2012(09)LCX0081

IN THE CESTAT, SOUTH ZONAL BENCH, CHENNAI

S/Shri Ashok Jindal, Member (J) and Mathew John, Member (T)

Hinduja Foundries Ltd.

Versus

Commissioner Of Cus. (Imports), Chennai

Final Order No. 926/2012, dated 13-9-2012 in Appeal No. C/81/2010

Cases Quoted -

A.P. Steel Re-Rolling Mills Ltd. v. Commissioner - 2004(03)LCX0331 Eq 2004 (175) ELT 0560 (Tribunal)- Relied on [Paras 20, 24]
Commissioner v. Bhushan Steels and Strips Ltd. - 2006(03)LCX0540 Eq 2010 (257) ELT 0005 (S.C.)- Distinguished [Para 21]
Commissioner v. Rimjhim Ispat Ltd. - 2004(12)LCX0141 Eq 2005 (183) ELT 0283 (Tribunal)- Distinguished [Paras 20,24]
Gurudev Overseas Ltd. v. Central Board of Excise and Customs - 2008 (229) ELT 0195 (P & H)- Referred [Paras 5,17]
L.M.L. Ltd. v. Collector - 1997(08)LCX0066 Eq 1997 (094) ELT 0273 (S.C.) - Distinguished [Para 21]
L.M.L Ltd. v. Commissioner - 2010(09)LCX0004 Eq 2010 (258) ELT 0321 (S.C.) - Distinguished [Para 11]
Madras Steel Re-Rollers Association v. Union of India - 2007(06)LCX0227 Eq 2007 (217) ELT 0167 (Mad.)- Referred [Paras 5,17]
Patiala Castings Pvt. Ltd. v. Union of India - 2002(05)LCX0014 Eq 2003 (156) ELT 0458 (P & H)- Distinguished [Paras 20, 24]
Shiva Ispat Udyog v. Commissioner - 2010(03)LCX0102 Eq 2010 (254) ELT 0297 (Tribunal)--Distinguished [Paras 20,24]
Shriram Metals and Alloys Pvt. Ltd. v. Commissioner - 2005(12)LCX0361 Eq 2006 (200) ELT 0274 (Tribunal)- Relied on [Paras 20,24]
Sujana Steels Ltd. v. Commissioner - 1999(06)LCX0100 Eq 2000 (115) ELT 0539 (Tribunal)- Distinguished [Paras 20,24]
Tata Iron & Steel Co. Ltd. v. Collector - 1994(12)LCX0069 Eq 1995 (075) ELT 0003 (S.C.) - Distinguished [Paras 20,24]

Departmental Clarification Quoted-

C.B.E. & C. Instruction No. B.28/7/83-TRU, dated 1-8-1983 [Para 16]
C.B.E. & C. Circular No. 26/88, dated 2-12-1988 [Para 16]
C.B.E. & C. Circular No. 27/89, dated 21-9-1989 [Para 16]
C.B.E. & C. Circular No. 1/2005-Cus., dated 11-1-2005 [Para 16]
C.B.E. & C. Circular No. 08/2006-Cus., dated 17-1-2006 [Paras 5,16,17]

Advocated By -

Shri N. Viszvanathan, Advocate, for the Appellant.
Shri Alok Shukla, )CDR,for the Respondent.

[Order per : Mathew John, Member (T)]. -

The appellants are manufacturers of steel castings. They imported 5 consignments of steel scrap at Chennai Port during March 2009. For one consignment they filed Bill of Entry No. 983187 dated 31-3-2009 declaring the goods as "Foundry grade heavy melting scrap" claiming classification under Heading 72.04 and concessional rate of customs duty as provided at SI. No. 200 of Customs Notification No. 21/2002-Cus. This exemption was applicable to "Melting scrap of iron or steel (other than stainless steel)" falling under sub-heading 72.04 of the Customs Tariff Act.


