Custom, Excise & Service Tax Tribunal
M/S. Itspossible Marketing Ltd vs Cc, Chennai-Ii on 27 November, 2017
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal No.C/40424/2016
(Arising out of Order-in-Original No. 43455/2015 dated 30.11.2015, passed by the Commissioner of Customs, Commissionerate-II, Chennai)
M/s. Itspossible Marketing Ltd. : Appellant
Vs.
CC, Chennai-II : Respondent
Appearance Shri Lakshay Sowhnay, Advocate Shri Ankan Suri, Advocate for the appellant Shri B. Balamurugan, AC (AR) for the Respondent.
CORAM :
Honble Ms.Sulekha Beevi, Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing: 26.09.2017 Date of Pronouncement:27.11.2017 FINAL ORDER No. 43013/2017 Per Bench The appellants had imported various products viz., Andersons Concentrated Mineral Drops (CMD in short), Elete Electrolyte and NanoSil declared under Chapter 3004 5020 of Customs Tariff Act, 1975. The Department took the view that those products should be classified under CTH 2106 9099 and further that declared values of these imported goods should be rejected under Rule 12 of Customs Valuation Rules, 2007 and re-determined. A consignment of the goods was taken up for investigation and later SCN was issued proposing to classify the products under 21069099, for enhancement of declared value and for differential duty demand, interest and proposed to impose penalties. After due process of adjudication, vide the impugned order dated 30/11/201516.12.2015, the lower authority inter alia held that CMD, Elete Electrolyte and NanoSil were required to be classified under CTH 2106 9099 and declared value of CMD was enhanced to USD 1.21 for 1OZ bottle and USD 2.08 for 2 OZ bottle. So also, declared value of NanoSil was enhanced to 15.0 USD per bottle (8 OZ). Certain amount of freight was ordered to be added to the assessable value. The differential duty proposed in the SCN was confirmed by the lower authority. Entire quantity of the imported goods were confiscated and option given by the adjudicating authority for their redemption on payment of fines under Section 125 (1) of the Customs Act, 1962. Penalties were imposed under Section 114A and Section 114AA ibid on the importer appellant. Penalty under Section 112 (a) and 114 AA ibid were also imposed on the Director of the appellant Company and other persons who were noticees in the proceedings.
1.1 Appellants filed a writ petition W.P(C) 6660/2012 before the Honble High Court of Delhi for issue of direction to Customs authorities to permit provisional release of goods. The Honble High Court of Delhi directed the Commissioner of Customs to deliberate with respect to whether or not clearance ought to be made qua the consignment covered under the earlier Bill of Entry dated 06.05.2011 and thereafter pass an appropriate order as deemed fit. Another writ petition was preferred before the Honble High Court of Madras as WP No. 31734/2016 and the Honble High Court vide an order dated 26.10.2016 taking note that the adjudication proceedings had been completed and the Order-in-Original had been passed, held that the relief claimed to direct the department to grant provisional release of the goods is not maintainable. Therefore, only option available for the petitioner is to move the CESTAT for appropriate interim relief. On writ appeal No. 142/2017 preferred by the department against this order, vide order dated 16.12.2017 the Honble High Court ordered as under:-
5. The appeal filed by the assessee before the CESTAT shall be disposed of within a period of four weeks from the date of receipt of a copy of this order. In the meanwhile, the order passed by the learned Single Judge is stayed. The bank guarantee shall be kept alive till the disposal of the appeal before the CESTAT and in the event the writ petitioner is successful, the bank guarantee may be released. The writ appeal is disposed of accordingly. 1.2 Early hearing application No. C/EH/40124/2017 was filed by the appellant, which was heard on 06.03.2017 and the Tribunal vide Miscellaneous Order No. 40111/20-17 dated 6/3/2017, allowed early hearing of the case.The matter was then heard by this Bench on 08.03.2017 and 30.08.2017. The matter was finally heard on 26.09.2017.
2. The Ld. Advocate for the appellant made oral and written submission which can be summarized as under:-
i) The appellant imported Andersons Concentrated Mineral Drops (CMD) in 1 oz (30) ml and 2 oz (60 ml), Elete Electrolyte (Elete) from MRI, USA viz., and Nanosil from M/s. Precious Waters Inc., USA.
ii) CMD and Elete is a mineral salt. They contain all water soluble elements in almost identical proportion to the human body. They help in countering the mineral deficiencies. They are not added to any food item to get the character of food preparation/food supplement. The active ingredient contained in the CMD and Elete is only pure concentrated Great Salt Lake Brine ie., Sea water.
iii) He placed reliance on the Order dated 10.02.2012 passed by Honble Appellate Tribunal Principal Bench, New Delhi in the matter of CC, New Delhi Vs. Keva Industries 2013 (292) ELT 90 (Tri.-Delhi). Para 4 of the said order dated 10.02.2012 is reproduced as under:-
.. We are satisfied that the goods being natural sea water have not gone any preparation to be called as food preparation or any other preparation. There is no test report brought out by the Revenue to discharge the burden of proof to claim that the goods in questions submit to tariff entry 2106 and also to satisfy that it is a preparation with or without certain composition and has undergone the process. In such circumstances, a stand of the respondent does not appear to be devoid of merit. The goods were classified under 2501 having heading as Salt (including Table Salt and Denatured Salt) and Pure Sodium Chloride, whether or not is Aqueous Solutions or Containing Added Anti-Cacking or Free Flowiong Agents; Sea Water.
