Case Law Details
Kalpataru Power Transmission Ltd Vs Commissioner of Customs (CESTAT Chennai)
CESTAT Chennai set aside the customs order on classification of Optical Power Ground Wire (OPGW) cables, holding that Customs failed to produce test reports or factual evidence before denying duty exemption. The Tribunal ruled that classification cannot be based on assumptions, catalogues, or product use, and emphasized that testing and technical verification are mandatory to determine whether fibres are individually sheathed. Citing the rule of best evidence, it held that Revenue bears the burden of proof to establish correct tariff classification, and allowed the importer’s appeal with consequential relief.
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, has allowed the appeal filed by Kalpataru Power Transmission Ltd., setting aside the lower appellate order. The Tribunal ruled that the Revenue failed to discharge its burden of proof to demonstrate that the imported goods, Optical Power Ground Wire Fibre Cable (OPGW), were correctly reclassified by the Department.
The Classification Dispute
Kalpataru Power Transmission Ltd. imported OPGW and its accessories, initially classifying them under Customs Tariff Heading (CTH) 8544 (for the cable) and 853670 (for accessories), and claimed exemption under Notification No. 24/2005-Cus.
The Adjudicating Authority rejected this classification, reclassifying the OPGW under CTH 9001 and the accessories under CTH 7616. The lower authorities upheld the reclassification based on the argument that OPGW is a composite good, and its primary function—grounding and fault current conduction—was relevant for classification, thus placing it in CTH 9001, which covers optical fibre cables other than those of heading 8544.
The core of the dispute hinged on a narrow technical point: whether the imported optical fibres were “individually sheathed.” As per the Chapter Notes and a Board Circular (12/2006-Cus), OPGW with individually sheathed fibres falls under CTH 8544, while those without individual sheathing fall under CTH 9001.
Failure to Adduce Best Evidence
The CESTAT emphasized that the burden of proving a misclassification or taxability rests squarely on the Revenue.
Judicial Precedents Cited:
- Union of India Vs Garware Nylons Ltd. [1996 (87) E.L.T. 12 (S.C.)]
- Commissioner of Central Excise, Nagpur Vs Vicco Laboratories [2005 (179) E.L.T. 17 (S.C.)]
Both Supreme Court rulings establish that the burden of proof to show that a product is taxable or correctly classifiable in a particular manner lies with the taxing authorities.
The Tribunal found the Revenue’s case critically flawed due to the absence of the “clinching evidence” necessary to determine the OPGW’s physical characteristics:
1. Missing Test Report: The appellant repeatedly informed both the Original Authority and the Commissioner (Appeals) that samples of the OPGW were drawn upon import. Despite this, the test report was neither produced nor relied upon by the Department, nor was a copy supplied to the appellant. The CESTAT called this failure “fatal to the case of revenue.”
2. Inferior Proof: The Commissioner (Appeals) accepted an “inferior proof” by arguing that since general OPGW catalogues were available in the public domain, testing could be waived. The CESTAT rejected this, stating the rule of best evidence mandates that no inferior proof should be submitted when superior evidence (like the actual test report) could have been produced. Furthermore, the ultimate usage of a product (telecommunication/grounding) is irrelevant for classification when the specific tariff entry is based on a physical characteristic (sheathing).
3. Assumptions and Presumptions: The Tribunal noted that classification cannot be made through assumptions or presumptions, especially since OPGW products in the market can be both sheathed and unsheathed. The Department also failed to rely on the import contract with TNEB, which likely contained the product’s precise specifications.
CESTAT Holding
The CESTAT concluded that the Revenue failed to prove that the OPGW did not possess the “individually sheathed” characteristic, which was critical for its classification under CTH 9001 instead of CTH 8544.
Consequently, the Tribunal set aside the impugned order and allowed the appeal, granting consequential relief to Kalpataru Power Transmission Ltd.
FULL TEXT OF THE CESTAT CHENNAI ORDER
This appeal is against Order in Appeal C. Cus. II No. 46/2014 dated 31.10.2014 passed by the Commissioner of Customs (Appeals – II), Chennai.
2. Brief facts of the case are that the appellant had filed Bill of Entry No. 3082961 dated 30.3.2011 for clearance of imported Optical Power Ground Wire Fibre Cable (OPGW) and its accessories. They were classified under the Customs Tariff Heading 8544 and the accessories under CTH 853670 respectively. Exemption was claimed under Notification No. 24/2005-Cus dated 1.3.2005. The Ld. Adjudicating Authority rejected the classification and denied the benefit of the Notification and ordered that the subject goods and its accessories be classified under CTH 9001 and heading 7616 respectively. Aggrieved by the said order, the appellant filed an appeal before the Ld. Appellate Authority who vide the impugned order rejected the appeal and upheld the adjudication order. Hence this appeal.
3. Shri Shride Vyas, Ld. Advocate appeared for the appellant and Smt. Anandalakshmi Ganeshram, Ld. Authorized Representative appeared for the respondent.
