Commissioner of Central Excise And Customs Vs Reliance Infrastructure Ltd. (CESTAT Hyderabad)
Facts- The assessee imported various equipment from Reliance Infra Projects and Zhejiang and cleared them by filing 36 Bills of Entry (BOE) with the Customs at Kakinada. BOE filed in the Customs EDI system are either marked to an officer for assessment or marked for examination of goods or both or may be cleared without either assessment by the officer or examination of the goods by the Customs Risk Management System.
These 36 Bills of Entry were facilitated by the RMS, i.e., cleared without assessment or examination by the officers. As per the practice, these Bills of Entry were audited post clearance and it was noticed that there was a variation between the classification of the goods in the Bill of Entry under the Customs Tariff and the classification in the supplier’s documents such as invoice, packing list and Country of origin certificate under the Harmonised System of Nomenclature.
Conclusion- The fact that a particular HSN was mentioned by the overseas supplier in the import documents is certainly a relevant factor in examining the case but the HSN mentioned by such supplier does not estop either the importer or the proper officer or the adjudicating authority from classifying the goods under any other heading. Otherwise, anyone can ask the supplier to indicate an incorrect but convenient HSN in the invoice and packing list and reduce the duty liability; different imports of identical goods may be sent by suppliers indicating different HSNs resulting in different classifications of identical goods.
Thus, if it is held that HSN in the supplier’s documents binds the importer or the assessing officer or the adjudicating authority in classification of goods, as the Revenue seems to suggest, it can lead to absurd results with disastrous consequences for the Revenue itself.
Goods should be classified as they are imported and not based on the use they are put to after import. The argument that end use of the articles is irrelevant for classification is correct for articles of general use but if the articles are designed for a particular end use, they should be classified accordingly.
FULL TEXT OF THE CESTAT HYDERABAD ORDER
This appeal has been filed by the Revenue assailing Order in Original dated 26-4-20131 passed by the Commissioner of Customs and Central Excise, Vishakhapatnam–II partly dropping the demand in the Show Cause Notice2 dated 13.9.2012 partly confirming it. Revenue is aggrieved by the dropping of part of the demand. There is no appeal by M/s. Reliance Infrastructure Ltd.3, the assessee (respondent herein) against that part of the demand which was confirmed.
2. The factual matrix which lead to the dispute is as follows.
3. The assessee was awarded an Engineering, Procurement and Construction4 contract by M/s. Reliance Power Ltd5, Mumbai to set up a 2,400 MW Gas Power Project at Samalkot, East Godavari district, Andhra Pradesh. The assessee, in turn, entered into an “Offshore Equipment Supply” contract dated 7.8.2010 with M/s. Reliance Infra Projects International Ltd6., British Virgin islands for supply of various material and equipment to execute the EPC project. It also placed a Purchase Order dated 29.7.2011 with M/s Zhejiang Hangxiao Steel Structure CO. Ltd.7 Hangzhou, China for supply of some material and equipment.
4. The assessee imported various equipment from Reliance Infra Projects and Zhejiang and cleared them by filing 36 Bills of Entry between June 2011 and February 2012 with the Customs at Kakinada. Bills of Entry filed in the Customs EDI system are either marked to an officer for assessment or marked for examination of goods or both or may be cleared without either assessment by the officer or examination of the goods by the Customs Risk Management System8. These 36 Bills of Entry were facilitated by the RMS, i.e., cleared without assessment or examination by the officers. As per the practice, these Bills of Entry were audited post clearance and it was noticed that there was a variation between the classification of the goods in the Bill of Entry under the Customs Tariff and the classification in the supplier‟s documents such as invoice, packing list and Country of origin certificate under the Harmonised System of Nomenclature9. The Customs Tariff is drafted on the pattern of the HSN which is an internationally recognised system of classifying all goods. Therefore, the Customs tariff mirrors the HSN although there could be variations in some cases. Both the HSN and the Customs Tariff classify goods into Sections, Chapters and under each Chapter, Headings and Subheadings. The classification is such that any article can fall under only one heading. Section notes and Chapter notes are provided at the beginning to explain the scope of the Section, or as the case may be, the Chapter including what is specifically included or excluded within its scope. Further, there are Rules of Interpretation of the HSN as well as Customs Tariff which help decide the classification. For instance, if a question arises if an automobile gear box made of steel should be classified as an article of steel or a part of an automobile, the Chapter notes, Section notes and Rules of Interpretation clear doubts. It is now a well settled legal position that in classifying the goods under the Customs Tariff or Central Excise Tariff, the Explanatory Notes in the HSN can be referred to as they provide the context and the tariff is based on the HSN.
