Imagine Marketing Ltd. Vs Commissioner of Customs (CESTAT Mumbai)
The CESTAT, Mumbai considered appeals concerning the classification of “Wireless Bluetooth Earphones/Earbuds/Headphones/Headsets.” The appellants had classified the imported goods under Tariff Item 8517 6290 and claimed exemption under Notification No. 57/2017-Cus. dated 30.06.2017. The Department reclassified the goods under Tariff Item 8518 3000/8518 3011 and denied the exemption. The appellants challenged the impugned orders primarily on the ground that the show cause notices were barred by limitation.
The appellants submitted that the issue of classification had already been considered by different Benches of the Tribunal, resulting in conflicting decisions. They relied upon the decision of the Chennai Bench in Redington Ltd. Vs. The Principal Commissioner of Customs, Chennai — 2026 (5) TMI 1611 — CESTAT CHENNAI, which classified the goods under Tariff Item 8517 6290. They also referred to the Delhi Bench decision in G-Mobile Devices Pvt. Ltd. Vs. Principal Commissioner of Customs, Air Cargo Complex (Import), New Delhi — 2026 (4) TMI 1850 — CESTAT NEW DELHI, which accepted the Department’s classification under Tariff Item 8518 3000/8518 3011. The appellants further submitted that, by order dated 07.07.2026, the Chennai Bench had referred the classification issue to the President of the Tribunal for constitution of a Larger Bench. According to the appellants, in view of these divergent judicial views, allegations of wilful misstatement or suppression of facts could not be sustained so as to justify invocation of the extended limitation period under Section 28 of the Customs Act, 1962.
The Tribunal observed that the dispute before it was confined to the proper classification of the imported goods. It noted that there were conflicting views expressed by different Benches of the Tribunal regarding the appropriate tariff classification. While the Chennai Bench had classified the products under Tariff Item 8517 6290, the Delhi Bench had accepted the Department’s classification under Tariff Item 8518 3000/8518 3011. However, the Delhi Bench had nevertheless set aside the demand by holding that the extended period of limitation could not be invoked.
The Tribunal recorded that the disputed period in one appeal extended from 07.02.2018 to 03.02.2020 and in the other appeal from 09.03.2019 to 30.03.2022, while the show cause notices were issued on 03.02.2023 and 22.07.2024 respectively. It examined Section 28 of the Customs Act, 1962 and observed that sub-section (1) requires issuance of a show cause notice within two years where duty has not been levied, paid, short levied or short paid. It further noted that sub-section (4) permits issuance of a notice within five years only where non-levy or short levy is attributable to collusion, wilful misstatement, suppression of facts or similar circumstances. The Tribunal observed that issuance of notice within the normal period is the rule, whereas invocation of the extended period is an exception, and the burden rests entirely on the Department to establish the ingredients specified in Section 28(4).
The Tribunal found that the proper classification of the goods was not free from doubt, as evidenced by the divergent views expressed by different Benches of the Tribunal. It referred to the observations of the Delhi Bench in G-Mobile Devices Pvt. Ltd., which held that where the dispute concerns classification and the importer believes the goods fall under one tariff entry while the Department adopts another, the extended period cannot be invoked merely because of such differing views. The Delhi Bench had further held that suppression of facts must be with intent to evade payment of duty and that, in such circumstances, penalty under Section 114A was also not sustainable.
The Tribunal also noted that the Chennai Bench, by order dated 07.07.2026, had directed the Registry to place the appeal records before the President of the Tribunal for constitution of a Larger Bench to decide the classification issue involved.
Considering the facts and circumstances, the Tribunal held that the appellants had established their bona fides. It observed that the appellants had adopted the classification under Tariff Item 8517 6290 and claimed exemption under Notification No. 57/2017-Cus. owing to differing interpretations adopted by judicial forums regarding the classification of the goods. Accordingly, the Tribunal held that there was no element of collusion, wilful misstatement or suppression of facts, as the dispute involved interpretation of the Customs Tariff relating to classification. Consequently, the Tribunal held that the show cause notices could be sustained only within the normal period prescribed under Section 28(1), and the extended period under Section 28(4) could not be invoked for recovery of the adjudged demands beyond the normal period.
