2005(09)LCX0124

In the Customs, Excise & Service Tax Appellate Tribunal, Kolkala

Smt. Archana Wadhwa, Member (Judicial), Shri V.K. Jain, Member (Technical) and On diff. of Opinion: Shri M.P. Bohra, Member (Judicial)

Atherton Engg. Co. (P) Ltd. & Ors.

Versus

Commissioner of Customs, (Airport & Admn.), Kolkata

Final Order Nos. A/691-693/KoI/2005 dt. 22.9.2005 and Misc. Order No. M-26/Kol/2003 dt. 30.1.2004 certified on 5.10.2005 in Appeal Nos. CDM-70,71 & 77/2003 and Cross Objection Nos. 65-67/2003

Cases Quoted -

1. CC (P), Mumbai Vs. Artherton Engg. Pvt. Ltd. 2001 (045) RLT 0473 (CEGAT-Mum.)-Relied on [Paras 11,12,15]

Advocated By -

S/Shri R. Chowdhury, B.N. Pal and Partha Banerjee, Advs. for Appellants
Shri T.K. Kar, SDR for Respondent

Per V.K. Jain:

M/s. Atherton Engineering Co. (P) Ltd., Kolkata imported 27 consignments of Artemia Cyst (Brine Shrimp Eggs) during the period from October 1998 to February 2001. The Commissioner of Customs, Airport & Administration, classified the above product under Chapter 5 whereas classification was claimed by the appellant company under Chapter Heading 23 of Customs Tariff. In his adjudication, the Commissioner confirmed the duty amount of Rs. 77,70,931.00 (Rupees seventy-seven lakh seventy thousand nine hundred and thirty-one) being the differential duty in respect of nineteen consignments. He ordered the appellant company to pay Special Additional buty (SAD) amounting to Rs. 21,15,601.00 (Rupees twenty-one lakh fifteen thousand six hundred and one). He also demanded the interest on the differential duty including SAD in terms of Section 28AB of the Customs Act, 1962 from the appellants. He imposed a penalty, of Rs. 98,86,531.00 (Rupees ninety-eight lakh eighty-six thousand five hundred and thirty-one) along with applicable interest on the appellant company. He also imposed a personal penalty of Rs. 5.00 lakh (Rupees five lakh) each on Shri Vickram Jaitha, Ex- Director of the Company and Shri R.B. Jaitha, Chairman and Director of the said Company, under Section 112 (a) of the Customs Act, 1962.

2. The dispute in the present case relates to the classification of Brine Shrimp Eggs imported by the appellants. The import was made by the appellants prior to the impugned Order of the Commissioner when the item in question, i.e. Brine Shrimp Eggs used to be classified under Heading No. 2309.90 of Customs Tariff Heading, as 'Prawn Feed'. It was felt by the Revenue that the item in question should be correctly classifiable under Customs Tariff Heading 0511.99, which attracts higher rate of duty. On party's representation, the Revenue permitted provisional clearance against a Bank Guarantee for the differential duty.

3. A specific information was received in the Directorate of Revenue Intelligence, Kolkata Zonal Unit, Kolkata (here-in-after referred to as DRI), to the effect that M/s. Atherton Engineering were importing a commodity named "Artemia Cyst" from U.S.A. with the description as "Brine Shrimp Eggs", and they were pasting sticker on the Carton describing it as "Prawn Feed (Processed)", thereby classifying it under Customs Tariff Heading 2309.90 attracting nil rate of duty before 1999-Budget and attracting.5% Basic Duty after that. After Customs clearance and before giving it to their dealers in India they were again affixing on the Carton - "Prime Artemia brought to you by M/s. Atherton Engineering Co. (Pvt.) Ltd." The information further claimed that Artemia Cyst imported by the appellants, fell under the Customs Tariff Heading No. 0511.99 attracting higher rate of duty, and was assessed in that manner at Chennai Air Customs. As per the information, the usage of Artemia Cyst in AcquacuIture Hatcheries is as under follows:-
"After harvesting these cysts under controlled temperature and by aerating with Oxygen in Hatcheries, they will get 'Nauplii' from the Cysts. These 'Nauplii' will be fed to the larval stages of Prawns (called as 'Seed' in Hatcheries) for better growth."

4. Based on this information, the DRI took voluntary statements, inter-alia, of Shri Vickram Jaitha and Shri R.V. Jaitha, both Directors of the importing firm. In the show cause notice, it was alleged that M/s. Atherton Engineering Co. Pvt. Ltd., Kolkata and its Director, Shri R.V. Jaitha, misdeclared the imported commodity as 'Prawn Feed' though the commodity was prawn feed and they also suppressed the information regarding the quality of the goods to the Customs Authority while filing the bills of entry though they had full knowledge about the actual description, nature and quality of the goods with intent to evade the Customs Duty. Thus the provisions of Section 46 (4) of the Customs Act read with Rule 11 of the Foreign Trade (Regulation) Rules, 1993, have been contravened. For the acts of such misdeclaration and suppression, the goods so imported are liable for confiscation under Section 111 (m) of the Customs Act.

