2026 (2) TMI 614 - AT - Customs

Customs classification and limitation on duty demand for imported joss powder; demand time-barred and reclassification set aside.

Reclassification of imported joss powder was unsustainable because the goods lacked the essential perfumery or medicinal characteristics required for ... Classification of “Joss Powder” - Note 1(a) to Chapter 44 - CTH 1211 vis-a -vis CTH 4405 - Extended period of limitation u/s 28 - Imposition of penalty u/s 114A - Remand for verification of eligibility to Notification No.46/2011 - differential duty demand - Requirement of show cause notice and personal hearing - HELD THAT:- Admittedly, the dispute relates to the classification of “Joss Powder” and from the perusal of the Order-in-Original (supra), the Adjudicating Authority has, without labouring much, resorted to Note 1 (a) to Chapter 44 of Customs Tariff Act, 1975 against which, the Importer-Appellant’s case is that the ‘Joss Powder’ which is a bark of lit-sea tree in powdered form is nothing but a saw dust which do not have perfumery effect of its own and hence, the same could never be used directly or indirectly in perfumery. It has adhesive or binder function and hence, used in many industries including Plywood Industries. We find that Note 1 (a) to Chapter 44 (supra), only wood in chips, shavings, crushed, ground or powdered form, of a kind used primarily in perfumery, is excluded from the purview of Chapter 44 of Customs Tariff Act, 1975. CTH 1211 covers ‘Plants and Parts of Plants’ including seeds and fruits of a kind used primarily in perfumery in pharmaceutical or for insecticidal, fungicidal or similar purposes. In effect, the products to be classifiable under CTH 1211 should have an essential perfumery ingredient or medical effect while it is nobody’s case that the goods in question does have any such characteristics. Invocation of extended period of limitation - HELD THAT:- Since in terms of Section 28 of the Customs Act, 1962 normal period is only one year for which any duty could be demanded that too in cases where duty has not been levied or short-levied or erroneously refunded by reason of collusion, willful mis-statement or suppression of facts, in which event the period for issuance SCN could be extended upto 5 years. Here the period involved is May, June & September 2012 for which the SCN dt.18.09.2013 was issued though service of notice is disputed by the Appellant. It was submitted in this case by the Appellant that the Revenue had issued a notice on 01.10.2013 and without passing an order, another SCN dt. 18.10.2013 was issued which notice was disputed by the Appellant having been not served on them. Even if we consider the same, for argument sake, the same clearly stands hit by limitation since the same is clearly issued after a period of one year under Section 28 ibid. We find that the ratio of Hon’ble Supreme Court in the cases of Nizam Sugar Factory Vs Collector of Central Excise [2006 (4) TMI 127 - SUPREME COURT], ECE Industries Ltd. CCE New Delhi [2003 (3) TMI 136 - SUPREME COURT] and Hyderabad Polymers (P) Ltd. Vs CCE Hyderabad [2004 (3) TMI 66 - SUPREME COURT] clearly applies to this case. Thus, we do not find any reasons to uphold the impugned order and hence, we set aside the same and allow the Appeals with consequential benefits if any, as per law. Issues: (i) Whether the differential duty demand and reclassification in the impugned order is sustainable; (ii) Whether the demand is barred by limitation under Section 28 of the Customs Act, 1962; (iii) Whether imposition of penalty under Section 114A of the Customs Act, 1962 and the First Appellate Authority's direction to remand for verification of entitlement to Notification No.46/2011-Cus. are justified.Issue (i): Whether the differential duty demand and reclassification in the impugned order is sustainable.Analysis: The classification issue involves whether the imported joss powder falls within Note 1(a) to Chapter 44 exclusion (wood in powdered form used primarily in perfumery) or within CTH 1211 (plants and parts used primarily in perfumery or for medicinal/insecticidal purposes). The goods lack an essential perfumery or medicinal characteristic and were described as bark powdered akin to sawdust with adhesive/binder use, not primarily for perfumery. The reclassification in the Order-in-Original relied on Note 1(a) to Chapter 44 without establishing that the goods are of a kind used primarily in perfumery.Conclusion: The differential duty demand based on the reclassification is not sustained in respect of the characteristics required for classification under CTH 1211 or the Note 1(a) exclusion.Issue (ii): Whether the demand is barred by limitation under Section 28 of the Customs Act, 1962.Analysis: Section 28 provides a one-year normal limitation with extension up to five years only where duty was not levied or short-levied or erroneously refunded by reason of collusion, willful misstatement or suppression of facts. The SCN pertained to imports in May, June and September 2012, while the SCN was issued in September/October 2013, beyond the one-year period. The extended period was not shown to be justified by collusion or similar grounds, and applicable Supreme Court precedents on limitation and extended period were applied.Conclusion: The demand is barred by limitation and the SCN is time-barred under Section 28.Issue (iii): Whether imposition of penalty under Section 114A of the Customs Act, 1962 and the remand to verify entitlement to Notification No.46/2011-Cus. by the First Appellate Authority were justified.Analysis: The First Appellate Authority imposed penalty under Section 114A and remanded the matter to verify entitlement to the notification despite those directions not arising from the Review Order and without appropriate pleading or findings justifying such directions. The imposition of penalty and the limited remand went beyond issues before the appellate authority and lacked supporting allegations of non-entitlement or non-compliance requiring such action.Conclusion: The penalty under Section 114A and the remand direction to verify entitlement to Notification No.46/2011-Cus. are set aside.Final Conclusion: The impugned Order-in-Original and consequential directions of the First Appellate Authority are set aside, the appeals are allowed and relief granted to the importer with consequential benefits as per law.Ratio Decidendi: A demand under Section 28 is time-barred unless the extended period is justified by collusion, willful misstatement or suppression of facts; reclassification requires factual satisfaction that the goods possess characteristics (such as primary use in perfumery) necessary for exclusion under tariff notes or for inclusion under alternative headings; imposition of penalty or remand by an appellate authority must be founded on allegations or findings within the scope of the proceedings.