5. During post clearance audit of the Bills of Entry filed by the assessee, it was noticed that in respect of six Bills of Entry, the classification of the goods in the Bills of Entry by the assessee were at variance with the HSN classification of the same goods mentioned in the documents of the overseas suppliers. After issuing a consultative letter asking the assessee to pay the differential duty and as the assessee disputed, a SCN was issued proposing to re-classify the goods as per the HSN indicated in the supplier‟s documents, recover the differential duty under section 28(4) along with interest under section 28AA and impose penalties under sections 114A and 114AA on the assessee. The specific proposals in the SCN were that the assessee was called upon to explain as to why:
“(i) The goods imported under Bills of Entry No. 5051226/31.10.2011, 5218089/17.11.2011, 6011406 /15.02.2012, 4789656/29.09.2011, 521873/ 17.11.2011 and 6070324/22.02.2012 as mentioned in the Annexure should not be classified under customs tariff item 73089090 of the Customs Tariff Act, 1975;
(ii) The duty amount of Rs. 9,39,30,711(Rupees Nine crores thirty nine lakhs thirty thousand seven hundred and eleven only) being the differential duty of customs as a result of incorrect classification of the goods imported with an intention to evade payment of duty should not be recovered from them under section 28(4) of the Customs Act, 1962;
(iii) The interest under section 28AA of the Customs Act, 1962 should not be recovered from them on the amount mentioned at (ii) above;
(iv) A penalty should not be imposed on them under section 114A of the Customs Act, 1962 as detailed above; and
(v) A penalty should not be imposed on them under section 114AA of the Customs Act, 1962 as detailed above.
6. After considering the submissions made in defence by the assessee, the Commissioner passed the impugned order giving findings with respect to the goods imported under each of the Bills of Entry. She concluded that all the goods imported under the six Bills of Entry merit classification under Customs Tariff Heading 8406 (which was the same as classification by the assessee), except support structures, Lifting Steel with Slings and Shackles imported under Bill of Entry No. 521874/17.11.2011 which she classified as articles of iron and steel under Chapter Heading 73129000. Accordingly, she confirmed a differential duty of Rs. 3,40,069/- and ordered its recovery along with interest under Section 28AA. She also imposed a penalty to equal to this amount on the assessee under Section 114A and imposed a penalty of Rs. 1,00,000/- on the assessee under Section 114AA. There is no appeal by the assessee against the impugned order.
7. This order was reviewed by the Committee of Chief Commissioners of Central Excise, Customs and Service Tax who concluded that the impugned order was not legal and correct and passed Review Order No. 07/2013 dt. 25.07.2013, setting out 37 grounds which are numbered (i) to (xxxvii) in paragraph 1 of the grounds of appeal. Accordingly, this appeal has been filed for correct determination of the following points arising out of the said order:
(i) Whether, after taking into consideration the above facts and the Order-in-Original, the said order of the Commissioner, in so far as it relates to classification of the goods imported vide the impugned six Bills of Entry under CTH No.: 84068200 as “Steam Turbines and other Vapour Turbines of an output not exceeding 40 MW” instead of under CTH No.: 7308 9090 of Customs Tariff Act, 1975 as “Structures and Parts of Structures of Iron or Steel” and consequential dropping of differential customs duty of Rs.9,35,90,642/- with interest and penalties is legal and proper; and
(ii) Whether, by an order passed under Section 129B of the Customs Act 1962 the Hon’ble Tribunal should set aside the order passed by the Commissioner to the extent pointed out in this Review Order after upholding the allegations made in the show cause notice and the issues raised in the present review order, or pass such other orders as the CESTAT deems fit.