The imported goods of the appellant are exactly similar to the goods imported by Keva Industries. The goods imported by Keva Industries were classified as sea water under CTH 2501 by the Order dated 18.07.2010 passed by the Ld. Commissioner and further affirmed by the Order dated 10.02.2012 of the Tribunal. The chemical composition of the imported goods of the appellant and that of the imprted goods of Keva Industries are exactly identical. Therefore, both the imported goods must be classified under same heading of 2501.
The detailed description of imported goods of the appellant from MRI, USA viz., Andersons Concentrated Mineral Drops (CMD) and of the imported goods of Keva Industries from Trace Mineral Research, Utah, USA viz., Concentrate Trace Mineral Drops are as under:
Appellant Keva Industries Chloride Magnesium 250 mg Magnesium 600 mg Chloride 690 mg Sulfate 220 mg Sodium 5 mg Sodium 45 mg Potassium 3 m g Lithium 3 mg Sulfate 37 mg Boron 1-3 mg Lithium 395mcg 0.61/9 mg Boron 370 g.
iv) The Ld. Commissioner wrongly classified the imported goods under Customs Tariff Heading 2106 which covers food preparation not elsewhere specified or included and placed it under sub-heading 21069099 Others which is a residual heading. The Ld. Commissioner erred in holding that it is a food/dietary supplement meant for maintaining general health and does not cure or prevent any disease/ailment. However, the imported goods are 100% natural products and not classifiable under CTH 21069099 which covers food preparation. It is important to note that the term food preparation or food supplement is not defined under the Customs Act, 1962.
(a) To fall under CTH 2106, the product has to be a preparation of an extract from plant, fruit concentrates, honey, fructose etc., which may contain vitamins and minerals added to it. In other words, the primary base has to be a preparation of extract of plant, fruit, honey and to that vitamins or minerals are added to it as secondary items. Reliance is placed on the judgment Softesule Ltd. Vs. CCE, Mumbai " 2002 (105) ECR 103 (Tri.)
(b) The show cause notice dated 04.03.2013 (@page 1 to 58 of Volume I of paper book) nowhere states that the imported goods are food preparation having primary base of extract of plant, fruit, honey etc. In fact, the imported goods are 100% natural product and no sweeteners, preservatives, colour or flavouring are added to it. Therefore, it cant be a food preparation in any circumstances.
(c) To fall under sub-heading 21069099 the product has to be:-
i) a food preparation and
ii) the said food preparation is not elsewhere specified or included.
Emphasis is laid on Note 6 of Supplementary Notes of Chapter 2106 Tariff item 21069099 includes sweet meats commonly known as Mithans or Mithai or called by any other name. They also include products commonly known as Namkeens, Mixtures, Bhujia, Chabena or called by any other name. Such products remain classified in these sub-heading irrespective of the nature of their ingredients.
The said note 6 clearly states Tariff item 21069099 includes sweet meats (Mithans or Mithai) and also includes namkeens, mixures, bhujia, chabena etc. It is submitted that the imported goods are nowhere close to these products referred to in the said Note 6. It is submitted that the Supplementary Note 6 on Tariff Item 21069099 ie. other in which the Ld. Commissioner has classified imported goods makes reference to goods such as Mithans, Mithai, Namkeens, Mixtures, Bhujia, Chabena, which are produced by mixing their ingredient and then frying or roasting them in hot oil. These goods mentioned in the item are eatables and does not have mineral salt/sea water as their main constituents. It is submitted that imported goods in question had not gone through frying or roasting but a simple natural evaporation. In any case, the onus of proof is on the department to prove that the imported goods are similar to those mentioned under supplementary notes of 21069099.
