Madras High Court
J.U.Pesticides And Chemicals Pvt. Ltd vs Customs on 2 September, 2014
Bench: R.Sudhakar, G.M.Akbar Ali
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 2.9.2014
CORAM
THE HON'BLE MR.JUSTICE R.SUDHAKAR
AND
THE HON'BLE MR.JUSTICE G.M.AKBAR ALI
C.M.A.Nos.2442 and 2443 of 2014
M.P.Nos.1 of 2014 (2 Petitions)
J.U.Pesticides and Chemicals Pvt. Ltd.
530/2-C, Vanagaram Road
Ambattur, Chennai 600 058. .. Appellant
in CMA.2442/2014
Tropical Agro System (India) Pvt. Ltd.
Jhaver Centre, IV Floor
72, Old No.19, Marshall Road
Egmore, Chennai 600 008. .. Appellant
in CMA.2443/2014
Vs.
1. Customs, Excise and Service Tax
Appellate Tribunal, South Zonal Bench
Shastri Bhavan Annexe Building
1st Floor, 26, Haddows Road
Chennai 600 006.
2. The Commissioner of Customs (Appeals)
Customs House
No.60, Rajaji Salai
Chennai 600 001.
3. The Additional Commissioner of Customs (DEPB)
Customs House
No.60, Rajaji Salai
Chennai 600 001. .. Respondents
in both appeals
Prayer: Appeals under Section 130 of the Customs Act, 1962 against the Misc.Order No.40758 and 40759 of 2014, dated 28.5.2014 passed by the Customs, Excise and Service Tax Appellate Tribunal.
For Appellants : Mr.S.Murugappan
For Respondents : Mr.A.P.Srinivas
Standing Counsel
for respondents 2 and 3
J U D G M E N T
(Delivered by R.SUDHAKAR,J.) These appeals are directed against the Misc.Order No.40758 and 40759 of 2014, dated 28.5.2014, passed by the Customs, Excise and Service Tax Appellate Tribunal (for brevity, the Tribunal).
2.1. The facts in a nutshell are as under: The appellants are importers of various chemicals. The appellant in C.M.A.No.2442 of 2014 filed Eight Bills of Entry and the appellant in C.M.A.No.2443 of 2014 filed Nineteen Bills of Entry for clearance of the goods, claiming that the goods fall under Chapter Heading 28 and 29 of the Customs Tariff Act, 1975. The appellants cleared the goods imported under concessional rate of duty at 7.5% in terms of Notification No.21/2002.
2.2. The Customs Audit objected to the import stating that the goods imported are meant for use as pesticides/insecticides/fungicides and, therefore, such goods should be classified under Heading 38.08 at 10% basic duty instead of 7.5% as originally assessed and cleared. Consequent to the same, show cause notices dated 10.7.2009 and 18.7.2009 were issued to the respective appellants asking them to show cause as to why the duty short levied should not be collected. The appellants submitted their replies and after hearing the appellants, the Additional Commissioner of Customs confirmed the demand under Section 28(2) of the Customs Act, 1962 with interest. The relevant portions of the said orders passed by the Additional Commissioner of Customs read as under:
C.M.A.No.2442/2014:
'I confirm the demand of Rs.10,63,416/- (Rupees Ten Lakhs Sixty Three Thousand Four Hundred and Sixteen Only) issued on 10.7.2009 to M/s.J.U.Pesticides & Chemicals Pvt. Ltd., Chennai 600 008, under Section 28(2) of Customs Act, 1962 with applicable interest.' C.M.A.No.2443/2004:
'I confirm the demand of Rs.42,00,600/- issued on 10.7.2009 to M/s.Tropical Agro System (India) Limited, Chennai 600 008, under Section 28(2) of Customs Act, 1962 with applicable interest.' 2.3. Challenging the said orders, the appellants filed appeals before the Commissioner of Customs (Appeals) along with applications for waiver of pre-deposit and the Commissioner of Customs (Appeals), placing reliance on the decision of the Supreme Court in Union of India v. Pesticides Manufacturing and Formulations Association of India, 2002 (146) ELT 19 (SC), passed an interim order on 18.4.2013 directing the appellants to pre-deposit the entire amount as ordered by the Additional Commissioner of Customs with interest. Since the appellants have not complied with the direction to pre-deposit, the appeals were rejected by the Commissioner of Customs (Appeals) on 27.6.2013 in Order-in-Appeal C.Cus.Nos.877 and 878 of 2013.
