By TIOL News Service

MUMBAI, DEC 28, 2015: AGAINST the order passed by the CCE & Cus, Goa , both Revenue and the importer are in appeal before the CESTAT.

The issue is whether the coal imported by the appellant for use in Corex Furnace and declared as weakly Coking/Soft Coking/Semi Soft Coking/Corex Coal are "Coking Coal" classifiable under tariff item 2701 1910 of the CTA and eligible for exemption from payment of customs duty under Sl. No. 68 to notification No. 21/2002-Customs dated 1.3.2002 or these were in fact thermal coal/ Steam Coal classifiable under tariff items 27011920/27011990 & leviable to Customs duty @5% Adv. The period of import is Dec 2006 to Mar 2011.

The Appellant is engaged in the manufacture of Hot Rolled Coils, Sheets, Plates etc. [Ch.72 of CETA] and uses two different technologies viz. Blast furnace technology and Corex technology for manufacturing steel. The Appellant was the first company in India to adopt the Corex process, which is a newer and advanced technology for steel making vis-à-vis the conventional blast furnace route. In the latter method, iron ore, coke and other raw material are charged in the furnace for manufacture of steel whereas in the Corex furnace, coking coal with weak coking properties can be directly charged in the furnace without having to be first made into coke. By doing so, a steel manufacturer can do away with the need of first converting coking coal into coke in a coke oven, where hard coking coal (which is quite expensive) in admixture with soft/semi soft/weakly coking coal is used. The Appellant put up two Corex plants in 1998 and 2000 and also has two blast furnaces. It has been importing, as declared by them, soft/semi-soft/weakly coking coal for years, for use in its Corex furnace from certain pre-approved and specified mines. On import of the said coking coal, the Appellant had been claiming exemption from payment of Customs duty in terms of S. No. 68/68A of Notification No. 21/2002-Cus dated 1.3.2002.

With effect from 1.3.2011, the said Exemption Notification was amended and an explanation was added to S. No. 68 of Notification 21/2002-Cus which was thereafter substituted on 17.8.2011 to provide that, for the purpose of the said exemption, coking coal means coal having max mean reflectance (MMR) of more than 0.60 and Crucible Swelling Index (CSN) of 1 and above.

The relevant notifications are extracted as below -

xi) against S. No. 68, for the entry in column (3), the following entry shall be substituted, namely:-

"Coking coal.

Explanation.- For the purposes of this exemption, "Coking coal" means coal having mean reflectance of more than 0.85 and Swelling Index or Crucible Swelling Number of more than 2 ";

(xii) S.No.68A and the entries relating there to shall be omitted;

Notification NO. 31/2011-Cus dt. 24.3.2011 [Amendment to Notification No. 21/2002-Cus]

i) after S. No. 66 and the entries relating thereto , the following S. No. and entries shall be inserted, namely:-

In the said notification, in the TABLE, -

(i) S.No. 66A and the entries relating thereto shall be omitted.

(ii) in S. No. 68, in column (3), in Explanation, for the figures and words "0.85 and Swelling Index or Crucible Swelling Number of more than 2" the figures and words "0.60 and Swelling Index or Crucible Swelling Number of more than 1" shall be substituted.

The clarification:

In the letter F No. 336/3/2013-TRU dated 21-05-2013 of Director, TRU addressed to the Commissioner, Guntur in connection with a representation from the appellant, it is stated -

(i) Prior to the budget 2011-12, Coking coal, having ash content below 12% as also Coking coal having ash content above 12% were fully exempted from basic customs duty (s. No. 68 and 68A of Notification 21/2001-Customs Dated 01.03.2002), while imports of non-coking coal attracted 5%. As coking coal was not defined in the notification, disputes arose as to the scope of coking coal, leading to large number of provisional assessments in the Custom Houses. In order to mitigate these disputes and after consultation with the Ministry of Coal, Ministry of Mines as well as Ministry of Steel, while retaining the exemption for coking coal, a definition of coking coal was provided in the Budget 2011-12, whereby coking coal was defined to mean "coal having mean reflectance of more than 0.85 and Swelling Index or Crucible Swelling Number of more than 2" (Sl. No. 68 of Notification No. 21/2002-Customs ibid).

