TaxTMI 
TaxTMI 
2026 (7) TMI 857
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....ods under Section 111(m) with an option to redeem the same on payment of redemption fine of Rs.3,00,00,000/- under Section 125, and imposed an equal penalty of Rs.3,89,79,752/- under Section 114A on the allegation of wilful misstatement and suppression of facts. 2. The appellant had imported the subject goods during the period April 2018 to March 2023 through Chennai Sea Port/Airport and classified them under CTH 9018 5090 as "other ophthalmic instruments and appliances," which was accepted at the time of assessment and clearance of goods. However, based on audit objection raised by Customs Revenue Audit (CRA), it was alleged that the goods were wrongly classified and ought to be classified as under: - i. Operation Microscopes under CTH 9011 8000 ii. Lensmeters under CTH 9031 8000 iii. Chart Projectors under CTH 9008 5030 3. Consequently, differential duty demand of Rs.3,89,79,752/- was proposed and confirmed under Section 28(4) of the Customs Act, 1962 along with interest, redemption fine and penalties as mentioned above. 4. Aggrieved by the said Impugned Order, the Appellant has filed the present appeal before this Tribunal. 5. The Ld. Ad....
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....ounsel also relied upon several decisions of the Hon'ble Supreme Court and the Tribunal to contend that classification must be determined on the basis of functional use, trade understanding and the HSN Explanatory Notes, and that reassessment after clearance, in the absence of suppression or wilful misstatement, is unsustainable. 7.1 The Ld. Authorized Representative appearing for the Revenue reiterated the findings of the impugned order and submitted that the goods imported by the appellant have been incorrectly classified under Heading 9018 of the Customs Tariff. It is contended that the operation microscopes are classifiable under Heading 9011, which covers compound optical microscopes, including special purpose microscopes. Reliance is placed on the HSN Explanatory Notes to Heading 9011 to contend that the said heading includes microscopes used in surgical and medical fields, and that the goods in question, being capable of magnification and optical observation, fall squarely within its scope. It is further submitted that the appellant's reliance on Heading 9018 is misplaced, as the said heading is intended for diagnostic or treatment instruments, whereas the microscopes....
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....s further submitted that the appellant is liable for confiscation under Section 111(m) and penalty under Sections 114A, as the misclassification amounts to misdeclaration with intent to evade duty. 7.5 The Ld. Authorized Representative has also relied upon judicial precedents to argue that classification must be strictly construed and that benefit of lower duty cannot be extended where goods are classifiable elsewhere. 8. We have carefully considered the rival submissions, the records of the case, relevant Customs Tariff Entries and HSN Explanatory Notes, Product catalogues, and the judicial precedents relied upon by both the sides. 9. Upon consideration of the rival submissions and the records of the case, the following issues arise for determination as to Whether the: - i. Whether the imported goods, namely Operation Microscopes, Lensmeters/Focimeters and Chart Projectors, are correctly classifiable under Heading 9018 or under the respective headings as proposed by the Department? And, ii. Whether the demand of differential duty is sustainable in law, including on the grounds of limitation, and whether the appellant is liable for confiscation, redemptio....
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.... (ii) It may be seen from the HSN under Heading 90.11 that "The Heading also excludes (a)...., (b) Ophthalmic Binocular type Microscopes (Heading 90.18); (iii) Therefore, the subject Microscopes are specifically excluded from Heading 90.11 and specifically included under Heading 90.18; (iv) It may also be seen from HSN under the Heading 90.18: (2) INSTRUMENTS AND APPLIANCES FOR HUMAN MEDICAL OR SURGERY" This group includes:- (D)..... (E)..... (F) Ophthalmic instruments. These fall into various categories:- 1) Surgical instruments........ 2) Diagnostic instruments such as ........ binocular type microscope for the examination of eyes. 3) Orthoptic or sight testing apparatus..... (v) Therefore, on account of the "specific inclusion" under Heading 90.18 and "specific exclusion from Heading 90.11 of HSN, the Binocular type ophthalmic Microscopes are correctly classifiable under Heading 90.18 of HSN / Customs Tariff Heading 1975 ONLY, as already assessed; (vi) Copies of relevant pages of HSN are also enclosed (vii) Though it is not required to invoke the "Interpretat....
