CESTAT Kolkata Sets Aside IGST Demand On Tea Pruning Machine Importer, Faults Dept. For Classification Lapse

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, has set aside an IGST demand raised on an importer functioning under Tea Spares (India) over an alleged short payment of tax on imports of tea plucking and pruning machines.It held that the department could not apply a higher rate under a residual entry without first disputing the classification opted for by the taxpayer. 

The tribunal observed that “the adjudicating authority has appropriately questioned the department's stance of not having questioned the description of the impugned goods their classification during the course of the post-clearance scrutiny and have merely issued the show cause notice stating therein that the subject imports did not attract IGST under Entry Sl.No.196 of Schedule-II of IGST Notification No.1/2017-Integrated Tax (Rate) dated 30.06.2017.”

A bench of Judicial Member R. Muralidhar and Technical Member Rajeev Tandon was hearing an appeal against an order of the Commissioner (Appeals), which had remanded the matter for fresh adjudication.

The case arose from imports made in 2017. The importer brought in tea plucking and pruning machines along with their parts. The goods were self-assessed under a specific tariff heading and cleared on payment of IGST at 12%.

Nearly four years later, the department issued a show cause notice. It alleged a short payment of IGST and proposed to levy tax at 18% under a residual entry. It also sought interest and penalties and invoked the extended limitation period.

Before the adjudicating authority, the importer argued that there was no suppression or misstatement. It also pointed out that the notice did not challenge the classification adopted at the time of import.

Accepting these submissions, the adjudicating authority dropped the demand on merits and limitation. However, the Commissioner (Appeals) disagreed. It remanded the matter for fresh adjudication on which IGST entry applies.

Setting aside the remand, the Tribunal said IGST liability is directly linked to tariff classification. It held that “there cannot be one heading/tariff entry for the same goods for the purpose of levying Basic Customs Duty or BCD and another heading/tariff entry for the purpose of levying IGST.”

The tribunal found that the department never challenged the classification adopted by the importer. It said that failure amounts to deemed acceptance. The demand could not be sustained on that basis.

It also noted that even if a more appropriate tariff entry existed, the same was not made part of the show cause notice. It held that the department could not improve its case beyond the notice.

On limitation, the tribunal found no material to establish suppression, collusion, or misstatement. It held that the extended period was wrongly invoked.

The tribunal upheld the adjudicating authority's order dropping the demand. It set aside the remand order passed by the Commissioner (Appeals).

For Appellant: Advocate Arijit Chakraborty

For Respondent: S.Debnath, Autorized Representative