After declaration of goods in bill of entry by importer, burden of classification of goods shifts to department

Case:- M/s Pasura Life Sciences Pvt. Ltd. & Vishwas Business Synergies Pvt. Ltd. V. C.C.E., Hyderabad.

Citation:-2013-TIOL-576-CESTAT-BANG

Issue:-After declaration of goods in bill of entry by importer, burden of classification of goods shifts to department.

Brief Facts:- . Appellants are aggrieved by (a) absolute confiscation of the goods imported by them and (b) imposition of penalty on both appellants and have challenged the penalty imposed on them by the lower appellate authority. The first appellant PASURA (PASURA for short) had imported from a Vietnamese company certain goods declared as "BIO-ORGANIC FERTILIZER LIQUID" and classified under Heading 3101 00 99 of the First Schedule to the Customs Tariff Act. They claimed clearance of the goods against payment of appropriate duty. The Bill of Entry was filed on 27-7-2010. Other documents filed with the Bill of Entry also indicated the name of the goods as "BIO-ORGANIC FERTILIZER LIQUID". These documents included a high seas sale agreement and the connected invoice, which indicated that the goods were purchased by the PASURA at the high seas from the second appellant VISWAS (VISWAS for short) who had purchased the goods from the Vietnamese company. Officers of the Directorate of Revenue Intelligence (D.R.I.) obtained intelligence to the effect that PASURA had imported some unknown material by mis-declaring it as bio-organic fertilizer. They inspected the consignment, drew samples of the goods and sent them to the Regional Centre of Organic Farming (RCOF), Bangalore and the Indian Institute of Chemical Technology (IICT) for testing for presence of bio-fertilizer and pesticide respectively. The D.R.I. obtained a report from the Regional Director, RCOF reading thus:

"With reference to the sample of M/s Pasura Life Science Pvt. Ltd sent by you for testing, I am to inform that, the sample was tested and found that it does not belong to the Bio-fertilizer."

They also received a report from the Director, IICT, which was to the effect that the sample did not contain any pesticide. Subsequently, the D.R.I. recorded a statement of Director of PASURA under Section 108 of the Customs Act. In that statement, Director of PASURA furnished certain details of the subject import and also offered his comments on the test report of RCOF. A statement was also recorded from Director of VISWAS. In his statement, Director of VISWAS stated inter alia that the goods imported by them from the Vietnamese company and sold at the high seas to PASURA was a bio-organic fertilizer which emerged as by-product during the course of manufacture of glutamic acid and further that the Vietnamese company treated the by-product as waste and sold it in the market at a very low price. On the basis of the results of investigations, the D.R.I. framed the case against PASURA and VISWAS and issued show-cause notice wherein the proposals were (a) to confiscate the goods absolutely in terms of Section 111(d) and Section 111(m) of the Customs Act and (b) to impose penalties on the parties under Section 112(a) of the Act. The same notice required the Director of PASURA and VISWAS to show cause against penalties proposed under Section 114AA of the Act. PASURA and VISWAS replied in identical lines to the show-cause notice after one year raising a series of objections. With reference to the test report of the Regional Director, RCOF, they requested for cross examination of Dr. Krishan Chandra, Regional Director, RCOF. In adjudication of the dispute, the original authority, after turning down the request for cross-examination but giving the party an opportunity of being heard, ordered absolute confiscation of the goods and imposed penalties on PASURA and on VISWAS under Section 112(a) of the Customs Act, and also imposed personal penalty each on Directors of PASURA and VISWAS under Section 114AA of the Act. The appeals filed by PASURA and VISWAS against the order-in-original came to be rejected on merits. Aggrieved by the order of Commissioner (Appeals) both appellants filed appeal before Tribunal.

Appellant’s Contention:- The appellants’ summit that the burden was on the department to identify the goods before dubbing it as "prohibited goods". This burden was not discharged by the department successfully. The absolute confiscation ordered by the original authority and sustained by the appellate authority is based on the test report of the Regional Director, RCOF. The report does not disclose as to who analyzed the sample, what method was used for analysis, what were the results of analysis and in what manner such results were interpreted so as to reach a conclusion to the effect that the sample was not a bio-fertilizer. In the absence of such essential particulars, the so-called 'test report' should not have been relied upon.