(d) Emphasis is laid on Note 5 of Supplementary Notes of Chapter 21:-
Heading 2106 (except tariff items 2106 9020 and 2106 9030), inter alia, includes,
(a) protein concentrates and textured protein substances;
(b) preparations for use, either directly or after processing (such as cooking, dissolving or boiling in water, milk or other liquids), for human consumption;
(c) preparations consisting wholly or partly of foodstuffs, used in the making of beverages of food preparations for human consumption;
(d) powders for table creams, jellies, ice-creams and similar preparations, whether or not sweetened;
(e) flavouring powders for making beverages, whether or not sweetened;
(f) preparations consisting of tea or coffee and milk powder, sugar and any other added ingredients;
(g) preparations (for ex.) tablets consisting of saccharin and foodstuff, such as lactose, used for sweetening purposes;
(h) pre-cooked rice, cooked either fully or partially and their dehydrates; and
(i) preparations for lemonades or other beverages, consisting for example of flavoured or colored syrups, syrup flavoured with an added concentrated extract, syrup flavoured with fruit juices and concentrated fruit juice with added ingredients.
(e) It is submitted that the Ld. Commissioner classified the imported products under CTH 21069099 which is a residual sub-heading. It is further submitted that the above Supplementary Notes 5 & 6 do not mention mineral drops/ mineral supplements/ sea water. The imported goods/products are saline solution having concentrated natural sea minerals from inland sea of Great Salt Lake (Utah, USA). They are neither used for any kind of flavouring purpose nor are added as ingredients or any food preparations.
(v) Ld. Commissioner grossly erred in classifying the imported goods as Food Articles or Food Supplement. It is pertinent to note that the Report of Central Food Laboratory, Mysore dated 07.12.2011 (@ page No. 482 Volume II of paper book) clearly states that the imported goods do not fall under the category of food articles and therefore not covered under Prevention of Food Adulteration Act. The said report was completely ignored by the Ld. Commissioner while passing the impugned order.
(vi) In absence of definition of the term food preparation or food supplement under the Customs Tariff Act of 1975, the Ld. Commissioner ought to have interpreted the same according to common parlance or phrases prevalent in Indian Common masses. It is a settled principle of law through various judicial precedents that while interpreting Tax Statutes great emphasis should be on the knowledge and awareness available in common parlance. Reliance is place on Ramavatar Budkaiprasad Vs. Assistant Sales Tax Officer, Akola AIR 1961 SC 1325 (Para 6). Therefore, the classification of duty on imported goods ought to have been according to the common understanding of the goods in the mind of consumers. It is submitted that consumer do not consider imported goods in the category of food supplement or food preparation but as sea water/mineral drops which are used to treat the deficiency of minerals and salts in the body. The imported goods are leftover of natural evaporation and have not gone through any process or preparation and none of its constituents are added to them. The imported goods are not even considered as food or food preparation by the consumers or by the Central Food Laboratory but is mineral drops from the inland sea lake of Utah, USA.
(vii) Nanosil is a suspended silver solution, which is manufactured by a patented process in which Nanosilver particles are created and suspended in distilled water. It is submitted that Nanosil has a good effect on persons suffering from infections and other diseases like Cancer etc. The Department and the Ld. Commissioner failed to appreciate the prophylactic qualities of Nanosil and erroneously and wrongly contended that it shall fall under Customs Tariff Heading 21069099. The correct classification for Nanosil should be and is rightly CTH 30045020 and not under CTH 21069099 as contended by the department or as confirmed by the Ld. Commissioner. Further, since the imported goods Nanosil which falls under the CTH 3004 is exempted from excise duty under the Central Excise Act, 1944, there is no question of levy of CVD under Section 4A of the said Act.
(viii) The Department in the present case has failed to prove by way of conclusive evidence as to why the imported goods (CMD and Elete) should not be classified under CTH 3004. The reasoning by the department at the time of show cause notice as well before this Honble Tribunal is that the imported goods are classified under heading 2106, hence should not be classified under heading 2501 or 3004 respectively. The focus of the department was that the name of the imported goods (CMD) had the word Concentrated so it should be a preparation and hence covered under CTH 2106. No conclusive evidence was produced by the department on record. The department as well as the Ld. Commissioner erred in not appreciating that the Report of the Central Food Laboratory do not even consider the imported goods (CMD) as food articles, which clearly puts the imported goods out of the ambit of Chapter 2106. The department had failed to discharge the burden of proof to establish that the imported goods CMD and Elete ought not to have been classified under heading 2501 or that the imported goods Nanosil ought not to have been classified under heading 3004 and hence could only be included in residuary heading of CTH 2106. The department as well as the Ld. Commissioner had places emphasis on the name of the imported goods Concentrated Mineral Drops and concluded that it had gone through the process of preparation or manufacturing. It is submitted that the department had failed to produce any evidence regarding the use of the imported goods in common parlance or substantial report which states that the imported goods are food preparations. The appellant has also placed on record the letters of the consumers and certificate from the doctors which provides that the imported goods (CMD) are mineral salt drop and have some medicated qualities. The imported goods (CMD) are consumed for treating the digestive infections and many times detoxifying the kidney. Other medicated qualities of the imported goods included relief from the joint and bone pain of body.