3.1 The Ld. Advocate submitted that samples of the impugned goods were drawn at the time of import, before provisional release. However, a copy of the test report has not been supplied to them. The appellant vide letter dated 07/09/2012 addressed to the Original Authority had clearly stated that the imported cables were individually sheathed. In the same letter the appellant had also submitted that since the samples were drawn, the results of the samples were required to be awaited. Although the classification of the goods as per the impugned order has been done after a detailed technical discussion, there is no mention of the samples drawn or the results thereof. Even in the first appeal before the Appellate Commissioner, the appellant had pointed out that the samples were drawn and test results were awaited. However, Ld. Authority was of the opinion that the product, being a composite good it was the function or use which was relevant for classification and that since catalogues were available in the public domain, testing can be waived, and the available material facts were enough to decide the classification. The Ld. Advocate submitted that the issue revolved over a very narrow compass. If the imported goods are individually sheathed fibre cables, as claimed by them, then its classification would be under chapter 85, otherwise under chapter 90. Therefore, it was crucial to decide whether the imported goods were individual sheathed fibre or not. He submitted that the question of use or function becomes irrelevant when the heading itself provides for the basis of classification. The question of technical literature or information available in public domain will have little or no consequences unless it is shown that all OPGW products have the same characteristics and features. He stated that in the absence of test results, the contention of the appellant is required to be accepted and the product is therefore to be classified under chapter 85 and their appeal is required to be allowed, with consequential relief.
3.2 The Ld. Authorized Representative submitted that the LAA has, based on the technical, commercial and legal literature clearly demonstrated that grounding and fault current conduction were the main functions of the OPGW. The actual issue here is whether the term “sheathed” in the tariff schedule means coating as contested by the appellant or “covering” as held by the LAA. Based on the Chapter notes and Explanatory Notes to the Chapters 85 and 90, it is seen that if individual fibre is sheathed, then that will fall under the heading 8544 and under the heading 9001, if otherwise. The appellant submits that as the optical fibre will only have core and cladding, the coating is to be treated as sheath. This submission leads to a surmise that the fibres falling under the heading will not have coating and those falling under the heading 8544 will have a coating. The Ld. AR submitted that since, the tariff heading 9001 specifically covers “optical fibre cables” other than those of heading 8544, the imported goods (OPGW) are classifiable under the heading 9001. In short, the OFC made up of fibres that are not “individually sheathed” would be classifiable under the heading 9001. According to the Ld. AR, the imported goods’ (OPGW) main function is for telecommunication, thus the same are rightly classifiable under the tariff heading 90011000. And the LAA has rightly denied the benefit of the Notification No 24/2005, S.I. No 28 as claimed by the appellant. She hence prayed that the appeal may be rejected.
4. We have gone through the appeal Memorandum, connected records and have heard the rival parties. We find that the issue involved is the classification of imported Optical Power Ground Wire Fibre Cable.
5. As per the Hon’ble Supreme Court’s decision in Union of India Vs Garware Nylons Ltd. reported in 1996 (87) E.L.T. 12 (S.C.), the burden of proof is on the taxing authorities to show that the particular case or item in question, is taxable in the manner claimed by them. [Also see: Commissioner of Central Excise, Nagpur Vs Vicco Laboratories – 2005 (179) E.L.T. 17 (S.C.)].
6. The background for this classification dispute appears to stem from Boards instruction contained in Circular 12/2006-Cus dated 28/02/2006 issued from F No 528/8/2006-Cus(TU), on the subject of mis-classification of ‘optical fibre cables’ under heading 8544 instead of heading 9001. The circular states that the optical fibres of Heading 8544 are made of individually sheathed fibres, whereas cables of Heading 9001 are not individually sheathed and specifically excluded products of 8544. This alert was all the more reason to preserve clinching evidence of the product by drawing samples and seeking the opinion of an expert. This critical evidence is missing in the present case. The goods have also been cleared for home consumption and are not available for examination. It is seen that the imports were made against a contract with TNEB. It was very likely that the contract would specify the product description and requirement which could have been used as a reference point. However, the same has also not been relied upon in the impugned order.
7. While seeking to classify a product it was for the departmental authorities to gather the product specification / literature, process of manufacture, compliance to a recogonised standard, contract copy and if required even a test report/ opinion from the appropriate authority and make it a part of the SCN. Classification cannot be made by assumptions and presumptions however so nuanced the order may be, when OPGW available in the market can be both sheathed and unsheathed, as recogonised in the Boards circular above. Moreso when it is this characteristic which is critical for the products classification. Further ultimate usage of a product is not relevant for classification, when the tariff entry refers to no such end use.
8. Without there being clarity on the factual nature and characteristics of the product, the eloquence of the discussion and findings in the impugned order will not suffice. The matter is also mysterious as the appellant has repeatedly stressed, before the Original Authority, that a sample was drawn at the time of import and a copy of the test report may be provided but has been met with stony silence. This aspect is fatal to the case of revenue.
9. The Commissioner Appeals in the impugned order has accepted inferior proof by taking a fallacious argument that since catalogues of OPGW’s were available in the public domain, testing can be waived, and the available material facts were enough to decide the classification. He has not demonstrated how the impugned goods satisfy the description given therein by referring to one such catalogue on which he has rested his arguments. The rule of best evidence states that, so long as higher or superior evidence could have been produced or may be reached, no inferior proof shall be submitted in relation to it. Hence in this case there can be no substitute for going by the actual physical characteristics and description of the impugned goods. Further it is not even the case of revenue that the goods were shown to be manufactured adhering to a recogonised standard that incorporates the characteristics relevant for the classification. Revenue has hence failed to prove its case on the classification of the goods under Tariff Heading 9001 and the impugned order merits to be set aside.
10. In the circumstances, the impugned order is set aside and the appeal is allowed with consequential relief, if any, as per law. The appeal is disposed of accordingly.
(Order pronounced in open court on 16.01.2025)
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