Custom, Excise & Service Tax Tribunal
International Aircon Pvt. Ltd. vs Cc (Nhava Sheva-V ), Mumbai on 11 September, 2020
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
WEST ZONAL BENCH
MISCELLANEOUS APPLICATION NO: 85256 of 2018
WITH
CUSTOMS APPEAL NO: 87351 OF 2017
[Arising out of Order-in-Original No: 30/2017-18/Commr./NS-V/CAC/JNCH
dated 12th July 2017 passed by the Commissioner of Customs (NS-V), Nhava
Sheva.]
International Aircon Pvt Ltd
2/8 West Patel Nagar, New Delhi - 110 008 ... ........
Appellant
versus
Commissioner of Customs (NS-V)
Jawaharlal Nehru Custom House, Nhava Sheva,
Dist": Raigad, - 400 707 ...Respondent
APPEARANCE:
Shri Vipin Kumar Jain with Ms Isha Shah, Advocates for the appellant Shri KK Srivastava, Additional Commissioner (AR) with Shri Ramesh Kumar, Assistant Commissioner (AR) for the respondent CORAM:
HON'BLE MR C J MATHEW, MEMBER (TECHNICAL) HON'BLE DR SUVENDU KUMAR PATI, MEMBER (JUDICIAL) FINAL ORDER NO: A/85803 / 2020 DATE OF HEARING: 26/02/2020 DATE OF DECISION: 11/09/2020 PER: C J MATHEW The appellant, M/s International Aircon Pvt Ltd, is a distributor of Mitsubishi air-conditioners and, having effected imports against bills C/87351/2017 2 of entry no. 9062207/28.04.2015, 9055056/27.04.2015, 9059263/28.04.2015 and 9059428/28.04.2015 of which the first three, upon examination, were found to be at variance with declaration that these were all capable of cooling only, came under wider investigation of imports of like description carried out at Jawaharlal Nehru Port Trust, Air Cargo Complex, Mumbai, Kolkata Port and Inland Container Depot, Ahmedabad culminating in issue of notices dated 25th April 2016 and 9th August 2016 that were adjudicated by common order-in- original no. 30/2017-18/Commr/NS-V/CAC/JNCH dated 12th July 2017 of Commissioner of Customs (NS-V), Jawaharlal Nehru Custom House, Nhava Sheva that is impugned before us.
2. In the bills of entry pertaining to the live consignments, several model variants of air-conditioners, valued at ₹ 55,71,557, the benefit of notification no. 85/2004-Cus dated 31st August 2004 (at sl no. 49), exempting all goods under tariff item no. 84151010 of First Schedule to Customs Tariff Act, 1975, was claimed. The notice alleges that the goods had been wrongly classified to avail of the exemption to which they were not entitled as the claimed classification was intended to cover only 'self-contained' or 'split' units that are 'window' or 'wall' mounted with only cooling capability while the goods under import were either 'wall' mounted 'split' units performing dual functions of heating and cooling or were 'ceiling mounted' or 'ducted' for which tariff item no. 84158110, 84158190, 84158210, 84158290 and 84158390 of First Schedule to Customs Tariff Act, 1975 are more C/87351/2017 3 appropriate.
3. Of the two notices adjudicated in the impugned order, the latter dated 9th August 2016, proposing re-classification of good imported, between January 2016 and April 2016 against 9 bills of entry, under heading no. 84158210 or 84158290 of First Schedule to Customs Tariff Act, 1975, and for recovery of differential duty liability of ₹ 18,46,311, was confirmed in full under section 28 of Customs Act, 1962 along with appropriate interest under section 28AA of Customs Act, 1962. The earlier notice dated 25th April 2016, proposing recovery of ₹ 4,21,19,465 under section 28 of Customs Act, 1962 on 111 consignments valued at ₹ 29,22,17,291, filed for clearance between May 2013 and March 2016 at Nhava Sheva, Kolkata Port, Inland Container Depot, Ahmedabad and Air Cargo Complex, Ahmedabad by reclassifying under heading no. 84158110, 84158190, 84158210, 84158290 and 84158390 of First Schedule to Customs Tariff Act, 1975, was confirmed to the extent of ₹ 4,14,73,994 along with appropriate interest section 28AA of Customs Act, 1962. While the misdeclared goods were held as liable to confiscation, only the live consignments, valued at ₹ 55,71,757, were confiscated under section 111 of Customs Act, 1962 to be redeemable on paying fine of ₹ 1,00,000 besides mandatory penalty of ₹ 2,24,09,025 being imposed under section 114A of Customs Act, 1962.