(ii) On getting further representation from the domestic steel industry that manufacturers using Corex, Fines & PCI fuel injection technology could not avail of the benefit of exemption since they use certain 'weak' varieties of coking coal (having lower technical specifications compared to those prescribed), a separate entry was created during post-budget stage of 2011-12 to grant full exemption from basic customs duty to Coal having Swelling index or Crucible Swelling Number of 1 and above and mean reflectance of above 0.60, for use in the manufacture of iron or steel using Corex, Finex or PCI technology (s. No. 66A of Notification No. 21/2002-Customs ibid). This exemption was based on end-use. This was notified on 24.03.2011.

(iii) Thereafter, a representation was received from New Zealand High Commission seeking full exemption from customs duty on imports of weak coking coal for manufacture of steel using blast furnace technology . When the matter was examined, it was seen that most of the established manufactures of steel in India were using conventional "blast furnace technology" wherein coal is first converted into coke before being used in the manufacture of steel. It transpired that M/s Tata Steel, Steel Authority of India and RINL using this technology import weak coking coal having a reflectance of 0.6 and above from New Zealand. Accordingly, with the concurrence of the Ministry of Steel and ministry of Coal, the definition of coking coal in Sl. No. 68 of Notification no. 21/2002-Customs ibid was amended vide Notification No. 77/2011-Customs, dated 17.08.2011 to mean coal having mean reflectance of 0.60 and above and Swelling Index or Crucible Swelling Number 1 and above irrespective of the technology used for manufacture of iron or steel (Sl. No. 68 of Notification No. 21/2002- Customs ibid). Simultaneously the entry relating to exemption of coal based on end use (sl.No. 66A of 21/2012-Customs) was omitted on the belief that the new definition would take care of all the coals used in the iron and steel industry. Irrespective of technology (corex, Finex, PCI or Blast furnace Technology) used, since all these coals were presumed to have swelling index of 1 and above and Mean Reflectance of 0.6 and above."

The case:

DRI alleged that the coal imported by the Appellant was not eligible for the benefit of the exemption for coking coal , as the same was not actually used for coke making in the blast furnace but was instead used in the Corex furnace. It was alleged that as per the supplier of the Corex technology, the Corex process required non-coking coal , which is also how these coals were recorded in the Appellant's internal records viz. business plan, balance sheet, process flow chart, documents offered to SEBI for public issue purposes, etc. It was alleged that the expression soft/semi-soft/weakly coking coal had been coined by the Appellant in the invoices in connivance with the supplier, and that what had been supplied was thermal/steam (non-coking) coal . It was contended that coal from the same source had been supplied to the Appellant as semi-soft coking coal, while to JSW Energy Ltd (JSWEL) Ratnagiri, it was supplied as steaming (non-coking) coal. To demonstrate that the price of coal imported by the appellant was at par with the price of steaming (non-coking) coal, one invoice raised by IMR Metallurgical AG, Switzerland in favour of JSWEL was compared with three other invoices raised by IMR Metallurgical AG, Switzerland on the Appellant for the supply of semi-soft coking coal in bulk.

The adjudicating authority confirmed the demand of Customs duty in respect of 21 consignments of coal wherein, on testing, the chemical examiner had found the Crucible Swelling Index (CSN) in respect of the same to be less than 1 . Out of these 21 Bills of entry, 6 were shown as finally assessed in the SCN but Commissioner has, ex parte , determined them as provisionally assessed in the order. The demand in respect of the remaining consignments was dropped on the ground that the chemical examiner on testing, found that the CSN of the coals imported was 1 or more than 1 and that with effect from 1.3.2011, the exemption notification had itself introduced the criteria of 1 CSN by way of an explanation, which being clarificatory, was to be applied retrospectively. The adjudicating authority also gave relief on the ground of limitation where the provisional assessments were finalized after receipt of test reports. The adjudicating authority did not see any merit in the confiscation of goods as well as the penalties imposed on various officials and the CHAs and set them aside.

Both, appellant as well as Revenue have challenged the order, inter-alia, on the ground that the explanation effective from 1.3.2011 in Serial No. 68 of Notification 21/2002-Cus could not be given retrospective effect.