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....ding 9008: "Image projectors, other than cinematographic" The HSN Explanatory Notes to Heading 9011 clearly state that while the heading covers compound optical microscopes used for observation and laboratory analysis, it specifically excludes ophthalmic binocular-type microscopes, which are classifiable under Heading 9018. This exclusion is decisive and operates directly against the case of the Revenue. 14. In contrast, the HSN Explanatory Notes under Heading 9018 explicitly includes instruments used in medical and surgical sciences and further clarify that ophthalmic instruments include both diagnostic and surgical instruments used for examination and treatment of the eye, including binocular microscopes mounted for clinical use, tonometers and other sight-testing devices. Thus, the tariff structure read with HSN creates a clear statutory demarcation between general-purpose microscopes and specialized ophthalmic instruments. 15. The Ld. Authorized Representative for the Revenue has contended that operation microscopes fall under Heading 9011 as "these can be used for surgical purposes and for various types of treatments. She has drawn our attention to the finding of the ....
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....nded that the operation microscopes in question are capable of being used not only in ophthalmic procedures but also in other microsurgeries such as ENT, neurosurgery and dental applications, and therefore cannot be restricted to classification as ophthalmic instruments under Heading 9018. It is submitted that the capability of use across multiple medical disciplines renders the goods general-purpose microscopes falling under Heading 9011. This contention, though attractive at first glance, is not legally sustainable as these microscopes stand excluded from 9011 in terms of the HSN scheme as well as the evidence about the nature of microscopes and their functional uses on record. 19. It is evident that the HSN Explanatory Notes do not classify goods based on theoretical or occasional alternate uses, but on their design, essential character and primary intended use. Heading 9018 expressly covers "instruments and appliances used in medical, surgical... sciences, including ophthalmic instruments", and does not require exclusivity of use. The presence of the words "including ophthalmic instruments" indicates that instruments designed for specific branches of medical science are to b....
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....ance, the goods in question are understood and marketed as ophthalmic surgical microscopes, and not as general-purpose microscopes. 23. In view of the explicit HSN exclusion under Heading 9011 and also by specific inclusion under Heading 9018, the product catalogues demonstrating specialized ophthalmic design, and the settled legal principle that classification is based on primary use and essential character, the contention of the Revenue that the goods are general-purpose microscopes on account of possible multispecialty use is not tenable and needs to be rejected. 24. Insofar as Lensmeters/Focimeters are concerned, the Revenue has contended that these are measuring instruments falling under Heading 9031, relying upon their function of measuring optical parameters of lenses. However, heading 9031 is a residuary entry applicable only where goods are not specified elsewhere and the HSN explanatory notes to Heading 9031 specifically state that the heading excludes instruments covered more specifically under other headings of Chapter 90. We observe that the product literature demonstrates that lensmeters are specialized ophthalmic diagnostic instruments used in clinical exami....
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....spite of such detailed examination, the department accepted the classification declared by the appellant under Heading 9018 without raising any objection. This clearly establishes that the department was fully aware of the nature, description and use of the goods at the time of clearance. 28. The appellant has also placed reliance on Bills of Entry pertaining to another importer at Chennai, along with corresponding product catalogues, to demonstrate that identical goods, namely OM-6 / OM-9 Operating Microscopes and related accessories, have been treated as ophthalmic surgical instruments. A careful examination of these documents reveals that the goods are described as "OM-6 / OM-9 Operating Microscopes" along with accessories, which are identical in nature and function to the goods imported by the appellant. The accompanying product catalogues further describe these as operating microscopes designed for ophthalmic surgery and highlight features such as stereoscopic observation, depth of focus, LED illumination and suitability for cataract and vitreoretinal procedures. These characteristics clearly establish that the goods are specialized surgical instruments for ophthalmic care ....
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....preme Court in CCE vs. Connaught Plaza Restaurant (P) Ltd. [2012 (286) E.L.T. 321 (S.C.)] has held that trade understanding and market practice are relevant considerations in classification. This aspect, when read in conjunction with the HSN Explanatory Notes, product catalogues, functional characteristics of the goods, and consistent assessment practice in respect of the appellant's own imports, leads to a coherent and consistent conclusion that the goods in question are specialized ophthalmic instruments used in medical and surgical practice. 32. It is also evident that the Bills of Entry filed by the appellant contained full disclosure of the nature, description and use of the goods, supported by product catalogues, and the goods were examined and assessed on few occasions by the Departmental officers. 33. The argument of the Revenue that classification must be based on isolated functional attributes cannot be accepted. The goods form part of an integrated ophthalmic system used in medical practice, and their classification must reflect their actual use and commercial identity. 34. The consistent acceptance of classification under Heading 9018 over a long period, couple....