4. As the submissions of Learned Counsel for the appellant deal primarily with misapplication of the General Rules for the C/87351/2017 4 Interpretation of Import Tariff in Customs Tariff Act, 1975 on the part of the adjudicating authority, we may usefully refer to the respective tariff headings that were adopted by the importer and by the customs authorities before reviewing the construction elaborated in the impugned order to the detriment of the appellant herein.
5. It is common ground that heading no. 8415 of the First Schedule to Customs Tariff Act, 1975 covers the entirety of 'air-conditioners' of every kind corresponding to description as 'Airconditioning machines, comprising a motor-driven fan and elements for changing the temperature and humidity, including those machines in which the humidity cannot be separately regulated' and apt for the technology that drives such equipment. While 'split system' is the description that attaches to tariff item no. 84151010 of the First Schedule to Customs Tariff Act, within the group described as 'window or wall types, self-contained or "split system"' corresponding to sub-heading no. 841510 (at six digit level) of the First Schedule to Customs Tariff Act, 1975, 'split air-conditioner two tonnes and above' are descriptions found corresponding to tariff item no. 84158110, 84158210 and 84158310 of the First Schedule to Customs Tariff Act, 1975 with the residuary described as 'others' in tariff item no. 84158190, 84158290 and 84158390 of the First Schedule to Customs Tariff Act, 1975. These first and last pairs of descriptive dichotomies are placed under the description 'incorporating a refrigerant unit ...' and 'not incorporating a refrigerant unit' correspond to sub-heading C/87351/2017 5 no. 841581 and 841583 (at the six digit level) distinguishing the two unambiguously while the description of the former is qualified with '....and a valve for reversal of the cooling or heat cycle (reversible heat pump)' to distinguish from the pair occurring between that restrictedly described as 'incorporating a refrigerant unit' corresponding to sub- heading no. 841582 (at the six digit level). In the framework of the present dispute, tariff item no. 84159090 of the First Schedule to Customs Tariff Act, 1975 and sub-heading no. 841520 of the First Schedule to Customs Tariff Act, 1975, corresponding to 'parts' and to 'of a kind used for persons in motor vehicles' may be ignored as irrelevant.
6. It would, therefore, appear that 'air conditioning machines' may or may not incorporate a refrigerant unit and, if it does, may have the option of incorporating a valve that permits reversal from either direction in the temperature scale. Thus, all variants of 'air conditioning systems' comprise the essential 'motor-driven fan and elements for changing the temperature and humidity' and some are loaded with the optional 'refrigerating unit' that may have the further enhancement of 'a valve for reversal' of the cycles. Of themselves, these descriptions are academic owing to uniform standard rates of duty but the potential for disruptive consequence lies in categorization that could be privileged by different effective rates of duty. So it is in this dispute:
the preferential rate accorded to goods under tariff item no. 84151010, to the exclusion of all others, in notification issued under section 25 of C/87351/2017 6 Customs Act, 1962 has been held by the adjudicating authority as the lure that baited the appellant towards adopting this classification by resort to stealth.
