Custom, Excise & Service Tax Tribunal
Ortho Clinical Diagnostics India P Ltd vs Commissioner Of Customs -Mumbai(Air ... on 12 August, 2022
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
WEST ZONAL BENCH
CUSTOMS APPEAL NO: 85868 OF 2020
[Arising out of Order-in-Original No: CC-VA/12/2020-2021 ADJ (I) ACC dated
2nd July 2020passed by the Commissioner of Customs-III (Import), ACC
Mumbai]
Ortho Clinical Diagnostics India Pvt Ltd
403, Leela Business Park, Andheri Kurla Road
Andheri East, Mumbai ...Appellant
versus
Commissioner of Customs (Import)
Air Cargo Complex, Sahar
Andheri (East), Mumbai ...Respondent
APPEARANCE:
Shri V Lakshmikumaran, Advocate with Ms Lakshmi Menon, Advocate for the appellant Shri Ramesh Kumar, Assistant Commissioner (AR) for the respondent CORAM:
HON'BLE MR ANIL CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR C J MATHEW, MEMBER (TECHNICAL) FINAL ORDER NO: A /85710 2022 DATE OF HEARING: 15/02/2022 DATE OF DECISION: 12/08 /2022 PER: C J MATHEW In this appeal of M/s Ortho Clinical Diagnostics India P Ltd against order-in-original no. CC-VA/12/2020-2021 ADJ (I) ACC dated 2nd July 2020 of Commissioner of Customs-III (Import), ACC C/85868/2020 2 Mumbai, we are called upon to consider an issue that, and not surprisingly, was never in contention for thirty seven years but rears its head owing to the manner in which the Central Government has arranged the taxing schedule on the recommendations of the Goods & Services Tax (GST) Council in lieu of the Schedule to the Central Excise Tariff Act, 1985 with effect from 1st July 2017.
2. The objective of '(1) Any article which is imported into India shall, in addition, be liable to a duty (hereafter in this section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article' in section 3 of Customs Tariff Act, 1975 providing for domestic duty equivalence on imported goods, though altered to the substitute impost by separate enablement therein, remains unchanged and yet it is now cause for a new species of dispute. The differential duty of ₹ 4,47,00,863 arising from denial of rate of tax at 12% and 5% claimed by the importer and attended upon by the inevitable confiscation under section 111 of Customs Act, 1962 for imposition of penalty under section 112 of Customs Act, 1962 is the cavil of the appellant.
3. The classification of the impugned goods, viz., 'diagnostic kits
-ELISA', 'diagnostic kits - CLIA', 'diagnostic reagents on backing', 'controls and calibrators' and 'other consumable reagents', C/85868/2020 3 corresponding to tariff item 3822 0019 of the First Schedule to Customs Tariff Act, 1975 for the purposes of assessment to basic duties of customs is not controverted in the show cause notice despite which, and after conceding it to be so, the adjudicating authority chose to render a finding that the goods should appropriately have been classified against tariff item 3822 0090 of First Schedule to Customs Tariff Act, 1975, and, by all appearances, in defence of having ventured beyond the usual remit to re-classify, solely for the purpose of denying the claim for inclusion among 'drugs or medicines including their salts and esters and diagnostic kits, specified in List 1 appended to this Schedule' corresponding to serial no.180 in schedule I of notification no. 01/2017 - Integrated Tax (Rate) dated 28th June 2017 chargeable to tax at 5% on the assessable value of goods together with basic customs duty as assessed in so far as the former two are concerned and of coverage within 'all diagnostic kits and reagents' corresponding to sl no. 80 of schedule II of notification no. 01/2017 - Integrated Tax (Rate) dated 28th June 2017 chargeable to tax at 12% on the assessable value of goods together with basic customs duty as assessed for the remaining goods. For confirming that liability of 18% applies to all the goods, the impugned order has held that 'goods which are not specified in schedule I, II, IV, V or VI' corresponding to serial no. 453 in schedule III of the said notification is more appropriate.
4. Mr Lakshmikumaran, Learned Counsel appearing for the C/85868/2020 4 appellant, took us through the technical aspects of the descriptions corresponding to the respective, and rival, entries in the schedules of the impugned notification to seek our approval for the one claimed by them in the bills of entry filed for import of the impugned goods. Learned Authorized Representative, Mr Ramesh Kumar, too argued at length on the merits of the description in the schedule, adopted by the adjudicating authority, as more specific. At this stage, it suffices for the framework of the arguments to be placed on record.