8. Learned Counsel for the assessee supports the impugned order and submits that there is no legal infirmity in the impugned order and that the SCN proposed to classify the goods as articles of Iron and Steel. After considering the assessee’s submissions and examining the detailed drawings and designs, the expert opinion and the certificate by the Chartered Engineer, the Commissioner concluded in the impugned order that the goods which were imported were not general articles of Iron and Steel but were specifically designed for the power plant and hence were correctly classifiable under 8406. Learned counsel submits that there is no dispute to the factual findings recorded by the Commissioner in the Department’s appeal. He also submitted that the HSN mentioned by the supplier is beyond the assessee’s control and even if wrong HSN is mentioned by the supplier it does not change the classification of the goods under the Customs Tariff. He, therefore, prays that the department’s appeal may be rejected.
9. Before considering the grounds of this appeal, we proceed to examine the scope of the HSN code and other details mentioned in the documents of the overseas supplier in determining the classification of goods under the Customs Tariff. Since the Customs Tariff is based on HSN, it is a well settled principle that while determining the classification of goods, classification under HSN and the Notes therein can be referred to.
10. The next question is what is the scope of classification of goods under the Customs Tariff? Customs Act imposes duties on goods imported into and in some cases, exported out of India and to specify the rates of duties, the goods are classified and the rate of duty appropriate to that category of goods is applied. Thus, classification of goods under the Customs Tariff is a process of assessment. The definition of assessment under the Customs Act was amended from time to time but it is indisputable that determining the classification of the goods under the Customs Tariff is a part of assessment of the duty on the goods. The definition of assessment under Section 2(2) has been as follows:
Upto 8.4.2011
“assessment” includes provisional assessment, reassessment and any order of assessment in which the duty assessed is nil;
From 8.4.2011 to 29.3.2018- Due to amendment of Section 17 providing for self assessment in 2011, the definition was modified so as to include self assessment in it
“assessment” includes provisional assessment, self-assessment, re-assessment and any assessment in which the duty assessed is nil;
From 29.3.2018- The definition of assessment was only an inclusive one before 2018 but it did not specify what the term assessment entails. This was made explicit by substituting the definition as follows:
“assessment” means determination of the dutiability of any goods and the amount of duty, tax, cess or any other sum so payable, if any, under this Act or under the Customs Tariff Act, 1975 (51 of 1975) (hereinafter referred to as the Customs Tariff Act) or under any other law for the time being in force, with reference to-
(a) the tariff classification of such goods as determined in accordance with the provisions of the Customs Tariff Act;
(b)the value of such goods as determined in accordance with the provisions of this Act and the Customs Tariff Act;
(c) exemption or concession of duty, tax, cess or any other sum, consequent upon any notification issued therefor under this Act or under the Customs Tariff Act or under any other law for the time being in force;
(d) the quantity, weight, volume, measurement or other specifics where such duty, tax, cess or any other sum is leviable on the basis of the quantity, weight, volume, measurement or other specifics of such goods;
(e) the origin of such goods determined in accordance with the provisions of the Customs Tariff Act or the rules made thereunder, if the amount of duty, tax, cess or any other sum is affected by the origin of such goods;
(f) any other specific factor which affects the duty, tax, cess or any other sum payable on such goods, and includes provisional assessment, self-assessment, re-assessment and any assessment in which the duty assessed is nil
11. It is explicit from the definition after 2018 and it was implicit before that date that classification of goods under the Customs Tariff is a part of assessment. This power of assessment is conferred under Section 17 of the Customs Act. Prior to 2011, the assessment had to be done by „the proper officer‟ under section
12. After 2011, the importer of exporter has to self assess the duty under section 17(1) and the officer could re-assess the duty under section 17(4). This section, as it stood during the relevant period, was follows.