5. The goods being liable for confiscation, the importer company, M/s. Atherton Engineering Pvt. Ltd., Kolkata and its Directors - Sri R.V. Jaitha and presently, Ex-Director, Shri Vickram Jaitha are also liable for penal action under Section 112 read with Section 114A of the Customs Act, 1962.

6. After hearing the parties and following the principles of natural justice the Commissioner of Customs passed the Order referred to above.

7. Artemia Cyst are necessarily to be hatched first and only hatched Artemia Nauplii are fed to Prawn Larvae. The Brine Shrimp Eggs are collected in Cyst form Salinas worldwide, processed and packed for easy transportation. After harvesting, these undergo a lot of process, which inactivate their development and only in controlled laboratory condition, the seeds will hatch into live feed for Prawn. These are complete food for Prawn and sufficient in Fatty Acid, Protein etc. These have got no other use in India except in Hatchenes.

8. It is, therefore, clear that the goods as imported need a lot of careful processing before these are fed to Prawn. Artemia Cysts are, in fact inactivated eggs imported in dehydrated and dormant condition in sealed can and what are fed to Prawn are active Nauplii produced after caretul processing of the seeds.

9. We have heard Shri S.K. Bagaria, learned Senior Advocate assisted by Shri Partha Banerjee, Advocate, along With S/Shri Ramesh Chowdhury and B.N. Pal, both Advocates for the appellants. The main contentions of the appellants are as follows:- ."
a) The samples of the imported goods were drawn by the D.R.I before permitting provisional clearance and release thereof. The Department has not supplied them a copy of the Test Report. The show cause notice has been issued and the impugned Order has been passed without any reference to the Test Report:
b) The Final Assessment is always open to an appeal and as such invocation of Section 28 of the Customs Act, 1962 before making a Final Assessment is violative of principles of natural justice.

10. We have heard Shri T.K. Kar, learned SDR for the Revenue on the contrary.

11. Similar dispute relating to classification of the same item also existed in respect of the same Importer in Mumbai. Mumbai Customs, however assessed the item in question under CTH 05.11 against which the party were in appeal. The Commissioner (Appeals) decided in favour of the classification under Customs Tariff Heading No. 23.09, and allowed the appeal of the party with consequential relief to them. The Department went to the C.E.S.T.A.T. against the Order of the Commissioner (Appeals), Mumbai, and C.E.S.T.A.T., Mumbai its Order No.128/2001-WZB/C-II dated 10.01.01 reported in 2001 (045) RLT 0473 (CEGAT-Mum.)=2001 (129) ELT-502 (Tri.-Bom.) in the case of Commissioner of Customs (P), Mumbai Vs. Atherton Engg. Pvt. Ltd., decided the classification under Customs Tariff Heading No. 05.11

12. The appellant company's appeal was decided by the Mumbai Tribunal as reported in 2001 (045) RLT 0473 (CEGAT -Mum.)=2001 (129) ELT -502, wherein it was held that Brine Shrimp Eggs fall under Customs Tariff Heading No. 0511.99. The relevant extract of the above-referred judgment is reproduced below. Chapter Note 1 to Chapter 5 of Customs Tariff reads as follows:-
"1. This Chapter does not cover:
(a) Edible products (other than guts, bladders and stomachs of animals, whole and pieces thereof, and animal blood, liquid or dried" and the headings read as
05.11 Animal products not elsewhere specified or included: dead animals of Chapter 1 or 3, unfit for human consumption -

(c) From our findings herein above and the admitted position the goods under import are not edible therefore they are not excluded from Chapter 5 by Note 1. Therefore the classification of goods as classified under Heading 0511:99 would be the.appropriate classification of the goods under import, in the condition in which they are imported. We are reinforced in this view of the classification of these goods, as the goods under import, are packed brine shrimp eggs supplied and would fall under Heading 05.11 of the HSN and the Customs Tariff which is based on the HSN and not 'larvae' which are 'prawn feed'.
(d) We have examined the alternative classification under Chapter 23 of the Customs Tariff note under Chapter 23 provides as under:
"Heading No. 23.09 includes products of a kind used in animal feeding, not elsewhere specified or included, obtained by processing vegetable or the animal materials to such an extent that they have lost the essential characteristics of the original material, other than vegetable waste vegetable residues and by-products of such processing"
and the headings read as :

23.09- Preparation of a kind used in animal feeding.
23.10 - Dog or cat goods put up for retail sale
23.90- Other