2. On examination of the goods it was seen that the goods were cut pieces of rails. Revenue was of the view that such goods are classifiable under Customs Tariff Item 7302 10 90 in which case the exemption under Notification No. 21/2002-Cus. at SI. No. 200 was not available to the goods. Further goods falling under this Tariff Item was subject to import restrictions. Since Revenue felt that the goods were mis-declared for circumventing import policy and also for claiming exemption and hence the goods were liable to confiscation under Section 111(00d) and lll(m) of the Customs Act, 1962 and proceedings were initiated for confiscating the goods and for denying the exemption claimed. On conclusion of the proceedings, the goods were confiscated under the provisions of Section 111(d) and lll(m) of the Customs Act, 1962 read with Section 3(3) of the Foreign Trade (Development & Regulation) Act, 1992 and the appellant was allowed to redeem the goods on payment of a fine of Rs. 6 lakhs as per the provisions of Section 125 of the Customs Act, 1962. Further, a penalty of Rs. 3 lakhs was imposed on the appellant under Section 112(a) of the Customs Act, 1962. 'Aggrieved by the order of the Commissioner, the appellants have filed this appeal before this Tribunal.


3. The counsel for the appellant submits that the consignment contained used rails of various lengths less than 2 mtrs. The position that these goods were used and worn out is not disputed by Revenue. It is also not disputed by the Revenue that these goods were not fit for use as rails and it is also not disputed that these goods could be used as heavy melting scrap. The appellants produced certificate from the Central Excise officers in-charge of their foundry showing that the goods were in fact used in their foundry for manufacture of castings.


4. The appellant relies on Section Note 8 of Chapter XV of Customs Tariff which reads as under :

"8. In this section the following expressions have the meanings hereby assigned to them :

(a) Waste and Scrap

Metal Waste arising from the manufacture or mechanical working of metals and metal goods definitely not usable as such because of breakage cutting up, wear or other reasons.

(b) Powders -"

The appellant argues that the goods imported could not have been used as such because of wear and since it were cut into small pieces. So he argues that classification under Heading 72.04 is proper.



5. The learned counsel also points out that the adjudicating authority has relied on C.B.E. & C. Circular dated 17-1-2006 without actually mentioning it apparently because it has already been struck down by the Hon'ble High Court of Madras in Madras Steel Re-Rollers Association v. Union of India - 2007(06)LCX0227 Eq 2007 (217) ELT 0167 (Mad.) and Hon'ble High Court of Punjab & Haryana in Gurudev Overseas Ltd. v. C.B.E. & C. - 2008 (229) ELT 0195 (P & H).


6. The learned counsel also submits that the appellants had placed order for HMS scrap. The overseas supplier had supplied the goods considering the goods to be HMS scrap. The load port certification by authorized Inspection Agency in their certificate dated 9-2-2009 issued in terms of Para 2.32 of Handbook of Procedures certified the goods to be HMS scrap and such goods are internationally recognized as HMS scrap only.


7. The counsel submits that Heading 73.02 proposed by Revenue is meant only for articles which can be used as rails. His contention is that the impugned goods could not have been used as rails.


8. The counsel for the appellant points out that the issue of classification of used rails was taken by the appellants in a meeting of EXIM Facilitation Committee held on 16-2-2012 by the Directorate General of Foreign Trade. As per the minutes of the meeting at SI. No. 6 of Part XIII relating to steel it is recorded that the Committee took a view with the approval of the Director General that used rails would be treated as free for import without any restriction as it would fall under ITC (HS) Code 72.04. Therefore, the counsel submits that one arm of the Government is taking the view that the goods are classified under Heading 72.04 and the other arm namely the Customs Department is taking the view that the goods are classifiable under Heading 73.02.


9. Opposing the prayer, the learned AR for Revenue relies on the test report given by National Metallurgical Laboratories, Madras Centre contents of which are reproduced below :-

METALLURGICAL INSPECTION REPORT

7. He also relies on Section Notes in HSN under Heading 7204 which read as under :-

"(A) WASTE AND SCRAP

The heading covers waste and scrap of iron or steel, as defined in Note 8(a) to Section XV. Such waste and scrap of iron or steel is of a miscellaneous nature and generally takes the form of:

(1) Waste and scrap from the manufacture or mechanical working of iron or steel (e.g. crop ends, filings and turnings)

(2) Articles of iron or steel, definitively not usable as such because of breakage, cutting-up, wear or other reasons; iron or steel waste and scrap is usually prepared by means of the following processes, in order to adapt it to the dimensions and qualities required by the users :-

(a) Shearing or flame-cutting of heavy and long pieces

(b) compression into bales, particularly in the case of light scrap, using for example hydraulic press

(c) Fragmentation (shredding) of motor vehicle bodies and other light scrap, followed by separation (which may be magnetic) with a view to obtaining a high density product that is fairly clean

(d) Crushing and agglomeration into briquettes of iron and steel filing and turnings

(e) Breaking up of old iron articles.