Section 17. Assessment of duty. –
(1) An importer entering any imported goods under section 46, or an exporter entering any export goods under section 50, shall, save as otherwise provided in section 85, self-assess the duty, if any, leviable on such goods.
(2) The proper officer may verify the self-assessment of such goods and for this purpose, examine or test any imported goods or export goods or such part thereof as may be necessary.
(3) For verification of self-assessment under sub-section(2) the proper officer may require the importer, exporter or any other person to produce any contract, broker’s note, insurance policy, catalogue or other document, whereby the duty leviable on the imported goods or export goods, as the case may be, can be ascertained, and to furnish any information required for such ascertainment which is in his power to produce or furnish, any thereupon, the importer, exporter or such other person shall produce such document or furnish such information.
(4) Where it is found on verification, examination or testing of the goods or otherwise that the self-assessment is not done correctly, the proper officer may, without prejudice to any other action which may be taken under this Act, re-assess the duty leviable on such goods.
(5) Where any re-assessment done under sub-section (4) is contrary to the self-assessment done by the importer or exporter regarding valuation of goods, classification, exemption or concessions of duty availed consequent to any notification issued therefor under this Act and in cases other than those where the importer or exporter, as the case may be, confirms his acceptance of the said re- assessment in writing, the proper officer shall pass a speaking order on the re-assessment, within fifteen days from the date of reassessment of the bill of entry or the shipping bill, as the case may be.
(6) Where re-assessment has not been done or a speaking order has not been passed on re- assessment, the proper officer may audit the assessment of duty of the imported goods or export goods at his office or at the premises of the importer or exporter, as may be expedient, in such manner as may be prescribed.
Explanation. – For the removal of doubts, it is hereby declared that in cases where an importer has entered any imported goods under section 46 or an exporter has entered any export goods under section 50 before the date on which the Finance Bill, 2011 receives the assent of the President, such imported goods or export goods shall continue to be governed by the provisions of section 17 as it stood immediately before the date on which such assent is received.
13. Thus, the power of assessment of duty under the Customs Act, which includes the power to classify the goods under the Customs tariff, lies with the importer and „the proper officer’. In case of a demand of duty under section 28, this power of classification and determining the duty extends to the adjudicating officer and to those higher in the chain of appeals. In classifying goods they may refer to the description of the goods, literature, the HSN declared by the supplier, etc. but the HSN indicated by the supplier cannot bind either the importer or the proper officer or the adjudicating authority or the appellate authority in classifying the goods- a process which must be done on merits.
14. The supplier has no locus standi in the classification of the goods or assessing the duty. If the HSN indicated in the documents by the supplier is held to bind the importer or the proper officer in assessing the goods, it can result in absurd results with disastrous consequences. Any unscrupulous importer can simply find an equally unscrupulous supplier and ask him to indicate so and so HSN so as to lower his duty liability.
15. Duties of the Customs are levied under Section 12 of the Act which states “duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, on goods imported into, or exported from, India.” So, what is essential to levy duty is that the goods must be imported or exported. There is no levy of duty on the goods declared by the supplier but only on the goods imported. The supplier’s documents are important to determine what is imported and usually the documents reflect what is actually imported. However, in case of a difference between what is declared in the overseas supplier’s documents and what is actually imported, the duty has to be on what is imported because the charge is on the goods imported and not on the goods declared by the supplier. For instance, if 100 pieces are declared in the invoice and actually 200 pieces are imported, the duty has to be collected on 200 pieces which are actually imported. Similarly, if goods are described as, say, iron bars and instead gold is imported, duty has to be on the gold and not on iron. Classification of the goods (in the form of HS code) on the exporter’s documents also cannot similarly prevail over what is actually imported. If cars are imported and as they are made of iron and steel, declared as articles of iron and steel by the overseas supplier, they should be classified as and charged to duty as car and not as articles of iron and steel. To sum up, the description, quantity and HSN indicated in any documents by the supplier may be helpful in determining the classification and assessing the duty but it does not estop either the importer or the proper officer in deciding the classification which must be based on the actual goods which were imported.