A perusal of the Chapter above notes would indicate that if it is to be classified as a preparation of a kind used in animal feeding, in the present case, the larvae after processing are used as feed, therefore, the larvae as imported, would be classified under 2309. Since 'larvae' have not been imported and it is only that in egg form imports are effected the classification under 2309, of unprocessed animal materials i.e. eggs in this case, cannot be found by us to be correct, if we read the chapter notes.
"(e) In view of our findings we do not consider the other submissions and the case law provided and relied upon by the respondent importers before us as we do not consider it necessary to deal with The same as it is not for product under classification which is being arrived at based on the material supplied by the importers and the chapter notes. Therefore we find that classification of the present goods imported can be arrived at on a simple and plain reading of the chapter notes 2 to chapter 5 and chapter 25 and considering the classification of the goods in form in which they have been admittedly to have been imported"

13. Thereafter, an appeal was filed by the importer in the Hon'ble Supreme Court against the Order of the Tribunal, which was admitted by the Hon'ble Apex Court. The Hon'ble Supreme Court on 4.4.2002 dismissed the Civil Appeal filed by the appellants against the Mumbai CESTAT's Order. While dismissing the appeal, the Hon'ble Supreme Court held as under:-
"We have heard the learned Counsel for the appellant. We find no merit in the appeal. The Civil Appeal is dismissed with cost."

14. After respectfully agreeing with the Mumbai Tribunal we hold that the classification of Brine Shrimp Eggs imported by the appellants herein fall under Customs Tariff Heading No. 0511.99. As such, the demand of duty made by the Commissioner in his Adjudication Order referred to above, is confirmed. However, considering the facts of the case, we reduce the penalty to a sum of Rs. 25.00 lakh (Rupees twenty-five lakh) along with the applicable interest on the appellant company. We also reduce the personal penalty of Rs. 5.00 lakh (Rupees five lakh) each on Shri Vickram Jaitha, Ex-Director of the appellant company, and Shri R.B. Jaitha, Chairman and Director of the appellant company, under Section 112 (a) of the Customs Act, 1962, to sum of Rs. 2.00 lakh (Rupees two lakh) each. But for the above modification, the appeals are otherwise rejected. Cross Objections filed by the Revenue also stand disposed of.

Per Archana Wadhwa :

15. I have gone through the Order proposed by my Learned Brother, Shri V.K. Jain, Member (Technical) and I agree with him that the issue of classification of Brine Shrimp Eggs stands concluded by the West Zonal Bench of the Tribunal as falling under Heading 05.11 as against the Heading 23.09 claimed by the importer, as reported in 2001 (045) RLT 0473 (CEGAT -Mum.)=2001 (129) ELT-502 (Tri.-Bom.). The appeal against the above Order was not entertained by the Hon'ble Supreme Court, as observed in the Order of Learned Member (Technical), and as such, the issue is finalised and is required to be followed by us.

16. However, I find that during the course of arguments, leanled Advocate appearing for the appellants had raised an alternative plea that even if the goods are considered classifiable under Heading 05.11 of the First Schedule to the Customs Tariff Act, 1975, the same would be entitled to exemption in terms of the Notification No. 163/94-Cus. dated 2.9.94. However, it has been fairly conceded by the learned Advocate that the said issue of the goods being exempted under Notification No. 163/94-Cus. was not raised before the Commissioner, but submits that the same being a legal issue can be raised even at the appeal stage.

17. I agree with the above contention of the learned Advocate. The Notification in question exempts Animal Embryos falling under Heading No. 05.11 from the whole of the duty of Customs. Inasmuch as the said Notification was not before the Commissioner, I set aside the impugned Order and remand the matter to the Commissioner for consideration of the applicability of the said Notification.

18. I also observe that the Learned Member (Technical) has reduced the personal penalty imposed upon the main appellant company to a sum of Rs. 25.00 lakh (Rupees twenty-five lakh) with reduction of personal penalties imposed upon the Ex-Director of the appellant company as also Chairman and Director of the appellant company, to a sum of Rs. 5.00 lakh (Rupees five lakh) each. Firstly, the imposition of personal penalty upon the appellants would depend on the result in the de novo proceedings. If the appellants are found entitled to the benefit of the Notification, there would not be any demand against them in which case no penalty would be imposable. Even if the Notification is held to be not applicable to the imports made by the apppilants, by the Commissioner, the penalties, in my view, would not still be imposable, inasmuch as the appellants have contended that there was no misdeclaration about the description of the goods and the dispute was a bona fide dispute on the point of classification of the product in question. I note that the appeal decided by the West Zonal Bench, Mumbai, was an appeal filed by the Revenue against the Order of the Commissioner (Appeals) in which he has accepted the other importer's contention that the goods were properly classifiable under Heading 23.09. As such, when there was an Order of the Commissioner (Appeals) in favour of the importer holding the goods as falling under Heading 23.09, the appellants' adopting of the same classification is reflective of their bona fide impression, and cannot be made the basis for imposition of penalties upon them. In any case, the imposition of individual penalties upon the Ex-Director and Chairman is not justified in the absence of any mala fide role attributable to them.

