2025 (10) TMI 1141 - AT - Customs

Reclassification without chemical testing invalid; duty demands, extended reassessment, confiscation and penalties annulled; past clearances upheld

M/s. Colloids Impex Private Limited, Shri Vikram Patel, Versus Commissioner of Customs, Bangalore

CESTAT BANGALORE - AT allowed the appeal and set aside the impugned order. The Tribunal held that bulk agar powder declared as CTH 38210000 was ... Classification of imported goods - Agar Powder (Industrial PTC Agar) and Bacto Agar - classifiable under CTH 38210000 or under CTH 13023100 as ‘Agar-Agar” - past clearances from 01.06.2005 to 31.03.2010 in respect of items Agar, Agaroses & Peptones are classifiable under CTH 38210000 as claimed by the appellant or Agar under CTH 13023100, Agaroses under CTH 13021915, Peptones under CTH 35040000, beef extract, pork infusion, yeast extract under CTH 02109900 and Peptonised milk and lacto albumin under CTH 04029990? - recovery of differential dury invoking extended period of limitation - Confiscation - penalty - HELD THAT:- In the present case, the imported goods were in powder form in bulk packs of 25 kgs. Therefore, it cannot be considered as prepared culture media for growing micro-organisms for the very fact that it is just Agar powder. Further analysing the sales invoices of the imported goods to various buyers by the appellant in India which included Indian Institute of Horticulture Research, Bangalore, Sri Venkateswara University, Tirupati, Sothern Petrochemical Industries Corporation, Coimbatore, the learned Commissioner observed that in all these invoices, the appellant described the goods as Agar-Agar or Agar powder and not as prepared culture media; also the quantities were sold in bulk ranging 25 kgs. to 1 MT. It is his inference that even the appellant had also never described the goods as prepared culture media at any stage including in the Bill of Entry for clearance nor while selling the imported goods to its customers. Therefore, it is rightly classifiable as Agar-Agar under CTH 13023100. It is found that the Department has, though after post-audit of the assessed Bill of Entry No. 225560 dated 18.3.2010, visited the premises of the Appellant and seized the goods, but no sample of the imported goods was subjected to chemical test. The Commissioner’s analysis and finding is based totally on materials available on record even before the subject goods has been assessed and classified under CTH 38210000 by the same Customs House. Therefore, change of the classification of the impugned product declared as CTH 38210000 to CTH 13023100 without subjecting the same to any chemical test, when the Assessing Officer reported that similar goods were classified in other Customs House under the same Tariff sub-heading, the burden which rests on the department to adduce evidence has not been discharged. Similarly, the assessments of the goods completed for the past period, in absence of positive evidence, cannot be reopened and reclassified as ordered by the Commissioner in the impugned order. Consequently, the differential duty demands confirmed for the impugned Bill of Entry and also for the past clearances invoking extended period cannot be sustained. The impugned Order is set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the imported Agar Powder (Industrial PTC Agar / Bacto Agar) declared under CTH 38210000 (prepared culture media) is correctly classifiable or is properly classifiable under CTH 13023100 (Agar-Agar). 2. Whether clearances in the past period (01.06.2005 to 31.03.2010) of items described as Agar, Agaroses & Peptones (and related extracts) can be reclassified and differential duty recovered under the extended period provision (Section 28(9)(b) of the Customs Act, 1962) in absence of contemporaneous positive evidence. 3. Whether goods seized and provisionally released are liable to confiscation under Section 111(m) of the Customs Act, 1962 and/or redemption fine under Section 125. 4. Whether penalties under Section 114A (equivalent to duty evaded) and Section 112(a) (on responsible officer) are imposable where misdeclaration/misclassification is alleged but the Department has not subjected the goods to chemical testing and has relied on documentary/internet materials. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Correct classification: CTH 38210000 (prepared culture media) v. CTH 13023100 (Agar-Agar) Legal framework: Classification is governed by the Customs Tariff Act headings and the General Rules of Interpretation (notably Rule 3(a) - preference for the more specific description). The party asserting a tariff entry must be assessed on the description declared in the Bill of Entry and classification must be founded on evidence of the product's nature and composition. Precedent treatment: The appellant relied on authorities criticizing reliance on internet sources for classification and emphasizing burden on revenue to prove misclassification (including Hindustan Ferodo principle that burden lies on Department); Tribunal referred to such precedents invoked by the appellant but examined facts of record rather than mechanically applying those authorities. Interpretation and reasoning: The Tribunal examined (a) the contemporaneous assessment history where prior imports had been accepted under CTH 38210000, (b) the assessing officer's clarifications showing RMS facilitation and acceptance of declared classification based on examination reports and market comparators, and (c) the adjudicating authority's reliance on internet (Wikipedia) and supplier/price-list material to reclassify the goods as Agar-Agar. The Tribunal held that classification cannot be altered from CTH 38210000 to CTH 13023100 without objective evidence (chemical analysis/tests) demonstrating the product's composition. The Bill of Entry described the goods as 'Agar powder (Industrial PTC Agar / Bacto Agar)' and did not state the goods were prepared culture media; thus the Department bore the onus to test the goods to prove that the imported product was actually Agar-Agar or otherwise not a prepared culture media. The Tribunal found that the Commissioner's conclusion principally relied on documentary material and internet sources and on inferences from sale invoices and packaging quantities rather than on scientific testing or contemporaneous