(ix) The Ld. Commissioner has without applying any judicial mind has confirmed the contentions of the Department as stated in the SCN more specifically in paras 51 to 55 of the said SCN. The Departments stand merely relies upon the agreement between the appellant and the Mineral Resources Intl. Inc., whereby the appellant was entitled to a discount of 2.5 to 3% on account of advance payment, a discount of 5% on account of order of full container load, 10% discount for full pallet load and a further discount of 5% for adhering to the schedule. The Department in its SCN has challenged the discount actually advanced to the appellant on the ground that the appellant never imported 4 containers of CMD in 2011-12 and also that the discounts meant for containers had been extended in respect of consignments shipped by air. It is submitted that the appellant had always made prepayment, always ordered pallet load and always ordered pallet load and always followed the order schedule as renegotiated with MRI and therefore that appellant requested for full discounts and being a new association MRI was also pleased to oblige. It is not out of place to mention herein that the invoices were raised on actual pricing after the said discounts and the payments made by the appellant were also in accordance with the said invoices. It is submitted that in the absence of any evidence lead by the department, the Ld. Commissioner ought not to have rejected the unit value of CMD as declared by the appellant.
As regards nanosil, the appellant had paid an amount of USD 3750 (250 bottles @ USD 15 per bottle) to M/s. Precious Waters Inc., however after making such payment, the appellant after extensive negotiation was able to convince the said supplier to reduce the amount t USD 12.60 per bottle. The department relies upon the email sent by Mr. Harry Watson of Precious Waters Inc. where in Mr. Harry Watson had offered to send a separate invoice for use with customs to avoid customs duty.
(x) It is submitted that the penalty should not be imposed on the bonafide assessee. It is an admitted fact that initially there was a confusion regarding the classification of imported goods. The department themselves were determining if the imported goods fell in Chapter 21 or 22 while the appellant bonefidely paid customs duty initially under CTH 30 and then under CTH 25 on the basis of Keva judgment. It is pertinent to note that the appellant were new to the business of importing the goods in India and relied on the advice of previous imports of imported goods and on principle of common parlance. In the present appeal, the department was not able to prove malafide intention of the appellant to evade to duty. It is humbly prayed to set aside the impugned order.
3.1 On the other hand, Ld. AR, Shri B. Balamurugan strongly contended that the ratio of the Tribunal in Keva Industries will not apply to the present case since the impugned goods are manufactured items as indicated on the bottles themselves. The Ld. AR reiterated the findings in the impugned order. On receiving specific intelligence that appellants have been importing dietary supplements but clearing them on the guise of medicaments, by classifying them under CTH 30045020 instead of under CTH 2106 9099, and thus evading payment of CVD on Retail sale price, investigations were conducted by DRI. According to appellants, CMD is natural, sea supplement from Utah Great Salt Lake manufactured by solar evaporation process. On the label of the product it is indicated that a dosage of 2 ml of CMD contains 220 mg of Magnesium, 600 mg of Chloride and 3 mg of Sodium apart from 45 mg of sulphur. The method to consume is also indicated in the label. < to 2 ml of CMD has to be taken mixed with food or beverages so that daily consumption will become 2 ml. It is stated that it is not a drug and not for medicinal use. All those would show that CMD is a dietary supplement to supplement the mineral deficiencies in the human body especially magnesium and trace elements. Elete also is from the same source, but with lesser concentration. These products are rich source of magnesium apart from other trace elements and minerals and inter alia support a health PH balance. Nanosil is claimed to be a suspended silver solution which enhances general immunity. From the labels it is discernable that these are food supplements and not medicine. Therefore, the correct classification is CTH 21.06 under residual heading 21069099 as other food preparations not elsewhere specified or included 3.2 With regard to the mis-declaration of the value the Ld. AR submitted that in one of the e-mails dated 07.01.2011, covering the second shipment, it was mentioned that prices that I quoted are the prices of Schedule E in the contract but with an additional 2.5% discount for prepayment etc. It was stated in the e-mail that by adopting such method appellants would save customs duties. The appellant could not put forward any possible explanation for the said email. It is clear that the appellant had tacit understanding that the overseas supplier as regards the pricing of the impugned products. Investigation also revealed that the appellant had resorted to mis-declaration of terms of invoices as CIF/CF in some of their Bills of Entry when in the Broker Agreement it is stated that the consignments would be shipped on XEA-MRIs fact. Thus there was mis-declaration of the actual freight paid and also mis-declaration of pre-importation charges and such other charges occurred in respect of consignments. Thus the appellant in order to reduce the liability of customs duty besides wrongly classifying the goods as also mis-declared the description and the RSP for levy of CVD coupled with value of freight component with other ex-works charges which are includible in the assessable value. Thus, the appellants have under valued the invoices and evaded payment of appropriate customs duty. The department strongly rejected the transaction value and re-determine the same. He therefore prayed that the impugned order may be sustained.
