No Countervailing Duty on Areca Nut Processing Machines Imported for Pan Masala Production: CESTAT [Read Order]

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that countervailing duty (CVD) is not applicable on areca nut processing machines imported for the production of pan masala.

The tribunal found that the customs department erred in reclassifying the machinery and raising a demand of ₹27.74 lakh in CVD.

Dharampal Satyapal Ltd., the appellant, imported machinery including a crumbler, plansifter, and discharge airlock for use in its areca nut (supari) processing plant. The company classified the equipment under Customs Tariff Heading (CTH) 84371000, which covers machines for cleaning, sorting, or grading seed, grain, or dried leguminous vegetables. This classification carries a 0% CVD rate.

The customs department disagreed and alleged that the machinery was of general use and not specific to seeds or grains. It issued a show cause notice proposing reclassification under CTH 84798200, which attracts 12.5% CVD, claiming the machines were general-purpose crushers and sifters not specific to any particular product or industry.

Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

The adjudicating authority confirmed the demand but reclassified the goods under entirely new headings 84386000 and 84336020 which were neither claimed by the importer nor proposed in the show cause notice. The Commissioner (Appeals) upheld the reclassification and sustained the demand.

Aggrieved by this, the appellant approached the CESTAT. The company's counsel argued that authorities cannot go beyond the scope of the show cause notice or revise classification without following the due process. They argued that the machines were specifically intended for processing areca nuts, which fall within the scope of CTH 84371000.

The revenue counsel argued that the machinery was general in nature and used in various industries and should fall under CTH 84798200 as initially proposed.

The two-member bench comprising Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member) held that both the adjudicating authority and the Commissioner (Appeals) had exceeded their jurisdiction by confirming classifications not proposed in the show cause notice. The tribunal explained that no authority can travel beyond the scope of the notice citing Supreme Court precedents.

Upon examining the machine specifications and their intended use, the tribunal ruled that the imported machines were indeed covered under CTH 84371000. Accordingly, it held that the demand of CVD was unsustainable. The appeal was allowed and the impugned order was set aside.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates