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. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether, after insertion of Chapter Note 4 to Chapter 26 (w.e.f. 01.03.2011), the imported manganese ore subjected abroad to washing, removal of waste and sizing is to be treated as having been converted into 'concentrate' and consequently as a deemed 'manufactured' product. (ii) Whether such processing (washing/removal of waste/sizing) constitutes the 'special treatments' contemplated in the HSN explanatory notes so as to classify the goods as 'concentrates' rather than 'ore' for the purpose of the exemption confined to 'ore'. (iii) Whether exemption from CVD under S.No. 4 of Notification No. 04/2006-CE, which exempts 'ore', is available when the imported goods are held to be 'concentrate'/deemed manufactured goods. (iv) Whether interest is payable on the differential duty arising upon finalisation of provisional assessments denying the exemption. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i) & (ii): Deemed manufacture and whether washing/removal of waste/sizing converts ROM ore into concentrate Legal framework (as applied by the Tribunal): The Court treated Chapter Note 4 to Chapter 26 (w.e.f. 01.03.2011) as creating a deeming fiction whereby 'conversion of ores into concentrates' amounts to 'manufacture', and relied on the HSN explanatory notes to understand what 'concentrates' are, since the Chapter Note does not itself specify processes for such conversion. Interpretation and reasoning: The Court held that 'ore' in the HSN context refers to ROM ore extracted with naturally associated impurities. It reasoned that ROM ores are 'seldom marketed' before 'preparation' and that the key preparatory processes are those aimed at concentrating ore by removing foreign matter. On the facts, it was admitted that the goods had been subjected abroad to washing, removal of waste and sizing before shipment, to remove foreign materials and to deliver ore of specified concentration for metallurgical use and also to reduce transport costs. The Court construed 'special treatment' in the HSN explanatory notes broadly as any treatment undertaken with the intent to remove foreign matter (partly or fully) to make the ore suitable for metallurgical operations or economical transport, and held that the admitted processes satisfy that purpose. It further held that, post-2011 deeming provisions, testing was not necessary once such processes and their impurity-removal purpose were established and admitted. Conclusions: The Court concluded that the admitted processes (including washing) carried out on ROM ore prior to import constitute processes leading to conversion of ore into concentrate; with Chapter Note 4, this conversion is deemed 'manufacture', resulting in a distinct excisable product (ore concentrate). Issue (iii): Availability of CVD exemption limited to 'ore' when goods are concentrate Legal framework (as applied by the Tribunal): The exemption notification was treated as expressly confined to 'ore'. The Court applied the consequences of the deeming fiction under Chapter Note 4 as explained by binding Supreme Court reasoning relied upon by the Tribunal. Interpretation and reasoning: The Court followed the principle that once conversion of ore into concentrate is deemed manufacture, concentrates are to be treated as different from ores in law for products of Chapter 26. Therefore, an exemption limited to 'ore' cannot be extended to 'concentrate'. The Court declined to follow coordinate bench decisions cited for the proposition that washing/crushing/screening are not 'special treatment', holding those decisions distinguishable because they did not account for the Supreme Court's ratio on the post-2011 legal position and because the Board circular relied upon could not override the 'obvious stated provisions' when applied to the present factual matrix, particularly where washing for removal of foreign material was involved. Conclusions: Since the imported goods were held to be concentrate/deemed manufactured goods, the benefit under S.No. 4 of Notification No. 04/2006-CE (confined to 'ore') was held not admissible. Issue (iv): Interest liability on differential duty after finalisation of provisional assessment Legal framework (as applied by the Tribunal): The Court relied on the principle that where duty becomes payable upon final assessment (including after provisional assessment), interest follows for delay in payment, and treated the customs framework as applying to additional duty as well. Interpretation and reasoning: The Court held that the bills of entry were provisionally assessed and later finally assessed denying the exemption, and that statutory provisions mandate interest when there is delay in payment of duty due. It applied the reasoning that final determination relates back for purposes of interest on the differential amount and held that the customs law provisions on interest apply to the duty under the relevant customs duty charging mechanism; it therefore rejected the contention that interest cannot be demanded merely because assessments were provisional. Conclusions: Interest on the differential duty arising upon finalisation of provisional assessment was held payable; the challenge to interest demand was rejected. Final outcome: The Court upheld denial of exemption and the associated demands (including interest), and dismissed all appeals.