In view of these findings, the Tribunal set aside the impugned orders to the extent they confirmed duty demands by invoking the extended period of limitation. The appeals were allowed on the ground of limitation without examining the merits of the classification dispute. The Tribunal also set aside the redemption fine and penalties imposed under the impugned orders. It clarified that the issue of classification remained open and would be decided by the Larger Bench pursuant to the referral order dated 07.07.2026 passed by the Chennai Bench.
Cases Discussed
- Redington Ltd. Vs. The Principal Commissioner of Customs, Chennai (CESTAT Chennai), 2026 (5) TMI 1611 — CESTAT CHENNAI
- G-Mobile Devices Pvt. Ltd. Vs. Principal Commissioner of Customs, Air Cargo Complex (Import), New Delhi (CESTAT New Delhi), 2026 (4) TMI 1850 — CESTAT NEW DELHI
FULL TEXT OF THE CESTAT MUMBAI ORDER
Heard both sides and examined the case records.
2. The issue of classification of “Wireless Bluetooth Earphones/Earbuds/ Headphones/Headsets” is the subject matter of present dispute. The appellants had classified the said goods under Tariff Item 8517 6290 and claimed the benefit of duty exemption provided under Notification No. 57/2017-Cus. dated 30.06.2017. However, the Department had changed the classification of the said goods under Tariff Item No. 8518 3000/ 8518 3011 and denied the benefit of duty exemption claimed by the appellants. The appellants have assailed the impugned order mainly on the ground that the show-cause proceedings are barred by limitation of time. In this context, it is stated that classification claimed by the appellants was decided by Coordinate Bench at Chennai in the case of Redington Ltd. Vs. The Principal Commissioner of Customs, Chennai — 2026 (5) TMI 1611 — CESTAT CHENNAI and the contra view was taken by the Delhi Bench, in the case of G-Mobile Devices Pvt. Ltd. Vs. Principal Commissioner of Customs, Air Cargo Complex (Import), New Delhi — 2026 (4) TMI 1850 — CESTAT NEW DELHI, holding that the classification claimed by the Department should be considered for the product in dispute. It was further stated that vide order dated 07.07.2026, the Chennai Bench of the Tribunal has referred the matter to the Hon’ble President of the Tribunal for constitution of the Larger Bench for resolving the classification dispute. Thus, it was clear that in such circumstances, the charges of willful mis-statement, suppression of facts etc., cannot be leveled against the appellants, justifying issuance of the show-cause notice beyond the normal period provided under Section 28 of the Customs Act, 1962.
3. On examination of the case records, we find that the dispute involved in these appeals only confined to the correct classification of the goods. There were divergent views with regard to proper classification and for such purpose, there were conflicting views expressed by the different Benches of the Tribunal. The Chennai Bench of this Tribunal in the case of Redington Ltd. (supra) has held that the classification of the product in question, should be under Tariff Item 8417 6290, whereas the Co-ordinate Bench at Delhi had accepted the classification held by the Department under Tariff Item 8518 3000/ 8518 3011. However, Delhi Bench though had accepted the classification claimed by the Department, but dropped the confirmed demand, holding that the extended period of limitation cannot be invoked, justifying proposed recovery action beyond the normal period provided in the statute.