2.4. Assailing the said order, the appellants filed appeals before the Tribunal along with applications for waiver of pre-deposit. The Tribunal, after hearing the appellants on merits, by placing reliance on the decision of the Supreme Court in Pesticides Manufacturing and Formulations Association of India case, referred supra, held as under by Misc.Order No.40758 and 40759 of 2014, dated 28.5.2014:
4. The applicants imported insecticides in bulk form. They declared the classification under Chapter 29 in their Bills of Entry. Revenue re-classified the goods under Chapter 38 and demanded duty accordingly. The learned counsel on behalf of the applicants drew the attention of the Bench the relevant portion of the HSN Notes to substantiate that the goods are not put up in retail sale and therefore it cannot be classified under Chapter 38. The original authority confirmed the demand of duty along with interest. The original authority classified the goods following the decision of the Hon'ble Supreme Court in the case of Union of India v. Pesticides Mfg. & Formulations Association of India 2002 (146) ELT 19(SC). Commissioner (Appeals) by stay order directed the applicants to deposit the entire amount of duty along with interest. Subsequently, Commissioner (Appeals), by the impugned order, dismissed the appeals for non-compliance of the stay order.
5. After considering the submission of the both sides, prima facie, we find that the Hon'ble Supreme Court in the case of Pesticides Mfg. & Formulations Association of India (supra) held that technical grade pesticides in bulk form are covered under Heading 38.08. On perusal of the records, we find from the invoice at page 32 that the goods in question are technical grade pesticides in bulk form which is covered by the decision of the Hon'ble Supreme Court. In view of that, the applicants failed to make out a prima facie case for waiver of predeposit of entire dues. As the case, prima facie, is covered by the decision of the Hon'ble Supreme Court, we direct the applicant to predeposit the entire amount of duty i.e. Rs.10,63,416/- (Rupees ten lakhs sixty three four hundred sixteen only) and Rs.42,00,600/- (Rupees forty two lakhs six hundred only) respectively within a period of eight weeks and report compliance on 31.7.2014. Upon such deposit, predeposit of the balance dues stands waived and recovery thereof stayed during the pendency of the appeals.
6. As the matter was decided by the Commissioner (Appeals) without going into the merits of the case, both the sides are at liberty to mention at the time of compliance of stay order for necessary direction. 2.5. Aggrieved by the said order, the present appeals are filed raising the following substantial questions of law:
(i) Whether it is legally correct and proper for the first respondent to apply the judgment of the Apex Court in the case of Union of India v. Pesticides Manufacturing and Formulations Association of India, 2002 (146) ELT 19 (SC) involving an interpretation of an entry in the Schedule to the Central Excise Tariff Act, 1985 concerning manufacturing activities to a case involving import of a product and its classification under the Customs Tariff Act, 1975?
(ii) Whether it is proper and legal for the first respondent to ignore the factual pleadings and apply the judgment given by the Apex Court in the above case without proper appreciation of the facts involved and the claims made?
3.1. Mr.S.Murugappan, learned counsel for the appellants tried to impress upon us that the decision of the Supreme Court in Pesticides Manufacturing and Formulations Association of India, referred supra, was in relation to classification of goods under the Central Excise Tariff Act, whereas in the present case, it is relating to import of goods. He relied upon paragraph (4) of the said decision of the Supreme Court to state that all separately defined chemical compounds are classifiable under Chapter 28 and 29 depending on their composition.
3.2. The learned counsel for the appellants laid emphasis on the Note 1(a)(2) of Chapter Heading 38, which reads as follows:
1. This Chapter does not cover,
(a) Separate chemically defined element or compounds with the exception of the following:
(1) ..............
(2) Insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant-growth regulators, disinfectants and similar products."
to state that separate chemically defined element or compounds are not covered under Chapter 38 and what is covered is only insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant-growth regulators, disinfectants and similar products.
3.3. He further relied upon Circular No.34/2007-Cus, dated 17.9.2007, which was also relied upon in the replies submitted by the appellants to the show cause notices issued by the Department. He pleaded that the said circular issued consequent to the decision in Pesticides Manufacturing and Formulations Association of India, referred supra, states that technical grade pesticides for insecticidal use or Boric Acid put up for retail use, or as specified form as preparations or articles alone will be classifiable under Heading 3808, whereas in the case on hand, there is a specific description of the goods imported and specific entries are provided under Chapter Heading 29 and, therefore, it will not fall under Heading 38.08. The learned counsel pleads that there is a prima facie case in favour of the appellants and the pre-deposit directed to be made should be waived.
