Mere Wrong Classification Does Not Invoke Section 111(o) Unless Exemption Conditions are Violated: CESTAT [Read Order]

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that mere wrong classification of imported goods does not attract confiscation under Section 111(o) of the Customs Act unless there is a breach of conditions attached to an exemption notification.

Kasturi International Pvt. Ltd. had imported coated paper and claimed exemption under Notification No. 152/2009-Cus while classifying the goods under a tariff entry that was later found to be incorrect. The department alleged that since the exemption was wrongly availed, the imported goods were liable to confiscation under Section 111(o) of the Customs Act and imposed penalty on the importer.

The appellant argued that Section 111(o) could not be applied because the exemption notification was not subject to any condition that was violated. The appellant argued that the department’s case was only that the exemption itself was not applicable due to classification, and not that any condition attached to the exemption had been breached.

The revenue argued that wrongful availment of exemption was sufficient to attract Section 111(o), even if the goods had already been cleared for home consumption. The revenue relied on judicial precedents to support the view that confiscation could still be ordered in such circumstances.

The two-member bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that Section 111(o) specifically applies to goods that are exempt from duty subject to conditions, where such conditions are not observed. The tribunal observed that in the present case, the department’s case was not that any condition of the exemption notification was violated, but that the appellant was not entitled to the exemption at all.

The tribunal explained that claiming an exemption which is not applicable due to wrong classification cannot be equated with violation of a condition attached to an exemption. On this reasoning, the tribunal set aside the finding that the goods were liable to confiscation under Section 111(o).

As the confiscation itself was not sustainable, the tribunal pointed out that the penalty imposed under Section 112, which was based on the alleged liability to confiscation, also could not be sustained. The tribunal allowed the appeal to this extent.

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