Cus - Machines were mis-declared as dairy machine although goods were correctly classifiable as per their description and individual function - Note 2 (a) to Section XVI applies: CESTAT
By TIOL News Service
MUMBAI, DEC 01, 2016: THE main Appellant is engaged in manufacture of probiotic drink.
Pursuant to investigation by DRI, the appellant was issued a SCN alleging that they had imported machines for their plant by mis-declaring the same as "Dairy Machine" and wrongly claiming exemption under serial No. 11 of Notification No. 6/2006- CE dt. 01.03.2006.
Inasmuch as the said machine worked on the principles of heat exchange and were used for the purpose of sterilization, pasteurization, incubation (maturing after pasteurization) and dilution etc. and was thus excluded from goods under heading No. 8434 of the Customs Tariff as ‘Diary Machine'.
During scrutiny of records seized from CHA, it was found that the supplier of machine M/s Yakult Honsha Co. Ltd had provided ‘specification of production equipment sheet' (SPE) to the Appellant bearing HS codes as 8422.49, 847982 and other codes whereas the same was changed to 8434 2000 while submitting the same to the customs for clearance of said imported machines.
The Commissioner of Customs (Import) confirmed the demand of duty of Rs.4,22,58,706/- and also imposed equivalent amount of penalty against the Appellant. Penalties were also imposed on Managing Director Kiyoshi Tatsui and ex-employee Anil Choudhary.
In the matter of the Stay applications filed, the CESTAT had ordered pre-deposit. We had reported this order as 2014-TIOL-2358-CESTAT-MUM thus –
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Cus – Classification - Appellants contends that they are making probiotic milk from skimmed milk, a dairy product and therefore the machinery imported by them is required to be considered as Dairy machinery falling under 8434 2000–DRI alleged that applicant have misdeclared the description of two consignments with an intention to avail undue benefit of concessional rate of customs duty under Notification 6/2006-CE - revenue further argued that in case of milk processing plant, there are large number of items which are interconnected and these items have to be examined and classified on merits – The HSN Explanatory Notes mentioned by the appellant clearly indicates that various items gets excluded from the scope of Heading 8434 – Revenue seeking classification under 8418, 8419, 8479 and such goods were not entitled for benefit of concessional duty under notifn. 6/2006-CE - Managing Director of the Company has admitted the manipulation in his statement under Section 108 of the Customs Act - The very fact that the SPE sheets were manipulated and same were produced to the customs indicate the fraudulent intention of the appellant - In the invoices instead of describing each item and indicating the classification of the said item they have procured invoices which indicated general description as dairy machinery and parts thereof and heading 8434 2000 – It is found that supplier has indicated certain HS code for each of the items while the manipulated SPE sheets had the same specification details but did not have these codes but the HSN Code was 8434 2000 in respect of all the items under the two bills of entry - the assessment were made based upon the manipulated documents and misleading information provided by the appellants - appellant is directed to deposit 50% of the duty demanded - Further, the Bank guarantee for the 50% of the duty already executed by the applicant will be kept alive till the final disposal of the appeals – Managing Director is also directed to deposit an amount of Rs. 15 lakhs as penalty as manipulation done with his active knowledge & connivance - Penalty imposed on Anil Choudhary stayed as he seemed to have opposed the manipulation and even brought the same to the notice of the higher authorities abroad - Stay petitions are disposed of: CESTAT [Para 8, 9, 10, 11, 14]
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The appeal was heard in June and an order was issued recently.
After considering the elaborate submissions made by both sides, the Bench observed thus –
++ We find that as per Explanatory Notes to HSN in heading 84.34, Parts of the machine are to be classified in the same heading "subject to the general provisions regarding the classification of parts as per the General Explanatory Notes to Section XVI." Note 2(a) to Section XVI of the Central Excise Tariff Act clearly provides that Parts which are goods included in all cases to be classified in their respective headings. Further as per Note to chapter 84 "…a machine or appliance which answers to description in one or more of the headings 8401 to 8424 or heading 8486 and at the same time to a description in one or other headings 8425 to 8480 is to be classified under the appropriate heading of the headings 8401 to 8424 or under the headings 8486, as the case may be, and not under heading 8425 to 8480"
++ Also the chapter note 7 to chapter 84 states that "a machine which is used for more than one purpose is, for the purposes of classification, to be treated as if its principal purpose were its sole purpose. Subject to note 2 of this chapter and Note 3 to Section XVI, a machine, the principal purpose of which is not described in any heading or for which no purpose is, unless the context otherwise requires, to be classified in heading 8479. Heading 8479 also covers machines. We find that in the present case the tanks were thus to be classified under 8479 and even the original SPE Sheets provided that HS Codes. Similarly the other goods are also classifiable as per their individual description as stated in show cause notice.
++ The contention of the Appellant that Section Note IV to Section XVI of Tariff is applicable is not correct as initially the goods were classified under the respective HS code and at the time of filing the Bill of Entry the same were changed. The Section Note 2 (a) to Section XVI in such circumstances would be the guiding principle to classify the goods.
++ In view of the fact that the goods were correctly classifiable in the SPE Sheets as per their respective description and individual function but were changed by the Appellant's employee in consultation with the Management, we are of the view that the goods do not merit classification as parts of dairy Machinery. For the reasons stated above and looking to the fact that the issue involves of intended mis-declaration, mis-classification and suppression of facts we do not find any infirmity in the order passed by adjudicating authority and uphold the same in as much as the same is related to Appellant M/s Yakult Danone (India) Pvt. Ltd.
Penalties
a. Managing Director:
"…we find that he was concerned with overall working and not particularly involved in any countumacious conduct. The correspondence for changes of HS codes and alteration of SPE sheets was an act between its parent company M/s Yakult Honsha Ltd, Japan and Mr. Tomoshi Suzuki on the advice of Consultant M/s SBBFL. We thus find that no active involvement of Shri Oike is appearing in record that he orchestrated the alleged acts of violation of Custom laws and intended to cause revenue loss. We, therefore, do not find it fit to impose penalty and set aside the penalty imposed upon him."
b. Ex-employee:
"…, we find that he was merely an employee who acted on the directions of the company and had no personal involvement. We, therefore, do not find it fit to impose penalty upon him. The penalty upon Shri Anil Choudhary is therefore set aside."
The appeals were disposed of.
(See 2016-TIOL-3101-CESTAT-MUM)
