CESTAT Quashes Reclassification-Based Customs Duty Demand on Natural Rubber Latex Imports u/s 28 on Limitation Grounds [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside the demand, interest and penalty arising from reclassification of imported natural rubber latex concentrate, holding that the show cause notice was barred by limitation.

The Tribunal did not delve into the merits of classification as the demand itself was unsustainable.

The appeal was filed by TTK Protective Devices Ltd., (formerly known as T.T.K. LIG Ltd.), challenging the Order-in-Original passed by the Commissioner of Customs, Chennai, by which the imported goods were reclassified and differential customs duty of ₹92.18 lakh was confirmed under Section 114A of the Customs Act, 1962. The dispute pertained to imports made during the period of April 2011 to March 2012.

The appellant, engaged in the manufacture of contraceptives, had imported natural rubber latex concentrate from Malaysia and classified the goods under tariff sub-heading 40012910 as “Hevea”, attracting basic customs duty at a lower rate. The imports were facilitated under the Risk Management System as the appellant was an Accredited Client Programme client. The Bills of Entry were cleared on the basis of self-assessment.

During the post-clearance audit, the Department opined that the goods were correctly classifiable under tariff sub-heading 40011020, attracting a higher rate of duty. Accordingly, a show cause notice was issued invoking the extended period of limitation.

Before the Tribunal, the appellant contended that the issue involved a genuine dispute on classification as identical goods imported earlier had been assessed by the Department under tariff item 40012910. It was argued that demand raised beyond the normal period was unsustainable in the absence of any suppression or wilful misstatement. The appellant also submitted that classification adopted on a bona fide belief, supported by past practice, could not give rise to penal consequences.

The Department defended the impugned order by contending that the Bills of Entry under dispute were cleared without examination the alleged misclassification came to light only during post-clearance audit. It was argued that natural rubber latex, irrespective of its source, was classifiable under tariff heading 400110 and not under the sub-heading meant for “Hevea”.

The Tribunal observed that two of the five Bills of Entry in dispute were filed prior to the introduction of self-assessment, while the remaining were filed before the notified regulations on self-assessment came into force. It was further noted that the Department had earlier cleared identical consignments under the same tariff item without establishing that the goods were any different.

Taking note of the appellant’s ACP status, the Tribunal observed that such accreditation is granted only to importers with a consistent record of compliance. Relying on the Supreme Court’s ruling in Uniworth Textiles Ltd. v. Commissioner of Central Excise, the Tribunal reiterated that mere interpretational differences on classification cannot sustain allegations of suppression or wilful misstatement in the absence of evidence.

The Tribunal held that there was a genuine divergence of views on classification and the Department had failed to establish any suppression of facts. Consequently, the invocation of the extended period under Section 28(4) of the Customs Act was held to be unsustainable.

The Bench declined to examine the issue on merits and set aside the impugned order in its entirety. The order was pronounced by a Bench comprising Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member).

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