate order is therefore overturned with consequential reliefs as per law.