2025 (12) TMI 253 - AT - Customs

CESTAT rules gold pendants are jewellery under CTH 7113 1910; later DGFT, Notification 22/2021 not retrospective

Mr. R.K. Digital Solutions Versus Commissioner of Central Tax – GST, Hyderabad

CESTAT allowed the importer's appeal, holding that the imported oval gold pendants with hooks are classifiable as jewellery under CTH 7113 1910 as ... Classification of imported gold pendants - classifiable under CTH 7108 1300 as decided by Lower Authorities or under CTH 7113 1910 as declared by the appellant? - restriction on import imposed vide DGFT Notification dated 24.08.2019 and 18.12.2019 respectively - HELD THAT:- Hon’ble Karnataka High Court, in the case of CC, Bangalore Vs SRI Exports [2020 (10) TMI 1140 - KARNATAKA HIGH COURT] held that items imported on 03.07.2017 and 21.09.2017, restriction on import imposed vide DGFT Notification dated 24.08.2019 and 18.12.2019 respectively. Hence, items were freely importable on the date of import and same brought under restricted category. Therefore, the notification is inapplicable in the factual matrix. The subject goods are not classifiable under CTH 7108 as per impugned order, but are classifiable under CTH 7113 as classified by the appellant. It is also noted that Notification No. 22 dated 02.09.2021 widens the scope of main provision, hence cannot be given any retrospective effect. There is no conclusive evidence adduced by the Department that gold jewellery cannot be of 99.99% purity, whereas appellants have demonstrated that such oval shaped pendants with hook are capable of being worn on the body as pendant and hence can be considered as jewellery. The explanation was added to cover even jewellery but that explanation could only have prospective effect. The demand is not sustainable, consequently penalty is also not imposable. Since, there is no restriction at the time of importing the subject goods, the question of confiscating the subject goods does not arise - the order of the Commissioner is not sustainable and therefore the impugned order is set aside. Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Classification of imported gold pendants - Whether the imported goods are classifiable under CTH 7108 1300 ('gold in other semi-manufactured forms') or under CTH 7113 1910 ('articles of jewellery - of gold, unstudded'). 1.2 Applicability of DGFT import restrictions - Whether DGFT Notification No. 36/2015-2020 dated 18.12.2019 and subsequent Notification No. 22/2015-2020 dated 02.09.2021 rendered the imported goods 'restricted' or 'prohibited' so as to justify confiscation. 1.3 Effect of DGFT clarification on import policy - Whether the DGFT clarification dated 14.06.2021, stating that imports under CTH 7113 remain 'free', is binding and determinative of the import policy applicable to the goods. 1.4 Retrospective operation of later notification/explanation - Whether Notification No. 22/2015-2020 dated 02.09.2021, expanding the expression 'gold in any form', is merely clarificatory and hence retrospective, or substantive and hence prospective only. 1.5 Legality of confiscation and penalties - Whether, in the absence of valid restriction or misclassification, confiscation of the goods and imposition of penalties are sustainable. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Classification of imported gold pendants 2.1.1 Legal framework (a) Competing headings considered: - CTH 7108: 'Gold (including gold plated with platinum) unwrought or in semi-manufactured forms, or in powder form', including 7108 13 00 'other semi-manufactured forms'. - CTH 7113: 'Articles of jewellery and parts thereof, of precious metal or of metal clad with precious metal', including 7113 19 10 'of gold, unstudded'. (b) Chapter Note 9 to Chapter 71 defining 'articles of jewellery' for purposes of heading 7113, expressly including 'pendants' as small objects of personal adornment. (c) General Rules for Interpretation (GRI) 1-3: classification to be determined according to terms of headings and relevant Section/Chapter Notes (Rule 1); incomplete/unfinished articles to be classified as complete when they have essential character (Rule 2(a)); specific description to prevail over general description where goods are prima facie classifiable under two or more headings (Rule 3(a)). 2.1.2 Interpretation and reasoning (a) The Court noted that the subject goods are oval-shaped items described as 'gold pendants', of 99.99% purity, each with a hook enabling them to be hung on a chain and worn around the neck, thereby conforming to the common understanding and dictionary definitions of 'pendant'. (b) Relying on Chapter Note 9 to Chapter 71, the Court held that 'pendants' are expressly covered within the expression 'articles of jewellery' for heading 7113. Therefore, once the goods are pendants capable of personal adornment, they fall squarely within CTH 7113. (c) The Court referred to GRI 1, emphasizing that classification must be determined according to the clear terms of headings and relevant notes; where there is no ambiguity, there is no scope for 'common parlance' tests or assumptions contrary to the tariff