By TIOL News Service

MUMBAI, NOV 28, 2014: BASED on information that the appellants were wrongly claiming the benefit of Notification No.21/2002-Cus, Sr.No.190 C on import of steel coils by misdeclaring the same as non-alloy steel, S.I.I.B (Import), NCH, Mumbai undertook investigation and took over 11 live Bills of Entry and carried out a detailed scrutiny. The percentage content of other metals shown in the Mill test certificates were compared with chapter note (f) of Chapter 72, where Other Alloy steel is defined. In all the 11 Bills of Entry, the percentage of Manganese was found to be more than 1.65%, and the Titanium was more than 0.05% and examination of Mill test Certificates of these Bills of Entry also confirmed that goods imported were alloy steel and the benefit claimed under notification No.21/2002 Sr. No. 190C thus was not correct.

Admitting their mistake, the appellant deposited Rs.3.01 Crores in respect of imports effected earlier and also deposited differential duty of Rs.80,32,473/- in respect of the live consignments.

The adjudication proceedings culminated in an order-in-original whereby the benefit of notification 21/2002-Cus, sr. no. 190C was denied and the Customs duty demanded was confirmed.

Before the CESTAT the appellant referred to the definition of 'other alloy steels' appearing in chapter note 1(f) of Chapter 72 which reads -

"(f) Other alloy steel:

Steels not complying with the definition of stainless steel and containing by weight one or more of the following elements in the proportion shown:

- 0.3% or more of aluminum

- 0.0008% or more of boron

- 0.3% or more of chromium

- 0.3% or more of cobalt

- 0.4% or more of copper

- 0.4% or more of lead

- 1.65% or more of manganese

- 0.08% or more of molybdenum

- 0.3% or more of nickel

- 0.06% or more of niobium

- 0.6% or more of silicon

- 0.05% or more of titanium

- 0.3% or more of tungsten (wolfram)

- 0.1% or more of vanadium

- 0.05% or more of zirconium

- 0.1% or more of other elements (except sulphur, phosphorus, carbon and nitrogen), taken separately"

and submitted that Note 1 (f) is satisfied only if all the elements present in the imported coil are equal to or more than the limit prescribed in the Note 1(f) whereas as per the impugned order passed by the Commissioner, for the coil to be classified as other alloy steel, it is enough if any one of the elements listed in Note 1(f) is more than the prescribed limit.

It is emphasized that the phrase "one or more" employed in the Chapter Note 1 (f) is ignored by the Commissioner inasmuch as the expression 'one or more' means that if one of the listed elements is present in the imported coil and if that element is equal to or exceeds the limit mentioned in Note 1(f), the Note 1(f) is satisfied and the imported coil will be treated as 'other alloy steels'. On the other hand, if the coil contains more than one element listed in the Note 1(f), then all the elements present in the imported coil should be equal or more than what is prescribed in the Chapter Note 1(f). If not, such coil will not be treated as 'other alloy steel'. The imported coil cannot be said to be satisfying Note 1(f), if more than one element is present in the imported coil and only one element satisfies the criteria mentioned in Note 1(f).

The appellant also submitted that they have been adopting the same classification for many years and, therefore, the charge of misdeclaration is not sustainable.

The AR submitted that the interpretation of the appellant would lead to absurdity and would render the provisions redundant. Further more, the appellant being an ACP client which envisages voluntary compliance, the appellants failed to perform their obligations and requirements and, therefore, misdeclaration is proved.

The Member (Technical) while upholding the charge of misdeclaration observed -

"5.1.2 In order to fall under the category of alloy steel one or more elements is needed in the proportion prescribed vide Chapter Note 1(f) of Chapter 72, in addition to steel which is not complying with definition of steel. Admittedly, one of the elements in the impugned goods is steel and it is not complying with definition of stainless steel also. Further, as recorded in para 3 of the impugned order, the percentage of manganese was found to be more than 1.65% and the Titanium was more than 0.05% which is as per the proportion prescribed under in the Chapter Note 1(f) of Chapter 72. Therefore, the impugned goods would rightly fall under the category of other alloy steel and not eligible for the benefit of Notification."