4. Heard both sides and have gone through the facts and records.
5. The two issues that come up for appellate decision by this forum are
(i) whether the goods imported by the appellant viz. Concentrated Minerals Drops (CMD), Elete Electrolyte (Elete) and Nanosil would merit classification as declared by the appellant under CTH 30045020 or under CTH 21069099 as maintained by the department ?
(ii) whether the enhancement of the declared import values by the department is in order ?
6. The appellants have argued that CMD is an 100% natural mineral concentrate sourced from Great Salt Lake in Utah, USA; that CMD is harvested by using natural evaporation process which takes place over a two year period; that during the course of evaporation, the Sodium content is removed to a large extent and the other minerals are left in micro/traces quantity; that it is used as supplement to reduce the mineral deficiencies in the body, which, in turn, prevents various diseases and is for general health and well being. In respect of the product, Elete, the appellants have similarly averred that it comes from the same source as CMD but with lesser concentration and contains more sodium than CMD and is good for athletes and for people who lose lot of salts through sweat; that it is also a supplement which is used for reducing mineral deficiencies in the body. Appellant has also represented that both CMD and Elete are pure, all-natural, low sodium mineral concentrates, with a healthy pH balance. Hence these are 100% natural products and cannot in any manner be classified under Heading 21069099 which covers "food preparations".
7. The Appellants had classified and sought to clear the impugned goods CMD and Elete under CTH 30045020 as preparations of minerals and their supplements or under the residual heading 21069099 as other. It is also noticed that in respect of some imports, they have claimed classification of CMD under CTH 220190.
8. The appellants have imported yet another product Nanosil, which, according to them, is a suspended silver solution, manufactured by a patented process in which they create Nanosil particles suspended in distilled water which is used as a supplement and not as a medicine. In respect of Nanosil, the department has held that it should fall under CTH 21069099. Appellant however contend that Nanosil should be correctly classified under CTH 30045020 which covers "preparations of minerals and their supplements which have therapeutic or prophylactic uses.
9. Against this, the department has taken a view that all the goods namely CMD, Elete and Nanosil would merit classification only under residual heading CTH 21069099, as other food preparations not elsewhere specified or included. According to department CTH 30.04 covers medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses or in forms or packings for retail sale; that as per HSN notes, the provisions of Heading 30.04 do not apply to "food stuffs or beverages such as dietetic, diabetic or fortified goods, tonic beverages or mineral waters (natural or artificial)" which fall to be classified under their own appropriate headings; therefore that any product to merit classification under CTH 30.04, it must invariably be meant for therapeutic or prophylactic use; that there are no active ingredients in any of the products having such proprieties. With regard to classification of CMD and Elete under CTH 25010090, the heading 2501 covers "Salt (including table salt and denatured salt) and pure sodium chloride, whether or not in aqueous solution or containing added anti-caking or free flowing agents; sea water"; that as regards CMD and Elete, the same cannot be considered as 'salt' since the impugned process involved in making CMD is sought to be removing sodium; that salt water is only starting point for manufacture of CMD or Elete which are manufactured through a proprietary process and which removes sodium and ends up in enriching water in minerals; hence end product is not sea or salt water but a dietary supplement rich in minerals; therefore CMD or Elete cannot be classified under Heading 2501.
10. From a perusal of the impugned order, it emerges that controversy to be adjudicated relates to (1) Concentrate Mineral Drops (CMD), 1 oz (30 ml) and 2 oz (60 ml) packings(2) CMD imported through Chennai (Seaport-Export) (3) CMD and Nanosil imported through Chennai (Airport & Aircargo) (4) CMD imported through Bangalore Customs and (5) CMD imported through IGCAR New Delhi.
11. During the hearing, appellants have furnished that a sample bottle of the Andersons Concentrated Mineral Drops 1 oz (30 ml) bottle imported by them. The label of that bottle has been scanned and reproduced below for ready reference :
This space is purposely left blank
12. From the above label, what is seen claimed is that CMD is originally, all natural, sea mineral supplements from UTAHs Great Lake made through solar evaporation. The ingredients of the bottle have been declared as pure Salt lake concentrate containing magnesium, chloride, sodium and sulphate, lithium and boron. It is also indicated that CMD is not drug. Not for any medicinal use. No approved therapeutic claims". For these reasons, appellants have submitted that the impugned product is nothing but concentrated salt water of great salt lake in UTAH, USA. Appellants have also claimed classification under CTH 2501 as sea water. The department argues that the impugned items CMD are to be classified as "food preparations not elsewhere specified or included under 21069090.