The appellants also submit that the department did not, at any stage, disclose the reason for not sending the samples to their own chemical laboratory. They could have got the samples tested in their own chemical laboratory, in which event, if the test result turned out to be adverse, the appellant could have requested for retest by the Central Revenue Chemical Laboratory (C.R.C.L.). Such options were virtually denied to the importer by the department by sending samples to outside laboratories.

The appellants also pleaded that the request of the importer for an opportunity to cross-examine Dr. Krishan Chandra, Regional Director, RCOF was rejected by the lower authorities without any valid reason.

The appellants further submit that identical commodity was imported by PASURA in the past also and the same was allowed to be cleared for home consumption. In the said Bill of Entry also, the item was declared as "bio-organic fertilizer liquid". This declaration was accepted by the assessing authority and the goods was allowed to be cleared on payment of appropriate duty (copy of the said Bill of Entry produced by the counsel). The goods imported in the past were sold to traders who, in turn, sold the goods to farmers who used the goods as bio-fertilizer for crops. (copies of a few sale invoices issued by PASURA produced by the counsel). The assessment of Bill of Entry was never reviewed by the Customs authorities. The department has never had a case that the goods covered by that Bill of Entry were hazardous or prohibited.

Respondent’s Contention:- The respondents submit that the burden was on the importer to show that the goods imported by them was bio-organic fertilizer as declared in the relevant Bill of Entry. The Director of the company acknowledged the fact that the item was not bio-organic fertilizer as per the report of RCOF. In his statement, he did not impugn the test report on any ground. It is not the case of the appellant that RCOF was not competent to test the sample for presence of bio-fertilizer. They did not ask for any retest either. No good reason was assigned by PASURA for their request for cross-examining the Regional Director of RCOF. In these Circumstances, the evidentiary value of Dr. Krishan Chandra's report cannot be discounted.

The respondent also pleaded that even a reply to the show-cause notice was given after one year. The request for cross-examination as made in such belated reply was rightly held to be the result of an after-thought, particularly when there was no objection to the test report in the statement of Director of PASURA.

The respondent submits that the fact that similar goods imported in the past were allowed to be cleared for home consumption did not per se affect the case of the department adversely.

The respondent further pleaded that the supplier's catalogue, which was promised to be produced, was never produced by the importer. The literature produced by them pertains to a product called "Vedagro" and the same has not been shown to be related to the subject goods inasmuch as the importer did not declare the goods in the Bill of Entry as "Vedagro". Even otherwise, the above literature which gives the composition as organic matter 32%, nitrogen 4.5% and potassium 2.7% does not per-se prove the goods to be a bio-organic fertilizer.

The respondent also submit that Director of VISWAS has stated that the goods imported by PASURA had emerged as waste during the course of manufacture of glutamic acid in Vietnam and such waste was sold in the market at a low value.

Reasoning of Judgment:- The Tribunal heard both the parties and considered that in his rejoinder, the appellants submits that, even if it be assumed that the commodity was treated as a waste by the overseas supplier, this ipso facto would not render it hazardous. In the present case, though the original authority considered the goods as hazardous waste, the appellate authority did not agree. The learned Commissioner (Appeals) has clearly held, in para 12 of the impugned order, that the department had the burden to prove the goods to be hazardous but failed to discharge this burden and hence the imported goods could not be classified as hazardous waste in terms of the relevant circular issued by the C.B.E.C.

Tribunal has given careful consideration to the submissions. The show-cause notice in this case proposed to confiscate the goods in terms of Section 111(d) and Section 111(m) of the Customs Act on the ground that it was an "unknown substance arising as waste during a manufacturing process" and was mis-declared as bio-organic fertilizer by the importer. The original authority held that the product imported by PASURA was a "chemical waste hazardous to the flora and fauna of the nation". It held that the product was an environmentally hazardous waste liable for absolute confiscation in terms of the above provisions. It ordered so after finding that the importer had mis-declared chemical waste as bio-fertilizer. It also relied on the test reports of RCOF and IICT. When the matter came up before the Commissioner (Appeals), the finding of the lower authority that the goods was of hazardous nature came to be overturned on the ground that no sample of the goods had been tested for hazardous nature in any of the laboratories notified by the Ministry of Environment and Forests and that the department had failed to discharge its burden to classify the goods. However, the appellate authority considered both the test reports to be authentic. On my own assessment of the evidentiary value of the materials available on record, the findings recorded by the original authority and affirmed by the appellate authority cannot be sustained.

