Merely because the goods were described as gold coins they cannot be concluded as a legal tender: CESTAT

An appeal has been filed by M/s. Abans Jewels to assail the order dated 07.09.2020 passed by the Principal Commissioner of Customs, ACC (Imports) rejecting the classification of the goods claimed by the appellant to be under Customs Tariff Item 7114 19 10 and classifying them under CTI 7118 90 00 of the Customs Tariff Act, 1975.

The appellants claimed classification of these imported goods as ‘articles of gold’ under CTI 7114 19 10 and these goods were cleared after availing exemption from payment of customs duty on the basis of the notification dated 31.12.2009 that extends the benefit of NIL Basic Customs Duty to all goods falling under Customs Tariff Headings 71021 to 711890 on production of Country of Origin Certificate. The aforesaid customs notification was issued in terms of the India-South Korea Comprehensive Economic Partnership Agreement.

However, show cause notices were issued to the appellants seeking to re-classify the imported goods and deny the exemption claimed by the appellant inter-alia on the following allegations:

i. Imported goods have incorrectly been classified under CTI 711419 10 and should be re-classified under CTI 7118 90 00 under “other”. According to the show cause notices, the said CTI 7118 90 00 covers all remaining coins (including all legal tenders regardless of constituent material and gold coins); and

ii. In terms of the Reserve Bank of India 8 Guidelines, the appellants were not entitled to import the said goods and consequently, exemption under Serial No. 526 of the notification was not available.

The appellants filed detail replies to the show cause notices, but the demands were confirmed.

CESTAT Order:

60. A perusal of the order passed by the Principal Commissioner, however, shows that the judgment of the Delhi High Court in Khandwala has been completely mis-read. The Principal Commissioner in paragraph 57 held that Delhi High Court in Khandwala has clarified that all gold coins are classifiable under CTI 7118 90 00 and has also held that gold coins cannot be classified under CTI 7114 19 10. The Principal Commissioner also observed that Office Memorandum dated 06.09.2017 has been upheld by the Delhi High Court.

61. In regard to the Office Memorandum dated 06.09.2017 issued by the DGFT, the Delhi High Court clearly observed that the said Office Memorandum merely sets out the statutory position and, therefore, there was no reason to interfere with the Office Memorandum but at the same time the Delhi High Court also observed that an importer can always establish before the adjudicating authority by cogent and convincing evidence that the goods imported by it are entitled to the benefit of exemption. The Delhi High Court also observed that the manner in which in import item is described in the Bills of Entry is not necessarily conclusive regarding its classifiability and an importer can always establish that an item is not exactly conforming to the description contained in the Bills of Entry. The Delhi High Court specifically clarified that the Office Memorandum dated 06.09.2017 issued by the DGFT and the Office Memorandum dated 16.02.2018 issued by CBEC cannot fetter or bind the adjudicating authority in any manner and the factual position would have to be assessed on their own merits by the adjudicating authority.

62. Thus, merely because the goods were described as gold coins, though with a rider “other than legal tender”, the Principal Commissioner could not have concluded that the goods imported would necessarily fall under CTI 7118 90 00.

63. The Principal Commissioner has assumed that the goods were “gold coins” and, therefore, classified them under CTI 7118 90 00. The Principal Commissioner should have also examined that the appellant had also stated “other than legal tender” in the Bills of Entry. This had to be interpreted in the light of HSN Explanatory Notes to heading 71.18 of HSN and the two sub-headings.

64. The orders passed by the Principal Commissioner are based on an incorrect application of the GRI provisions and wrongly classify the imported goods under CTH 7118 on this basis. Even on application of GRI, the imported goods will not be classifiable under CTH 7118 90 00 in view of Explanatory Notes to HSN for heading 71.18. Rule 1 of the GRI states that classification has to be ascertained on the basis of Section and Chapter Notes. In terms of the Chapter and Section Notes read with the HSN Explanatory Notes, coins would be classifiable under CTH 7114 and CTH 7118 cannot be assumed to be the only entry with respect to classification of ‘all coins’. The imported goods were correctly classified under CTH 7114, in as much as non-legal tender coins cannot be classified under CTH 7118.

65. The Principal Commissioner erred in holding that coins are specifically described in CTH 7118 and accordingly, on application of rule 3 (a) of GRI, the imported goods merit classification under CTH 7118. Rule 3 (a) can only be applied where goods fall in two or more headings. However, where coins which are not legal tender are excluded from CTH 7118 in terms of HSN Explanatory Notes, the same cannot be included under CTH 7118 on application of rule 3 (a) of GRI.

66. It needs to be remembered that the burden of proof in classification matters is always on the Department, which has necessarily to place evidence on record to establish mis-declaration by an importer. The Department did not place any evidence on record to establish that the goods will fall in CTI 7118 90 00 and infact even the order passed by the Principal Commissioner does not refer to any such evidence. The documents placed by the appellant conclusively establish the correctness of the classification made by the appellant in the Bills of Entry under CTI 7114 19 10.

67. In any view of the matter, the exact nature of the imported goods was independently not examined either in the show cause notice or in the order passed by the Principal Commissioner and classification has been decided on a complete mis-reading of the judgment of the Delhi High Court in Khandwala.

68. What also needs to be noted is that the goods in terms of the notification dated 31.12.2009, as amended on 31.12.2016 reduces the rate of duty to NIL on goods under heading CTH 7114 and 7118. It further needs to be noted is that even under the Foreign Trade Policy CTH 7114 was “free” and no condition was imposed. With respect to CTH 7118, the Foreign Trade Policy specified “free” and “subject to RBI Regulations”. If the classification under CTH 7114 is correct there is no prescription under the Foreign Trade Policy regarding restriction on the goods. Even if the goods are held to be classifiable under CTH 7118, Regulations have not been issued by the RBI in this context. Regulations can be issued by the RBI only under section 58 of the Reserve Bank of India Act, 1934 or section 47 of the Foreign Exchange Management Act, 1999. Section 58 of RBI Act requires such Regulations to be issued only by way of a notification with the previous sanction of the Central Government. Section 48 of FEMA requires Regulations issued under section 47 FEMA to be presented before the parliament Such Regulations have not been placed by the Department and only a reference has been made to a letter issued by the RBI dated 13.09.2017 or the DGFT Memorandum. These cannot be termed as Regulations issued by RBI or under FEMA.

69. This position has also clearly been explained by the Bangalore and Hyderabad Benches of the Tribunal in Sri Exports and by the Karnataka High Court in the matter arising out the appeal filed by the Department against the decision of the Bangalore Tribunal. The Karnataka High Court clearly held that in the absence of a specific notification issued by DGFT, there is no restriction which existed in the import of gold medallion and such restriction cannot be imposed by way of communications.

70. The power of RBI to issue directions under section 11 of FEMA extends only to authorized person with regards to making payment for foreign exchange or foreign security and RBI cannot regulate imports which are in the exclusive domain of DGFT.

71. Thus, for all the reasons stated above, it is not possible to sustain the order dated 07.09.2020 challenged in Customs Appeal No. 50192 of 2021, the order dated 09.09.2020 challenged in Customs Appeal No. 50165 of 2021, the order dated 11.09.2020 challenged in Customs Appeal No. 50166 of 2021 and the order dated 18.09.2020 challenged in Customs Appeal No. 50197 of 2021. These orders passed by the Principal Commissioner are, accordingly, set aside and all the four appeals are allowed.

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