13. We are unable to find any facts or evidence adduced by department to establish that CMD is a food preparation per se. By its very nature the use of the word preparations" in heading 21.06 will surely result in foods to be subjected to some type of preparation or in other words, food that has been worked on so as to result in substance like those exemplified in note 5 & 6 of Chapter 21 which read as under :
"5. Heading 2106 (except tariff items 90 20 and 2106 90 30), inter alia, includes :
(a) protein concentrates and textured protein substances;
(b) preparations for use, either directly or after processing (such as cooking, dissolving or boiling in water, milk or other liquids), for human consumption;
(c) preparations consisting wholly or partly of foodstuffs, used in the making of beverages of food preparations for human consumption;
(d) powders for table creams, jellies, ice-creams and similar preparations, whether or not sweetened;
(e) flavouring powders for making beverages, whether or not sweetened;
(f) preparations consisting of tea or coffee and milk powder, sugar and any other added ingredients;
(g) preparations (for example, tablets) consisting of saccharin and foodstuff, such as lactose, used for sweetening purposes;
(h) pre-cooked rice, cooked either fully or partially and their dehydrates; and
(i) preparations for lemonades or other beverages, consisting for example, of flavoured or coloured syrups, syrup flavoured with an added concentrated extract, syrup flavoured with fruit juices and concentrated fruit juice with added ingredients.
6. Tariff item 2106 90 99 includes sweet meats commonly known as Misthans or Mithai or called by any other name. They also includes products commonly known as Namkeens, mixtures, Bhujia, Chabena or called by any other name. Such products remain classified in these sub-headings irrespective of the nature of their ingredients."
14. We are not able to appreciate that CMD drops would be of genre sought to be explained in the aforesaid chapter notes 5 & 6. In fact, in the three dash heading (---) "Other", the following four dash (----) sub headings are found as under :
2106 90 91 ---- Diabetic foods 2106 9092 ---- Sterilized or pasteurized millstone 2106 9099 ---- Other
15. Another question that pops up is whether CMD drops can be brought into the umbrella of the residual heading 21069099, when all the other prior sub headings are evidently relating to specific preparations made out of food, like sterilized or pasteurized millstone, and the like. In our opinion, the answer to this query would be resoundingly in the 'negative'. We are therefore unable to appreciate the conclusion arrived at in the impugned order that CMD drops would fall under 21069099.
16. Appellants have also brought to our attention the decision rendered by Tribunal in respect of identical item imported by their competitors namely KEVA's CONCENTRANCE MINERAL DROPS which, according to them, were held not to be classified under 2106 as alleged by department. Appellant had also submitted sample bottle of (30 ml) of the said product imported by Keva Industries. The label of which is scanned and reproduced below :-
This space is purposely left blank This space is purposely left blank
17. On a comparison of the labels of the appellants CMD drops and that of Kevas Concentrance Mineral Drops, it is noted that both claim to be products from Great Lake of Utah and more or less make the same claims about the ingredients and minerals therein. Both the labels indicate an advisory that the product is not a drug / medicine and not intended to treat, prevent or cure any diseases. In our opinion, therefore Keva's Minerals Drops can be considered as a product identical to that imported by the appellant herein. We then find that the Tribunal in the case of CC New Delhi Vs Keva Industries - 2013 (292) ELT 90 (Tri.-Del.) has held that the goods being natural sea water had not undergone any processes to be called as 'food preparations or any other preparation'; that there was no test report brought about by Revenue to discharge the burden of proof to claim that goods in question subject to Tariff Entry 2106 and also to satisfy that it was a preparation with or without certain composition and had undergone the process. Hence the findings of the lower appellate authority therein that the goods are classifiable under 2501 was upheld. The relevant part of the Tribunal order is reproduced herein :-
"Learned DR submits that the first appellate authority held that the goods shall fall under the Heading 2501 instead of the same falling under the Heading 2106. The goods covered by tariff item 2106 is food preparations not elsewhere specified or included whereas the tariff item 2501 speaks about salt (including table salt and denatured salt) and pure sodium chloride, whether or not in aqueous or containing added anti-caking or free flowing agents; sea water. Once the goods were meant for use for some purpose the classification claimed by the department under tariff item 2501 is correct.
2.?Learned Counsel Sh. Sudhir Malhotra submits that the goods brought through bill of entry No. 880111 dated 9-6-2010 is mineral drops 60 ml. each bottle RSP LE (Saline solution) (30 bottle x 6 ml.). These are liquids and the appellant made an averment that the goods are sea water containing natural mineral. Few drops i.e. 5 to 15 are added to fresh water for human intake twice a day. That curbs deficiency of mineral in the body. The intake of the impugned goods does not in any way has adverse impact on the body. The goods in question is the natures gift and reduces deficiency of certain mineral in the body. Therefore, his prayer is that ld. Commissioner (Appeals) having examined the goods in terms of the nature thereof has come to appropriate conclusion for classification and that need not be disturbed.
3.?Heard both sides and perused the record.