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.... rely on generalized functionality and alternate usage, is inconsistent with the statutory scheme and cannot be sustained. 39. We note that the reclassification in the present case appears to have been triggered by an audit objection without any new material or change in law. Such reinterpretation of the same set of facts cannot override the combined weight of Tariff entries, HSN explanatory notes, product catalogues and consistent assessment practice. In view of the detailed analysis of the Tariff Headings, HSN Explanatory Notes, General Rules for Interpretation, product catalogues and judicial precedents, it is held that the goods in question are specialized ophthalmic instruments used in medical and surgical practice. 40. Accordingly, the goods are correctly classifiable under Heading 9018 of the Customs Tariff, and the classification adopted by the appellant is legally sustainable. Thus, the issue of classification is decided in favor of the appellant. Invoking extended period and imposition of penalties: - 41. Having held that the imported goods in question are correctly classifiable under Heading 9018 of the Customs Tariff, the very foundation of the demand raised....
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....as distinguished the same by submitting that the said decision applies to cases involving misdeclaration or suppression, whereas the present case involves a bona fide classification dispute with full disclosure of facts. It is therefore contended that the ratio of the said judgment does not support the case of the Revenue. 44.2 Further, reliance has been placed on the judgment of the Hon'ble Gujarat High Court in Bimal P. Shah vs. Union of India [2015 (320) E.L.T. 497 (Guj.)], wherein it has been held that under the regime of self-assessment, an error in classification by itself does not justify invocation of extended limitation or penal provisions in the absence of any suppression or intent to evade duty. The appellant has drawn the inference that mere difference of opinion on classification cannot be equated with wilful misstatement or suppression. 44.3 From the above decisions, the appellant has contended that: (i) concluded assessments cannot be reopened through Section 28 proceedings, (ii) extended limitation cannot be invoked in classification disputes without suppression, and (iii) penalties are not sustainable in the absence of mens rea. ....
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....xamined and assessed by the department, the allegation of suppression cannot be sustained. The relevant para reads as under: - "7.13................all the relevant documents for clearance of goods were filed with the authorities, at the time of clearance of goods; which was accepted by the department, hence they permitted clearance on final assessment by extending benefit of notification. In our view Revenue cannot today say that appellant had suppressed the facts with intention to avail ineligible benefit of Notification. It was for the Assessing Officers to seek further clarification on the matter, if they find that the appellant had claimed ineligible benefit of Notification. In all probability the Assessing Officers when they cleared the consignments were of the view that the appellant is eligible for the benefit of Notification as the goods imported were Pharmaceutical Reference Standard." The appellant has further relied upon the decision in KMS Medisurgi Pvt. Ltd. vs. Commissioner of Customs (Import), Mumbai [2022 (379) E.L.T. 214 (Tri.-Mumbai)], wherein it was held that "12. Coming to the issue of limitation, we find that the appellants have successful....
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....eters, auto refractometers and slit lamps, and the examination was carried out prior to assessment. The significance of such examination cannot be understated, as it establishes that the department was fully aware of the nature and characteristics of the goods at the time of clearance. In this factual background, the allegation of suppression or wilful misstatement is wholly unsustainable. 51. The examination reports also assume relevance in the context of penalties. Penalty under Section 114A requires proof of wilful misstatement or suppression with an intent to evade duty. In the present case, the contemporaneous records clearly demonstrate that the appellant had disclosed all relevant particulars and the goods were verified by the department. The essential ingredient of mens rea is thus completely absent. The appellant has also relied upon a certificate issued by the foreign supplier clarifying that the goods are specifically designed for ophthalmic use and are intended for medical and surgical purposes. This certificate, when read along with product catalogues, reinforces the appellant's classification and bona fides. 52. The appellant has further placed reliance on Bills....
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....demption. The question of confiscating the goods would not arise if there are no goods available for confiscation nor consequently redemption. Once goods cannot be redeemed no fine can be imposed. The fine is in the nature of computation to the state for the wrong done by the importer/exporter." The Hon'ble High Court, while considering the scope of Section 125, has also taken note of the decision of the Hon'ble Supreme Court in Weston Components Ltd. vs. Commissioner of Customs [2000 (115) E.L.T. 278 (S.C.)], wherein it was observed that redemption fine can be imposed even when the goods are not physically available when provisionally released on execute of a Bond. However, the High Court distinguished the said decision on facts and held that the power to impose redemption fine is not automatic and must be exercised judiciously, keeping in view the factual matrix of each case, particularly the availability of goods and the nature of the alleged contravention. In the present case, the goods are not available for confiscation and the dispute is purely one of classification without any misdeclaration of description. In such circumstances, following the ratio of Finesse Creation In....