2026 (1) TMI 532 - AT - Customs

Processing and washing run-of-mine manganese ore into concentrates deemed 'conversion'; CVD exemption denied; interest on differential duty upheld.

Processing and washing of run-of-mine manganese ore to remove foreign matter and improve suitability for metallurgical use/economic transport was held to ... Classification - Importers of Manganese ores - undergone washing, removal of waste, sizing, etc. - treated as manufactured goods in terms of deeming provision inserted vide Chapter Note 4 to Chapter 26 w.e.f. 01.03.2011 or otherwis - denial of the exemption from payment of CVD in terms of S.No.4 of Notification No.04/2006-CE - scope and context of HSN explanatory notes - distinguish between concentrate and ore - non-applicability of interest - Meaning term ‘concentrate’ and ‘ore’ - HELD THAT:- It is not in dispute that the activities and processes undertaken were intended for removal of foreign materials from ROM ore. The objective for such removal was also to make it compatible for metallurgical processes for which it has been imported by the appellants and incidentally, it also helped in reducing the shipping cost, as such foreign material would have led to higher shipping cost. On crucial analysis and plain reading of explanatory note, it is obvious that any activity, which is carried out on the ROM ore with an intent to remove foreign matters, either partially or fully, so as to make it useful for metallurgical purposes or for economic transport, the said process itself would amount to conversion and therefore, the said activities, per se, will have to be considered as amounting to conversion and therefore resulting into deemed emergence of new excisable goods i.e., ore concentrate. We also find that the circular of CBIC is based on a clarification issued by the Ministry of Mines, where certain processes of crushing and screening were treated as mere preparatory processes and were not treated as special treatments as contemplated in the explanatory notes. We find that while the circulars are binding on the department, however, if it is patently against the obvious stated provisions then it need not be followed. That apart, in the present appeals, it is not only a question of crushing and screening, etc., but washing is also involved for removal of foreign material partly or fully. Therefore, what might have been clarified in the context of iron ore, need not be true for all types of ores or end use, as they have different impurities and intended uses requiring different kinds of preparatory processes. We find that while prior to insertion of deeming provision, the tests were being conducted to distinguish between concentrate and ore for deciding whether they are eligible for exemption or otherwise. However, post this insertion of Chapter Note, in view of the deeming provision, there was no necessity to conduct any test as long as it is established and admitted that certain activities were undertaken on ROM ore before it was shipped to India. It is not in dispute that they have received ore of certain concentration and admittedly they are above 35%. The scheme of classification of Manganese ore is that Chapter Heading 2602 00, which covers both Manganese ore and concentrates, including ferruginous manganese ores and concentrates with a manganese content of 20% or more, calculated on dry weight. For different Manganese content in the ore, different sub classification has been made. A logical question would be if someone imports ore with Manganese content of 20% and someone imports ore of Manganese content of 35% or above, will they be same. In our opinion, this sub-classification clearly indicates that Manganese ore can have different Manganese content, either naturally occurring or by way of subjecting it to certain process to arrive at desired percentage. The lowest percentage for Manganese ore and concentrate had been accepted at 20%. Thus, any improvement in the content itself, where there is clearly admitted fact that it has undergone certain process, would indicate that there has been an improvement in the quality. Therefore, on this count also, it can be said that the subject processes undertaken on ROM ore has resulted into emergence of concentrate, which is distinct excisable goods in view of deeming provisions. Non-applicability of interest in the facts of the case is concerned - We find that statutory provisions are quite clear and when there is delay in payment of duty due, applicable interest is required to be paid. It is to be noted that in the instant case the Bills of Entries, after provisional assessment, were finally assessed denying exemption benefit. In this regard, the Hon’ble Supreme Court Larger Bench in the case of Steel Authority of India Ltd Vs CCE [2019 (5) TMI 657 - SUPREME COURT], dealt with a case where the issue was whether interest is payable on the differential excise duty or otherwise, on the basis of escalation clause. In the said case, value of goods was provisional at the time of clearance and later the value was finally determined due to escalation clause and therefore, the final value, so determined, was held to be retrospective to the time of removal and hence it is held that interest is payable on such differential duty between provisional and final determination of values from the date of provisional determination. The Customs Tariff Act (CTA), 1975 vide Section 3(8), prescribed that the provisions of Customs Act, 1962 and