Pranav B Prem

The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Countervailing Duty (CVD) is not applicable on the import of pan masala processing machines, as the imported goods are classifiable under a tariff heading that attracts 0% CVD.

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The appeal was filed by M/s. Dharampal Satyapal Ltd., a manufacturer of pan masala, against the order passed by the Commissioner (Appeals) confirming CVD demand on the ground of misclassification of machinery. The appellant had imported machinery for use in processing Areca Nuts (commonly known as supari), the primary raw material in pan masala production, and classified them under CTH 84371000, which pertains to machines for cleaning, sorting or grading seeds, grains, or dried leguminous vegetables. The applicable CVD under this heading is 0%.

During an audit, the department alleged misclassification and opined that the machinery was intended for processing Areca Nuts into pan masala and thus fell under CTH 84798200, which covers machinery not specified elsewhere and carries a CVD rate of 12.5%. A show cause notice proposing reclassification and demand of differential duty amounting to Rs. 27,74,130/- was issued and later confirmed by the adjudicating authority. On appeal, the Commissioner (Appeals) upheld the demand while altering the classification from that proposed in the show cause notice, leading the appellant to approach the Tribunal.

Before the Tribunal, the appellant argued that the adjudicating authority and the Commissioner (Appeals) had both erred in law by confirming a classification different from that proposed in the show cause notice. It was submitted that the imported machines—Crumbler DFZL-1500, Plansifter MPAK-228, and Discharge Airlock MPSJ-22/22—were each designed for specific functions such as sorting, sifting, and grading seeds or grains, thus falling squarely under CTH 84371000. The Crumbler, for example, was used to reduce Areca Nuts to the desired size by adjusting rollers, while the Plansifter and Airlock were used in sorting and cleaning applications.

The Tribunal noted that while the department classified the Crumbler as a general-purpose crushing or grinding machine under CTH 84798200, the appellant had provided product literature showing that these machines were specifically intended for processing seeds and grains. It observed that machines mentioned under CTH 8479 are generally used when the machinery’s function is not described elsewhere. However, in this case, the specific functions of the machines—sorting, grinding, cutting—are clearly covered under CTH 8437.

Importantly, the Tribunal found that the adjudicating authority and the Commissioner (Appeals) had travelled beyond the scope of the show cause notice by assigning new classifications to the goods without any challenge or cross-appeal from the department. Citing Supreme Court judgments, it reiterated that authorities cannot go beyond the show cause notice and that no new case can be made out at the appellate stage.

The Bench also examined the tariff entries in detail. It held that CTH 84371000, which includes machines for cleaning, sorting, or grading seeds, grain, or dried leguminous vegetables, was applicable, as Areca Nuts (supari) qualify as seeds. It further held that CTH 84798200, which covers machines of general use or those not specified elsewhere, would not apply since the imported machines were specifically described in the Customs Tariff.

The Tribunal concluded that the classification adopted by the appellant was correct, and that both the show cause notice and the adjudication orders were unsustainable. The Tribunal noted: "From the description of the three of the machines as has been brought to notice by the appellant, it becomes apparently clear that the appellant has imported machines for carrying out such functions only as are specifically mentioned under CTH 8437200."

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Accordingly, the Tribunal allowed the appeal and set aside the demand. It held that the order of the Commissioner (Appeals), dated 30.03.2022, wrongly confirmed the duty demand against the appellant and could not be sustained either on facts or in law.

Appearance

Counsel for Appellant/ Assessee: Jayant Kumar

Counsel for Respondent/ Department: Rajesh Singh

Cause Title: M/s. Dharampal Satyapal Ltd. V. Commissioner of Customs – New Delhi

Case No: Customs Appeal No. 51630 of 2022

Coram: Dr. Rachna Gupta [Judicial Member], P.V. Subba Rao [Technical Member]