4.?Learned DR for the Revenue reading para 3 of the grounds of appeal, brings out that in the website of the manufacturer the goods has been described as food supplement. Such ground clearly support the case of the respondent. Since the respondent has made an averment that the goods are fit for human consumption to remove certain deficiency. Now the question to be decided is under which tariff entry the goods fall. We are satisfied that the goods being natural sea water has not gone any preparation to be called as food preparation or any other preparation. There is no test report brought out by Revenue to discharge burden of proof to claim that the goods in question submit to tariff entry 2106 and also to satisfy that it is a preparation with or without certain composition and has undergone process. In such circumstances, stand of respondent does not appear to be devoid on merit.
5.?We had anxiety in the course of hearing to find out edibility of the goods and whether is fit for human consumption. Revenues ground does not discard the claim of human consumption and utility of the goods for the said purpose even though such goods are lying in custody of Revenue for long time. Once we are satisfied that the goods have not undergone any preparation, there is no scope to discard the finding of the first appellate authority made in para 6(d) of the appellate order where he has analyzed the HSN note of heading 2501 and there is nothing contradictory evidence brought by revenue to discard his observation.
6.?Revenues appeal fails. Accordingly, that is dismissed."
In the case at hand also there has been no evidence adduced, say by way of an expert opinion or test report from a competent authority / organization to support the claim of the department, that the products are food preparations.
18. Viewed in this light, both on our own analysis as also following the ratio of the Tribunal decision in Keva Industries (supra), we are of the considered opinion that the impugned Concentrated Mineral Drops imported by the appellant will not merit classification under 21069099. The above discussions would mutatis mutandi apply to classification of Elete and Nanosil.
19. Coming to the dispute on valuation, the SCN has alleged that on perusal of the Brokers Agreement of 2011 dt. 30.12.2010 between the foreign supplier and the appellant and subsequent amendment to Schedule-E thereof, the full container discount and discount for meeting the schedule, are actually available only when four containers are shipped each year.
20. It has been alleged that appellants resorted to misdeclaration of value and suppressed the value component of freight and other Ex-works charges which are includible in the assessable value; that appellants have colluded with their suppliers in raising undervalued invoices in respect of CMD by availing the discount facility, including discounts meant for container shipments (availed for air shipments) in contravention in their own agreement. SCN has also relied upon e-mail correspondence between the parties to allege this. For example when the invoice indicated US$15 per bottle of nanosil, appellant had misdecalred the value as US$ 12.60 per bottle .
21. From the narration in the SCN it is found that certain details had been retrieved from the hard disc and other documents recovered from the premises of the appellant. From these documents, it emerged that commercial invoices submitted by the appellant at the time of import indicated lower values per bottle against actual values. For example, rate was indicated as USD 12.60 per bottle of Nanosil of 8 ounce where as the rate as found from the documents recovered was USD 15.00 per bottle. The attachment to mail from [email protected] to [email protected] contains attachment titled PRICE LIST.xlsx. The pricelist mentions the MRP of 30 Ml CMD bottle as Rs.710/- and 60 Ml CMD bottle as Rs.1300/.-
15. Recovery of these documents or their authenticity has not been disputed by appellant. The invoice documents of appellants have been analysed in detail by the adjudicating and the conclusions arrived are re-produced for ready reference :-
"27. The Show Cause Notice also brought out in detail in paras 51,52, 53 & 55 with regard to the mis-declaration of the value and mis-declaration of terms of invoice. M/s.Itspossible had entered into a contract with their supplier i.e., MRI for the exclusive sales of the products of MRI. On perusal of the Broker Agreement of 2011 dated 30/12/2010 between MRI and Itspossible and subsequent amendment to Schedule E of the said agreement, it is noticed that as per the said agreement, the full container discount and discount for meeting schedule are actually available only when at least 4 containers are shipped each year. In the instance case, Itspossible had never imported 4 containers of CMD in 2011 or 2012. Further, it is also pertinent to mention that the discounts meant for containers were also extended in respect of consignments shipped by Air. When Shri Vipin Kumar was questioned about the same, he stated that it was a fact that the discounts were offered on certain conditions to be met in terms of order schedule, container load order and pre-payment that they had always made advance payment; that container load was also ordered and as per the contract, they had also followed the order schedule upto good extent, which allowed them to request their supplier (MRI) to offer the discount, that moreover, they were just starting the business and they requested MRI to offer the discount to them. During the course of investigation, some e-mail correspondence between Shri Vipin Kumar and Ms Marysa Cardwell of MRI were recovered. In one of the e-mails dated 07/01/2011, covering the import of second shipment through ACC, Bangalore, of Ms Cardwell it was mentioned that The prices that I quoted are the prices of Schedule E in the contract but with an additional 2.5% discount for prepayment. The 3% discount for prepaying and 2% discount for prepaying before shipment average out to be 2.5% overall. Doing the Proforma this way is actual a benefit to you because you will only pay customs based on the amount shown after discount and not the price before. I will make sure that this is also reflected on the final invoice. This should save you a lot of money in customs fees .. When Shri Vipin Kumar was questioned about this, he declined to offer any comments on the said e-mail. Therefore, it is evident from the above that Itspossible and their suppliers MRI had a covert and tacit understanding as regards the pricing of the products is concerned. As against the actual price of $ 1.21 and $ 2.08 respectively, the value of the goods were invoiced as $0.97 or $0.94 and $ 1.67 or $ 1.61 respectively, to evade payment of customs duty. It is also pertinent to mention that when the value of CMD 30 ML was enhanced to $ 1.21 per bottle based on the broker agreement, by the assessing group at ACC, Bangalore in respect of the second bill of entry, the enhancement was accepted by Itspossible without any protest / dispute.
