TaxTMI 
TaxTMI 
2025 (11) TMI 1113
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....on 114AB of the said Act towards the export leg. A fine of Rs.5,00,00,000/- in lieu of confiscation of the imported goods was also imposed under Section 125 of the Act, by the ld. adjudicating authority in the above order. 2. M/s. Aquapharm Chemical Limited (hereinafter referred to as the "appellant") is an Export Oriented Unit (EOU) engaged inter alia in manufacture of water treatment chemicals at their manufacturing facility located at Pune, Maharashtra. The appellant manufactures and sells a wide variety of 'Organophosphorus Compounds' (Acids and Salts) under the brand name 'Aquacid'. The appellant has been classifying the said goods under Tariff Heading "Other organo-inorganic compounds - Other" under Tariff item No. 29310090 (residuary) prior to 01.01.2012 and under Tariff Item No. 29319090 post 01.01.2012 for their domestic sale as well as exports since 2006. 3. The appellant had been receiving export incentives in the form of a Focus Market Scheme (FMS) on the export of the said products to notified markets during 2012 to 2014. The FMS was substituted by Merchandise Exports from India Scheme (MEIS) vide Public Notice No. 2 dated 01.04.2015 from the office of the DGFT. ....
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....es do not have the jurisdiction to question/ adjudicate on the eligibility of MEIS and deny the benefit thereunder until such licenses have been cancelled by DGFT: (i) At the outset, the Appellant submits that Merchandise Exports from India Scheme (MEIS) is an export incentive scheme introduced by Ministry of Commerce, regulated and administered by DGFT in terms of Chapter III of the Foreign Trade Policy 2015-20 ('FTP 201520'), whereby benefits in the form of duty credit scrips are granted to exporters upon export of notified products to notified markets. Para 2.57 of the FTP expressly stipulates that the decision of DGFT shall be final and binding on all matters related to interpretation of policy including classification of any item for export/import in ITC (HS). Further, as per Para 3.01(h) of the Handbook of Procedures 2015-20 (HBP), MEIS scrips shall be issued by the Regional Authority (RA) only after thorough scrutiny of the electronic documents, and in case the RA has any suspicion about wrong classification/misdeclaration, it shall seek physical documents for further scrutiny before granting the MEIS scrips. Thus, the creation of rights under MEIS and entitlement o....
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....and Tribunals have time and again held that Customs Department has no jurisdiction to unilaterally invalidate or disregard the MEIS scrips or recover benefits availed thereunder until and unless the DGFT has lawfully cancelled the underlying authorisation. Hence, the Appellant submits that the entire proceedings are vitiated by law and liable to be set aside in as much as the MEIS scrips availed by the Appellant have not yet been cancelled and continue to remain valid as on date. Reference in this regard is invited by the appellant to the following judgements: * M/s Colour CottexPvt. Ltd. vs. Commr. of Cus. (Export) ICD [2025 (6) TMI 368 - CESTAT NEW DELHI] * Designco, M/s Amit Exports vs. UOI & Ors. [2024 (11) TMI 1150 - Delhi HC] * Bharat Rasayan Ltd. vs. Commissioner of Customs, Nhava Sheva-II [(2025) 29 Centax 1 (Tri.-Bom)] [Affirmed by SC in (2025) 29 Centax 2 (S.C.)] * Jeena & Company vs. Union of India [(2024) 15 Centax 55 (Mad.)]. 7.2. The appellant has also taken the ground that the products exported are Organophosphorus Compounds and not Organophosphorus Derivatives, which stands substantiated/corroborated by multiple uncontroverted ....
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....g upon the Revenue and the same cannot be brushed aside, particularly when the authorities are not expert themselves and there is no evidence/material available to the contrary. Reference in this regard is placed by the appellant on the following judgements: i. Monopoly Innovations vs. Union of India [2022 (58) GSTL 9 (Bom. HC)] ii. Inter Continental (India) vs. Union of India [2003 (154) E.L.T. 37 (Guj.) - Para 19] [Affirmed in 2008 (226) E.L.T. 16 (S.C.)] iii. Commissioner of Customs, Ludhiana vs. Longowala Yarns Ltd. [2019 (370) E.L.T. 1436 (Tri. - Chan.)] (iv) Furthermore, the Appellant submits that it is a settled law that the onus to prove classification of the products under a particular Tariff heading is on the Department. In the present case, the ld. adjudicating authority has not put forth any iota of evidence to dispute the classification adopted by the appellant. Notably, the CRCL report dated 08.04.2021 which formed the very basis for disputing classification in the Impugned Notice has also not been relied upon by the Ld. Adjudicating Authority during adjudication, as the said report is inconclusive and does not address the core ques....