The Tribunal further finds that as both the authorities chose to rely on both the test reports, tribunal proceeded to examine the reliability of the test reports, first. The test report of IICT indicates that they were required to find out whether any pesticide was contained in the given sample. The analysis result was negative. The report mentions two enclosures viz. ESI-MS mass spectrum and GCMS chromatogram, neither of which is available on record. In any case, the absence of pesticides has not been shown to constitute a singular ground for holding the imported goods to be prohibited in terms of Section 111(d) or to have been mis-declared in terms of Section 111(m) of the Customs Act. The report of the Regional Director, RCOF merely says that "the sample was tested and found that it does not belong to the bio-fertilizer." As rightly pointed out by the learned counsel for the appellant, this report is silent on who actually tested the sample, what technique was used for testing, what results were obtained on testing and how the results were interpreted. Ordinarily, the Director of RCOF himself might not have conducted the test. In all likelihood, one of his subordinates might have tested the sample. The Regional Director's letter does not disclose the name of the analyst. It merely states that the sample was tested and was found to contain no bio-fertilizer. It contains no reference to any test memo issued by D.R.I., nor does it otherwise indicate the purpose of test. It was in this scenario that the importer wanted to cross-examine Dr. Krishan Chandra but this plea was rejected by both the lower authorities. Given the above facts, the importer's plea for an opportunity to cross-examine Dr. Krishan Chandra should have been favourably considered by the lower authorities. The reason stated by those authorities for turning down the importer's request is far from impressive. In the result, the reliance placed by the lower authorities on the report of RCOF, which looks like a one-liner, is futile.

The Tribunal also finds that the appellants have questioned the propriety of sending samples to outside laboratories. The Superintendent (A.R.) has endeavoured to get over the objection by submitting that the D.R.I. was in correspondence with the C.R.C.L. It was eventually learned that the department's chemical laboratories did not have the facility to test any sample for bio-fertilizer or pesticide. This claim of the learned Superintendent (A.R.) has not been substantiated. There is no material on record to show any correspondence between the D.R.I. and the C.R.C.L., nor is there any proof of absence of testing facility in the department's laboratories.

The Tribunal further finds that In any case, it is not in dispute that the show-cause notice proposed to confiscate "a waste with unknown constituent" in terms of Section 111(d) and (m) of the Customs Act. As per clause (d) of Section 111, any goods which is imported contrary to any prohibition (including restriction) imposed by or under the Act or any other law for the time being in force is liable to confiscation. For taking action under this provision, the competent authority should identify the imported commodity and show that it is a prohibited item. When the importer declared the goods as 'bio-organic fertilizer' in the relevant Bill of Entry, the burden shifted to the Customs authorities to prove that the imported item was not bio-organic fertilizer but an item prohibited for importation under the Customs Act or any other law for the time being in force. Tribunal has already taken the view that the report of RCOF showing absence of bio-organic fertilizer in the given sample is not a reliable evidence. Even the lower appellate authority has held that the burden of proof was on the department to classify the goods and this burden was not discharged. If that be so, the question arises as to how the goods could be considered as prohibited goods and as to how the goods could be held to have been mis-declared by the importer. Without ascertaining the correct identity of the goods, one cannot hold it to be prohibited or to have been mis-declared. Therefore, the goods in question cannot be confiscated in terms of clause (d) or clause (m) of Section 111 of the Customs Act and the importer cannot be held to have rendered the goods liable to confiscation. The charge against VISWAS is that they abetted the offence of PASURA. As the finding against PASURA that they rendered the goods liable to confiscation and attracted penalty under Section 112 of the Act is unsustainable, the finding of abetment recorded against VISWAS is equally untenable.

The impugned order is set aside to the extent it relates to the appellants. Both the appeals stand allowed.

Decision:-Appeal allowed.

Comment:- It is very clear form this case that once the goods are classified and declared in the bill of entry by the importer to be “bio organic”, the burden of proof was on the department to classify the goods differently and this burden is required to be effectively discharged. Without ascertaining the correct identity of the goods, one cannot hold it to be prohibited or to have been mis-declared.

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PJ/Case law/2012-13-1552

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