structure, in line with the principle stated by the Supreme Court in Madhan Agro Industries (India) Pvt. Ltd. (d) CTH 7108 covers gold in unwrought, semi-manufactured forms or in powder form, i.e., unfinished or not in the nature of jewellery. Since the imported pendants are finished items of jewellery with a specific function of personal adornment, they do not fall within the scope of 'unwrought or semi-manufactured forms'. (e) The Department's contention that jewellery cannot generally be made of 24 carat (99.99%) gold was rejected. The Court considered photographs produced by the appellant of 24 carat pendants sold in the open market by various traders, and held that 24 carat pendants are indeed commercially available and traded; hence, the assumption that such purity cannot be used for jewellery is unfounded. (f) Even on the alternative hypothesis that the pendants were incomplete or semi-finished jewellery, GRI 2(a) would still direct classification under heading 7113, as incomplete/unfinished articles which have the essential character of jewellery are to be classified as jewellery. (g) The Court relied on the reasoning in decisions such as Jewels Magnum, which recognized pendants/medallions as jewellery, and distinguished authorities relied upon by the Department which dealt with 'raw' or 'standard' gold, not finished pendants. 2.1.3 Conclusions (a) The imported goods are finished pendants designed and capable of being worn as articles of personal adornment and fall within the statutory definition of 'articles of jewellery'. (b) The goods are not 'unwrought' or 'semi-manufactured' gold under heading 7108. (c) The correct classification is under CTH 7113 19 10 ('of gold, unstudded') and not under CTH 7108 13 00. 2.2 Applicability of DGFT import restrictions and effect of DGFT clarification 2.2.1 Legal framework discussed (a) DGFT Notification No. 36/2015-2020 dated 18.12.2019 amending the import policy of specified items under Chapter 71, including Exim Codes 7106 1000, 7106 9100, 7106 9210, 7106 9290, 7108 1100, 7108 1200, 7108 1300 and 7118 9000, from 'free' to 'restricted', with import permitted only through nominated agencies. (b) DGFT Notification No. 22/2015-2020 dated 02.09.2021 inserting an explanation that the expression 'gold in any form' includes gold in any form above 22 carats under Chapter 71, to be imported only by nominated agencies. (c) DGFT clarification letter dated 14.06.2021 stating that: - The effect of Notification No. 36/2019 applies only to tariff sub-headings of HS Code 7108 mentioned in the table therein. - Items under HS Code 7113 19 ('of other precious metal, whether or not plated') remain under the 'free' import category. (d) Statutory provisions considered: Foreign Trade (Development and Regulation) Act, 1992 (Sections 3 and 5) and Foreign Trade Policy (FTP) provisions on 'free' vs 'restricted' imports, and the interpretative role of DGFT (as recognized by the Supreme Court in Atul Commodities Pvt. Ltd.). 2.2.2 Interpretation and reasoning (a) The Court examined Notification No. 36/2019 and found that it specifically lists certain sub-headings under 7106, 7108, and 7118. No sub-heading under 7113, including 7113 19 10, is mentioned. Hence, on its plain terms, Notification No. 36 did not cover imports under CTH 7113 19 10. (b) The Court noted that DGFT's own clarification dated 14.06.2021 explicitly confirmed that: - Notification 36/2019 applied only to the specified 7108 sub-headings mentioned therein; and - The import policy for CTH 7113 19 remained 'free'. (c) Referring to the Supreme Court decision in Atul Commodities Pvt. Ltd., the Court held that DGFT is empowered under the FTP to interpret the Policy and to clarify the applicability and classification of items under ITC (HS), and such interpretation is final and binding. Therefore, the Department could not disregard the DGFT clarification and extend Notification No. 36 to CTH 7113 19 10. (d) The Court observed that the later DGFT Notification No. 19/2023 dated 12.07.2023, which amended the import policy of certain items under CTH 7113 from 'free' to 'restricted', itself evidences that items under 7113 were not previously restricted under Notification No. 36. If such items were already covered by Notification No. 36, there would have been no need to issue a fresh notification specifically targeting 7113. (e) The Court also referred to the principle applied in CC, Bangalore v. SRI Exports that the legality of imports must be tested with reference to the policy applicable on the date of import; subsequent restrictions cannot render a previously 'free' import illegal. 2.2.3 Conclusions (a) On the date of import (10.05.2021), the subject goods, being classifiable under CTH 7113 19 10, were not covered by DGFT Notification No. 36/2019 and remained freely importable. (b) DGFT's clarification dated 14.06.2021, affirming that imports under CTH 7113 19 are 'free', is binding and supports the position that no restriction applied to the goods in question at the time of import. (c) Consequently, the basis adopted by the Department for treating the goods as 'restricted' under Notification No. 36/2019, and for ordering confiscation, is unsustainable. 