19. The matter is being remanded by me to the Commissioner to consider the fact of imposition of personal penaltie upon the appellants in the light of the outcome of his decIsion on the availability of the Notification in question and in the alternative, in the light of the observations made in the preceding paragraphs.

DIFFERENCE OF OPINION
"Whether the duty is required to be confirmed against the appellants and the penalties reduced as held by the Learned Member (Technical), or the matter is required to be remanded to the Commissioner as held by the Learned Member (Judicial)."
Registry is directed to place the matter before the Hon'ble President, CESTAT, New Delhi for doing the needful on the above question.

THIRD MEMBER DECISION

Per M.P. Bohra :

20. In view of the Difference of Opinion between the Members in the matter the following points arise for consideration by the Third Member:
"Whether the duty is required to be confirmed against the appellants and the penalties reduced as held by the Learned Member (Technical), or the matter is required to be remanded to the Commissioner as held by the Learned Member (Judicial)."

21. I have perused the records and the orders of ld. Members and also heard both the parties.

22. Ld. JDR, Shri J.R. Madhiam, submits that the Notification 163/94-Cus. dated 2.9.94 has been rescinded/superceded vide Notification No. 47/96-Cus, dated 23rd July, 1996. The period involved is from October, 1998 to February, 2001. He, therefore, submits that the Notification under reference has no application on the present case and the matter does not require any consideration and need not to be remanded for fresh adjudication.

23. Ld. Advocate, Shri R.K. Chowdhury, for the appellants also fairly concedes that Notification 163/94-Cus. dated 2.9.94 has been superceded/ rescinded by the Notification 47/96-Cus. dated 23rd July, 1996. In view of the above, the matter does not require to be remanded to the Commissioner for denovo Adjudication as held by the ld. Member (Judicial). Ld. Member (Judicial) has ordered for remand on the basis of aforesaid Notification dated 2.9.94. Had it been produced or placed before the ld. Member (Judicial) then the decision would had been different and there would have no order of remand.

24. In view of the above discussions, I am of the view that in the light of the aforesaid circumstances, the matter does not require any fresh consideration by the Commissioner and therefore, the matter is not required to be remanded to the Commissioner as held by Member (Judicial).

25. So far as the question of penalty is concerned, the matter is referred to me for limited purpose whether the duty is required to be confirmed against the appellants and the penalty reduced as held by ld. Member (Technical) or the matter is required to be remanded to the Commissioner as held by ld. Member (Judicial). It has not been referred to me on point of penalty. Though, ld. Advocate for the appellants raises all arguments at length on the point of penalty. Ld. Member (Judicial) has also mentioned in her order that the matter is remanded by me to the Commissioner to consider the fact of imposition of personal penalties upon the appellants in the light of the outcome of his decision on the availability of the Notification in question and in the alternative, in the light of the observations made in the preceding paragraphs. The matter has been referred to me for limited purpose. So, I am not inclined to give my opinion on the question of penalty.

26. Registry in directed to place the matter before the Hon'ble President, CESTAT, New Delhi for necessary orders.

Per Archana Wadhwa :

27. Before I record the final majority order, I would like to observe that in paragraph 19 of the order recorded by me, the matter was also remanded for deciding upon the imposition of personal penalties upon the appellant either based upon applicability of the notification or alternatively in the light of the observations made in the preceding paragraphs i.e. para 18. Learned third Member has concluded that the matter has not been referred to him on the point of penalty. However, I feel that the above observation is not correct in as much as remand order included remand on penalty point also, in which case Learned third Member was required to resolve the difference on this point also i.e. remand to decide on the imposition of penalties. However, as Learned third Member has concluded that the matter is not required to be remanded as held by Member (Judicial), we record the final order as under:-

FINAL ORDER

28. In view of the majority order, the demand of duty is confirmed. Penalty on M/s. Atherton Engg. Co. (Pvt.) Ltd. is reduced to Rs. 25.00 lakhs (Rupees twenty five lakhs only). Penalty on Shri Vickram Jaitha and Shri R.B. Jaitha is reduced to Rs. 2.00 lakhs (Rupees two lakh) each. Appeals are disposed off accordingly.
Pronounced.

Equivalent 2005 (071) RLT 0754 (CESTAT-Kol.)

Equivalent 2006 (197) ELT 0428 (Tri. - Kolkata)