Claim for Duty Drawback - Classification of Goods under Drawback Schedule

PJ/Case Laws/2011-12/1390

Case: IN RE: AJANTA ELECTRICALS

Citation: 2011 (271) ELT 457 (G.O.I.)

Issue:- Claim for Duty Drawback on Lamp Holders made of brass – classification of goods whether under CTH 8538 as claimed by assessee or under 8536 as claimed by Department?

Brief Facts:- Applicant had exported electrical apparatus (lamp holders, made of brass) vide Shipping Bill No. 1722217, dated 17-3-2008 from I.C.D., Patparganj, Delhi. For availing drawback benefit, they claimed the classification of the said goods under CTH 8538. However, the Assessing Officer held that the export held the classification under CTH 8536 on the ground that lamp holders are specifically covered under the said heading. He had, accordingly amended the Drawback admissible on the said goods from 18%, as claimed by the appellants, to 4%. A penalty of Rs. 5,000/- was also imposed on the appellants under Section 117 of the Customs Act, 1962 for seeking wrong classification.

In appeal, the Commissioner (Appeals) set aside the penalty imposed on the applicant but upheld the remaining part of the impugned order. Aggrieved by the same, the applicant has filed revision application.

Applicant’s Contention:- Applicant submitted that the rate of brass sheet per Kg. in Rs. 298/- and duty paid over this cost of brass sheet @ 16% which comes to Rs. 47.70 per Kg. The manufacturing process of the parts of lamp holders pass through many stages and it was explained by way of various flow charts. It was submitted that considerable material is lost during the stages of process of manufacture. The applicants pay total duty on lamp holder which comes to Rs. 3.60 per piece. If the claim of the department that the applicants are entitled only to 4% of duty drawback they are getting only a drawback of Rs. 0.76 per piece, whereas they have paid the duty of Rs. 3.60 per piece as the excise duty. Therefore, both the Lower Authorities have taken a wholly erroneous view that the lamp holders were classifiable under Heading 8536.

It was submitted that the Lower Authorities have not considered the fact that the heading of Drawback Schedule have not been fully aligned with the Customs Tariff Act. It was submitted that According to the Assistant Commissioner of Customs, the Govt. issued a Notification No. 68/2007-Cus. (N.T.), dated 16-7-2007 wherein it was provided that the General Rules to the interpretation of the First Schedule to the Customs Tariff Act, 1975 shall apply for classifying the export goods listed in the said Schedule. But both the authorities below failed to appreciate that the duty drawback schedule has not been fully aligned with the Customs Tariff Act, 1975. There are several dissimilarities between the heads of Customs Tariff Act and the rates of duty drawback. Though, the duty drawback schedule more or less has been patterned on the Customs Tariff Act but a close look at the duty drawback schedule would reveal that it is not based entirely on the Customs Tariff Act. In the present case, the applicants have manufactured and exported lamp holders of brass. The parts of the electrical apparatus of Heading 8536 are specifically specified under Heading 8538 02. It would be of great relevance to state here that the Heading 8538 has not been patterned on the Customs Tariff Act. There is a specific entry of parts which are made of brass under heading 8538 02. Therefore, the exported goods are appropriately classifiable under Heading 8538 02 and not under Heading as held by the lower authorities.

It was submitted that the object of the duty drawback scheme is overlooked. If the view of the department is accepted that applicant are entitled only to a duty drawback of Rs. 0.76 per piece, then it will be contrary to the drawback scheme. It was submitted that Drawback is allowed not only of the duties incurred on, or by, the direct inputs, raw material and components, whether imported or otherwise, utilized in the manufacture of export goods but also of the earlier inputs that go into the manufacture of the said indigenously manufactured raw materials and components. It also takes into consideration the wastages involved in the manufacture, as well as duty incidences on packing materials used in the export goods. It is submitted that after the amendment of the definition of manufacture by Finance Act, 1995 to include processing or any other operation carried out on goods, the scope of drawback too has further broadened to include goods which have been processed or subjected to any other operation for export from India. The scope of drawback got further widened in 2006 when Service tax was also taken into account in framing the Drawback Schedule. Now drawback includes service tax paid on input services used in the manufacture of export goods.

It was submitted that the onus was on the Department to prove that goods are classifiable under a particular heading is always on the department which they have to discharge by bringing sufficient evidence on record. But the department has failed to discharge onus cast on them.

It was contended that the Lower Authorities have erroneously relied upon the headings of Customs Tariff Act for fixing the duty drawback on lamp holders made of brass. That the Customs Tariff Heading 8536 gives detailed classification of various electrical apparatus providing differentiates of import duty but no such sub-classification is found in Duty Drawback Schedule. It is submitted that parts suitable for heading 8536 and 8537 are classifiable under Customs Tariff Heading 8538. Similar is the case under the drawback schedule also. But heading 8538 in the drawback schedule has been further sub divided into 3 parts –part suitable for electrical apparatus made of copper, of brass and others. Therefore, the lamp holders made of brass would be clearly classifiable under heading 8538.02 of duty drawback schedule.

Respondent’s Contention:- Revenue contended that the impugned exported articles are classifiable under CTH 8536 which attracts the duty drawback @ 4%.

Reasoning of Judgment:- Government noted that “lamp holders” made of brass (a complete article) exported under claim of drawback were classified under CTH 8538102. The Government perused the description given under both the headings i.e. CTH 8536 and CTH 8538 and held that it is clear that lamp holder is specified in CTH 8536. The applicant argued to classify the lamp holder as parts suitable for use with the apparatus of Headings 8536 or 8537.

It was held that as per provisions of Notification No. 68/07(NT) dated 16-6-07 the General Rules for the Interpretation of the First Schedule of the Customs Tariff Act, 1975 shall apply mutatis mutandis for classifying the export goods listed in drawback schedule. As per Rule 3 of General Rules for the interpretation of Customs Tariff the goods are to be classified in the heading which provides the most specific description rather than in a heading providing a more generic description. In view of the provisions of said rules, the lamp holders being specifically mentioned in Heading 8536 are to be classified in the CTH 8536 as held by lower authorities. The argument of the applicant that by classifying goods in CTH 8536 he gets lower drawback has no legal force and same cannot be entertained in these proceedings.

The Government found no infirmity in the impugned order-in-appeal and upheld the same.

Decision:- Revision application rejected.

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PJ/Case Laws/2011-12/1390

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