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.... would not be conclusive of the precise nature of the product, whereas, the Appellant has in a rightful manner specifically described the products in accordance with their actual chemical composition and nomenclature. Moreover, 'phosphonate' was covered by specific Tariff items during the period 01.10.2008 to 01.01.2012, still the classification at eight-digit level under residuary of the products exported by the Appellant was accepted by the Custom authorities. Hence, the Ld. Adjudicating Authority has grossly erred in observing that the goods were not properly described and disclosed by the Appellant. (ii) It is further submitted that the Appellant has been consistently using the same description in the shipping bills and invoice for exporting the said products both prior to amendment and post-amendment, and even under the physical control regime since 2006 and therefore the Department was well aware of the classification adopted by the Appellant. Further, the same classification and product details were duly disclosed in ER-2 returns for domestic clearance of the said goods which have not been objected to. In the given circumstances, no suppression and wilful mis-statem....
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.... if the declared classification is found to be wrong or the exemption benefit claimed is found to be inadmissible. Reliance in this regard is placed on the following judgments: i. Lewek Altair Shipping Pvt. Ltd. vs. Commissioner of Cus., Vijayawada [2019 (366) E.L.T. 318 (Tri. - Hyd.)] [Affirmed by SC in 2019 (367) E.L.T. A328 (S.C.)] ii. Northern Plastic Ltd. v. Commissioner [1998 (101) E.L.T. 549 (S.C.)] iii. Densons Pultretanik vs. CCE [2003 (155) E.L.T. 211 (SC)] 7.4. The appellant contended that the confiscation of unavailable imported goods and consequent imposition of redemption fine in lieu of such confiscation is not warranted, as there was no violation of Section 111(o) of the Customs Act, 1962: (i) The appellant submits that once the goods are cleared for home consumption, they cease to be imported goods as defined under Section 2(25) of the said Act. In the instant case, goods are not available for confiscation because they have ceased to be imported goods and were not cleared under bond but finally assessed. Hence, the question of imposition of redemption fine does not arise when the goods itself are not liable for confiscation un....
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....ports under such assessed Shipping Bills. The Appellant submits that such an attempt is clearly impermissible in law and amounts to an indirect challenge to the finality of the original export assessments, which cannot be sustained in the eyes of law. Reliance in this regard is placed on the following judgements: i. Sanstar Bio Polymers Ltd and Sambhav Chowdhary Versus C.C. -Mundra [2022 (12) TMI 374 - CESTAT AHMEDABAD] ii. Vittesse Export Import vs. Commissioner of Customs (EP), Mumbai [2008 (224) E.L.T. 241 (Tri. - Mumbai)] iii. Designco, M/s Amit Exports vs. UOI & Ors (supra) 7.6. In view of the above submissions, the appellant prayed for setting aside the demands of customs duties confirmed in the impugned order along with interest. They also prayed for setting aside the penalties imposed. The appellant also prayed for setting aside the order of confiscation and the imposition of redemption fine in lieu of such confiscation. 8. On the other hand, the Ld. Authorized Representative of the Revenue reiterated the findings in the impugned order. 9. Heard both sides and perused the documents submitted before us. 10. We observe that the issue inv....
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....ions has been raised against the said classification adopted by the appellant. 11.2 We observe that the term 'phosphonate' is a broad chemical category encompassing a wide range of compounds. The appellant has specifically described the products in accordance with their actual chemical composition and nomenclature. Moreover, 'phosphonate' was covered by specific Tariff items during the period 01.10.2008 to 01.01.2012, still the classification at eight-digit level under residuary of the products exported by the Appellant was accepted by the Custom authorities. After 01.01.2012 also the classification of the goods under the CTH 29319090, adopted by the appellant was not disputed by the department. We also find that the underlying shipping bills with reference to which the MEIS licenses were granted to the Appellant stood finally assessed in terms of Section 51 of the Customs Act, 1962 at the time of clearance of the export goods itself. If the Customs authorities intended to dispute the said assessments including the aspect of classification, the appropriate course would have been to either reassess the Shipping Bills under Section 17(4) of the Customs Act or to prefer an appeal u....
