By TIOL News Service

BANGALORE : JUNE 30, 2014 : IN what could be an order which has far reaching consequences because of the huge amount of revenue involved and the number of disputes pending at various benches, the South Zonal Bench at Bangalore has rejected the claim of the importers that the Coal imported by them is classifiable as "Steam Coal" attracting lesser duty and confirmed the demands raised by the revenue by treating the Coal as "Bituminous Coal". The order assumes significance considering the fact that the Bench had to go through voluminous records and lengthy arguments from both sides.

In all the appeals, the dispute is whether the coal imported by the appellants is to be charged to basic customs duty and CVD treating the same as Bituminous Coal or Steam Coal. Department's contention is that according to sub-heading Note 2 of Chapter 27, wherein the definition of bituminous coal has been given, the steam coal imported by the appellants which answers to the definition of bituminous coal, has to be classified as bituminous coal and therefore, the lower rate of duty benefit extended to steam coal would not be available for the importers.

The findings of the Tribunal in brief are:

On "-", "—", "---"

In this case both coking coal, steam coal and other (2701 19 90) are preceded by "---" and come under other coal preceded by "--". This means according to the General Rules for Interpretation of Tariff, coking coal, steam coal and other have to be treated as sub-classification of ‘other coal'.

Coal has been first of all classified under the respective sub-headings (6 digits) depending upon whether the same is classified as ‘Anthracite', ‘Bituminous' or ‘Other coal' which fall respectively under sub-headings 2701 11, 2701 12 or 2701 19

To classify the imported coal under the correct sub-headings we have to look at the tariff description and sub-heading notes 1 & 2 of chapter 27. The sub-heading notes provided definitions of the expressions ‘Anthracite' and the ‘Bituminous' in technical terms. For the expression ‘other coal' respective entry has not been defined

In terms of sub-heading Note No. 2 of Chapter 27, for the purpose of 2701 12, "bituminous coal" means coal having volatile matter limit (on a dry, mineral-matter-free basis) exceeding 14% and a calorific value limit (on a moist, mineral matter free basis) equal to or greater than 5,833 kcal/kg.

Therefore it is clear that any coal with volatile matter limit specified and calorific value limit as specified has to be invariably classified as bituminous coal for sub-heading 2701 12 and under tariff heading 2701 00.

Therefore as long as the goods are covered by definition as per sub-heading Note 2, such imported coal must be classified under bituminous coal. Only when the specifications laid down in the definition in sub-heading note are not matched, imported coal can be classified under other coal under heading 2701 19 and thereafter under tariff item namely 2701 19 10, 2701 19 20 or 2701 19 90.

On Rule 6 of the General Interpretative Rules:

Bituminous coal (2701 12 00) and steam coal (TI 2701 19 20) are tariff items which are not comparable as per the existing tariff structure. While TI 2701 1200 is preceded by a "--" TI 2701 1920 is preceded by "---". General Interpretative Rules apply only to classification of goods under the nomenclature up to 6 digits. Rules 1 to 5 of the General Interpretative Rules apply at heading level and Rule 6, governs classification at sub-heading levels in this case.

Thus purely looking from a legal point of view, it is quite clear that procedure adopted by the Revenue is correct.

On the theory of redundancy of entries for other coals:

Coking coal with GCV (m,mmf) in the range 10500 Btu (5830 kcal/kg) to 11500 Btu can be either agglomerating or non-agglomerating. Therefore, cocking coal coming in this range, if non-agglomerating only would be classifiable as bituminous coal and if it is agglomerating but not agglomerated and gcv is less than 5833 K.cal/kg, it is classifiable as coking coal. Therefore, coking coal heading does not become irrelevant on this ground also. In sum, we find, the appellants have not been able to make out a case for redundancy in respect of the heading ‘coking coal'. We have to take note of the fact that 2701 covers non-agglomerated coal and 2701 20 covers agglomerated coal.

On GCV ( Gross Calorific Value)

As regards 'steam coal', there is no problem in view of the fact that learned senior counsel himself fairly agreed that steam coal can have a GCV above 5833 kcal/kg or below 5833 kcal/kg also. If it is above 5833 kcal/kg, it would come under bituminous coal and if it is below 5833 kcal/kg, it would come under steam coal.

In this case, the first question to be seen and examined whether the sub-heading note which defines bituminous coal covers the item imported or not. Once it covers, that is the end of the matter. If the GCV is less than 5833 kcal/kg and according trade parlance, the product would become classifiable under steam coal. Therefore, it cannot be said that the intention of the statute or intention of the legislature is being defeated by process of reclassification by Revenue.

On admissibility of 1% duty under Notification No 12/2012 CE for CVD which has a condition of non-availment of CENVAT Credit:

In the present regime of indirect taxation, credit is available to coal manufacturer in respect of inputs, input service and capital goods and therefore, if he availed the benefit of Cenvat credit in respect of in all these items, he becomes liable to pay 6% excise duty and therefore, we cannot come to a categorical conclusion that the input services or capital goods used for the manufacture of coal abroad and sent to India have suffered such duty at all. In this case, the burden to show that he is eligible would fall on the importer since Indian manufacturers are eligible for credit on inputs and input service or capital goods. We have to agree with the submission that the importers could never have shown that they fulfilled the condition for claiming lower rate of duty under the Notification 12/2012- C.E.

On FM Speech while granting exemption to Steam Coal:

While taking a view that there was misclassification and disputes, what the Government seems to have done is to reduce disputes and with that intention increase the rate of duty and give relief to all types of coal. We could not find any help from the parts of the speeches that can be derived by the importers who imported steam coal prior to the notification prescribing same rate for bituminous coal and steam coal. If the intention was to give relief and to take a view that importers have suffered and if there was no intention to collect duty on steam coal classifiable as bituminous coal, it was easy for the Government to give exemption to all types of coals for the previous year and introduce a common rate for the next year which was not done.

On extended period and penalty:

The issue is one of classification, technical in nature and therefore mens rea to evade payment of duty cannot be alleged. Therefore extended period cannot be invoked and no penalty could have been levied and can be levied on the appellants even in respect of demand for normal period. Therefore the differential duty demand in respect of coal imported which are according to definition of bituminous coal has to be upheld.

On claim for recusal of the Bench:

Recusal is an option which has to be exercised with great caution and judicial or quasi-judicial authorities should prefer to decide the cases which is their duty fairly and impartially and not to recuse themselves at the drop of a hat or request.

(See 2014-TIOL-1157-CESTAT-BANG)