Case Law Details
Kerala Minerals & Metals Ltd. Vs Commissioner of Customs (CESTAT Bangalore)
Introduction: In a landmark judgment dated January 9, 2024, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Bangalore, in the case of Kerala Minerals & Metals Ltd. Vs Commissioner of Customs, clarified the classification of Huy Glass 1105 M-Membrane Bags (Filter Bags). These bags, used in industrial filtration processes, were under scrutiny to determine their appropriate classification under the Customs Tariff Act.
Detailed Analysis
Kerala Minerals & Metals Ltd., a government-owned company engaged in mining and manufacturing Titanium Dioxide, imported these filter bags and classified them under Customs Tariff Heading (CTH) 5911 9090, which pertains to textile products. However, upon review, the customs authorities reclassified the filter bags under CTH 8421, which includes air purifiers and other filtering machinery, due to their composition being made entirely of glass fibres rather than textile fabrics.
The appellant contended that the filter bags function similarly to straining cloth used in oil presses or paper-making machines, hence should be classified under CTH 59. Yet, the authorities and subsequent appeals highlighted that these bags are specifically designed for industrial applications to filter fine particles from gases, indicating a primary function aligning more closely with air purification or gas filtering machinery.
The CESTAT’s decision rested on two crucial points: the material composition of the filter bags and their intended use. Given that the bags are made from 100% fibre glass material and are designed for filtering industrial gases, the Tribunal agreed with the classification under CTH 8421. Furthermore, it referenced Section XI of the Customs Tariff Act, which explicitly excludes articles of glass fibres from being classified under textile-related headings, further substantiating the reclassification.
Additionally, the Tribunal addressed the appellant’s concern regarding the notice period for the customs duty demand, affirming that the notice was issued within the permissible timeframe, thus dismissing the appellant’s argument on the grounds of limitation.
Conclusion: This judgment by the CESTAT Bangalore is significant for several reasons. First, it clarifies the classification of industrial filter bags made from glass fibres, setting a precedent for similar future imports. By ruling these bags as air purifiers under CTH 8421, the Tribunal acknowledges their specialized use in industrial settings, beyond the conventional scope of textile products. Second, this decision underscores the importance of material composition and intended use in determining the correct customs tariff classification, reinforcing the nuanced approach required in customs law. Lastly, by upholding the classification under CTH 8421, the Tribunal aligns with the broader objective of ensuring accurate tariff classifications that reflect the true nature and use of imported goods. This judgment not only resolves the immediate dispute but also provides valuable guidance for businesses and customs authorities in classifying specialized industrial materials.
FULL TEXT OF THE CESTAT BANGALORE ORDER
The appellant, is a limited company fully owned by the Government of Kerala, are engaged in the business of mining and manufacturing of a Titanium Dioxide. They imported ‘Huy glass 1105 M-Membrane Bags’ (Filter Bags) which were classified under Customs Tariff Heading 5911 9090. On scrutiny of the documents, it was noticed that the item filter bags are not made of textile fabrics but they were made of fibre glass non-woven which are rightly classifiable under Customs Tariff Heading 8421. Accordingly, the classification is finalised under Customs Tariff Heading 8421 and differential duty was demanded, which was upheld by the Commissioner (Appeals) in the impugned order. Aggrieved by this order, appellant is before this forum.
2. The learned counsel on behalf of the appellant submits that the filter bags imported by the appellant are used as straining cloth in a strainer for separation of solid material of micron size from gaseous stream, which is similar to the cloth used in paper making machine; hence, it is rightly classifiable under Customs Tariff Heading 59. It is also submitted that the Bill of Entry was assessed and duty was paid by the appellant; and later, notice was issued on 10.1.2007 which was beyond six months and therefore, it is barred by limitation. However, the adjudicating authorities held that the notice was within the prescribed time limit of one year as is applicable to State Government Undertaking as per Section 28(1)(a).
3. The learned Authorised Representative for the Revenue submitted that the filter bags are made of 100% fibreglass material, felt needled to woven support and laminated with PTFE, which is used for filtering titanium dioxide powder and letting only hot air to atmosphere and reiterating the findings of the Commissioner (Appeals) submitted that it is rightly classifiable under Customs Tariff Heading 8421 and the demand was within the limitation period of one year.