5. According to Learned Counsel, notification no. 1/2017 - Integrated Tax (Rate) dated 28th June 2017 prescribes the rates at which 'integrated tax' is to be levied on 'inter-state supply of goods' and the description are grouped in schedules pertaining to the six rates in vogue corresponding to 'tariff item', 'sub-heading', 'heading' or 'Chapter' that have the same meaning as assigned in First Schedule to Customs Tariff Act, 1975. It was further pointed out that the same rules for interpretation, and including the several notes, are, in accordance with Explanation (iii) and Explanation (iv) of the said rate notification, to be applied for interpretation. He submitted that the two types of diagnostic kits imported by appellant, finding specific mention at serial no. 154 ('enzyme linked immunoabsorbent assay (ELISA) kits') and serial no. 178 (...CLIA diagnostic kits) of List 1 referenced with'....and diagnostic test kits...', classifiable in chapter 30 or any other in the First Schedule to Customs Tariff Act, 1975, corresponding to serial no. 180 of Schedule I of the rate notification, C/85868/2020 5 are chargeable to tax at 5%. Drawing our attention to the contents of the impugned order, he pointed out to the lack therein of any discussion for disallowing their claim to such coverage. He further drew our attention to 'all diagnostic kits and reagents' of heading 3822 of First Schedule to Customs Tariff Act, 1975, at serial no. 180 of Schedule II of the rate notification, as the appropriate description of the other impugned goods to be levied to 'integrated tax' of 12%. It is his contention that, as far as the latter is concerned, the adjudicating authority erred in appropriating the qualifying expression 'diagnostic' to 'reagents' without the support of any acceptable rule or even logic. He averred that the intent of covering all reagents within this description is evidenced by the recommendation of the Goods and Services Tax (GST) Council at its 45th meeting held on 17th September 2021 and communication dated 6th October 2021 of the Government of India in Department of Revenue. Likewise, it was also submitted that decisions of the Advance Ruling Authority for Goods and Services Tax (GST), as well as of Commissioner of Customs, Benguluru, preclude scope for resort to contrary view taken in the impugned order as held by the Hon'ble Supreme Court in Damodar J Malpani v. Collector of Central Excise [2002 (9) TMI - 144 SUPREME COURT].
6. Learned Counsel enumerated the impugned goods and, pointing out to undisputed coverage under heading 3822 of First Schedule to Customs Tariff Act, 1975 described thus C/85868/2020 6 'diagnostic or laboratory reagents on a backing, prepared diagnostic or laboratory reagents whether or not on a backing, other than those of heading 30.02 or 30.06; certified reference materials' as appropriate, owing to Explanatory Notes to Harmonised System of Nomenclature (HSN) specifying that the purpose, as diagnostic or laboratory, should be evident in the composition, labelling or instructions which, though offered for scrutiny to the adjudicating authority, were either casually dismissed or held to be insufficient for acknowledging their claim even while conceding that the impugned proceedings had not controverted coverage within tariff item 3822 0019 of First Schedule to Customs Tariff Act, 1975 for assessment to duties of customs.
7. Learned Authorized Representative relied upon common usage of the English language to assert the inseparability of the qualifying expression from any or either of the succeeding expressions. He also contended that legislative intent should be ascertained from non- deployment of the catholic 'all' in the description corresponding to the enumeration adopted by the appellant in the bills of entry. He also elaborated upon the findings in the impugned order.
8. However, before proceeding to consider the merits of the claims so argued, we must, at the outset, respond to our own disquiet about our statutory competence to adjudicate thereon and which, naturally, begs the adjunct question of whether a subordinate authority can undertake that which we may not.