Waste and scrap is generally used for the recovery of metal by remelting or for the manufacture of chemicals.
But the heading excludes articles which, with or without repair or renova-tion, can be re-used for their former purposes or can be adapted for other uses; it also excludes articles which can be refashioned into other goods without first being recovered as metal. Thus, it excludes, for example, structural steel work usable after renewal of worn-out parts, worn railway lines which are usable as pitorops or may be converted into other articles by re-rolling; steel files capable of re-use after cleaning and sharpening."



8. He is emphasizing on the fact that Heading 72.04 specifically ex-cludes worn rails which may be converted into other articles by re-rolling. He points out that there is a clear finding in the test report that these items could be
re-rolled. He further points out that the appellant in their letter dated 26-6-2009 stated as under :

"Even though the cut rails are re-rollable, we are using the same as Heavy Melting Scrap in our foundry"

So his argument is that the goods were established to be re-rollable scrap. So he argues that the exclusion mentioned in Heading 72.04 will apply. According to HSN Notes only waste and scrap that can be used only for recovery of metal by melting will get classified under Heading 72.04 and therefore the goods has to be classified under Chapter Heading 73.02. He relied on the decision of the Apex Court in the case of LML Ltd. v. Commissioner of Customs - 2010(09)LCX0004 Eq 2010 (258) ELT 0321 (S.C.) holding that HSN Explanatory Notes are safe guide to resolve dispute on Tariff classification as it is internationally accepted nomenclature and HSN Ex-planatory Notes are dependable guide for interpretation of Customs Tariff. It is his argument that if HSN Notes are taken into consideration then the goods cannot be classified under Heading 72.04.


9. He further draws our attention to the Notes under Heading 73.02 which is as under :-

"This heading covers iron or steel railway and tramway track construction material, whether of normal or narrow gauge.

(1) Rails for railways or tramways are hot-rolled products. The heading covers all lengths of such rails including bullhead rails, flange (or flat-bottomed) rails, grooved tram rails, slot rails for electric tramways and conductor-rails etc.

This heading covers all rails of the type normally used for railway or tramway track irrespective of their intended use (overhead transporters, mobile cranes, etc.). It does not, however, cover rails not of the railway or tramway type (e.g. sliding door rails and lift rails)."


13. Once the goods are classified under Heading 73.02 there is a restric-tion on import of such goods and therefore the confiscation of the goods under Section 111(d) is maintainable. Further he argues that the exemption at S. No. 200 of Notification 21/2002-Cus. is applicable only to goods classifiable under Heading 72.04 and hence will not apply to the imported goods.


14. Further, he argues that since the goods were declared as heavy melting scrap when the goods were used rails, he submits that there is a mis-declaration of material particulars and therefore provisions of Section lll(m) are attracted.


15. The appellants submit that the DGFr has classified such goods under Heading 72.04. We are of the view that it is not appropriate to leave the decision of classification to DGFT in which case the classification does not get settled though a judicial process and stakes of Revenue gets decided by an officer not concerned with Revenue. So we are not giving much importance to the decision of DGFT. However when it comes to deciding whether there is any restriction on import of the goods we consider it appropriate to go by the decision of DGFr who lays down the policy in that regard. So even if the goods are classified under 73.02 as contested by Revenue the confiscation of goods for violation of import policy is not justified.


16. Classification of the impugned goods has been under dispute for quite some time as may be seen from the following facts.

(i) Clarification B.28/7/83-TRU, dated 1-8-1983 clarifying that products commonly known as re-rollable and industrial scrap which are used for purpose other than melting would not merit classification as "waste and scrap".

(ii) Circular No. 26/88, dated 2-12-1988 clarifying that re-rollable waste and scrap of steel would also get classified under Heading 72.04.