4. Heard both sides. The issue to be decided is the classification of the product “HUY Glass 1105 Membrane Bags (Filter Bags)” imported by the appellant. The appellant admits the fact that filter bags are made of 100% Fibre Glass Material, for needled to woven support and laminated with PTFE, cut to size and sewed along the seams for use as strainer for separating fine dusty particles from gas. The Commissioner (Appeals) had rightly observed that the goods are basically used in the dryer system to prevent fine powder escaping into the atmosphere and admittedly used to filter the titanium dioxide powder from the gas. Section Note 1(r) as seen below specifically excludes glass fibre articles of glass fibres, other than embroidery with glass thread as a visible ground of fabric. The relevant portion of the Customs Tariff Headings are reproduced herein below:
Section XI
Textiles and Textile Articles
1. This Section does not cover :
(a) animal brush making bristles or hair (heading 0502); horsehair or horsehair waste (heading 0511);
(b) human hair or articles of human hair (heading 0501, 6703 or 6704), except straining cloth of a kind commonly used in oil presses or the like (heading 5911);
—
(r) glass fibres or articles of glass fibres, other than embroidery with glass thread on a visible ground of fabric (Chapter 70);
The relevant entries are reproduced below:
5911 40 00 – Filtering or Straining cloth of a kind used in oil presses or the like, including that of human hair
5911 90 – Other :
5911 90 10 — Paper maker‘s felt, woven
5911 90 20 — Gaskets, washers, polishing discs and other machinery parts of textile articles 5911 90 90 — Other
– Filtering or purifying machinery and apparatus for liquids:
8421 21 — For filtering or purifying water :
8421 21 10 — Ion exchanger plant or apparatus 8421 21 20 — Household type filters
8421 21 90 — Other
8421 22 00 — For filtering or purifying beverages other than water
8421 23 00 — Oil or petrol-filters for internal combustion engines
8421 29 00 — Other
– Filtering or purifying machinery and apparatus for gases:
8421 31 00
8421 32 00
Intake air filters for internal combustion engines Catalytic converters or particulate filters, whether or not combined, for purifying or filtering exhaust gases from internal combustion engines
8421 39 — Other :
8421 39 10 — Air separators to be employed in the processing, smelting or refining of minerals, ores or metals; air strippers
8421 39 20 — Air purifiers or cleaners
8421 39 90 — Other
– Parts :
8421 91 00 — Of centrifuges, including centrifugal dryers u 7.5% –
8421 99 00 – Other
From the above Chapter headings, it can be seen that articles of glass fibres are excluded from Chapter 59 and 8421 specifically includes air purifiers and therefore, the goods admittedly which are made of 100% glass fibres and which is meant for filtering the gaseous items are rightly classifiable under CTH 8421.
5. The second issue is with regard to limitation applicable under Section 28(1)(a), the Commissioner (A) has held that Section 28(1)(a) empowers them to issue notice within one year in the case of Government, any individual, educational, research or charitable institution or hospital. Hence, the appellant being a State Government Undertaking, the notice issued within one year was a valid notice. The appellant is incorporated as a company under the Companies Act, 1956 and though they are State Government Undertaking are incorporated as a company under the Companies Act, 1956. The Hon’ble Kerala High Court in the Food Corporation of India (FCI) vs. Angamali Municipality: 1994 (1) KLT 977 rejected the claim of FCI that it is not liable to pay tax, the Hon’ble High Court observed as follows:
“10. After a conspectus of the various provisions of the Food Corporation Act, the Supreme Court held the corporation was not a Government department. A government department has to be an organisation which is not only completely controlled and financed by the Government but has also no identity of its own The Corporation on the other hand is an autonomous body capable of acquiring, holding and disposing of property and having npower to contract……… But the Act has given the Corporation an individuality, apart from the Government, so that it cannot be equated with the central government though it may be an agency or instrumentality thereof….”
5.1 In view of the above observations by the Hon’ble Kerala High Court and considering the fact that the appellant was registered under the Companies Act, 1956, the question of considering as Government undertaking for issuance of notice is rejected. Accordingly, the impugned order is upheld as far as the classification is concerned and rejected on the ground of limitation.
6. The appeal is allowed partly.
(Order pronounced in open court on 09.01.2024.)
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