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....ous are intact and are not replaced/derivatized in these products. But I find that their interpretation is one-sided. As per the accepted definition of nomenclature in Chemistry, a 'derivative' is a compound which can be derived formally or synthesized from a parent compound. This same definition has been quoted by the experts in their reports cited by M/s Aquapharm. It is nowhere mentioned in the quoted definition that the process of synthesis or derivatization entails replacement of only the Hydroxyl groups in a parent compound; hence, just because the two Hydroxyl groups are intact in the molecular structure of the concerned chemicals, it does not imply that they cannot be termed as 'derivatives'. 33.2 Secondly, experts have stated in their reports that exported products are either acids or salts and are not similar to the products which have been set out in the Customs Tariff as Organophosphorus Derivatives. But I find that their statement regarding acids and salts being different from 'derivatives' does not hold up when scrutinised in light of the Customs Tariff as a simple perusal of the relevant portion of the Customs Tariff post the changes ....
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....rving that he did not "find the report to be proper". The comments made for rejecting the report would tend to suggest that the Commissioner has good deal of knowledge in the subject of chemical science. However, we do not claim to be experts in the said subject and, therefore, it is beyond our competence to say which of the two versions (that of the Institute and the Commissioner) is correct. At the same time, we are also not aware of the educational qualifications of the Commissioner or his expertise in chemical science. In any event, how far the report of the Institute was worth consideration should have been examined by the Commissioner by obtaining a counter expert opinion and based thereon he could have proceeded to reject the Institute's report instead of discrediting the same. The observations made by the Commissioner are not structured on any referable scientific basis and, therefore, it is all the more necessary that the prayer of the petitioner for lifting of the orders of provisional attachment deserves de novo consideration." 11.7. A similar view has been expressed by the Hon'ble Gujarat High Court in the case of Inter Continental (India) v. Union of India [2003 (15....
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....cer of the department cannot displace the report of technical expert, nor can he insist that inspite of such report the importer must establish that end-use of the product shall not be other than one as regards entry in which the goods admittedly fall at the time of import." 11.8. In this regard, we also refer to the decision rendered by the Tribunal at Chandigarh in the case of Commissioner of Customs, Ludhiana v. Longowalia Yarns Ltd. [2019 (370) E.L.T. 1436 (Tri. - Chan.)] wherein the Tribunal held that in the absence of a contrary report being produced by the Revenue, the test report given by the expert (i.e., CIPET, in the said case) has to be considered as a conclusive report. 12. We observe that the onus to prove the classification of a particular product lies on the Department. In the present case, it is a fact on record that the Department had drawn samples and sent the same to CRCL, for testing and analysis. CRCL, vide their Reported dated 08.04.2021, has submitted their views. However, we find that the said report has not been relied upon in this proceedings. In this regard, the appellant submitted that the ld. adjudicating authority has not relied upon the CRCL re....
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....ment, from the report of the Chemical Examiner, CRCL and from HSN, it is' quite clear that the goods are classifiable as "Denatured Salt" falling under Chapter Heading No. 25.01. The Department has not shown that the subject product is not bought or sold or is not known or is dealt with in the market as Denatured Salt. Department's own Chemical Examiner after examining the chemical composition has not said that it is not denatured salt. On the other hand, after examining the chemical composition has opined that the subject matter is to be treated as Sodium Chloride." 13. We find that the ld. adjudicating authority has reclassified the impugned goods under the Tariff Entry No. 29313900. The said observations of the ld. adjudicating authority in the impugned order, for reclassifying the goods are reproduced hereunder: - "31.2 Now that it is decided that the impugned products of M/s Aquapharm are organo-phosphorous derivatives, I refer to the sub-Heading Note-1 in Chapter-29 of the Customs Tariff which states - "within any one Heading of this Chapter, derivatives of a chemical compound are to be classified in the same sub-heading as that compound provided that they are....