(iii) Circular 27/89 dated 21-9-1989 clarifying that Heading 72.04 would not cover an article which could be converted into another article by hot rolling without it being necessary to re-melt the metal first.

(0iv) Circular 1/2005-Cus., dated 11-1-2005 reading as under :

(x) Subject: Classification of used steel rails for re-rolling under CTH 7204 or 7302 and whether freely importable.

Issue in Brief : This matter was discussed in the Tariff Conference of Chief Commissioners of Customs held at Shillong on. 13th - 15th May, 2004 [Agenda Point T-2J. The issue involved is whether the goods described as "used steel rails for re-rolling" are classifiable as scrap of steel under heading 7204 of the Customs Tariff Act, 1975 or as old and used rails of railway under heading 730210.10. This would also determine the importability of the said item i.e. whether the goods are freely importable under para 2.1 of the Foreign Trade Policy, 2004-2009 read with para 2.30 of the Handbook of Procedures, Vol. I, or whether it would be restricted for import and require specific license in terms of para 2.17 of the policy ibid. The "waste and scrap" of iron and steel is classified under heading 7204 of the Customs Tariff Act, 1975. Section Note 8(a) to Section XV of the Customs Tariff Act defines the term waste and scrap as "metal scrap and waste from the manufacture or mechanical working of the metals and metal goods definitely not usable as such because of breakage, cutting up, wear or other reasons." Explanatory Notes to HSN under heading 7204 mention that the heading covers waste/scrap of iron and steel as defined in Note 8(a) to Section XV. The note mentions details of the articles, which are covered under said heading. It also mentions that the waste and scrap is generally used for recovery of metals by remelting or for the manufacture of chemicals. However, the heading excludes articles, which with or without repair or renovation can be reused for former purpose or can be adopted for other uses; it also excludes structural steel works usable after renewal of worn out parts.



Decision : The Board considered the alternative headings of 72.04 and 73.02 for the item. The main point for discussion related to the policy restrictions on the import of used rails. Chapter 73 of the CTA'75 specifically covers articles such as rails. In the case under reference, even though the items in question were in the form of rails, these bore markings of use and therefore these could not be used again as rails. Hence, suitable classification would be as scrap of CTH 7204 and not as articles under heading 7302. It has accordingly been decided by the Board that used steel rails for re-rolling were appropriately classifiable under CTH 7204 and these were freely importable.

(v) Circular dated 08/2006-Cus., dated 17-1-2006 clarifying that used steel rails shall be classified under CTH 73.02 and not under 72.04. The circular reads as under :

"Subject: Classification of used rails - Reg.

I am directed to invite your attention to the Board's Circular No. 1/2005-Cus., dated 11-1-2005 [2005 (179) ELT T22] and the doubts expressed on the issue of appropriate classification of "used steel rails" - whether under CTH 7204 as 'ferrous waste and scrap' or under CTH 7302 as 'used rails'.

2. The issue of classification has been re-examined by the Board with re-spect to the clarification issued under Central Excise Tariff vide Circular No. 27/89, dated 21-9-1989. The Board decided that heading No. 7204 read with Section Note 8(a) to section XV of the First Schedule to the Customs Tariff Act and explanatory notes of Harmonized Commodity Description and Coding System (HSN) cover only such waste and scrap as would generally be used for recovery of metal by re-melting or for the manufacture of chemicals. Such waste and scrap which is not for re-melting will have to be classified in the other appropriate headings of the tariff. Further, HSN notes to CTH 72.04, by example excludes structural steel work usable after renewal of worn-out parts; worn railway lines which are usable as pitprops or may be converted into other articles by re-rolling; steel files capable of re-use after cleaning and sharpening. Accordingly, 'used rails' would not be covered by chapter heading 7204.

3. Further Board also noted that CTH 7302 specifically covers 'rails'. HSN note on this heading provides that it covers ail lengths of rails, all rails of the type normally used for railway or tramway track, irrespective of their intended use. There is no exclusion for 'used rails' from this CTH.

4. In view of the above and for the purpose of uniformity in classification, it is hereby clarified by the Board that the appropriate classification of "used steel rails" shall be under CTH 7302, and not under CTH 72.04 as ferrous waste and scrap. The instructions contained in para 8 of Board's Circular No. 1/2005 may be considered as modified accordingly."