the Rules and Regulations made there under, apply to the duty chargeable under this Section as they apply in relation to the duties leviable under that Act. Section 3(8) nowhere excludes the applicability of provisions relating to charging of interest etc., including the power to recover duty due, as available under the Customs Act. Thus, we do not find any merit in the appeals filed by the appellants and accordingly, all the appeals are dismissed. Issues: (i) Whether imported goods are to be treated as manufactured goods under Chapter Note 4 to Chapter 26; (ii) Whether washing, removal of waste, sizing, etc., amount to conversion of ore into concentrate under HSN explanatory notes; (iii) Whether exemption under S.No.4 of Notification No.04/2006-CE applies even if goods are deemed to be concentrate; (iv) Whether prior coordinate-bench decisions relied upon by appellants can be followed in presence of higher-court authority and relevant statutory/circular provisions.Issue (i): Whether imported goods are to be treated as manufactured goods in terms of the deeming provision inserted vide Chapter Note 4 to Chapter 26.Analysis: Chapter Note 4 creates a deeming fiction treating conversion of ores into concentrates as manufacture for products of Chapter 26. Section 2(f)(ii) of the Central Excise Act supplies the statutory basis for treating specified processes as manufacture. The Tribunal applied the explanatory notes to Chapter 26 and higher-court precedents construing the effect of Note 4 to determine legal consequence of processes performed on ROM ore prior to import.Conclusion: The deeming provision in Chapter Note 4 applies and conversion of ore into concentrate amounts to manufacture for the purposes of Chapter 26.Issue (ii): Whether the admitted processes of washing, removal of waste, sizing, etc., result in conversion of ore into concentrate under the HSN explanatory notes.Analysis: The HSN explanatory notes define 'concentrates' as ores that have had part or all foreign matter removed by special treatments to facilitate metallurgical use or economical transport. The Tribunal held that activities carried out on ROM ore with the objective of removing foreign matter, improving suitability for metallurgical use or reducing transport costs fall within the scope of processes that effect conversion into concentrate. The Board circulars and some coordinate-bench decisions treating crushing/screening as non-special were considered but distinguished on the ground that the explanatory notes and the Star Industries precedent require that any treatment effecting removal of foreign matter to improve grade or transportability can amount to conversion; testing of samples is not necessary once such preparatory processes are admitted.Conclusion: The admitted activities (washing, removal of waste, sizing, etc.) were held to amount to processes leading to conversion of ore into concentrate under the HSN explanatory notes and Chapter Note 4.Issue (iii): Whether exemption under S.No.4 of Notification No.04/2006-CE is available even if the goods are deemed to be concentrate.Analysis: Notification No.04/2006-CE grants exemption to 'ores' but not to distinct manufactured products. Given that Chapter Note 4 deems conversion into concentrate to be manufacture and higher-court authority treats concentrates as distinct from ores for exemption purposes, concentrates fall outside the scope of an exemption that by its terms covers only ores. The Tribunal applied principles of strict construction of exemption notifications in this context.Conclusion: Exemption under S.No.4 of Notification No.04/2006-CE is not available for goods that are deemed to be concentrates.Issue (iv): Whether coordinate-bench rulings cited by the appellants remain authoritative in view of higher-court decisions and the statutory/circular framework.Analysis: The Tribunal examined coordinate-bench decisions and Board circulars relied upon by appellants but found that several decisions did not take into account the Supreme Court’s reasoning in Star Industries or the effect of Chapter Note 4. Where coordinate-bench decisions conflict with the legal effect of the deeming provision and Supreme Court authority, they were distinguished. The binding force of circulars on the department was acknowledged but treated as inapplicable when inconsistent with clear statutory/explanatory-note mandates and higher-court rulings.Conclusion: Coordinate-bench decisions and circulars relied upon by appellants were not followed to the extent they conflict with Chapter Note 4 and higher-court authority; such precedents are distinguishable and not controlling for these appeals.Final Conclusion: The legal effect of the decision is that, for products of Chapter 26, processes carried out on ROM ore which remove foreign matter to improve suitability for metallurgical use or economical transport are treated as conversion into concentrates and hence as manufacture under the deeming provision; consequently concentrates are legally distinct from ores for the purpose of exemption notifications and prior coordinate-bench rulings inconsistent with this legal position were not followed.Ratio Decidendi: Conversion of ore into concentrate by processes that remove part or all foreign matter to improve metallurgical suitability or transportability is a deemed 'manufacture' under Chapter Note 4 to Chapter 26 and, as a legally distinct product, falls outside exemption notifications limited to 'ores'.