Natural Rubber Latex Toy Balloons Classifiable As 'Toys', Not As 'Rubber Articles': CESTAT New Delhi

On 24 August, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi held that toy balloons made of natural rubber latex are classifiable under Customs Tariff Heading (CTH) 9503 as “toys” and not under Chapter 40 as “rubber products.”

Officiating President Dr. Rachna Gupta and Technical Member Hemambika R. Priya upheld the Revenue's classification of the goods imported by Vee Vee Enterprises, JMD Impex and V.K. Import Export Co. stating that specific functional classification prevails over a general material-based classification. The Bench held:

“In this regard we hold that the classification under chapter 40 is a material-based classification, whereas chapter 95 provides a specific functional classification for toys. It is a settled principle of classification that functional and specific classification prevails over material based residual classification. Since the imported goods are specifically recognised as toy balloons under Chapter 95, therefore classification under chapter 40 is not acceptable.”

The companies had imported natural rubber latex balloons from China and declared them as natural rubber latex balloons, decorative balloons or festival balloons. They classified the goods under headings relating to rubber products or festive articles and availed a lower rate of customs duty.

The Revenue classified the imported goods as toy balloons under CTH 95030090, attracting Basic Customs Duty of 60%. The investigation also showed that before January 2021, the importers had classified identical balloons under CTH 95030090.

The importers argued that the balloons were plain latex balloons without cartoons, special shapes, printing or other features normally associated with children's toys. They submitted that the balloons were mainly used for decoration, parties and festivals and should therefore be classified as rubber inflatable articles or festive and decorative articles.

The Tribunal noted that the HSN Explanatory Notes specifically mention “toy balloons” under the heading relating to toys. It therefore found that once toy balloons are specifically covered under CTH 9503, they could not be classified under a general or residual category merely because they are made of natural rubber latex.

It also referred to the customs exemption notification, which clarifies that the relevant entry for rubber products does not include toy balloons made of natural rubber latex, as such balloons are classified under CTH 9503.

The Bench rejected the argument for classification as festive or decorative articles, observing that the tariff explanation dealing with festive articles does not include natural rubber latex toy balloons, whereas toy balloons are specifically covered under the heading for toys.

It distinguished rubber or latex balloons from foil balloons. It noted that foil, nylon or HDPE balloons may be treated as decorative articles in appropriate cases because they are not suited for children's play in the same manner. The goods involved in the present appeals were rubber or latex toy balloons.

On the issue of penalty, the it took note of the importers' conduct. It observed that the goods had earlier been classified as toys under CTH 9503, following which the classification in the Bills of Lading was changed from time to time.

The Bench further found that the change from the toy classification to the rubber-product classification was made to avoid compliance with applicable BIS standards. It held that these circumstances showed mala fide intent and justified penal consequences.

Accordingly, the CESTAT upheld the orders passed against the importers and dismissed all three appeals.

Appearances: Devesh Tripathi, Divesh, Ajay Kumar and Pratham Joshi, Advocates for the appellants; Shiv Shanker, Authorised Representative for the Department.