i. Investigation also revealed that Itspossible had resorted to mis-declaration of the terms of invoice as CIF / CF in some of their bills of entry viz., 3004134 dated 19/03/2011, 2981918 dated 16/03/2011 and 3030554 dated 24/03/2011, when it is evident from the broker agreement that the consignments would be shipped on FCA MRIs factory. It was also revealed that they had resorted to mis-declaration of the actual freight paid and also non-declaration of pre-importation charges such as Ex-Works, CC charges etc., incurred in respect of some of the consignments a discussed in para 53 of the Show Cause Notice.
ii. When Shri Vipin Kumar was questioned about the above discrepancies, he admitted that freight charges were not properly declared to the Customs and the values mentioned at para 55 of the Show Cause Notice are correct as they reflect the actual freight and other charges paid by them for their imports and he undertook to pay the differential duty arising out of this. When Shri Venkatesan was questioned about the same, he stated that the mis-declaration of freight charges was known to Shri Vipin Kumar, that freight amount, ex-work charges and fuel surcharges (levied in case of air consignments) are includable in the assessable value; that however, as requested by Shri Vipin Kumar, he had not included the ex-work charges and fuel surcharges in the assessable value; that at times they had under declared the freight charges also.
iii. It is evident that in order to reduce the liability of Customs duty, Itspossible, besides mis-declaring the description & wrongly classifying the goods and mis-declaring the RSP for levy of CVD, have also indulged in Mis-declaration of value for BCD, coupled with suppression of the value component of freight and other ex-works charges, which are includable in the assessable value as mentioned above. Further, with respect to CMD, it is observed that Itspossible have colluded with their suppliers in raising under-valued invoices, by availing all the discounts available, including discounts meant for container shipments (availed for air shipments as well in contravention of their own agreement and thereby evaded payment of appropriate Customs duty. It is also pertinent to mention that in respect of bill of entry no.2663420 dated 28/01/2011, the Assessing Group at ACC, Bangalore had assessed the value of CMD 1 oz (30ml) at $ 1.21 by rejecting the above said special discounts. The enhancement was accepted by the importer voluntarily without any protest. It is seen that value for the customs purpose was given after deducting all the discounts as per contract, but many such discounts were conditional and Itspossible did not fulfil the conditions for discount. Investigation also brought out the e-mail correspondence between Mr Harry Wilson of Precious Waters Inc and Mr Vipin Kumar on April 11, 2012 contained an attachment of the invoice showing the value @ USD15/bottle of NanoSil. Itspossible had mis-declared the value of NnaoSil as US$ 12.60 instead of the actual value of US$ 15 per bottle, to evade payment of appropriate duty.
22. We find that the appellant has not disputed the fact of recovery of the hard disc / files / documents which have been analyzed by the Commissioner as aforesaid. They have also not been able to adequately refute, by adducing any evidence to the contrary that the adjudicating authority has erred in arriving at the aforesaid conclusions concerning undervaluation. In the circumstances, we are unable to find any infirmity with that portion of the impugned order rejecting the value declared for the impugned goods and redetermining the same as follows :
(i) In the case of CMD 1 oz (30 ml) and CMD 2 oz (60 ml) merits redetermination as $ 1.21 and $ 2.08 respectively.
(ii) In respect of Nanosil 8 oz as US$ 15 per bottle, in terms of Rule 3 (1) read with Rule 10 of CVR, 2007.
However, to arrive at the exact quantum of differential duty liability considering the impugned goods as classifiable under CTH 2501, but on enhanced assessable value based on the re-determined unit values arrived at in para-29 of the impugned order, the matter is remanded to the adjudicating authority for this limited purpose. So ordered.
23. Appeal is partly allowed and partly remanded on above terms.
(order pronounced in court on 27.11.2017)
(Madhu Mohan Damodhar) (Sulekha Beevi C.S)
Member (Technical) Member (Judicial)
BB/gs
32
Appeal No.C/40424/2016