After considering the exhaustive submissions made by both sides, the Bench in a marathon order observed -

+ Though documents are indicative, the ultimate test would be the nature of the coal actually imported and not what is reflected in the business plan etc. If, in the ultimate analysis, what is imported is held to be coking coal in terms of the notification, then the above documents would certainly support the case of Revenue.

+ We find that the appellant have submitted copies of reports of the Customs Chemical Laboratory, and this is not disputed by Revenue, which indicate that in a majority of the cases what was imported was 'weakly coking' coal and in a few cases even coking coal. In the light of this fact, the statement of Shri Dasu General manager (Iron Making) that the use of the nomenclature 'non-coking' in certain records is to avoid mixing of Corex Coals with other coals, cannot be brushed away. During the cross-examination, in reply to specific questions he inter alia stated that the coal used in Corex technology has weak coking properties.

+ The real test would be the nature of coal imported. A significant aspect to be noted in this regard is that the business plans specifically enlisted the coal with respect to the names of the originating mines such as Ensham/SBW/Helsenburg//Metro/Datong. From the records we find that these coals have weak coking property with CSN ranging from 1 - 1.5 as reflected in the report dated 29.5.2008, regarding the performance of New South African Coal in Corex technology, which was seized from the hard disk of Shri Arvind Rajagopalan.

+ The terms 'Semi coking and weakly coking' coal are used in the Ministry of Coal Notification S.O. 453 (E) dated 16th June 1994. The same terms find place in the Coal Directory of India 2006 -2007 published by the Ministry of Coal, Government of India while giving the ash content of such coals. A note below the Classification of such coals states -

"2. Semi-coking and weakly coking coals are such coals as were classified as 'Blendabale coals' by the erstwhile Coal Board under the Coal Mines Act 1952.

3. Coals other than coking or semi cooking or weakly cooking coal are non-coking coals."

+ The same terms find mention in the Coal Mines Act 1952, Australian Coal Review Database, Platt which is a Journal of prices, Mc Closkey Coal Report etc. For example, in the Mc Closkey Coal Report Issue 365 of 24 July, there is a reference to prices of weak coking coal. Therefore the contention of the Ld advocate that such coals imported belong to the genus of coking coals has merit. In our view, it cannot be said that there is no such thing as weakly coking coal. The absence of term coking in the Contracts does not rule out the import of weakly coking coal because the prices of weakly coking and steam coal could well be same.

+ The description given by the Principals is coal. It cannot be concluded that the coal supplied was not semi soft coking coal. The fact remains that, as also stated by Shri Raju, the company had requirement for inferior quality coal for use in their Corex furnace. Therefore in our view it cannot be held that the coal supplied was not semisoft coking/weakly coking coal for use in the Corex furnace and that the invoices were manipulated in their description. A case of manipulation would have been made out only if the description in the invoices of the Principals had been 'non-coking coal.' In addition, it is to be noted that in a majority of cases, the Chemical Examiner himself had determined the imported coals to be weakly coking.

+ On the one hand Revenue does not want to apply the notification amended in 2011 retrospectively so as to apply the criteria of one CSN to the coal imported by the appellant, but on the other hand it states that the purchase orders should have mentioned the criteria of CSN for purchase of soft/semisoft/weekly coking coal. Revenue has not been able to challenge the fact that the coal imported from mines did have CSN of one and above. Therefore we find the stand of Revenue not sustainable. Further the Coal Directory only mentions the ash content of such coals which implies that such weakly coking coals can be described in trade parlance/documents without specifically giving the CSN no.

+ The main stand of Revenue is that the Corex technology does not require coking coal and the weakly coking coal said to be imported cannot get the benefit of the exemption. It is conceded that the Corex technology uses 15 - 20% Coke and 80 - 85% non-coking coal.

+ Coal Directory of India calls the weakly coking coals as blendable, meaning thereby that the same can be used in blend with coking coal to produce steel. The point is, therefore, that the soft coking coals imported and used in the Corex technology, are also usable in the Blast Furnace. We have also seen that the IS standards indicate that weakly and medium caking coals can be used for blending. Thus, undoubtedly, the imported coals can be used for blending with coking coal as they have soft caking properties. And, therefore, there is no reason why they cannot be called coking coals as usable for making coke, especially when their CSN is one and above.