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....quired to be decided is as to the eligibility of the appellant to the benefit under the MEIS. 15.1. In the instant case, the Show Cause Notice has been issued to recover the duty exemption claimed by the appellant against MEIS scrips. In this regard, the appellant has contended that the Customs authorities do not have the jurisdiction to question the eligibility under the MEIS and such benefits can only be denied if the licences are cancelled by the DGFT. In support of this view, the appellant relied on the Circular No.334/1/2012-TRU dated 01.06.2012. 15.2.We have perused the Circular No.334/1/2012TRU dated 01.06.2012 referred to by the appellant. For ready reference, the relevant portion of the said Circular is reproduced below: - "II.2 Recovery of duty in case of instrument issued under Foreign Trade (Development and Regulation) Act : Section 28AAA has been inserted in the Customs Act through Section 122 of the Finance Act, 2012 to provide for recovery of duties from the person to whom an instrument such as credit duty scrips was issued where such instrument was obtained be means of collusion or willful misstatement or suppression of facts. Since the provi....
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....levant portion of the said decision is reproduced below: - "13. The first issue that arises for consideration is whether jurisdiction under section 28AAA of the Customs Act could have been invoked without the DGFT having initiated process for cancellation of the license and whether adjudication could be done as the DGFT did not cancel the instrument. 14. This issue was examined by the Delhi High Court in M/s Amit Exports. The Delhi High Court held that it was not possible to recognize a right that may be to said to inhere in the customs authority to doubt the issuance of the instrument. After referring to the FTP 2015-20, the Delhi High Court held that it provides in paragraph 2.57 that it would be the decision of the DGFT on all matters pertaining to interpretation of policy, provisions in the handbook of procedures and so it would be impermissible for the customs authority to deprive a holder of the instrument the benefits that can be claimed, absent any adjudication of declaration of invalidity by the DGFT. The relevant portion of the judgment of the Delhi High Court is reproduced below: "104. As we read the various provisions enshrined in the FTDR Act....
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....aving been obtained by collusion, wilful misstatement or concealment of facts, any action under Section 28AAA would have to be preceded by the competent authority under the FTDR Act having come to the conclusion that the instrument had come to be incorrectly issued or illegally obtained. The procedure for recovery of duties and interest would have to be preceded by the competent authority under the FTDR Act having so found and the power to recover duty being liable to be exercised only thereafter. 107. Section 28AAA would thus have to be interpreted as contemplating a prior determination on the issue of collusion, wilful misstatement or suppression of facts tainting an instrument issued under the FTDR Act before action relating to recovery of duty could be possibly initiated. A harmonious interpretation of the two statutes, namely, the Customs and the FTDR Acts leads us to the inescapable conclusion that the law neither envisages nor sanctions a duality of authority inhering in a separate set of officers and agents simultaneously evaluating and adjudging the validity of an instrument which owes its origin to the FTDR Act alone. It is these factors, as well as the role assi....
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....te wrongly obtained under the Customs Act could also be evaluated on parameters specified in that provision. However, the said stipulation cannot be construed as conferring authority on the proper officer to question the validity of a certificate or scrip referable to the FTDR Act." (emphasis supplied) 15. In this connection, it may also be important to refer to the TRU letter dated 01.06.2012 highlighting the budget changes on the eve of the enactment of the Finance Act, 2012. The relevant portion of the leter is reproduced below: "11.2 Recovery of duty in case of instrument issued under Foreign Trade (Development and Regulation) Act: Section 28AAA has been inserted in the Customs Act through Section 122 of the Finance Act, 2012 to provide for recovery of duties from the person to whom an instrument such as credit duty scrips was issued where such instrument of law, action for recovery of duty can be initiated under the said provision. Field formations are advised to issue demands as soon as DGFT/concerned regional Authority initiates action for cancellation of an instrument but the matter may be decided only after the instrument has been cancel....
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....aid scrips by the DGFT itself after following due procedure. A detailed procedure for cancellation of the scrips has been set out under Section 9(4) of the Foreign Trade (Development & Regulation) Act, 1992 (in short "FIDR which is extracted as under:- . . . 10. These proceedings have been initiated by the customs authorities u/s. 28(4) of Customs Act, 1962 for recovery of alleged fraudulently availed MEIS duty credits utilized by the appellant for the payment of customs duty at the time of import along with interest u/s. 28AA ibid. In these proceedings, initiated by the customs authorities, everything including confiscation of the goods is revolving around the re-classification of the exported goods by the customs. 11. It has also been noticed by us that the details of MEIS Scrips issued against aforesaid 54 shipping bills were sought by the customs department from DGFT, New Delhi vide letter dated 20.7.2021 followed by various reminders dated 31.8.2021, 14.10.2021 and 26.10.2021 respectively, but were not responded by DGFT. The MEIS scrips issued against the respective bills had already been utilized towards the payment of Customs duty....