contrary examination reports. Ratio vs. Obiter: Ratio - Where the Revenue seeks to reopen an accepted classification it must discharge the evidential burden by objective tests (e.g., chemical analysis) or contemporaneous examination reports establishing the true composition; reliance on secondary documentary or internet sources without such evidence is insufficient to overturn prior classification. Obiter - Observations on features of prepared culture media (packaging, branded retail packs etc.) are interpretative but ancillary to the primary evidential requirement. Conclusion: The Tribunal concluded that the Department failed to discharge its burden to reclassify the imported Agar powder from CTH 38210000 to CTH 13023100 and that the impugned reclassification was unsustainable in absence of chemical analysis or positive contrary evidence. The classification as declared under CTH 38210000 must be maintained in respect of the subject Bill of Entry. Issue 2 - Reopening past clearances and invoking extended period for differential duty recovery Legal framework: Extended period of limitation for demand of duty (Section 28(9)(b) context noted in record) is attracted where specified conditions are met; revisiting prior assessments requires positive evidence to justify invoking extended limitation. Precedent treatment: Appellant invoked authorities establishing that the burden lies on the Department to prove misclassification; Tribunal applied these principles to assess whether past clearances can be reopened. Interpretation and reasoning: The Tribunal noted that past clearances had been assessed and in many instances accepted under CTH 38210000, including post-clearance audit acceptance. The Commissioner's demand for differential duty across the extended period was premised on the same materials and inferences that failed to identify the goods as Agar-Agar by objective testing. In absence of positive evidence that the goods imported during the past period were other than as declared, the Tribunal held the Department had not discharged the burden necessary to justify extended-period demands. Ratio vs. Obiter: Ratio - Extended-period demands require positive and contemporaneous evidence of misdeclaration/misclassification; generalized documentary material and internet sources are inadequate to justify retrospective reassessment across multiple clearances. Obiter - Reference to procedural history (RMS recalls, PCA) explains context but does not alter evidential standard. Conclusion: Differential duty demands for the past period invoking extended limitation were unsustainable and set aside for want of positive evidence; the extended-period recovery could not be sustained on the record. Issue 3 - Confiscation of goods seized and release by bond; redemption fine Legal framework: Confiscation under Section 111(m) applies where imported goods are liable to confiscation for breach of Customs Act; Section 125 enables redemption fines where goods already released provisionally. Interpretation and reasoning: The adjudicating authority ordered confiscation but converted it into a redemption fine for goods already provisionally released. The Tribunal's principal rationales for setting aside reclassification and differential duties (lack of positive evidence and absence of chemical testing) undermined the departmental premise for confiscation predicated on misdeclaration. Since the foundational misclassification was not established, the order of confiscation (and associated redemption fine founded on that premise) could not stand. Ratio vs. Obiter: Ratio - Confiscation or redemption fines premised on alleged misdeclaration cannot be sustained where the Department has not produced positive evidence substantiating the misdeclaration. Obiter - Practical note that provisional release under bond affects appropriate relief (redemption fine versus physical confiscation). Conclusion: Confiscation order (and related redemption fine insofar as grounded on the same misclassification finding) was unsupportable and must be set aside along with the rest of the impugned order. Issue 4 - Penalties under Sections 114A and 112(a) where Department relied on documentary/internet materials without testing Legal framework: Penalties for duty evasion and for officers of the importer require proof of misdeclaration, suppression or intent to evade duty; imposition of penalties is consequential upon a valid demand or finding of evasion. Precedent treatment: Appellant cited authorities cautioning against reliance on internet sources for classification and reiterating burden on Revenue. The Tribunal applied those principles when assessing the penalty findings. Interpretation and reasoning: Because the Tribunal found the Department had not discharged its evidential burden to establish misclassification (no chemical analysis, reliance on internet and invoice inferences), the foundational finding of duty evasion (essential to penalties under Sections 114A and 112(a)) was unsustainable. Penalty findings flow from and are dependent upon the primary classification and duty demand; absent a valid substantive finding, penalties could not be sustained. Ratio vs. Obiter: Ratio - Penalties imposing amounts equivalent to duty evaded or on responsible persons cannot be imposed where the underlying allegation of misdeclaration/misclassification is not supported by positive evidence; reliance on secondary sources without objective testing is insufficient. Obiter - Observations on sources used by the Commissioner (supplier websites, HSN notes) are explanatory of why evidence was considered inadequate. Conclusion: Penalties imposed under Section 114A and Section 112(a) were untenable on the record and must be set aside along with the demand and confiscation findings. Cross-references and final determination All issues are interlinked: the Tribunal's conclusions on classification (Issue 1) determine the sustainability of extended-period demands (Issue 2), confiscation/redemption (Issue 3) and penalties (Issue 4). Because the Revenue failed to produce positive, objective evidence (e.g., chemical tests or contemporaneous contrary examination reports) to overturn a previously accepted classification, the Tribunal set aside the impugned order in entirety and allowed the appeals with consequential relief as per law.