+ The present case seems to be entirely built around documents such as the Contracts describing the coal imported either just as coal or as non-coking coal. But the evidence in the form of tests conducted by the Customs Chemical Laboratory in majority of cases indicated the CSN value as one or above and the reports declared the same to be weakly coking or coking coal. Government introduced the criteria of CSN one and above after the period of dispute. Both sides contend that this criteria cannot be applied for the period of dispute. To determine whether a coal imported is coking coal or not, there has to be some technical or scientific parameter to term coal as coking or non-coking. In the present case the only relevant parameter which has been discussed by both sides and is also figuring in the reports of the Customs Chemical Examination is CSN.

+ The technical literature seems to indicate that the coal imported by the appellant having CSN of one and above can be termed as weakly coking coal. Even if the CSN factor is not applied retrospectively, the fact remains that the Chemical Examiner himself declared the coal to be weakly coking. And no convincing reason has been given to justify that weakly coking coal cannot be considered as coking coal, albeit weakly.

+ The contention of Revenue is that in such eventuality, the other parameter of MMR should have been determined. We find that the onus is on Revenue to determine this parameter. The Chemical laboratory has concluded the coal to be weakly coking. The burden is on Revenue to determine the MMR factor which was not done for reasons best known to them. Apparently the Chemical Examiner was satisfied with the determination of CSN and the Ash content, the latter being the only criterion in the Notification as it existed during the period in question and which met the requirement specified in the notification. And thus the Chemical Examiner cleared the samples as 'weakly coking' on basis of various parameters determined.

+ The fact remains that the exemption to coking is not linked to any end-use condition. Even the amendment of notification 21/2002 by notification 77/2011-Cus dated 17-08-2011 did not prescribe end-use condition. The appellant have rightly relied on judgements which lay down the law that wherever end use is contemplated, the notification necessarily has to provide a mechanism for the same. The notification granting exemption has to be read strictly. Meanings cannot be read into the notification except what its wording simply states. End-use condition cannot be built into a notification when there is none.

+ In our view no matter the high price difference, comparison cannot be made between prime/hard coking coal and soft/semisoft/weakly coking as the two are not comparable.

+ Even if we accept the contention of Revenue that the notification describing CSN of one and above cannot be applied retrospectively, we still find that the Chemical Examiner mentioned in the case of well over 100 B/Es with CSN of 1 and above that "it has got the characteristic of coking coal (where CSN is 3.5 and above) or coking coal (weakly coking)". We observe that the Chemical Examiner in coming to the conclusion that it is weakly coking has not stated the specific parameters on basis of which he has come to this conclusion because the parameters tested apart from CSN also include Moisture, Ash, VM and Agglomerating property. The MMR has not been tested. It appears that the basis is CSN because wherever the CSN is less than 1, he has concluded the coal to be non-coking. The opinion of the Customs Chemical Examiner cannot be simply wished away without any substantial evidence to the contrary. The fact is that he has tested the coal to be weakly coking. Therefore we reject the appeal of the Department that the Commissioner dropped demands wrongly.

+ As regards the 21 bills of entry in respect of which the demand has been confirmed by the Commissioner on the basis that the CSN was found to be between 0 and 0.5, the contention is that the criterion of CSN one cannot be given retrospective effect. We agree with this contention as already held by the Tribunal in the appellants' own case in Commissioner Of Customs vs. JSW Steel Ltd - 2013-TIOL-110-CESTAT-MAD.

+ The fact that revenue itself disputes the applicability of CSN criterion of 1, the fulfillment of only criterion of Ash content during the relevant period, the absence of a precise definition of coking coal, the refusal to allow cross-examination of the Assistant Chemical Examiner, the decision of the tribunal in appellant's own case (supra) and a plain reading of the notification would, in our view, decide the issue in favour of the appellant.

+ We set aside the impugned Order to the extent it confirms the duty in respect of 21 Bills of Entry. Having set aside the duty demand, the question of confiscation and imposition of penalties against noticees does not arise.

Revenue appeal is dismissed.

Appeal filed by importer & other noticees was allowed with consequential relief.

(See 2015-TIOL-2793-CESTAT-MUM)