17. The last mentioned Circular dated 17-1-2006 has been struck down by the High Court of Madras in the case of Madras Steel Re-rollers Association (supra) and by the High Court of Punjab and Haryana in the case of Gurudev Overseas Ltd. It is to be noted that the Courts did not give any ruling on the merits of the issue. The circular has been struck down for the reason that it takes away the freedom of adjudicating authority to decide the issue on merit.


18. Thus C.B.E. & C. changed its view on the issue a few times. Added to that is the latest clarification by DGFT that such goods will be classifiable under Heading 72.04. These conflicts arise from the fact that there is a clear exclusion in the HSN notes under Heading 72.04 to the effect that scrap which can be used without re-melting to recover metal is not classifiable under the heading. At the same time the issue as to where re-rollable scrap will get classified is not specifically stated in HSN Notes. Classifying used rails, having length less than two metres, in the heading for rails does not stand to common sense because it is very obvious that the goods cannot be used as rails any more. Neither do the HSN Notes for Heading 73.02 state explicitly that used and cut rails will also be classi-fiable as rails.


19. Classification under different Tariff items is for the purpose of levy-ing different rates of duty as also for collection of statistics of trade. It is only natural that Government may want to impose a different rate of duty on goods which can be re-rolled into useful products like bars and rods as compared to scrap which can be used only after melting for recovery metals because the cost of manufacturing activity is very minimal in the former and high in the latter. But the exemption is made available without a mechanism to ensure the actual end-use of goods imported claiming this exemption. In fact the condition for ensuring end-use, which was originally present in the notification against S. No. 200, has been omitted by Notification 11/2006-Cus., dated 1-3-2006.
20. Classification of similar has been subject matter of many decisions of the Tribunal and Courts. Some of which are given below :

(i) Tata Iron and Steel Company v. CCE - 1994(12)LCX0069 Eq 1995 (075) ELT 0003 (S.C.). This decision held that rails, billets, plates, axles channels, etc., are to be treated as scrap. However this decision is in the context of the Central Excise Tariff which was in force prior to 1986 which Tariff was not based on HSN.

(ii) Sujana Steels Ltd. v. CCE - 1999(06)LCX0100 Eq 2000 (115) ELT 0539 (Tri.) classifying used and rusted pipes under 72.04 in preference to Heading 73.04. This decision does not examine the issue of difference between melting scrap and re-rollable scrap.

(iii) Patiala Castings Pvt. Ltd. v. UOl - 2002(05)LCX0014 Eq 2003 (156) ELT 0458 (P & H). The decision is in relation to rusted, pitted and perforated pipes. This decision is focused on the release of the goods. It does not raise the issue that the goods could be re-rolled and for that reason would not be classifiable under Heading 72.04.

(iv) A.P. Steel Re-rolling Mills Ltd. v. CCE - 2003(09)LCX0132 Eq 2004 (175) ELT 0580 (Tri.-Bang.) - classifying assorted iron scrap in different forms and shapes under Heading 72.04.

(v) CCE v. Rimjhim Ispat Ltd. - 2004(12)LCX0141 Eq 2005 (183) ELT 0283 (Tri.-Del.) old and used rails classifying old and used rails under Heading 72.04. Here the argument considered is that only a small portion of the goods were found to of doubtful nature. The exclusion for re-rollable scrap under Heading 72.04 is not considered.



(vi) Shriram Metals & Alloys Pvt. Ltd. v. CC - 2005(12)LCX0361 Eq 2006 (200) ELT 0274 (Tri.-Chennai) - classifying ribbed, rusted rods under Heading 7204.43. Here it is noteworthy that the classification of goods was claimed as re-rollable scrap falling under Heading 72.04 and eligible for exemption under S. No. 201 of Notification 21/2002-Cus. This S. No. got omitted by Notification 26/2003, dated 1-3-2003 Against this S. No. there was a condition which described the scope of "re-rollable scrap" and the description specifically covered items of the type considered in this case. So it is clear that in 2002 when this notification was issued the Ministry was of the view that re-rollable scrap would fall under CTH 72.04.