4.1. Mr.A.P.Srinivas, learned Standing Counsel appearing for respondents 2 and 3 laid emphasis on the decision of the Supreme Court in Pesticides Manufacturing and Formulations Association of India, referred supra, to contend that the Tribunal was justified in ordering pre-deposit of the entire amount. He reiterated the fact that the goods imported fall under Heading 38.08 and in this regard, he placed reliance on paragraph (22) of the decision in Pesticides Manufacturing and Formulations Association of India, referred supra, which reads as under:
22. The final position as it now stands is that Chapter Note 1(a)(2) and 2 of Chapter 38 read:
'1. This Chapter does not cover:
(a) Separate chemically defined elements or compounds with the exception of the following:
(1) ..........
(2) Insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant-growth regulators, disinfectants and similar products, put up as described in Heading No. 38.08;
2. In relation to products of heading No. 36.08, addition of chemicals and other ingredients like inert carriers or solvents, surface active dispersing and stabilising agents, emulsifiers, wetting and dispersing agents, deodorant, masking agent, attractants and feeding stimulants to pesticidal chemicals in concentrated form, labelling or relabelling of containers intended for consumers and repacking from bulk pack to retail packs or the adoption or any other treatment to render the product marketable to the consumer shall amount to manufacture'.
Tariff Heading 38.08 now reads as:
'Insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant-growth regulators, disinfectants and similar products, put up in forms or packings for retail sale or as preparations or articles (for example, sulphur-treated bands, wicks and candles, and fly-papers).' 4.2. In support of the order passed by the Tribunal, the learned Standing Counsel also placed reliance on paragraph (25) of the decision of the Supreme Court in Pesticides Manufacturing and Formulations Association of India, referred supra, regarding the Harmonized System of Commodity Classification, which reads as under:
25. The HS of Commodity Classification which was developed by the World Customs Organisation, Brussels was adopted by India also in the ITC (HS) Classification of Export and Import Items, 2002-2007 which was issued by the Government under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 read with paragraph 2.1 of the Export and Import Policy, 2002-2007. The ITC (HS) like the Schedule to the 1985 Act, also contains several chapters which correspond exactly with the Schedule to the 1985 Act at least as far as the relevant parts of Chapter 38 are concerned. Chapter Note 1(a)(2) and the Heading 38.08 of the ITC (HS) are identical with the Schedule to the 1985 Act. In the ITC (HS), under the several sub-headings to Heading 38.08, the different forms of insecticides, pesticides etc. have been provided for from which it is clear that insecticides etc. in their concentrated bulk forms are covered by the Heading 38.08 at least for the purposes of the Import/Export Policy. For example, sub-heading 3808.10.11 mentions 'Aldrin' as a form of insecticide. Against that sub-heading, it is provided that it is freely importable/exportable 'if registered and not prohibited for import under Insecticides Act, 1968 and formulations thereof'. Similarly, 3808.90.10 provides for pesticides, not elsewhere specified . It is treated as a free item under the policy 'if registered and not prohibited for import under the Insecticides Act, 1968 and formulations thereof'. Undeniably insecticides, pesticides etc. in whatever form are covered by the Insecticides Act. The description demonstrates that bulk concentrates and formulations are covered by the sub-heading 'Aldrin'. The use of the came words in the Tariff Heading in the Schedule to the 1985 Act as has been used for the purposes of the Import Trade Control Policy is an additional reason for holding that insecticides, pesticides concentrates in bulk forms are includible within the Tariff Heading. (See Dunlop India Ltd. v. Union of India and Others 1976(2) SCC 241.)
5. We have heard Mr.S.Murugappan, learned counsel for the appellants and Mr.A.P.Srinivas, learned Standing Counsel appearing for respondents 2 and 3 and perused the orders passed by the Tribunal and the authorities below.
6. Before adverting to the merits of the case, it would be apposite to refer to the Circular No.34/2007-Cus, dated 17.9.2007, which is heavily relied upon by the learned counsel for the appellants:
Circular No.34/2007-Cus, Dated:September 17, 2007 Sub: Classification of Boric Acid and separate chemically defined compounds for the purpose of Customs & Central Excise reg.
It has been represented by the trade and industry associations that certain difficulties have been faced in classification of imported boric acid. Doubts have also been expressed by field formations as to whether 'Boric Acid', would be classifiable as 'separate defined chemical compound' under chapter 28 or as pesticides / insecticides, etc. under chapter 38 of the Customs Tariff.
