Pranav B Prem

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai, has ruled that the customs department cannot enhance the value of imported scrap on the basis of speculative future use. Setting aside the order of the Commissioner (Appeals), the Tribunal directed the refund of duty, redemption fine, and penalty to the importer with interest. The bench of Dr. Suvendu Kumar Pati (Judicial Member) and Anil G. Shakkarwar (Technical Member) was hearing an appeal filed by M/s Shreem Worldwide Pvt. Ltd., challenging the reclassification of its imported “Heavy Melting Scrap” as “serviceable used iron pipes, rusted and corroded,” which led to an increased assessable value, a ₹3 lakh redemption fine, and a ₹50,000 penalty.

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Background
In January 2013, Shreem Worldwide imported a consignment from the UAE, declaring it as Heavy Melting Scrap valued at ₹19.42 lakh (US $380 per metric tonne) with a total weight of 83,810 kg. Customs duty of ₹3,27,429 was paid on this basis. Upon 100% examination at Nhava Sheva, Docks Officials recorded that the goods comprised “used iron pipes, rusted and corroded, cut at 15 ft. lengths,” which they considered serviceable. The weight was found to be 455 kg higher than declared—about 0.54%—which the department claimed indicated mis-declaration.

Relying on the Docks Officials’ findings, the Department rejected the declared value under Rule 12 of the Customs Valuation Rules, 2007, and reassessed the goods at US $620 PMT, citing “contemporary imports” but without providing any specific reference or documentary proof to the importer.

Importer’s Stand
The importer disputed the examination results and requested a re-examination by a Chartered Engineer. In March 2013, the Chartered Engineer certified that the rig pipes were discarded, had outlived their utility, and were not serviceable in their present form for any intended use. Counsel argued that customs’ reliance on assumed post-processing usability was legally untenable, as goods must be assessed “in the manner in which they are presented” at import. No evidence or technical process was suggested by customs to restore the pipes for re-use.

On the alleged weight variation, the importer contended that the difference was negligible, attributable to different weighing machines, and in fact favoured the Revenue since the duty was weight-based.

Revenue’s Arguments
The department relied on the Tribunal’s decision in Ashok Magnetics Ltd. v. Commissioner of Customs, Chennai, where old and used goods were held serviceable despite wear, and asserted that the pipes here could be made serviceable after slight modification. It argued that confiscation under Sections 111(m) and 111(d) of the Customs Act, 1962, and penalty under Section 112(a), were justified.

Tribunal’s Findings
CESTAT rejected the department’s reasoning, emphasising that valuation cannot be based on speculative post-import processing. It observed that both Heavy Melting Scrap and rusted, corroded used pipes could be repurposed after reprocessing, but the present usability was decisive for classification and valuation. In this case, the pipes were unserviceable and thus correctly fell under the category of scrap.

The bench noted that the adjudication order gave no evidence of the “contemporary imports” allegedly valued at US $620 PMT, nor was the importer shown any such valuation data. It criticised the disregard of the Chartered Engineer’s report—prepared by an expert empanelled with the department—in favour of a non-technical Docks Officer’s opinion. The Tribunal stressed that under the Indian Evidence Act, expert opinion carries greater weight in technical matters. Distinguishing Ashok Magnetics, it held that the earlier case involved goods that could be used as intended despite being old, whereas in the present matter the department itself classified them as rusted, corroded, and randomly cut pipes, which had outlived their utility.

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Allowing the appeal, CESTAT set aside the Commissioner (Appeals)’ order and directed the customs department to refund the duty, redemption fine, and penalty with applicable interest within two months of receiving the order.

Appearance

Counsel For Appellant: Nandini Goel, Advocate 

Counsel For Respondent: Dinesh Nanal, Dy. Commissioner

Casue Title: M/s. Shreem Worldwide Private Limited Versus Commissioner of Customs (Import)

Case No: Customs Appeal No. 86273 of 2014

Coram: Dr. Suvendu Kumar Pati [Judicial Member], Anil G. Shakkarwar [Technical Member]