(viii)Shiva Ispat Udyog v. CC - 2010(03)LCX0102 Eq 2010 (254) ELT 0297 (Tri.-Kol.) - rules that used railway axles are classifiable under CTH 72.04. This decision does not examine the exclusion mentioned in HSN Notes for Heading 72.04 and the distinction between re-rollable scrap and melting scrap.


21. The decisions in favour of Revenue to some extent are the following :

(i) LML Ltd. v. CCE - 1997(08)LCX0066 Eq 1997 (094) ELT 0273 (S.C.);

(ii) CCE v. Bhushan Steels and Strips Ltd. - 2006(03)LCX0540 Eq 2010 (257) ELT 0005 (S.C.).

These decisions deal with the issue of classification of side slitting, cuttings, roughly shaped pieces and trimmings generated in a factory. The competing headings considered are Heading 72.16 in preference to Heading 72.04. This decision is not in respect of old and used item. The decision is based on the finding of fact that "It is quite evident that those portions of cut sheets which are used in the manufacture of ancillary items cannot be regarded as waste and scrap". Further the competing entries considered were 72.04 and 72.16. The impugned goods were found to be more appropriately covered by Heading 72.16.



22. In the present case the competing Headings are 72.04 for scrap and 73.02 for rails. Notes under Heading 73.02 nowhere specifically state that old and used rails cut into small pieces are classifiable under this heading. Revenue is taking umbrage under the part of the sentence in HSN Notes that heading covers all lengths of such rails including bullhead rails, flange (or flat-bottomed) rails, grooved tram rails, slot rails for electric tramways and conductor-rails etc. "irrespective of their intended use". It is seen that the intended use is amplified to mean overhead transporters, mobile cranes, etc. Obviously the Note is not dealing with the intended use of re-rolling or melting.


23. Further we note that the heart and soul of this dispute is not whether the impugned item is rails or scrap. The actual dispute is whether the item is a "melting scrap" or "re-rollable scrap" for the purpose of Notification 21/2002-Cus. This issue is being fought by Revenue raising the classification of the goods mentioned in the Notification. In fact this dispute is not only in respect of used and cut pieces of rails but in respect of railway axles, used pipes and various other types of used articles which also could be re-rolled. The difference in the case of used rails is that the item is specifically mentioned in HSN Notes under Heading 72.04 for the purpose of excluding it. The meaning of the expressions "melting scrap" or "re-rollable scrap" are not defined in the Customs Tariff or HSN notes though the HSN notes makes a mention that waste and scrap which can be rolled into other products without melting to recover metal is excluded from Heading 72.04.


24. In the above background we take into consideration the following,-

(i) The decisions quoted in Para 20 above classifying such goods in Heading 72.04 which decisions have come to stay and many other decisions also are given based on the said decisions. The logic running through these decisions is that old and used articles of iron and steel not serviceable for use as the original article will get classified as scrap falling under CTH 72.04.

(ii) A decision to deal differently with cut and used rails as compared to used railway axles is not consistent with the matter in dispute.

(iii) There has been no change in the Tariff descriptions or description in notification which would warrant a change in practice. In such a situation it is necessary to maintain consistency.

(iv) Another agency concerned with import of goods namely DGFT is of the view that the goods are classifiable under Heading 72.04. It is desirable to maintain consistency in classification for the purpose of deciding import policy and levying customs duty.

(v) Between the two competing Headings of 72.04 and 73.02 argued before us we consider Heading 72.04 to be more appropriate.

(vi) The goods were in fact used in melting.



25. So we come to the conclusion that there is no reason to deny the classification claimed by the appellant for the goods to be under Heading 72.04 or to consider the goods not to be "Melting scrap of Iron and Steel" as described in Notification 21/2002:Cus. (S. No. 200). It follows that confiscation of the goods and penalty imposed in the impugned order becomes not maintainable.


26. So we allow the appeal by setting aside the impugned orders of the lower authorities with consequential benefits to the appellant.


(Pronounced in Court on 13-9-2012)

Equivalent 2013 (288) ELT 0571 (Tri. - Chennai)

Equivalent 2013 (197) ECR 0141 (Tri.- Chennai)