Customs, Excise & Service Tax Appellate Tribunal, New Delhi: In a set of two cross customs appeals by the importer and Revenue against a decision of the Principal Commissioner, whereby it was held that the ‘communication modules’ are classified under CTI 9028 90 10/ CTI 9028 90 90 as parts of electricity meters/gas meters, the Division Bench of Bina Tamta, Member (Judicial) and PV Subba Rao, Member (Technical) overturned the Principal Commissioner’s classification of communication modules as parts of electricity or gas meters under CTI 9028 90 10 / 9028 90 90. The Tribunal held that the correct classification of the ‘communication modules’ is CTI 8517 70 90.
Background
The importer manufactures smart electricity and gas meters which not only measure electricity or gas consumption but also communicate the readings wirelessly to the service provider. The service provider can also communicate with the meter and obtain additional information if required. This communication takes place through communication hubs which are electronic communication devices that fit into the meter. The communication hubs have in them communication modules and network interface cards which are instrumental in the communication.
The importer imported communication modules/network interface cards. The dispute revolved around their classification under the Customs Tariff. In the impugned order, the Principal Commissioner rejected the importer’s claim that the communication modules imported by it were classifiable under Customs Tariff Item 8517 70 90 as parts of communication hubs and held that they were classifiable under CTI 9028 90 10/ CTI 9028 90 90 as parts of electricity meters/gas meters. Consequently, it was held that the importer was ineligible for exemption and confirmed the demand for differential Customs duty of Rs. 45,83,88,872/- under Section 28 of the Customs Act, 1962, invoking an extended period of limitation along with interest under Section 28-AA of the Customs Act. The importer was aggrieved by the demand of duty with interest and penalty under Section 114-A. Revenue was aggrieved that the Commissioner refrained from imposing penalties under Section 114-AA. Hence, the two cross-appeals.
Analysis and Decision
The Tribunal said that the classification of goods under the Customs Tariff is a part of the assessment under the Customs Act. Assessment is the determination of the duty leviable on the goods imported with reference to their classification, value, exemption, quantity, weight, volume, etc. Since the assessment of duty is on the goods imported into India, they must be assessed as they are imported because, once they are cleared for home consumption, they cease to be imported goods, and no duty can be assessed on them in that form. Similarly, the value of the goods also cannot include any post-importation costs (such as installation costs of plant and machinery).
The Tribunal elucidated that goods classifiable under a particular CTI, when imported or cleared from a factory (in case of central excise), may take a different form and may no longer have an independent existence but become part of some other goods. The Tribunal illustrated that a car has several parts, components, and accessories when it is cleared from the factory but is cleared as a car and must be classified as such. The car manufacturer will have to procure four or five tyres without which the car is not complete. In the Bills of Entry, the car tyres would have to be classified as car tyres. Once they are fitted in the car and the car is cleared from the factory of the car manufacturer, although the tyres are clearly visible and can even be physically separated from the car, they will not be independent goods but will be part of the car. They cannot be classified separately. Further, the Tribunal explained that if the tyres are imported separately, although their use will be in cars, they have to be classified as car tyres because the charge of duty of customs under section 12 of the Customs Act is on the goods imported into India and as per Section 2(25) once they are cleared for home consumption, they will cease to be imported goods.
“The charge of duty of customs under Section 12 is only on the goods imported into India and not on what the goods may become after their import; since the charge is on the goods imported, duty must be assessed on the goods in the form they are imported.”
In the matter at hand, the ‘communication modules’ have only function and purpose as a part of communication hubs which, in turn, become part of the smart meters manufactured by the importer. Thus, communication modules have their own identity as parts of communication hubs but if they are fitted in and become part of communication hubs, they will not be classifiable separately but will become part and parcel of the communication hubs and they should be classified as such. Further, if the communication hubs are fitted in the smart meters, the communication hubs become part of the smart meters and will not be classifiable separately. The Tribunal said that the entire structure will be a smart meter, and it must be classified as such and the communication module will be its child part. The Tribunal added that the primary function of the smart meter is measuring consumption, and the communication is a secondary function which gives it additional functionality. Thus, the Tribunal said that the smart meters (including the communication hubs in them), therefore, are classifiable as smart meters.
However, if communication hubs are imported or exported separately, they cannot be classified as smart meters and they should be classified as communication hubs. The importer, had exported communication hubs classifying them as such under CTH 8517 and the department accepted the classification and allowed exports. The Tribunal stated that the classification of goods is a part of assessment and assessment is the determination of the amount of duty payable as per the charging section and other provisions. The charge of duty of customs under Section 12 is only on the goods imported into India and there is no charge on what the goods may become after their import. The Tribunal held that the classification has to be in the form in which the goods are imported. The imports were merely ‘communication modules’ and not composite machines, hence, these are parts of communication hubs and they are goods that fall under CTI 8517 70 90.
Conclusively, the classification of communication modules under CTI 9028 90 10/CTI 9028 90 90 in the impugned order was incorrect and hence, set aside. Consequently, the demand of duty and interest and imposition of penalty under Section 114A in the impugned order was also set aside.
On the aspect of self-assessment by the importer under Section 17, the Tribunal said that self-assessment is subject to re-assessment by the proper officer. The importer classifies goods as per his understanding and the proper officer is free to re-assess the duty including by changing the classification, if necessary.
“The importer is nowhere required to anticipate how the proper officer may think and what classification he may find correct. It is impossible for anyone to predict what view someone else may take. To say that the importer had resorted to ‘wilful and deliberate suppression of facts’ because he classified goods as he thought fit and failed to anticipate what view the department may take later is simply outrageous and cannot be sustained.”
Commissioner’s holding that the importer was guilty of not anticipating that DRI would one day investigate and come up with a new classification of the goods and file Bills of Entry conforming to such future anticipated views of DRI, the Tribunal refused to accept the same. The Tribunal observed that it would have been humanly impossible for the Commissioner to anticipate if the importer would appeal against his order and if so, what order this Tribunal would pass, it was equally humanly impossible for the importer to anticipate if DRI would one day take up an investigation and if so, if it would dispute the classification and if so, what classification DRI would find correct.
[Secure Meters Ltd. v. Principal Commissioner of Customs (Imports), 2025 SCC OnLine CESTAT 109, decided on: 28-01-2025]
Advocates who appeared in this case :
V. Lakshmikumaran; Anurag Kapur; Rubel Bareja; Anisha Arya and Mihir Ranjan, Advocates