By TIOL News Service

MUMBAI, MAY 10, 2013: THE appellant imported 5 set of goods declared as “GSI Grain Storage Bins NCL 78-2004 with Bin accessories” seeking the benefit of EPCG scheme under notification NO. 103/09-Cus dated 11/09/2009 read with EPCG authorization. The noticee sought assessment under CTH 8437 10 00 where the applicable rate of duty is 7.5% basic + Nil CVD +2%Edn. Cess +1% Higher Edn. Cess + 4% SAD. The said tariff heading applies to “Machines for cleaning, sorting or grading seed, grain or dried leguminous vegetables”.

The subject goods were examined by the Customs in the presence of a representative of the importer and were found to consist of -1) galvanized sheet of 3' x 10' size, with holes, in pallets; 2) nut bolts in bulk packing; 3) Angles and frames of FI sheet with holes. There was no electrical or mechanical or thermal equipment in the cargo. The catalogues for the goods indicated that the goods under import were large bins, also known as silos, used for storage of grains and the goods were not capable of performing any of the functions of cleaning, sorting or grading. In the meanwhile, the goods were allowed provisional clearance on execution of bond and bank guarantee.

Thereafter, a show cause notice was issued to the appellant proposing to classify the goods under 7309 00 90 as articles of iron or steel and also to deny the benefit of exemption under the EPCG scheme.

The case was adjudicated and the allegations in the SCN were upheld.

Since the Commissioner of Customs (Appeals), JNCH, Nhava Sheva dismissed their appeal the appellant is before the CESTAT.

It is submitted that -

+ In the EPCG authorization, the description given is “GSI grain storage bins with accessories” and the goods satisfy this description and, therefore, the benefit of EPCG scheme cannot be denied.

+ Inasmuch as since the requirement of notification No. 103/09-CUs is that the importer produces an EPCG authorization covering the imported goods and which condition has been satisfied, the classification mentioned in the EPCG authorization is not sacrosanct; that the rationale applied in the CBEC circular dated 6/6/95 should be followed.

The Revenue representative submitted that the EPCG authorization specifies not only the description of the goods but also the ITC HS code for the product; therefore, the goods imported under the authorization should satisfy both the conditions, that is, it should satisfy the description and also fall under the ITC HS Code otherwise, the specification of the ITC HS Code would be made redundant. It was evident from the examination report of the goods under importation that the goods are mere storage bins and incapable of undertaking any functions expected of a machinery, appliance or equipment; therefore, the findings of the lower authorities are correct in law and needs to be upheld.

The Bench observed –

“5.1 It would be useful at the juncture to see what is the object or purpose of ITC HS code specified in the various documents/licences issued by the DGFT. As per the ITC-HS code, the purpose is as follows:-

“ ITC-HS Codes or better known as Indian Trade Clarification based on Harmonized System of Coding was adopted in India for import-export operations. Indian custom uses an eight digit ITC-HS Codes to suit the national trade requirements”.  

In other words the ITC HS code aligns the import policy with the HSN code which is the basis for customs tariff classification. The objective is to ensure that the scope and coverage of the goods for the purposes of import/export matches with that of the Customs Tariff so that there is clarity and certainty with regard to both the levy of customs duty and the importability/exportability of the goods. The alignment is at the 8 digit level. Thus specification of ITC HS code is not an empty formality but a legal necessity.

5.2 One has to keep in mind this objective while interpreting the scope of a licence issued under foreign trade policy. In the instant case, the appellant has claimed the classification under CTH 84371000 and the EPCG authorization also bears the same tariff code.

5.3 From the examination report it is evident that the goods under import consist of galvanized sheets, nut bolts, angles and frames of GI sheet and there was no electrical or mechanical or thermal equipment in the cargo. By assembly of these items, only a storage bin can be made. A storage bin merely stores the goods and it cannot work on the gods. CTH 84371000 under which the goods have been sought to be classified covers “machines for cleaning, sorting or grading seed, grain or dried leguminous vegetables.” In other words, the goods should be a machine that can either clean, sort of grade seed or grain or dried leguminous vegetables. It is an admitted position the goods under import cannot perform any of these functions. Even if one considers the alternate classification under CTH 84368090 as per the amendment to the EPCG authorization, it should be an agricultural machinery performing certain functions. From the product catalogue and the examination report, which are not in dispute, the goods under importation are mere storage bins and can not undertake nay function. On the other hand CTH 7309 covers Reservoirs, tanks, vats and similar containers for any material, of iron and steel , of a capacity exceeding 300l, whether or not lined or heat insulated, but not fitted with mechanical or thermal equipment. Thus containers not fitted with any mechanical or thermal equipment fall under heading 7309 of both the customs tariff and ITC HS code. The goods under importation satisfy this criterion and therefore, has been correctly assessed to customs duty under CTH 7309 by the customs authorities. As per the general rules of interpretation (GIR), rule 1, the entry which provides the most specific description should be preferred over a heading giving a general description. In the case under consideration, it is obvious that CTH 7309 gives the most specific description. Therefore, the product is rightly classifiable under the said heading and not anywhere else. Since the EPCG authorization does not cover goods classifiable under CTH 7309, the benefit under the EPCG scheme cannot be extended to the impugned goods.

5.4 It will be useful to consider whether goods under importation satisfies the definition of capital goods under the Foreign Trade Policy (FTP). Capital goods have been defined in the FTP under para 9.12 and read as under:-

“Capital Goods” means any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernisation, technological upgradation or expansion. It also includes packaging machinery and equipment, refractories for initial lining, refrigeration equipment , power generating sets, machine tools, catalysts for initial charge, plus one equipment and instruments for testing, research and development, quality and pollution control.”

“Capital Goods may be for use in manufacturing, mining, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture and viticulture as well as for use in services sector.”  

5.5 From the definition given above, the capital goods have plant, machinery or equipment or accessories thereto, required for manufacture or production of goods. In the instant case it is abundantly clear that the impugned goods does not satisfy this definition. The definition does not include storage bins either explicitly or by implication. Thus if the import item cannot be considered as capital goods, the question of its coverage under Export Promotion Capital Goods (EPCG) Scheme would not arise at all. Thus viewed from the foreign trade policy angle also, the appellant does not have a case at all. The appellant's reliance on the case laws do not held for the reason that all these case laws dealt with a situation prior to alignment of ITC policy with HS Code when the emphasis was on description and not on any product code, which is not the position in the present case.”

Holding that there was no merit in the appeal, the same is dismissed.

(See 2013-TIOL-712-CESTAT-MUM)