CESTAT Chennai Sets Aside ₹23.17 Crore Demand Against Toyota, Rejects Reclassification Of 226 Parts

On 23 September, the Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside a Rs. 23.17 crore customs duty demand against Toyota Kirloskar Motor Pvt. Ltd. over the classification of 226 imported motor vehicle parts. It also held that the extended limitation period was unavailable and set aside the confiscation, Rs. 17 crore redemption fine and penalty imposed on the company.

A Bench comprising Technical Member Vasa Seshagiri Rao and Judicial Member Ajayan T.V. also observed that the Revenue must establish, on an article-specific basis, that the imported goods fall under the proposed tariff heading. The Tribunal said:

“...the classification of the 226 articles listed in Annexure A to the show cause notice, under Customs Tariff Item 87089900 as declared by the appellant, save for such of them as were declared under another heading, holds the field, and the benefit of Sl.No.1478 of Notification No.46/2011 Customs dated 01.06.2011 in respect of those imports is held available to the appellant…”

Toyota Kirloskar Motor imported various motor vehicle parts and accessories from its overseas group companies in Thailand, Indonesia and the Philippines between 2017 and 2022.

The company declared the goods under Customs Tariff Item 87089900 and cleared them at a concessional rate of 5% under Notification No.46/2011-Customs, based on certificates of origin issued under the ASEAN-India Free Trade Agreement.

The Customs Department proposed reclassification of 226 parts, principally under Customs Tariff Item 87082900 as parts and accessories of motor vehicle bodies. It relied on technical write-ups and information stated to be available on Toyota's website.

The adjudicating authority rejected Toyota's classification and confirmed a differential duty demand of Rs. 23.17 crore, along with interest. It also ordered confiscation of goods valued at over Rs. 170 crore, imposed a redemption fine of Rs. 17 crore and levied a penalty under Section 114A of the Customs Act.

Toyota challenged the order before the Tribunal, contending that the department had failed to discharge the burden of establishing that the goods fell under the proposed tariff heading. The company submitted that the department had examined only around 15 representative parts but applied its conclusions to all 226 articles.

The Tribunal agreed, holding that the Revenue had not provided article-specific findings to establish why each of the 226 parts qualified as parts or accessories of vehicle bodies. It noted that the adjudicating authority had relied on Toyota's website without placing the relevant material on record or confronting the company with it. An annexure listing the parts, along with technical descriptions and references to the website, could not by itself establish the proposed classification.

The Bench held that the burden of proving reclassification lies on the Revenue and does not shift merely because the importer does not rebut the material relied upon by the department.

Relying on the Supreme Court's decisions on classification, it observed that the classification exercise must begin with the tariff headings, the relevant Section and Chapter Notes and the Harmonised System Explanatory Notes.

On limitation, the Tribunal held that the extended period under Section 28(4) of the Customs Act was unavailable. It noted that the department's case itself relied on technical information supplied by Toyota and material published on its website. Such information could not simultaneously be treated as having been suppressed by the importer. It also held that a classification claim, where the description of the goods has been correctly declared, does not by itself amount to misdeclaration or suppression of facts.

Regarding the corrigendum issued on 4 July 2024, the Bench found that it introduced 14 additional parts covering 81 bills of entry and substantially altered the computation. It held that a corrigendum cannot be used to enlarge a show cause notice and that, for the newly introduced goods, limitation had to be reckoned from the date of the corrigendum.

Further, it found errors in the computation of the demand and noted that the adjudicating authority had failed to properly account for duty payments already made by Toyota.

Consequently, the CESTAT set aside the entire impugned order, including the Rs. 23.17 crore differential duty demand, interest, confiscation of goods, Rs. 17 crore redemption fine and penalty under Section 114A of the Customs Act.

For Appellant: Shri Rohan Muralidharan, Advocate

For Respondent: Shri C. Dhanasekaran, Special Counsel