2026 (3) TMI 934 - AT - Customs

Classification under Heading 9804 requires dutiable importation for importer's personal use; commercial SEZ to DTA supplies excluded.

Whether SEZ-to-DTA supplies qualify under Heading 9804 turns on three conjunctive requirements: goods must be dutiable, imported, and for the importer's ... Classification of the subject goods viz. personal computers cleared from SEZ through DTA to customers - conflicting Headings are CTH 98049000 [Department] and CTH 84713010, 84715000 & 85285200 [Assessee] - Scope of 'dutiable goods' for Heading 9804 - importation for personal use under Heading 9804 - distinction between customs duty and igst - deeming fiction under special economic zones act - levy of penalty and charging of interest. Scope of 'dutiable goods' for Heading 9804 - HELD THAT:- The Court held that the term 'dutiable goods' in Heading 9804 is confined to goods chargeable to duties leviable under the Customs Act, 1962. Levy of IGST under other statutes does not convert goods into 'dutiable goods' for the purpose of Heading 9804. Since the tariff prescribes a 'free' rate for the laptop and desktop headings and monitors are exempted by notification, those goods are not chargeable to customs duty and therefore do not satisfy the first conjunctive requirement of Heading 9804. [Paras 17, 18, 19, 20] The subject goods are not 'dutiable goods' and therefore cannot be classified under Heading 9804 on that ground. Importation for personal use under Heading 9804 - Whether the removals from SEZ to DTA were imports for the personal use of the customers such as to attract Heading 9804 - HELD THAT: - The Court found that 'importation for personal use' contemplates personal baggage or goods brought for the importer's own use and cannot be extended to goods manufactured and sold by an SEZ unit to its customers in the ordinary course of business. The character and purpose of use by downstream customers cannot be used to re-characterise the SEZ unit's clearances at the time of classification; customization or subsequent use by customers is irrelevant to classify the SEZ unit's supplies as personal imports under Heading 9804. [Paras 21, 22, 23, 24] The removals were not imports for personal use of the importer/customs baggage within the meaning of Heading 9804 and therefore the goods cannot be classed under Heading 9804 on this ground. Limits of SEZ Act and Rules as to recovery, penalty and confiscation - Whether the Adjudicating Authority could impose customs-style recovery, interest, penalty and confiscation under the SEZ Act/Rules for the SEZ-DTA clearances - HELD THAT: - The Court observed that although Section 30 of the SEZ Act contemplates treatment of SEZ-DTA clearances vis-a -vis comparable imports, the SEZ Act and Rules do not provide a mechanism equivalent to Section 28/12 of the Customs Act for levy, collection, interest, penalty or confiscation. Rule 47(5) limits jurisdiction to refund, demand, adjudication, review and appeal under relevant Customs provisions; hence the Adjudicating Authority lacked authority under the SEZ scheme to impose confiscation, penalty and interest in the manner applied in the impugned order. [Paras 31, 32] Charging of interest, ordering of confiscation and imposition of penalty under the impugned order exceeded the powers available under the SEZ Act and Rules and were unsustainable. Final Conclusion: The Tribunal set aside the impugned adjudication: the goods could not be classified under Heading 9804 because they were not 'dutiable goods' and were not imports for personal use, and the Adjudicating Authority's imposition of interest, penalty and confiscation under the SEZ scheme was beyond its powers; the appeal is allowed with consequential benefits as per law. Issues: (i) Whether goods cleared from SEZ to DTA to end customers are classifiable under Heading 9804 90 00 as 'dutiable articles intended for personal use' or under their specific tariff headings (CTH 8471 30 10, 8471 50 00, 8528 52 00)?Analysis: Heading 9804 applies only where three conjunctive ingredients are satisfied: the goods are 'dutiable goods', they are 'imported', and the importation is for 'personal use.' 'Dutiable goods' is defined as goods chargeable to duty under the Customs Act and on which duty has not been paid. IGST and other levies under the IGST Act are distinct from Customs duty levied under Section 12 of the Customs Act; levy of IGST therefore does not, by itself, render goods 'dutiable goods' under the Customs Act. The tariff schedule shows that the contested specific headings prescribe either a free rate or an exemption (Notification No. 24/2005-Cus) for the items in question; goods on which no Customs duty is leviable are not 'dutiable goods.' The characterization of importation as 'for personal use' must relate to use by the importer and not to subsequent purchasers; goods manufactured and sold in the ordinary course of business to customers are not imports for the personal use of the importer. The legal fiction treating SEZ-DTA removals as comparable to imports cannot be extended to create a Customs levy where none exists under the Customs Act and cannot displace the identity and specific classification of goods under the tariff headings. Chapter and section notes, subheading descriptions, and the General Rules for Interpretation require classification by specific headings when applicable; the Revenue bears the burden to demonstrate that the declared classification is incorrect and justify the alternative classification under Heading 9804. Rule 47(5) of the SEZ Rules and the SEZ Act do not provide an independent mechanism to levy Customs interest, penalty or confiscation contrary to the authorization under the Customs Act.Conclusion: The goods are not 'dutiable goods' within the meaning of Section 2(14) of the Customs Act, 1962 and are not imported for the personal use of the importer; therefore Heading 9804 90 00 does not apply. The impugned classification, demand, and consequential orders are set aside and the appeal is allowed in favour of the assessee.