C/85868/2020 7
9. In resolving that dilemma, it would be appropriate to take stock of the nature of the levy, the source of the authority to collect and the extent to which the 'revenue neutral' paradigm shift of July 2017 has left its mark on the determinative contours of assessment under Customs Act, 1962. Before the transition to goods and services tax (GST), the basic customs duty authorized to be collected under section 12 of Customs Act, 1962 was, inter alia, supplemented by 'additional duty' - equal to 'excise duty ...on a like article if produced or manufactured in India' - and 'special additional duty' - as would 'counter-balance the sales tax, value added tax, local tax or any other charges for the time being leviable on a like article on its sale, purchase or transportation in India...at a rate not exceeding four per cent of the value..' under the authority of section 3 of Customs Tariff Act, 1975. The latter involved simple application of the said rate, across the board, on a value specified under the same provision which offered no scope for dispute on the valuation already accepted by the assessing authority for determination of 'basic customs duty' under section 14 of Customs Act, 1962. The former, too, did not offer any discretionary determination as far as value was concerned and, even with multiplicity of rates of duty, the scope for dispute on classification was non-existent owing the alignment of the relevant schedules in content and design. No 'proper officer' worth his salt would have considered separate tariff items under the respective schedules for any imported goods. But it appears that, not by the C/85868/2020 8 content but with the presentation, there is some template discordance in the tariff of Goods and Service Tax (GST) offering traction for disputes such as this.
10. It is in the light of this incompatibility that Mr Lakshmikumaran submitted that the notifications impugned in this order constitutes the tariff comprising of schedules that are mutually exclusive and incorporating a residuary entry for the 'almost' highest rate of duty which is where the adjudicating authority chose to place the impugned goods to their detriment. We may also be permitted the luxury of indulging in speculation that the contrarian, and even antipodal, perspective on classification has ceased to be of consequence in the altered paradigm of tax. Before the introduction of goods and service tax (GST), the 'special additional duty' was being refunded to merchant-importers upon undertaking sale of such goods and 'additional duty' paid was available as credit to manufacturer- importers for offsetting duties of central excise; collection of the duties was the sole filtration of those entitled to relief from respective burden one way or the other. Under the new tax regime, subsuming both the levies for counter-balancing domestic duties and tax, manufacture and actual use are not relevant to the tax and, with supply as the 'taxable event', all importers, save that miniscule for personal use, are entitled to avail the credit of such duties for offsetting tax payable on supply further down the line. Excess tax is thus no burden in the ultimate analysis. Nonetheless, the lack of C/85868/2020 9 substantive detriment cannot justify approval of levy in excess of that authorized by law or by excess of jurisdictional competence. It is also to be borne in mind that this context makes it apparent that there is next to no revenue available to the exchequer from this levy and the parallel universe of record was intended to carry forward the erstwhile mechanism in the scheme of assessment without particular consequence. Having accommodated the levy by proviso in section 5 of the Integrated Goods and Services Tax (IGST) Act, 2017, any proposition that such collection is essential to the integrity of the scheme of the tax does not hold either.
11. Despite the incorporation in Customs Tariff Act, 1975 of the parallel world corresponding to the new regime, the legality of '7) Any article which is imported into India shall, in addition, be liable to integrated tax at such rate, not exceeding forty per cent. as is leviable under section 5 of the Integrated Goods and Services Tax Act, 2017 on a like article on its supply in India, on the value of the imported article as determined under sub-section (8).' in section 3 appears to need the simultaneous support of 'Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.' in section 5 of the Integrated Goods and Services Tax (IGST) Act, 2017- not considered essential for the erstwhile authority to charge C/85868/2020 10 either of the additional duties. The legislative intent in placement of the said proviso, as a particular departure from '5. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person:' of Integrated Goods and Services Tax (GST) Act, 2017, indicates that section 3(7) of Customs Tariff Act, 1975 needs to carefully examined for its scope. Doubtlessly, it charges a liability on the goods under import but circumscribed by section 5 of Integrated Goods and Services Act, 2017 which, ordinarily, applies to 'inter state supply' for levy at a notified rate on value determined in accordance with section 15 of Central Goods and Services Tax (CGST) Act, 2017. Supply of goods from outside India, envisaged to be at par with 'inter state supply' of goods, is treated differently under the authority of the proviso to be levied and collected in accordance with section 3 of Customs Tariff Act, 1975 with its own attendant valuation mechanism supplementing the valuation of such goods in accordance with section 14 of Customs Act, 1962 and treating the levy of duties under Customs Act, 1962 as the point at which the 'integrated tax' liability is fastened on imported goods. It is not collected as a duty of customs and the authority conferred by section 3(7) of Customs Tariff Act, 1975 requires charging at the rate as is leviable under C/85868/2020 11 section 5 of Integrated Goods and Services Tax (IGST) Act, 2017. The legislated bundle for implementation of the scheme of goods and services tax (GST) is founded on self-assessment by adopting the value envisaged in section 15 of Central Goods and Services Tax (CGST) Act, 2017 to which the rate as notified under the relevant statutes is applied by the assessee for discharge of liability that is reflected in the return which, in turn, is scrutinized by the 'central tax officer' for correctness.
