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Dated: 29.01.2025

CESTAT Delhi reaffirmed the principle that classification should be based on goods in their imported state, not their future use

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has ruled in favor of M/s Secure Meters Ltd., affirming that their imported communication modules should be classified under CTI 8517 70 90. The Tribunal set aside the ₹45.83 crore customs duty demand and penalties, rejecting the Revenue’s claim of misclassification and suppression of facts.

Key Highlights of the Proceedings:

1. Dispute Over Classification of Goods

• Secure Meters Ltd. imported communication modules/network interface cards used in smart meters.
• The importer classified them under CTI 8517 70 90 as parts of communication hubs, making them eligible for customs duty exemption.
• The Customs Department (Revenue) argued they should be classified under CTI 9028 90 10/9028 90 90 as parts of electricity/gas meters, making them ineligible for exemption.

2. Principal Commissioner’s Decision (2020)

• The Principal Commissioner of Customs (Imports) ruled in favor of Revenue, classifying the modules as parts of electricity/gas meters.
• A demand of ₹45.83 crore in customs duty was raised, along with interest and penalties under Section 114A of the Customs Act.

3. Cross Appeals Filed in CESTAT

• Importer’s Appeal: Challenged the duty demand, arguing that their classification was correct and supported by precedent.
• Revenue’s Appeal: Sought additional penalties under Section 114AA, alleging misdeclaration and intent to evade duty.

4. Tribunal’s Observations and Key Arguments

• The communication modules were imported separately and should be classified as they are, not based on their eventual use in smart meters.
• CESTAT ruled that classification must be based on the form in which goods are imported, aligning with previous case laws.
• The Tribunal rejected the Revenue’s claim of misclassification, stating that the importer had consistently classified the goods the same way, with prior department approval.

5. Final Ruling (January 28, 2025)

• CESTAT ruled in favor of Secure Meters Ltd., holding that the correct classification is CTI 8517 70 90.
• Demand of ₹45.83 crore in customs duty was set aside, along with interest and penalties.
• Revenue’s appeal was dismissed, and the tribunal ruled that there was no suppression or misdeclaration by the importer.

6. Legal Precedents and Implications

• CESTAT reaffirmed the principle that classification should be based on goods in their imported state, not their future use.
• This ruling sets an important precedent for customs classification disputes, especially in cases involving electronic components used in larger systems.
• Principal Purpose Test: The Hon’ble Supreme Court delivered its verdict in M/s Thermax Ltd v. Commissioner of Central Excise. An unambiguous inference can be drawn from this particular Apex court ruling that without considering the “Principal Purpose Test” classification of goods cannot be finalized and that the same principle applies on revenue too.

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Source: CESTAT Delhi

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