16. We now proceed to examine the findings of the Commissioner in the impugned order. The Show Cause notice was based on:
a) Offshore equipment supply contract dated 7.8.2010 between the assessee and Reliance Infra Projects.
b) Purchase order dated 29.7.2011 for supply of pre-engineered power house building structures from M/s. Zhejiang
c) Bills of Entry along with their commercial invoices, packing lists, bills of entry certificate of origin
17. Before issuing the SCN, a consultative letter dated 7.5.2012 was issued to the assessee requesting it to pay the differential duty and in its reply, the assessee declined stating that the goods imported by them under three Bills of Entry from Zhejiang were components of OT crane system which they imported in different consignments since they were very large. With respect to the goods imported under the other three Bills of Entry, they explained that they were part of the HRSG system for heat recovery. Thus, their stand was that the goods were declared correctly and appropriate amount of duty was paid.
18. The Commissioner asked the Deputy Commissioner for a report on the imported goods and he replied that the goods were no longer in the Customs area. The Commissioner had then formed a team of officers of the Special Intelligence and Investigation branch (SIIB) of the Commissionerate to examine the goods. They visited the assessee‟s premises and after inspection, reported that all the goods were actually installed in the plant. The assessee also submitted its defence in response to the SCN and also appeared personally before the Commissioner. The assessee submitted detailed designs and drawings of the OT Crane System and the HRSG system of its power plant and explained where each of the imported goods was in those drawings. These submissions were recorded in various sub-paragraphs of paragraph 11 of the impugned order running into 17 pages.
19. In brief, the submissions of the assessee before the Commissioner were that they were installing a 2,400 MW Gas based power plant which has three modules of 800 MW each of which has two Gas Turbine Generators (GTG) and a Steam Generation Turbine (STG). The GTGs use Liquefied Natural Gas (LNG) to run the turbine and the exhaust generated in the process itself has still a lot of heat left which is used to generate steam which is used in the STG to generate power.
20. The part of the power plant which recovers this heat and uses it to generate steam is called the Heat Recovery Steam Generator System (HRSGS) and this steam is use to run the STG. The goods imported by them and cleared under the three Bills of Entry dated 29.09.2011, 17.11.2011 and 22.02.2012 were parts of the HRSGS. Various imported parts were explained as parts of Structural and auxiliary steel components, Casing and Gas ducts, Tube bundles, seismic bumpers, walkways for personnel operating the system and a gas stack (Chimney).
21. The goods imported from Zhejiang and cleared under the other three Bills of Entry dated 31.10.2011, 17.11.2011 and 15.02.2012 were explained as parts of Overhead Travelling Crane Systems and other components.
22. They also provided expert opinion of Shri RD Gupta, who had served for a long time in the power industry including in NTPC and a Certificate from the Chartered Engineer Shri Paresh K Chedda confirming all the parts that were imported were parts and components of the power plant specifically designed for the purpose.
23. The Commissioner considered:
a) The consultative letter sent by the Deputy Commissioner and the assessee‟s reply;
a) The SCN and its annexures including the Bills of Entry, Packing Lists, Invoices and certificates of origin
b) The reply to the SCN submitted by the assessee
c) The expert opinion and the Certificate of the Chartered Engineer certifying that the imported goods were parts of the power plant specifically designed for the purpose;
d) The submissions made during the personal hearing;
e) A clarificatory letter from the Zhejiang that they had supplied only specific, made to order components for the power plant and they had not supplied general purpose articles and that they had using their normal formats, applied for the Certificate of origin and prepared the invoices, etc. mentioning the HS code for general articles of iron and steel; and
f) The detailed designs and drawings and explanation by the assessee as to where each of the parts fit into the systems.
24. After considering all the above, the Commissioner observed that there were six Bills of Entry as follows:
