2026 (2) TMI 195 - AT - Customs

Misclassification of imported Natural Rubber Latex: GIR-based classification, burden on revenue, and time-bar result in demand set aside.

Classification of imported natural rubber latex must follow the General Rules for Interpretation of the Customs Tariff; where GIR 1 does not suffice, ... Time-bar / limitation of revenue demand - Misclassification of imported Natural Rubber Latex - classification of imported goods under tariff headings - burden of proof on the revenue for classification challenge - effect of the post-clearance audit - self-assessment regime and facilitation under ACP / AEO - wilful misstatement / requirement of positive act and intention - HELD THAT:- As per the General Rules for the Interpretation (GIR) of the First Schedule to the Customs Tariff Act, 1975, for legal purposes, classification of imported shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to Rule 2 to 6 of the GIR. Thus Rule 1 of the GIR provides that the classification of goods shall be determined according to the terms of the headings of the tariff and any relative Section notes or Chapter notes. Rules 2 to 6 provide the general guidelines for classification of goods under the appropriate sub-heading. Hence in the event that the goods cannot be classified solely on the basis of GIR 1, and if the headings and legal notes do not otherwise require, the remaining Rules 2 to 6 may then be applied in sequential order. We find that tariff heading 4001 2910 makes a specific reference to ‘Hevea’ under the heading ‘Natural rubber in other forms’. Hence there could have been genuine divergence of views involving interpretation of law on the classification of the goods between the appellant and revenue. Although we have noted our dissatisfaction with the manner in which the rival parties have presented the factual matrix, we observe that the impugned order places particular emphasis on the importer-appellant’s status as an ACP client. It is pertinent to record that the erstwhile ACP scheme has, with effect from 23.08.2011, been subsumed into the Authorized Economic Operator (AEO) programme. The underlying objective of both schemes is to extend assured facilitation to importers who possess a consistent record of compliance and fulfil the prescribed eligibility criteria. Such accreditation is conferred only upon select importers and exporters who have demonstrably exhibited adherence to the statutory requirements administered by the Customs authorities. In this backdrop, the appellant’s declarations and past clearances warranted a more rigorous and careful scrutiny by the adjudicating authority. An importer enjoying ACP/AEO status, having been previously verified as compliant and maintaining an unblemished record, stands to forfeit that status—and the statutory facilitation attendant upon it—if subsequently found to have engaged in conduct resulting in revenue loss. It is therefore incumbent upon the authorities to ensure that any charge of misconduct is weighed with circumspection and supported by cogent, credible evidence before it is affirmed. Furthermore, the allegation of wilful misstatement does not turn upon the correctness of the classification adopted by the assessee. We find that the impugned order has not distinguished the products of the earlier period to be different. Nor can a genuine divergence of views involving interpretation of law on the classification of the goods be ruled out. Hence when the burden of proving the classification is on the department and no negative intention on the part of the appellant could be established, a charge of wilful misstatement, suppression of fact etc cannot be sustained. The SCN is hence time barred. Thus, we do not examine the issue on merits in the light of the Constitutional Court judgments cited above. We accordingly set aside the impugned order and allow the appeals on the issue of time bar. The appellant is eligible for consequential relief as per law. The appeal is disposed of accordingly. Issues: Whether the show cause notice and consequential demand and penalty issued against the importer for alleged misclassification of imported Natural Rubber Latex are time-barred such that the impugned order must be set aside.Analysis: The applicable limitation under Section 28(4) of the Customs Act, 1962 and the legal effect of the post-clearance audit and self-assessment regime (as introduced by the Finance Act, 2011 and implemented through the Bill of Entry (Electronic Declaration) Regulations, 2011) were examined. The classification framework under the First Schedule to the Customs Tariff Act, 1975 (GIR) was considered only to the extent necessary to assess whether the demand could validly be raised within the limitation period. The Tribunal noted factual timelines of the relevant Bills of Entry, the existence of earlier departmental clearances for similar consignments, the importer's ACP/AEO facilitation status, and the absence of evidence demonstrating wilful misstatement by the importer. Authorities establishing that where a demand is time-barred there is no occasion to decide merits were applied.Conclusion: The show cause notice and consequent demand and penalty are time-barred. The impugned order is set aside and the appeals are allowed on the ground of limitation; the appellant is entitled to consequential relief as per law.Ratio Decidendi: A departmental demand based on post-clearance audit is liable to be set aside if it is issued beyond the statutory limitation period under Section 28(4) of the Customs Act, 1962 and the revenue fails to discharge the burden of proving wilful misstatement or suppression of facts that would justify extended period invocation.