12. The scheme of rule 3(7) of Customs Tariff Act, 1975, therefore, imposes 'integrated tax' on imported goods, at a rate as prescribed under the authority of section 5 of Integrated Goods and Services Tax (IGST) Act, 2017, on value as prescribed in section 3(8) therein which is the arithmetical addition of duties of customs to value for assessment of imported goods and posing no discretionary authority therein. In the light of this being a distinct 'integrated tax', and not an additional duty of customs equal to another duty charged and collected under a scheme of assessment, the adoption of rate claimed by an importer can be disputed only by such officers conferred with authority to do so. Such officers with jurisdiction to intrude into self-assessment are central tax officers. The enabling of levy of 'integrated tax' in Customs Tariff Act, 1975 does not confer any power to intrude upon rate claimed in the bill of entry and 'proper officer', invoking power of assessment or power of recovery under Customs Act, 1962, would be in excess of jurisdiction to venture into determination of rate of duty under a law that is outside jurisdictional competence. This perspective on the enabling provision is not prejudicial C/85868/2020 12 to revenue for reasons discussed supra and it is only such prejudice that may prompt an alternative perspective. Learned Authorized Representative has not been able to demonstrate so.
13. The rate of duty for levy of 'integrated tax' is prescribed under the authority of section 5 of Integrated Goods and Services Tax (IGST) Act, 2017. Our appellate jurisdiction is limited, as far as 'rate of duty' is concerned, to those prescribed in Customs Tariff Act, 1975, Central Excise Tariff Act, 1985 or in Finance Act, 1994. This appellate jurisdiction originates with exercise of adjudicatory authority under Customs Act, 1962, Central Excise Act, 1944 and Finance Act, 1944 thereby binding the original, and first appellate, authorities therein to such jurisdictional circumscribing. 'Central tax officers' appointed under Central Goods and Services Tax (CGST) Act, 2017 are subject to a different appellate structure. We would consider it inappropriate for us to venture into the exercise of classification under a law that is beyond our jurisdiction and the adjudicating authority should also have been similarly cautious. The arguments of Learned Senior Counsel and of Learned Authorized Representative on the merit of their respective stands on the classification of the impugned goods are, thus, deliberately not being taken up for decision on correctness or otherwise. In adverting so, we desist also from elaborating upon the obvious inadequacy of domain knowledge of a tax law that is extra jurisdictional. However, the legal framework for re-classification is not beyond such appellate jurisdiction and we may subject the impugned order to that test.
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14. We find that, for assessment to basic duties of customs, the declared heading has not been disputed in the notice. The adjudicating authority has subjected all goods in the impugned bills of entry to revision by adoption of the ultimate residuary description; the absence of specific and detailed discussion on each of the articles separately is a grave want in the impugned order.The impugned goods are 'ELISA kits', 'CLIA kits', 'diagnostic reagents on a backing', calibrators', 'controls' and others such as 'wash solutions', 'wash buffers', 'reference fluid', 'diluent packs', 'maintenance packs' and 'marker kits' with claim for coverage under serial no. 180 of Schedule I in the 'integrated tax' rate notification owing to specific enumeration in List 1 for the first two items and under serial no. 80 of Schedule II in the 'integrated tax' rate notification owing to description corresponding to it. It is seen that the columnar reference to First Schedule to Customs Tariff Act, 1975 is to 'Chapter 30 or any other chapter', insofar as the former is concerned, and to 'heading 3822' as far as the latter is concerned; considering the specifics therein, the claim for application of these rates of 'integrated tax' respectively is not to be brushed aside.
15. The effect of the proposition of Revenue, in support of the adjudication order, on the part of Learned Authorized Representative is that the impugned goods are not specifically emplaced in the claimed Schedules or in Schedule IV, V and V of the 'integrated tax' rate notification with consequent application of the residuary serial no. 453 corresponding to 'goods which are not specified in Schedule I, II, IV, V C/85868/2020 14 and VI' with columnar reference to any Chapter of the First Schedule to Customs Tariff Act, 1975. The question that begs an answer, and in the context of the rules for interpretation of the Customs Tariff Act, 1975 as well as the Explanations therein being applicable to the placement of goods in the Schedules to the 'integrated tax' rate notification combined with absence of such residuary entry in the First Schedule to Customs Tariff Act, 1975, is the significance of the very resort that Revenue seeks shelter within. From the scheme of the 'integrated tax' rate notification, it appears that the rates enumerated therein are to be read as corresponding to the tariff items in the First Schedule to Customs Tariff Act, 1975 and with the default rate or residuary rate of 18% to be read as corresponding to any tariff item lacking in such rates. This follows from the mandate of Article 269A of the Constitution and the provisions of section 5 of Central Goods and Services Tax (CGST) Act, 2017 that eliminates any scope for perceiving the rates as an exemption notification - which the adjudicating authority appears to have adopted as the guiding prism.