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.... availed by the appellant does not have an independent nexus to the Customs Act, 1962 inasmuch as such scheme, designed for the Merchant Exporter, are dealt with under the Foreign Trade Policy (2015-20) and Foreign Trade (Development & Regulation) Act, 1992 and thus the administration of MEIS squarely falls within the jurisdiction of the office of the DGFT and not the customs authority. It further held that the division of exercise of authorities between the DGFT and customs authorities is well recognized judicially and should be respected to prevent abuse of due process of law. 13. We deem it proper to address a very pertinent issue which arises in situation we are dealing with and it is about the role of customs authorities. Merchandise Exports from India Scheme (MEIS) is intended to offer incentives to eligible exporters on the basis of their export performance in a given year. Thus, the actual exports, as evidenced in shipping bills endorsed in accordance with Section 51 of Customs Act, 1962, are scrutinized by the licensing authority ie. DGFT and scrips issued thereon in accordance with eligibility for inputs as designed in the Standard Input Output Norms (SION), Cust....
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....d necessary. This granting of licence may be dependant upon a policy enunciated in advance by the Government or may even be made to depend on the individual judgment of the licensing authority. As against this, the function of customs authorities start only after the goods are imported and brought into the territorial water of the country. Customs authorities are concerned with the recovery of Customs duty and to check evasion of payment of duty and with the prevention of entry of goods which are prohibited goods as defined by the Customs Act. It is not for the customs authorities to interpret licensing policy or to enforce the same once a valid licence is produced or to dissect the license granted. This function is of the licensing authority. If this bifurcation of function is not adhered to, there is every likelihood of utter confusion. The licensing authority may interpret the policy one way and the customs authorities may take contrary view producing a conflict between the two authorities resulting in harassment to the Importer or exporter, as the case may be. It is therefore, that the function of the two authorities which operate in two different spheres must be kept within th....
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....s, we hold that the said goods exported are not liable for confiscation under Section 111(o) of the Customs Act, 1962. Accordingly, the redemption fine of Rs.5,00,00,000/- imposed in lieu of such confiscation is set aside. 18. The appellant has also contested the invocation of extended period of limitation as well as the imposition of penalties on them under Sections 114A, 114AA and 114AB of the Customs Act, 1962. 18.1. We find that the present dispute pertains to classification and thus it was the responsibility of the Department to arrive at the correct classification of the impugned products. In this regard, it is on record that the appellant have been classifying the said goods as "Other organo-inorganic compounds - Other" under Tariff item No. 29310090 (residuary) prior to 01.01.2012 and under Tariff Item No. 29319090 post 01.01.2012 for their domestic sale as well as exports since 2006. Thus, it is not a case where the appellant has modified the classification for the purpose of deriving any undue benefit. In case the Department had any doubt as regards classification, they should have raised objections earlier when the appellant had classified the said goods and export....
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....rector, CSIR-National Chemical Laboratory, Pune from 2002 to 2010. Based on my knowledge of chemistry, I am competent to address the question posed to me by M/s Aquapharm Chemicals PvL. Ltd. (ACPL) The point in question is whether the organo-phosphorus products manufactured by ACPL can be called as organo-phosphorous derivatives or not. According to accepted definitions of nomenclature in chemistry, a "derivative" is a compound which can be derived formally or synthesized from a parent compound, Organo-phosphorus compounds are compounds which contain one or more P-C bonds. Therefore,, esters of organo-phosphoric seid are called derivatives. There are many derivatives of organo- phosphoric acids, for example, their- corresponding esters, halides, amides, thio analogs etc. The following products (1-8), mentioned in HS Code 2931.31.00 to 2931.38.00 are called derivatives of organo-phosphorous acids because one or both the hydroxyl groups have been chemically "derivatized" using other organic functional groups: S. S.saram INDIAN INSTITUTE OF SCIENCE EDUCATION AND RESEARCH (IISER). PUNE (An Autonomous Institution, Ministry of Human Resource Development. Govt. of Instia....