The Member (Judicial) while agreeing with the conclusion drawn by the Member (T) also observed -

"…For example, if the goods contain only manganese apart from steel and if manganese is 1.675% or more, then it will qualify as other alloy steel. But if out of 16 elements mentioned in Chapter Note 1(f) of Chapter 72 and all the elements are to be in the proportion shown in Chapter Note 1(f) of Chapter 72 or more, then it will qualify as other alloy steel. For example, if the imported coils are having 2 elements viz. manganese and titanium and if both are more than the prescribed proportion as mentioned in Chapter Note 1(f) of Chapter 72 i.e. 1.65% or more of manganese and 0.05% or more of titanium them it will be called as other alloy steel. If element of manganese is 1.65% or more but titanium is less than 0.05% then it will not qualify as other alloy steel and vis-à-vis i.e. if titanium is more than 0.05% and manganese is less than 1.65% then also it will not qualify as other alloy steel. Therefore, the expression "or more" is relevant to define other alloy steel otherwise the expression "or more" shall become meaningless and redundant.

In the case in hand before us as recorded in para 3 of the impugned order the percentage of manganese is more than 1.65% and titanium is more than 0.05% thus the imported coil qualifies the definition of other alloy steel as per Chapter Note 1(f) of Chapter 72. Therefore, the ld. Member (Technical) has rightly held that the impugned goods are other alloy steels and not eligible for the benefit of the Notification. Therefore, the following order is passed:

Redemption fine of Rs.2,46,00,000/- on the importer and penalty of Rs.5,00,000/- on the CHA are set aside. The impugned order is modified to that extent…."

The following difference of opinion was placed before the President:-

1. Whether to qualify as 'other alloy steel' minimum one element in the proportion prescribed in Chapter Note 1(f) of Chapter 72, (in addition to steel), is essential as held by Member (Technical) in para 5.1.2 of the order

OR

2. Whether to qualify as 'other alloy steel' not only one element is essential in proportion prescribed but if there are more than one element (in addition to steel) all should be in proportion prescribed in Chapter 1(f) of Chapter 72, are essential, as held by the Member (Judicial.)

We reported this order as 2013-TIOL-1013-CESTAT-MUM.

The third Member (T) on reference has passed the following order recently –

++ I find that this issue has been examined at length by a co-ordinate bench at Ahmedabad in the case of Manoj Sanghvi vs. Commissioner of Customs, Kandla and decided vide order No. A/10989-11008/2014 dated 22/05/2014 and it was held that if any one of the element is present in the proportion specified that would satisfy the requirement of Chapter Note 1(f) even if the other elements are not present in the proportion specified. Thus, the said decision upholds the view taken by the Member (Technical).

++ The expression used in Chapter Note 1(f) is "one or more of the following elements." This would imply that, if one of the element is present in the proportion specified, it would constitute ‘other alloy steel'. If more than one element is present it is not necessary that each of the elements should be present in the proportion.

The third Member on reference agreed with the view taken by Member (Technical).

The Majority decision, therefore, is –

++ In view of the majority decision in the case of M/s. Tata Motors Ltd., the duty demand is confirmed along with penalty. However, as the goods are not physically available and not cleared on any bond or bank guarantee, therefore Redemption Fine is not imposable.

++ With regard to penalty on M/s. Mangalam (India) Ltd., the CHA, the appeal is allowed by setting aside the order of imposition of penalty.

More to come: Academic interest!

".I feel there is some substance in the submissions of the learned Advocate that the final order is a concurring order only in so far as the conclusion to remand the matter is concerned. The two orders of the Member (J) and Vice President are otherwise differing in their route, contents, the reasoning and observations as also the directions to the lower authorities. It would, therefore, be in my opinion, more appropriate to treat it as a difference of opinion case and forward it to the President for reference to a Third Member.". Third Member on reference [GTC Industries vs. Collector of Central Excise, Bombay - Misc. Order Nos. 123 & 124/95-C and 117 & 118/96-C, dated 22-8-1996 in E/ROM/3/95-C and E/Misc./149/95-C in Appeal No. E/5493/92-C]

(See 2014-TIOL-2385-CESTAT-MUM)