16. It is not the case of Revenue that any or all of the impugned goods do not find fitment in heading 3822 of the First Schedule to Customs Tariff Act, 1975 or that the 'integrated tax' rate at serial no. 80 of Schedule II is, by the corresponding description, unquestionably excluded from every tariff item comprising heading 3822 of the First Schedule to Customs Tariff Act, 1975. Nor is it the case of Revenue that the 'kits' at serial no. 180 of Schedule I of the 'integrated tax' rate notification do not find placement in chapter 38 of First Schedule to C/85868/2020 15 Customs Tariff Act, 1975.
17. The Hon'ble Supreme Court, in HPL Chemicals Ltd v. Commissioner of Central Excise, Chandigarh [2006 (197) ELT 324 (SC), has held that '29. This apart, classification of goods is a matter relating to chargeability and the burden of proof is squarely upon the Revenue. If the Department intends to classify the goods under a particular heading or sub-heading different from that claimed by the assessee, the Department has to adduce proper evidence and discharge the burden of proof. In the present case the said burden has not been discharged at all by the Revenue. On the one hand, from the trade and market enquiries made by the Department, from the report of the Chemical Examiner, CRCL and from HSN, it is' quite clear that the goods are classifiable as "Denatured Salt" falling under Chapter Heading No. 25.01. The Department has not shown that the subject product is not bought or sold or is not known or is dealt with in the market as Denatured Salt. Department's own Chemical Examiner after examining the chemical composition has not said that it is not denatured salt. On the other hand, after examining the chemical composition has opined that the subject matter is to be treated as Sodium Chloride.' and further in Hindustan Ferodo Ltd v. Collector of Central Excise, Bombay [1997 (89) ELT 16 (SC)] that '3. It is not in dispute before us, as it cannot be, that the onus of establishing that the said rings fell within Item 22F lay upon the Revenue. The Revenue led no evidence. The onus was not discharged. Assuming therefore, that the Tribunal was right in rejecting the evidence that was produced on behalf of the appellants, the appeal should, nonetheless, have been allowed.
xxxx
7. Learned Counsel for the Revenue submitted that the C/85868/2020 16 matter be remanded to the Tribunal so that the evidence on record may be reappreciated. As we have stated, no evidence was led on behalf of the Revenue. There is, therefore, no good reason to remand the matter.' stipulating the rules of engagement in adversarial contentions on classification of goods for assessment. Hence, the classification proposed, and adopted, in the impugned proceedings must first pass muster as an appropriate description of the impugned goods before revision can be approved.
18. The exercise in classification undertaken in adjudicating the proposal to take recourse to an alternate entry should have adhered to the judicially established rules of engagement. Instead of deliberating on the validity, and appropriateness, of a tariff item in the First Schedule to Customs Tariff Act, 1975 other than that claimed in the bills of entry after due notice to the importer, the adjudicating authority adopted a process of elimination of the enumeration of descriptions in the Schedules to the 'integrated tax' rate notification, and ignoring the scheme of its presentation, with the erroneous assumption of jurisdiction to place goods within the ambit of the residuary entry in Schedule III of the 'integrated tax' rate notification.
19. We, therefore, hold that, insofar as the imported goods are concerned in the light of statutory circumscribing of levy of 'integrated tax' as discussed supra and there being no prejudice to interests of revenue thereby, the declared classification of the C/85868/2020 17 imported goods prevails. Legislative intent is not imposition of burden of 'integrated tax' on the person importing goods and the onus for altering classification has not been discharged. The charge of misdeclaration of goods does not sustain and hence confiscation and penalty are also set aside.
20. Accordingly, the appeal is allowed with consequential relief.
(Pronounced in Open Court on 12/08/2022)
(ANIL CHOUDHARY) (C J MATHEW)
Member (Judicial) Member (Technical)
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