2016(07)LCX0069

IN THE HIGH COURT OF KERALA AT ERNAKULAM

A.M. Shaffique, J.

TERUMO PENPOL LTD.

Versus

ASSTT. COMMR. OF CUS. (IMPORT), KOCHI

W.P. (C) Nos. 9220, 13720 & 16350 of 2014 (B), decided on 5-7-2016

Cases Quoted -

Collector v. Wood Craft Products Ltd. -1995(03)LCX0070 Eq 1995 (077) ELT 0023 (S.C.) - Referred [Para 9]
L.M.L. Ltd. v. Commissioner - 2010(09)LCX0004 Eq 2010 (258) ELT 0321 (S.C.) - Referred [Para 9]

Departmental Clarification Quoted-

C.B.E. & C. Circular No. 19/2013-Cus., dated 9-5-2013 [Paras 1, 2,3, 4, 6, 7,11,16,18,19]

Advocated By -

S/Shri Joseph Prabakar and Bijoy Chandran,
Advocates, for the Petitioner.
Shrijohn Varghese, SC,for the Respondent.

[Judgment]. -

Ext. P6, Board's Circular No. 19/2013, dated 9-5-2013, is under challenge in WP (C) No. 9220/2014. Petitioner consequentially seeks for quashing of Ext. P3 notice dated 21-1-2014 by which petitioner is called upon to show cause why short-levy amounting to ? 2,87,379/- shall not be imposed on the petitioner.

2.The short facts involved in the writ petition would disclose that the petitioner, being a company engaged in manufacture of blood bags and dealers of blood transfusion apparatus, imported soft shell filter for blood bag as per Bill of Entry dated 29-4-2013. The item was classified under Chapter Heading 9018 90 99 and petitioner claimed exemption under SI. No. 309(i) of Notification No. 12/2012-C.E., dated 17-3-2012. Petitioner paid customs duty amounting to ? 2,50,268/-. Petitioner was thereafter faced with Ext. P3 notice dated 21-1-2014 wherein it is stated that the goods imported by the petitioner is "filtering equipment for filtration of blood". It is mentioned in Ext. P3 that the item is classifiable under Chapter Heading 8421 29 00 based on Note 2(a) of Chapter 90. Reference is also made to Board's Circular No. 19/2013 issued by the 2nd respondent wherein it is clarified that filtering apparatus for filtration of blood is classifiable under Chapter Heading 8421 29 00. Therefore, according to the 1st respondent, an additional 12% tax is leviable and hence the differential duty has to be paid.


3.The main contention urged by the petitioner is that if the product is classified under [Heading] 9018, then the product is eligible for exemption or reduction in basic duty of customs. It is contended that the Circular issued by the 2nd respondent is illegal since the item in question namely Disposable Sterilized Dialyzer and Microbarrier would only fall under Chapter Heading 9018 and not under Chapter Heading 8421.


4. Counter affidavit has been filed on behalf of the respondents inter alia stating that soft shell filter being a filtering apparatus for filtering blood, shall be appropriately classifiable under the Tariff Head 8421 29 00 according to Note 2(a) of Chapter 90 of the Customs Tariff which clearly states that parts and accessories which are goods included in any of the heading of Chapter 90, 84, 85 or 91 (other than 8487, 8548 or 9033) are in all cases to be classified in their respective headings and therefore, this filter is covered under the Heading 8421 29 00 and not under the applied tariff. It is stated that Circular No. 19/2013 is only a clarification issued by the Central Board of Excise and Customs, (C.B.E. & C). Hence, it is contended that these filters do not qualify for concessional duty and therefore

there was justification on the part of the respondents to call upon the petitioner to pay differential duty.


5. WP (C) No. 13720/2014 has been filed by the very same petitioner wherein the petitioner sought to quash the very same Circular when notice had been issued under Section 28(1) of the Customs Act, 1962 on 7-11-2013 on the ground that there had been a short-levy amounting to ^ 10,57,027/- in respect of goods imported as per Bill of Entry Nos. 8524569, dated 19-11-2012, 8908582, dated 31-12-2012 and 2280144, dated 30-5-2013. Grounds raised are similar in nature.


6. WP (C) No. 16350/2014 has been filed challenging the very same Circular when notice was issued on 21-5-2014 alleging short-levy of? 41,36,508/-with reference to similar products imported under different Bill of Entries.


