CESTAT upholds Reclassification of ESBO as Chemically Modified Vegetable Oil [Read Order]

The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal(CESTAT) upheld the reclassification of Epoxidised Soya Bean Oil (ESBO) under CTH 1518, rejecting its classification under CTH 3812.

Sankhla Industries,appellant-assessee,imported 'Epoxidised Soya Bean Oil' (ESBO) through 16 bills of entry(BoE) between July 17, 2017, and September 22, 2020. The Directorate of Revenue Intelligence (DRI), found that the goods were wrongly classified under CTH 3812 3990 instead of CTH 1518 0039, leading to a lower duty rate.

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A Show Cause Notice(SCN) dated June 26, 2022, proposed reclassifying the goods and denying the 7.5% Basic Customs Duty (BCD) benefit under Notification No. 50/2017. The adjudicating authority later confirmed the demand and imposed fines and penalties.

The assessee appealed before the tribunal.

The assessee's counsel submitted a table of 16 shipments, noting that BoE No. 4230263 was not part of the proceedings. Of the 16 bills of entry, 14 were cleared through the Risk Management System (RMS), while BoE Nos. 4230263 and 854412 were assessed by customs officers.

BoE No. 4230263 was provisionally assessed, while BoE No. 854412 underwent detailed classification checks. The customs officer, satisfied with the classification under HSN 3812 3990, cleared the goods, but this final assessment was ignored in the impugned order.

The counsel argued that the demand was unsustainable as the department already had all the facts, with no suppression or collusion. It was also claimed that the Show Cause Notice (SCN) was time-barred, being issued over two years after clearance. On merits, it was argued that ESBO, used in PVC plastics, was correctly classified under Chapter 38 as an industrial product, not under Chapter 15.

The revenue counsel contended that the assessee misdeclared the product’s nature by classifying it based on its end use. It was highlighted that 12 out of 15 certificates of origin showed HS code 151800, but the assessee declared a different CTH.

The counsel claimed that the assessee concealed the provisional assessment of BoE No. 4230263 and submitted incorrect data, leading to the wrong classification in BoE No. 8854412.

The department argued that the misdeclaration caused short payment of duty, justifying the extended period, along with the imposition of redemption fine and penalties. It sought the appeal’s rejection.

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The two member bench comprising Ajayan T.V(Judicial Member) andM.Ajit Kumar(Technical Member) ruled that ESBO was correctly classified under CTH 1518, rejecting the assessee's claim for classification under CTH 3812. It noted that ESBO, being a chemically modified vegetable oil, fell under the more specific heading of CTH 1518, which covers animal or vegetable fats and oils subjected to chemical modifications.

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The appellate tribunal observed that the manufacturing process of ESBO involved epoxidation, vacuum distillation, centrifugation, and filtration, resulting in a bio-based plasticizer. Referring to the Harmonized System of Nomenclature (HSN) explanatory notes, it highlighted that epoxidized oils, such as ESBO, were explicitly covered under CTH 1518. Although plasticizers are also listed under CTH 3812, the CESTAT applied Rule 3(a) of the Rules of Interpretation, which gives preference to specific descriptions over general ones.

Relying on the Supreme Court's rulings, the bench emphasized that HSN notes and the Rules of Interpretation play a crucial role in determining the correct classification of goods. It concluded that since ESBO was specifically mentioned under CTH 1518 in the HSN explanatory notes, it was appropriately classified under this heading. The tribunal upheld the classification.

To Read the full text of the Order CLICK HERE

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