7. According to Learned Authorised Representative, the appellant had declared in the bills of entry that the impugned goods, comprising 'outdoor' and 'indoor' units, were capable of cooling only while the labels affixed on 'outdoor units', in some instances, indicated heating and cooling functions, and, in other instances, this was evidenced by the catalogues accompanying the goods. He pointed out that the absence of 'energy efficiency' and 'star rating' stickers on the equipment were additional evidence since these would, invariably, have had heating capability. Concluding that these machines were capable of both heating and cooling, he submits that the adjudicating authority had correctly held such to be outside the scope of classification under tariff item no. 84151010 of the First Schedule to Customs Tariff Act, 1975 as the corresponding description did not provide for such an option for 'wall mounted split systems' with consequent shift of classification. He points out that the adjudicating authority had followed the generally accepted principle of most apt description which, according to him, is the one which specifically refers to 'split air-conditioner' against tariff item no. 84158110 or 84158190 of the First Schedule to Customs Tariff Act, 1975.
8. Learned Authorized Representative also points out the appellant could not, by any stretch of imagination, have sought to classify 'ceiling C/87351/2017 7 mounted split systems' or the 'ceiling suspended split systems' under heading no. 84151010 of First Schedule to Customs Tariff Act, 1975 which corresponds only to 'wall' or 'window' in the description besides the further infirmity of having incorporated options for heating and cooling. According to him, the obvious presence of 'refrigerating unit' would require classification within the descriptions under sub-heading no. 841581, or 841582, of the First Schedule to the Customs Act, 1975 contingent upon the presence of 'heat pump' and the cooling capacity. He also directed our attention to the inference, derived by the adjudicating authority from the amendment effected, by Finance Act, 2006, in sub-heading no. 841510 of First Schedule to Customs Tariff Act, 1975 for coverage of 'ceiling' and 'floor' in addition to 'window' and 'wall' existing therein, that it was clearly not intended to include these under that heading prior to the amendment.
9. On the last category of 'duct connected air-conditioners', he contends that the logic of shifting the classification from sub-heading no. 84151010 to 841581 and 841582 for the two variants are the same as for the other models discussed supra.
10. Learned Counsel points out that the structuring of the sub- headings amply enlightens the scheme of classification. According to him, there is a dichotomy in architecture of air-conditioning machines which segregates the obvious grouping of compact systems, that may be self-contained or split without any major change in technology for accommodating peculiar requirements of enclosed space in urban C/87351/2017 8 vertical constructions, from modular systems intended for specialized uses. By referring to the dichotomy at the next level in the second cluster, viz. those incorporating refrigerating unit and those without, he suggests thar the incorporating equipment is something other than that for normal cooling. Therefore, the intent of 'residuary' grouping at the first level itself is, according to him, not without significance for classification. He contends that the 'air-conditioners' imported by the appellant are all 'split systems' and not the 'split air-conditioners' described in the 'residuary' grouping.
11. At this stage, he posited that the adjudicating authority, instead of applying himself to pyramidical descent through the dichotomy in the cluster of sub-headings, applied the mandate of 'the more specific description as prevailing over the general' with brutal disregard of the manner in which the Rules are to be applied.
12. Learned Counsel led us through the Explanatory Notes, pertaining to heading no. 8415 of the First Schedule to Customs Tariff Act, 1975, which has elaborated upon sub-heading no. 841510 giving extensive scope for appreciation of 'split systems' specifying even 'ceiling' as the location of the indoor unit while excluding ducted central air-conditioning systems.
13. Learned Authorized Representative also submitted that the appellant could not be allowed to claim that the misdeclaration was bona fide. He placed reliance on the decision of the Tribunal in Hotline C/87351/2017 9 CPT Ltd v. Commissioner of Central Excise, Indore [2016 (333) ELT 356 (Tri-Del)], of the Hon'ble High Court of Bombay in McKinsey & Co Inc v. Commissioner of Central Excise [2019 (20) GSTL 198 (Bom)] and of the Hon'ble Supreme Court in Commissioner of Customs (Preventive) v. Afloat Textiles (I) P Ltd [2009 (235) ELT 587 (SC)] to support this contention.