7. The main contention urged by the petitioner is regarding the validity of Circular No. 19/2013. The Circular seems to have been issued since some doubts have been raised regarding classification of filters referred as Disposable Sterilized Dialyzer and Microbarrier for filtering blood. The question was whether it was under the Heading 9018 in Tariff Item No. 9018 90 31 which provides for renal dialysis equipment (artificial kidneys, kidney machines and dialysers) or under 8421 in Tariff Item No. 8421 29 00 coming under other filter. Paras 5, 6 and 7 of the Circular read as under :


"5. In this regard, the classification of goods in First Schedule of the Customs Tariff Act, 1975 is governed by the principles contained in the General Rules for the Interpretation (GRI) of Import Tariff. The GRI 1 provides that "the titles of Sections, Chapters and sub-chapters are provided for ease oi reference only; tor legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes." In accordance with Rule I and Note 2(a) to Chapter 90, subject to Note 1 to Chapter 90, "parts and accessories for machines, apparatus, instruments or articles of this Chapter, which are goods included in any of the headings of this Chapter or of Chapter 84, 85 or 91 (other than Heading No. 84.85, 85.48 or 90.33) are in all cases to be classified in their respective headings;..." Further, the second paragraph of Part III of the HS General Explanatory Note to Chapter 90, gives guidance for the application of Chapter Note 2(a) to this Chapter. According to this Note, "parts which in themselves constitute articles falling in any particular heading of Chapter 90, 84, 85 or 91 are in all cases to be classified in their respective headings."
The Heading 84.21 covers, inter alia, filtering or purifying machinery and apparatus for liquids. Therefore, in accordance with the stipulation mentioned in paragraph 5 above, the aforementioned articles viz,. "Disposable Sterilized Dialyzer" and "Microbarrier", are classifiable in Heading 84.21, sub-heading 8421.29 and Tariff Item 8421 29 00.
To sum up, it is clarified that both the articles viz. "Disposable Sterilized Dialyzer" and "Microbarrier", as filters would be classified in Heading 84.21, sub-heading 8421.29, Tariff Item 84212900 - Other, by application of GRI 1, Note 2 (a) to Chapter 90."


8. The learned counsel for the petitioner submits that these filters which are the subject matter in issue are used in the dialysis machines and have no use other than for the aforesaid purpose. It is part of the system by which di alysis takes place. When there is a specific provision for blood purifying system in Tariff Item 9018 90 31, there is no reason why it should be classified under the
general head of filters.

7. Learned counsel for petitioner placed reliance upon the judgment of the Supreme Court in LML Limited v. Commissioner of Customs [2010(09)LCX0004 Eq 2010 (258) ELT 0321 (S.C.)] wherein the Apex Court while referring to the judgment in Collector of Central Excise, Shillong v. Woodcraft Products Ltd. [(1995) 3 SCC 454 = 1995(03)LCX0070 Eq 1995 (077) ELT 0023 (S.C.)] observed that when the Central Excise Tariffs are based on the Harmonious System of Nomenclature (HSN), it is a safe guide to resolve dis-putes.

8. Taking into consideration the rival contentions, the short question to be considered is whether the products in question namely, "soft shell filter for blood bag" and "imugard filters" are to be classified under the Tariff Item 9018 90 99 or classify the same in the general category of filters, which would fall under Tariff Item 8421 29 00.


9. As already indicated, clarification has been issued as per Circular No. 19/2013 observing that as per Note 2(a) of Chapter 90, parts and accessories of machines, apparatus, instruments or articles of Chapter 90 which are goods included in any of the headings of Chapter 90 or Chapter 84, 85 or 91 other than certain exempted categories are to be classified in their respective headings. Further, it is mentioned in the Explanatory Note to Chapter 90 that parts which in themselves constitute articles falling in any particular heading of Chapter 90, 84, 85 or 91 are in all cases to be classified in their respective headings.

10. The first contention urged is that Note l(n) of Section XVI does not cover articles of Chapter 90. Hence, it is contended that articles of Chapter 90 cannot be brought in other Chapter 84 or 85. Another argument raised is with reference to Note 2(b) of Chapter 90, which indicates that parts and accessories which are suitable for use solely or principally with a particular kind of machine, instrument or apparatus are to be classified with the machines, instruments or apparatus of that kind. It is contended that soft shell filter is a non-sterile product when they are imported and are taken to the factory and assembled with blood bags and thereafter the entire set including soft shell filter and blood bag is sterilized. It thereafter becomes usable or marketable. It is meant only for the use of blood transfusion. It is also contended that the classification made in Chapter Heading 8421 29 00 by itself would indicate that the imported materials cannot fall under the said Chapter. The items specified therein would indicate that the Legislature never thought of including blood purifying systems in the said Chapter. In regard to imugard filters also, similar contentions have been raised. It is stated that imugard filters are leukocyte removal filter system which is meant solely and exclusively for blood transfusion.

11. The contention that Note l(n) of Section XVI of the Customs Tariff Act, 1975 excludes articles of Chapter 90, is not sustainable. If a specific provision is made in Chapter 90 with reference to the accessories relating to blood transfusion systems like renal dialysis equipments, blood transfusion apparatus and haemofiltration instruments, there is no reason to rely upon the note to Section XVI for such purposes. The only requirement is to interpret Note 2 of Chapter 90.