4. In the present case, the period of dispute in respect of Appeal No. C/86271/202025 is from 07.02.2018 to 03.02.2020 and in respect of Appeal No. C/86275/2025, the period is from 09.03.2019 to 30.03.2022. In both the cases, show-cause notices were issued on 03.02.2023 and 22.07.2024 respectively. The provisions for invocation of extended period are contained in Section 28 of the Customs Act, 1962. In sub-section (1) of Section 28 ibid, it has been mandated that wherever the duties of customs have not levied or not paid or short levied or short paid, the proper officer shall within two years of the relevant date serve notice on the person chargeable with the duty. However, an exception has been carved out with regard to the period for issuance of show cause notice in sub-section (4) of Section 28 ibid, providing that where any duty has not been levied or not paid or short levied or short paid, owing to the reason of collusion, or any willful misstatement, suppression of facts etc., then in such an eventuality, instead of the normal period of two years, the show-cause notice can be issued within a period of five years from the relevant date. On reading of both the subsections contained under Section 28 ibid, it would transpire that issuance of the show-cause notice within the normal period of two years is the ‘rule’ and invoking the extended period is an ‘exception’, for which the onus entirely lies with the Department to prove that there is involvement of the ingredients itemized in sub-section (4) viz., collusion, willful mis-statement, suppression of facts etc., with an intent to evade payment of customs duty.
5. It is an admitted fact on record that proper classification of the said goods was not free from doubt, which would be evident from the fact that there were divergent views expressed by the different Benches of the Tribunal. Further, the Delhi Bench of the Tribunal in the case of G-Mobile Devices Pvt. Ltd. (supra) has accepted the classification as claimed by the Department, but dropped the demand on the ground of limitation, holding as under: –
“41. The issue is about classification of the goods. According to the appellant, the goods are classifiable under CTI 8517 62 90 of the Customs Tariff Act whereas according to the department, the goods would be classifiable under CTI 8518 30 00. The issue that arises for consideration is as to whether the extended period of limitation can be invoked in a case where the appellant believes that the goods are classifiable under one particular CTI, but the department believes that the goods are classifiable under some other CTI. The case of the appellant is that the presence of Bluetooth connectivity in the earphones/headphones is sufficient to classify them under CTI 8517 62 90 and for this, the appellant placed reliance upon the Circular dated 05.09.2013. The appellant also placed reliance upon the judgment of the Delhi High Court in Amazon Wholesale India and the decisions of the Tribunal in Minda D-Ten and L.G. Electronics. It has been repeatedly held that to invoke the extended period of limitation under section 28(4) of the Customs Act suppression of facts is not enough as suppression has to be with an intent to evade payment of duty. Merely because of a wrong belief about classification of a product, it cannot be alleged that the extended period can be invoked as suppression of facts has to be with an intent to evade payment of duty. Thus, the extended period of limitation contemplated under section 28(4) of the Customs Act could not have been invoked in the facts and circumstances of the case.
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44. The reasons for imposing penalty under section 114A of the Customs Act are the same reasons under which the extended period of limitation can be invoked. As the extended period of limitation could not have been invoked, the imposition of penalty upon the appellant under section 114A of the Customs Act deserves to be set aside.”
6. Further, we also find that the Co-ordinate Bench of the Tribunal at Chennai in the order dated 07.07.2026, has directed the Registry to place the appeal records before the Hon’ble President for constitution of a Larger Bench to decide the classification issue involved in the present appeal.
7. Under the facts and circumstances of the present case, we are of the view that the bonafides’ of the appellants are proved that owing to different interpretation placed by the judicial forum on classification of subject goods, they had claimed the classification under tariff item 8517 6290 and the resultant benefit provided under the notification dated 30.06.2017. Therefore, it is our considered view, that there is no element of collusion or any willful mis-statement or suppression of facts inasmuch as the issue in hand entirely involves interpretation of the Customs Tariff with regard to classification of the subject goods, and as such issuance of the show cause notice should be confined to the normal period and the extended period of limitation cannot be invoked for recovery of the adjudged demands beyond the normal period prescribed under sub-section (1) of Section 28
8. In view of the above discussions, the impugned order, insofar it has confirmed the duty demands on the appellants by invoking the extended period of limitation is set aside and the appeals are allowed in favour of the appellants on the said ground, without discussing the merits of the case. Redemption fine and penalties imposed in the impugned orders are also set aside. However, the issue of classification is kept open, which should be dealt with by the Larger Bench as per referral order dated 07.07.2026 of the Chennai Bench of the Tribunal.
(Dictated and pronounced in open court)