14. The argument of Revenue that the expansion of the description corresponding to tariff item no. 84151010 of the First Schedule to Customs Tariff Act, 1975, by Finance Act, 2016 is demonstrative of legislative intent to classify 'ceiling mounted' and 'ceiling suspended' air-conditioning units in other sub-headings does not find favour with us. That would have been acceptable had the shift been overtly from another sub-heading. The tariff was designed in 1975 and was not intended to specify ever item of international trade. The descriptions were formulated to articulate general characteristics of each cluster of sub-headings within the logical structuring of the several articles. It cannot be the case of Revenue that the technology of air-conditioning had ventured beyond the simple 'window' or the rudimentary 'split' type in the early 1970s. The economic empowerment of a large segment of the population residing in the tropics with its consequence in terms of leap in demand for air-conditioning equipment has had its impact not only on the growth of the industry internationally but also on the technological advances that a tariff classification may have had difficulty in mirroring. That lag could have had a regressive impact on C/87351/2017 10 the pace of assessment systems in conceptualizing the nature, and purposes, of the tariff and its application to articles of common use. When that lag is found to have moved too far from the original legislative intent by executive interpretation, it becomes imperative for legislation to bring focus back to the intent. The expansion intended by Finance Act, 2016 can only be viewed in that light as the specifics of location was not evident in the competing entries too.
15. On examination of the records, we are, peculiarly, bereft of any judicial decisions settling the classification dispute. And peculiarly enough, as the imports of 'air-conditioners' are commonplace. The adjudicating authority has referred to the decision of the Tribunal in ETA General Pvt Ltd v. Commissioner of Customs, Chennai-II [2016 (341) ELT 140 (Tri-Chennai)] but that has not been pressed into service by Revenue to advance the correctness of the impugned order. We, too, do not, find that decision to be a reliable touchstone in the facts and circumstances of the present dispute. The Tribunal directed classification of the 'split air-conditioners' under sub-heading no. 841583 with reference to the tonnage and on the finding that it incorporated a refrigerating unit but according primacy to the former. It is also not on record if the disputed goods had heating capability which is the crux of the controversy here. In the present dispute, Revenue proposes to bring all 'wall mounted' 'split' type 'air-conditioners' under sub-heading no. 841581 and not under sub-heading no. 841583. Furthermore, in re ETA General Pvt Ltd, the classification that was adopted by the assessing C/87351/2017 11 authority, and approved by the Tribunal, finally zeroed in on a sub- heading that explicitly excludes 'refrigerating unit' which renders it inapplicable as a precedent for deciding this appeal.
16. It is not the problem of fitment within the description corresponding to the sub-headings that has generated this dispute; it was the availment of the privilege afforded by notification no. 85/2004-Cus dated 31st August 2004 which, at sl. no. 49, exempts all goods classifiable under heading no. 841510 of the First Schedule to Customs Tariff Act, 1975 from levy of basic customs duty. The adjudicating authority appears to have accepted the convenience of 'ready fitting' descriptions at the eight digit level of tariff items to be in consonance with the mandate of rule 3 of General Rules for Interpretation which alludes to the most specific description being preferable to a general description. The primary influence was the availability of heating and cooling options in the wall mounted type and the location of the indoor unit on the ceiling which, according to him, rendered tariff items under sub-heading no. 841581, 841582 and 841583 to be more apt. and, thereby, the eligibility for notification was excluded. A question that arises in this context of denial of the exemption is the justifiable cause to exclude some variants of 'air-conditioners' from that privilege. The exemption is in pursuance of a bilateral international agreement which, by no stretch, has deliberated only on 'air conditioners' for such narrow coverage. For that is the purport of the proceedings before the adjudicating authority: denial of the exemption as being ineligible by mutual agreement between two sovereign authorities. Large parts of the C/87351/2017 12 domestic territory experience extreme climatic conditions and the preferential treatment of cooling 'air-conditioners' would appear to be a whimsical distinguishment in the minds of tax authorities.