2.3 Retrospective operation of Notification No. 22/2015-2020 (Explanation to 'gold in any form') 2.3.1 Legal framework discussed (a) Notification No. 22/2015-2020 dated 02.09.2021 inserted an explanation clarifying that the expression 'gold in any form' in Notification No. 36/2019 'includes gold in any form above 22 carats under Chapter 71 of ITC (HS) 2017, Schedule-I (Import Policy)'. (b) Judicial principles on the nature and effect of 'Explanations' and retrospectivity were discussed with reference to: - The law summarized by CESTAT (Principal Bench) in Interglobe Aviation Ltd. v. CC, New Delhi, holding that an Explanation is retrospective only if it is purely clarificatory and does not alter the meaning or widen the scope of the main provision; if it changes the law or widens scope, it is prospective only. - Decisions such as DGFT v. Kanak Exports, emphasizing that policy changes imposing new restrictions cannot operate retrospectively. 2.3.2 Interpretation and reasoning (a) The Department argued that the explanation inserted by Notification No. 22/2021 was merely clarificatory and should be given retrospective effect, thereby treating imports of gold above 22 carats under any heading of Chapter 71 as restricted from the date of Notification No. 36/2019. (b) The Court, applying the principles set out in Interglobe Aviation and other authorities, examined whether the explanation merely clarified an existing ambiguity or substantively widened the scope of the expression 'gold in any form'. (c) The Court held that, prior to Notification No. 22/2021, Notification No. 36/2019, on its face, was confined to specific sub-headings under 7106, 7108 and 7118; it did not extend to all goods under Chapter 71 above 22 carats or to articles of jewellery under 7113. (d) By extending the expression 'gold in any form' to include 'gold in any form above 22 carats under Chapter 71', Notification No. 22/2021 enlarged the coverage of the earlier restriction; this was a substantive expansion of scope, not a mere clarification of an existing position. (e) Accordingly, the explanation could not be treated as clarificatory in the sense required for retrospective operation; it changed the scope of the restriction regime and, therefore, could operate only prospectively from its date of issue (02.09.2021). 2.3.3 Conclusions (a) Notification No. 22/2015-2020 dated 02.09.2021 substantively widened the scope of Notification No. 36/2019 and is not merely clarificatory. (b) The explanation cannot be applied retrospectively to imports made prior to 02.09.2021. (c) Since the subject goods were imported on 10.05.2021, they cannot be treated as restricted on the basis of Notification No. 22/2021, and the Department's reliance on this Notification to justify confiscation and penalties is misconceived. 2.4 Legality of confiscation and penalties 2.4.1 Interpretation and reasoning (a) The Department's case for absolute confiscation rested on two planks: (i) alleged misclassification of the goods as jewellery under CTH 7113 rather than gold in semi-manufactured form under CTH 7108; and (ii) the assertion that the goods were 'restricted' or 'prohibited' imports under DGFT Notifications 36/2019 and 22/2021. (b) The Court found that: - The classification adopted by the appellant under CTH 7113 19 10 was correct on a proper application of the tariff headings, Chapter Note 9, and the General Rules for Interpretation. - On the date of import, imports under CTH 7113 19 10 were 'free' and not subject to restriction under Notification No. 36/2019, as confirmed by DGFT's binding clarification of 14.06.2021. - Notification No. 22/2021, which expanded the category of restricted 'gold in any form', could not apply retrospectively to the impugned import. (c) In light of the above, there was no violation of import policy or prohibition in force at the time of import, and the goods could not be treated as prohibited or restricted merely by virtue of their purity or the Department's perception of likely use (investment/melting). (d) The Court also noted the general principle, reinforced by the Constitution Bench decision in Dilip Kumar & Company, that in matters of taxation and related notifications, the language must be strictly construed; no intendment or equitable considerations can be invoked to expand liability or restrictions beyond the clear words of the statute/notification. (e) Since the goods were lawfully imported as jewellery under a 'free' import category, there was neither a legal basis for confiscation nor for imposition of penalties; the appellant's conduct, being in conformity with the then existing policies and backed by a valid FTA claim and COO documentation, could not be termed blameworthy. 2.4.2 Conclusions (a) Confiscation of the goods based on alleged misclassification and supposed import restrictions is unsustainable in law. (b) Consequentially, all demands and penalties arising from such confiscation are liable to be set aside. (c) The impugned appellate order is set aside; the appeal is allowed with consequential reliefs as per law.