2. Board discussed the issue of classification of Boric Acid and other separate chemically defined compounds. It was noted by the Board that 'Boric Acid' is a chemical compound specified under heading 2810 of the Customs Tariff. It has multifarious uses, which, interalia, include industrial raw material, insecticide use, etc. Following a Supreme Court's decision in the case of Union of India Versus Pesticides Manufacturing & Formulators Association of India [2002 (146) ELT 19(SC)], the Board in the past had examined the matter regarding the classification of Boric Acid, and its admissibility for imports in terms of the Foreign Trade Policy. Accordingly, Circular No.61/2004-Cus dated 28.10.2004 was issued, classifying Boric Acid under Chapter 3808 of the Customs Tariff. Following the circular, all customs formations are classifying Boric Acid under Chapter 38, whereas the domestic manufacturers are classifying the commodity under Chapter 28, which has a specific heading for the commodity. Hence, differing assessment practices were prevailing, and the issue was required to be sorted out in respect of Boric Acid, which is imported for purposes other than for use as Insecticide.
3. The Board observed that Boric Acid is covered by two specific entries i.e. 2528 90 10 and 2810 00 20, based on its chemical composition. Heading 38.08 covers insecticidal/ pesticidal or other similar preparations; insecticides/ pesticides put up in forms or packings for retail sale; and insecticidal/pesticidal articles. The Board also took note of the view that as per rule 3 of the General Rules for the interpretation of Import Tariff, 'When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:
(a) The heading which provides the most specific description shall be preferred to headings providing a more general description'.
Therefore, Boric Acid should be classifiable under Chapter 28 of the Tariff, both under Central Excise Tariff and Customs Tariff.
4. In view of the above, it has been decided by the Board that the classification of 'Boric Acid', in supersession of its earlier circulars, would be under heading 2810; technical grade pesticides for insecticidal use or Boric Acid put up for retail sale or other specified forms as preparations or articles alone will be classifiable under 3808. This is being clarified for the purpose of uniformity in classification and for the purpose of levy and assessment thereof in respect of Boric Acid and similar separate chemically defined compounds.
5. Customs and Central Excise field formations may finalise the pending assessments, if any, accordingly.
7. In the case of import of boric acid, to clarify certain doubts, the Board has issued the said Circular to the effect that Boric Acid will fall under Heading 2810, however technical grade pesticides for insecticidal use or Boric Acid put up for retail sale or other specified forms as preparations or articles alone will be classifiable under Heading 3808. The said clarification was issued for the purpose of levy and assessment thereof in respect of Boric Acid and similar separate chemically defined compounds.
8. In the case on hand, a perusal of the Bills of Entry filed by the appellants makes it clear that except one commodity, namely, Methyl Parathion, which falls under Heading 29201100, all other commodities imported are claimed under general heading Others - 29420090. Relying on the said circular, the appellants pleaded that they will be able to justify that each one of the imported goods is separate chemically defined compound and, therefore, it will fall under Chapter Heading 29 and not under Heading 3808. However, this circular has not been taken note of by the Commissioner of Customs (Appeals) or by the Tribunal. This Circular has been issued post the Supreme Court decision in Pesticides Manufacturing and Formulations Association of India, referred supra, and it is relatable to imports.
9. On a reading of the said circular, we are of the considered view that to some extent it gives relief to import of chemicals, if they are separate chemically defined compounds. When there is specific description of the commodities and specific entries are provided under Chapter Heading 29, we find that to some extent the Circular No.34/2007-Cus, dated 17.9.2007, will enure to the benefit of the appellants.
10. At this stage, we do not feel it justified to give a ruling as to whether the goods fall under Heading 38.08 or 29, except to observe that the appellants in this case on the basis of the Circular No.34/2007-Cus, dated 17.9.2007 have made out at least a probable case for consideration as to whether the goods are separate chemically defined compounds falling under Chapter Heading 28 or 29 and not Chapter Heading 38, albeit the decision of the Supreme Court in Pesticides Manufacturing and Formulations Association of India, referred supra, will having a bearing on this case.
11. Even though the appellants have not pleaded undue hardship, considering the nature of the imports made by the appellants in the light of the clarification issued by Circular No.34/2007-Cus, dated 17.9.2007, we are of the considered opinion that an arguable issue has been raised by the appellants insofar as the merits of the case is concerned.
12. At this juncture, it would be apposite to refer to a decision of the Supreme Court in Benara Valves Ltd. v. CCE, (2006) 13 SCC 347, wherein it has been held as under:
8. It is true that on merely establishing a prima facie case, interim order of protection should not be passed. But if on a cursory glance it appears that the demand raised has no legs to stand on, it would be undesirable to require the assessee to pay full or substantive part of the demand. Petitions for stay should not be disposed of in a routine manner unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand. There can be no rule of universal application in such matters and the order has to be passed keeping in view the factual scenario involved. Merely because this Court has indicated the principles that does not give a licence to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizens faith in the impartiality of public administration, interim relief can be given.
9. It has become an unfortunate trend to casually dispose of stay applications by referring to decisions in Siliguri Municipality v. Amalendu Das, (1984) 2 SCC 436 and CCE v. Dunlop India Ltd., (1985) 1 SCC 260 cases without analysing factual scenario involved in a particular case.
10. Section 35-F of the Act reads as follows:
35-F. Deposit, pending appeal, of duty demanded or penalty levied.Where in any appeal under this Chapter, the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of Central Excise Authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the adjudicating authority the duty demanded or the penalty levied:
Provided that where in any particular case, the Commissioner (Appeals) or the Appellate Tribunal is of opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person, the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal, may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interests of the Revenue:
Provided further that where an application is filed before the Commissioner (Appeals) for dispensing with the deposit of duty demanded or penalty levied under the first proviso, the Commissioner (Appeals) shall, where it is possible to do so, decide such application within thirty days from the date of its filing.
11. Two significant expressions used in the provisions are undue hardship to such person and safeguard the interests of the Revenue. Therefore, while dealing with the application twin requirements of considerations i.e. consideration of undue hardship aspect and imposition of conditions to safeguard the interests of the Revenue have to be kept in view.
12. As noted above there are two important expressions in Section 35-F. One is undue hardship. This is a matter within the special knowledge of the applicant for waiver and has to be established by him. A mere assertion about undue hardship would not be sufficient. It was noted by this Court in S. Vasudeva v. State of Karnataka, (1993) 3 SCC 467 that under Indian conditions expression undue hardship is normally related to economic hardship. Undue which means something which is not merited by the conduct of the claimant, or is very much disproportionate to it. Undue hardship is caused when the hardship is not warranted by the circumstances.
13. For a hardship to be undue it must be shown that the particular burden to observe or perform the requirement is out of proportion to the nature of the requirement itself, and the benefit which the applicant would derive from compliance with it.
14. The word undue adds something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant.
15. The other aspect relates to imposition of condition to safeguard the interests of the Revenue. This is an aspect which the Tribunal has to bring into focus. It is for the Tribunal to impose such conditions as are deemed proper to safeguard the interests of the Revenue. Therefore, the Tribunal while dealing with the application has to consider materials to be placed by the assessee relating to undue hardship and also to stipulate conditions as required to safeguard the interests of the Revenue. Even though the said decision relates to a dispute under the Central Excise Act, 1944, the parameters to be considered are the same even under the Customs Act, 1962, as has been held by the Supreme Court in a subsequent decision in Indu Nissan Oxo Chemicals Industries Ltd. v. Union of India, (2007) 13 SCC 487. Further, in the present case, duty at 7.5% has been paid at the time of import. It is the difference of duty that is demanded. Hence, interest of the importer and the department can be taken note of for securing the ends of justice.
13. For the foregoing reasons, we pass the following order:
(i)On the questions of law raised, we are of the view that the Tribunal was not justified in ordering the pre-deposit in the manner stated in its order dated 28.5.2014 made in Misc.Order No.40758 and 40759 of 2014;
(ii)Consequently, the order of the Tribunal dated 28.5.2014 is modified to the effect that the appellant in C.M.A.No.2442 of 2014 shall make a pre-deposit of Rs.5,00,000/- Lakhs (Rupees Fifty Lakhs only) and the appellant in C.M.A.No.2443 of 2014 shall make a pre-deposit of Rs.20,00,000 (Rupees Twenty Lakhs only) within eight weeks from today and subject to such compliance, the pre-deposit of balance dues stands waived and recovery thereof shall stand stayed during the pendency of the appeals before the Tribunal; and
(iii)On appellants making such deposit as directed by this Court, the appeals shall be taken up by the Tribunal on merits and disposed of in accordance with law.
In the result, these appeals are ordered in the above terms. No costs. Consequently, connected Miscellaneous Petitions are closed.
(R.S.J.) (G.M.A.J.)
2.9.2014
Index : No
Internet : Yes
sasi
To:
1. The Assistant Registrar
Customs, Excise and Service Tax
Appellate Tribunal, South Zonal Bench
Shastri Bhavan Annexe Building
1st Floor, 26, Haddows Road
Chennai 600 006.
2. The Commissioner of Customs (Appeals)
Customs House
No.60, Rajaji Salai
Chennai 600 001.
3. The Additional Commissioner of Customs (DEPB)
Customs House
No.60, Rajaji Salai
Chennai 600 001.
R.SUDHAKAR,J.
and
G.M.AKBAR ALI,J.
(sasi)
C.M.A.Nos.2442 and 2443 of 2014
2.9.2014