17. The sanctity of the classification narrative lies in its inexorable logic from beginning to end and within itself. Hence, the groupings, as well as descriptions, have a significance that are not to be ignored. The General Rules for Interpretation also acknowledges this inherent logic and rule 3 is applicable when goods are classifiable under two headings. It is now settled law that though the importer may seek a classification it is the responsibility of the assessing officer to determine the appropriate heading; hence the application of rule 3 of General Rules of Interpretation are not intended for resolving difference of opinion between importer and assessing officer but for guiding the assessing authority in clarifying for itself when in doubt over two headings. From the impugned order, the adjudicating authority did not appear to have been beset with such dilemma. Furthermore, the said Rules, except for rule 6, are concerned with headings and hence the first mandate to an assessing authority is to determine the appropriate heading at the four- digit level. Thereafter, the six-digit and eight-digit level are to be ascertained with reference to the descriptions. The deemed erasure of any other heading thereafter precludes comparison with any tariff item that is not within the determined sub-heading. Hence, the rival entries must lie within the same group. The specificity of description could not have been determined by comparison at the six-digit or eight-digit level C/87351/2017 13 across headings. Not only is such an exercise bereft of logic but is also inconsistent with The General Explanatory Notes to Import Tariff which lays down the hierarchical precedence, and significance of '-', '-
-', and '- - -' in the second column of the Schedule.
18. Under the primary residuary grouping at the '-' level, the distinction among the three sub-headings is determined by the incorporation of 'refrigerating unit', at the first instance, in 'air conditioning machines' and the incorporation of 'valve for reversal of heat or cooling cycle' subsequently. As these sub-headings and tariff items within the residuary category are so distinguished and the expression 'refrigerating unit' is not defined, it cannot be supposed that it refers to the 'cooling unit' for if it did, the first heading would have no place within the description of 'air conditioning machines'. It, therefore, is intended for some component other than the normal cooling facility built into all 'air conditioning machines' and, by not subjecting that expression to the test of existence in the impugned goods, the show cause notice has tripped upon itself in its haste to carry the impugned goods beyond the scope of eligibility for the exemption notification. The applicability of sub-heading no. 841581, 841582 and 841583 to the impugned goods lacks substance.
19. The impugned goods are not 'window' type but they are all of the 'split' type with an external condenser unit and an indoor evaporator unit. In the Explanatory Notes to the Harmonized System of Nomenclature pertaining to sub-heading no. 841510, we find no C/87351/2017 14 qualifying characteristic that restricts the adoption thereof to 'cooling facility' alone; neither is there any capacity qualification included therein. The existence of such under a parallel hierarchy in the residual category within the four-digit level cannot be insinuated into the specified category merely to exclude coverage under the latter. That would be tantamount to conferring approval to the attempt by the adjudicating authority to alter the logic, and structure, of the Schedule beyond the pale of General Rules of Interpretation and The General Explanatory Notes to Import Tariff.
20. There is no doubt that the expression 'refrigerating unit' is not defined and we have observed that, to deem the 'cooling unit' to be the 'refrigerating unit', an entire sub-heading the tariff would stand earsed which is neither within the empowerment of the Tribunal let alone the adjudicating authority. In the absence of definition, the appreciation of common parlance meaning would have rendered the task of the adjudicating authority in this exercise more meaningful. That the test of common parlance is paramount has been held by the Hon'ble Supreme Court in Atul Glass Industries v. Commissioner of Central Excise [1986 (25) ELT 473 (SC)] and the lack thereof, in the adjudication order, for ascertaining the scope of the residuary heading deprives it of legal sanctity. Before attempting re-classification, the adjudicating authority has failed to determine the scope of the primary residual heading and the consequential effect on the sub-headings and tariff items within it. The adjudicating authority has insinuated non-existent restrictive C/87351/2017 15 qualifications on the description of, and tariff item under, sub-heading no 841510 of the First Schedule to Customs Tariff Act, 1975 and that, too, without the assistance of definition of, or common parlance understanding of, the expression 'refrigerant unit' rendering the re- classification to lack the authority of law.
21. For the above reasons, the impugned order is set aside and appeal allowed. Miscellaneous application is disposed off.
(Order pronounced in the open court on 11/09/2020)
(Dr. Suvendu Kumar Pati) (C J Mathew)
Member (Judicial) Member (Technical)
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