CESTAT Holds Salvaged Ship Shafts Classifiable Under CTH 7326, Bars Reclassification As Crank Shafts Post-Clearance
Pranav B Prem
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata has set aside a demand for differential Integrated Goods and Services Tax (IGST), interest and penalties raised by the Customs Department against an importer of iron and steel items recovered from ship-breaking activities, holding that broken and salvaged shaft pieces cannot be classified as crank shafts under Heading 8483 of the Customs Tariff Act
The Bench comprising R. Muralidhar (Judicial Member) and Rajeev Tandon (Technical Member) ruled that such goods, having lost their original identity after dismantling of ships, are correctly classifiable as “articles of iron and steel” under Heading 7326, and that post-clearance reclassification by the Department was unsustainable.
The appellant, engaged in the manufacture of iron and steel products, had imported iron and steel shaft and crankshaft pieces obtained during ship-breaking operations. In July 2018, a consignment described as “Iron and Steel Shaft (Parts of Ship)” was cleared under CTH 73269080, with the benefit of a SAFTA Certificate. The goods were physically examined by Customs authorities at the time of import and were assessed and cleared as declared.
Nearly two years later, the Customs Department issued a show cause notice dated 10 September 2020 proposing to reclassify the goods under CTH 84831092, applicable to crank shafts for internal combustion engines, attracting IGST at the rate of 28%, along with interest and penalties under Sections 112 and 117 of the Customs Act, 1962. The Department alleged that the Bill of Entry had been system-appraised and that the importer was responsible for correct declaration of classification, invoking the extended period of limitation under Section 28(4) of the Act on allegations of suppression and mis-declaration.
The adjudicating authority and the Commissioner (Appeals) accepted the Revenue’s case and confirmed the reclassification and demand, leading the importer to approach the Tribunal.
Allowing the appeal, the CESTAT found that the imported goods consisted of broken and cut portions of shafts recovered from dismantled ships, which were no longer identifiable as crank shafts used in diesel or semi-diesel engines. The Tribunal noted that Heading 84831092 applies specifically to crank shafts for engines falling under Heading 8408, which was clearly inapplicable to salvaged ship parts. Once a ship is dismantled, its components lose their original character and assume a new commercial identity as articles of iron and steel, warranting classification under Heading 7326.
The Bench also placed reliance on the commercial invoice and SAFTA Certificate, which consistently described the goods under CTH 73269090. It observed that the Revenue had failed to provide any legally sustainable reason for changing the classification after clearance, particularly when the goods had already been examined and assessed by Customs at the time of import.
Emphasising consistency and certainty in tax administration, the Tribunal noted that similar imports had earlier been classified under Heading 7326, including in the case of Laxmi Metal Works, which had attained finality. It further held that the original assessment had not been reviewed or challenged at the relevant time and had therefore attained finality, rendering the subsequent show cause notice unsustainable.
The Tribunal also rejected the invocation of the extended period of limitation, observing that there was no concealment or mis-representation by the importer. It additionally recorded that the case was one of revenue neutrality, as the importer would have been eligible to avail credit of any additional duty paid, thereby negating any alleged intent to evade tax. In view of these findings, the CESTAT set aside the reclassification under CTH 84831092, quashed the demand for differential IGST, interest and penalties, and allowed the appeal in full with consequential relief in accordance with law.
Cause Title: M/s. MRK Impex Private Limited Versus Commissioner of Customs (Prev.), West Bengal, Kolkata
Case No: Customs Appeal No.76038 of 2023
Coram: R. Muralidhar (Judicial Member) and Rajeev Tandon (Technical Member)