12. Before proceeding further, it will be useful to refer to the entries at Chapter 84. The Chapter Heading 8421 is with reference to centrifuges, including centrifugal dryers, filtering or purifying machinery and apparatus for liquids or gases. In respect of filtering or purifying machinery and apparatus for liquids, the entry provided is from 8421 21 onwards. Sub-heading 8421 21 is for filtering or purifying water. [Tariff Item] 8421 22 00 refers to filtering or purifying bever ages other than water. Entry 2300 relates to oil or petrol filters for internal combustion engines. Thereafter, comes Tariff Item 8421 29 00 with the description "other". The department contends that the imported equipments, being purifying equipments, come under the category "other" in Chapter 84. It is contended that all filters of liquid other than what is specified in any other tariff item comes within its purview.

13. Now coming to Chapter 90, it cannot be disputed that the imported materials are parts of renal dialysis equipments, blood transfusion apparatus and haemofiltration instrument. Note 2 of Chapter 90 reads as under :

14.
"2. Subject to Note 1 above, parts and accessories for machines, apparatus, instruments or articles of this Chapter are to be classified according to the following rules:
parts and accessories which are goods included in any of the headings of this Chapter or of Chapter 84, 85 or 91 (other than heading 8487, 8548 or 9033) are in all cases to be classified in their respective headings;
other parts and accessories, if suitable for use solelv or principally with a particular kind of machine, instrument or apparatus, or with a number of machines, instruments or apparatus of the same heading (including a machine, instrument or apparatus of heading 9010, 9013 or 9031) are to be classified with the machines, instruments or apparatus of that kind;
all other parts and accessories are to be classified in heading 9033."

10. There is no dispute about the fact that apparatus, instruments or ar ticles of Chapter 90 are to be classified according to the categories mentioned therein. Note 2(a) indicates that parts and accessories which are goods included in the headings of Chapter 90 or of Chapter 84, 85 or 91 are in all cases to be clas sified in their respective headings. It is not disputed that the imported goods arenot mentioned in any of headings of Chapter 90. Note 2(b) states that other parts and accessories suitable for use solely or principally with a particular kind of machine, instrument or apparatus, or with a number of machines, instruments or apparatus of the same heading are to be classified with the machines, instru
ments or apparatus of that kind. There is no dispute about the fact that the prod ucts in question are used for the purpose of renal dialysis equipment. What was considered by the authorities in the Circular is with reference to 'Disposable Ster ilized Dialyser' and 'Micro Barrier'. It is observed that the complete machine which performs the blood purifying is classifiable in sub-heading 9018 90 and is covered under Tariff Item 9018 90 31. It is also an admitted fact that the 'Dispos able Sterilized Dialyser' and 'Micro Barrier' are part of the main equipment which is classified under sub-heading 9019 90. Reference is made to 2nd para graph of Part III of the HS General Explanatory Note to Chapter 90 for guidance for the application of Note 2(a) of Chapter 90. It says, parts which in themselves constitute articles falling in any particular heading of Chapter 90, 84, 85 or 91 are in all cases to be classified in their respective headings.

11. But when it is apparent that these equipments are filters and qualifies as parts of blood purifying system under the sub-heading 9018 90, there is no reason to give a different interpretation unless it constitutes articles falling in any particular heading.


18. The contention urged by the respondents while supporting the Cir cular is that in view of the specific entry under Heading 8421, the item cannot come under Chapter 90. But a bare reading of various tariff items coming under Chapter sub-heading 8421 do not tend me to think that a component for filtering blood could be included in any of the items coming under [Heading] 8421. The tariff items coming under [Heading] 8421 read as under

12. The word "other" occurring in [Tariff Item] 8421 99 00 can have relation only to the main heading parts relating to centrifuges including centrifugal dryers or other parts which can be characterized as coming under such equipment and cannot be imported to sub-heading 9018 90. Therefore, Note 2(b) clearly applies to the fact situation since there are no entries in the tariff head items which can take care of parts and accessories of renal dialysis equipment which comes under the Tariff Head 9018 90 31.

Having formed such a view, Note 2(b) applies to the facts of the case and these components can be said to be parts or accessories suitable for use solely with the machines as stipulated under Tariff hem 9018 90 31.
Therefore, I am of the view that the Circular is not in terms with the statutory provisions and is liable to be set aside. Accordingly, these writ petitions are allowed. Ext. P6, Circular No. 19/2013, is hereby quashed. The proceedings initiated against the petitioner for imposing additional duty stands set aside. It is declared that the equipments imported by the petitioner is under the Heading 9018 90 31 and is entitled for reduction from payment of customs duty.

Equivalent 2016 (340) ELT 0182 (Ker.)