Sumangala Steels Pvt. Ltd. and Another Vs. Commissioner of Customs, Chennai - Court Judgment

Excerpt:
dr. chittaranjan satapathy 1. heard both sides. the impugned goods were not allowed to be exported by the customs authorities holding them to be non-alloy steel. the matter came before the tribunal earlier when it was found that the test reports obtained by the appellants from m/s.kidao laboratories and the test reports got by the customs authorities from m/s.national metallurgical laboratory (nml) were different. the matter was remanded for fresh decision after retesting of the samples by the nml. the jurisdictional commissioner has since passed a fresh order against which the present appeals have been preferred. 2. in the impugned order, the adjudicating commissioner has held the impugned goods to be non-alloy steel. he has confiscated the goods and has allowed the same to be taken back on payment of a redemption fine of rs.45 lakhs. he has imposed penalties of rs.12 lakhs and rs.5 lakhs on the appellant-company under sections 114 and 114a of the customs act, 1962. he has also imposed penalties of rs.5 lakhs and rs.3 lakhs respectively under the said sections against the appellant-managing director. as the results of the nml test reports were not very clear, particularly with reference to the error margin, when the mater was heard on 8.9.2011, the bench had directed the concerned scientist of nml to be present at the time of next hearing. he was accordingly present at the time of next hearing on 2.2.2012. 3. the impugned goods were sought to be exported under 5 shipping bills dated between 19.6.2008 and 25.6.2008. the goods were declared as ‘alloy steel billets of prime quality’. ordinarily, there is no duty on export of goods out of india except in a few cases. in respect of ‘non-alloy steel, ingots or prime form’, export duty of 15% advalorem has been imposed vide notification no.66/08-cus. dt. 10.5.08. appellant-exporter used to earlier export non-alloy steel only but since, after imposition of duty on such steel, they had filed the impugned shipping bills declaring the goods as alloy steel, a question has been raised as to whether there has been any misdeclaration to avoid export duty imposed on 10.5.2008. the export tariff schedule does not contain any definition of alloy and non-alloy steel. however, the board in its clarification dt. 3.6.2008 has stated that the description of relevant entries for the purpose of notification no.66/08 have been borrowed from the import schedule of the customs tariff and that the relevant rules of interpretation applicable to the import schedule may be followed for deciding whether a particular steel product will attract export duty or not. 4. under the import schedule, based on hsn, alloy steel is defined as follows:- “steels not complying with the definition of stainless steel and containing by weight one or more of the following elements in the proportion shown: - 0.3% or more of aluminum - 0.0008% or more of boron - 0.3% or more of chromium - 0.3% or more of cobalt - 0.4% or more of copper - 0.4% or more of lead - 1.65% or more of manganese - 0.08% or more of molybdenum - 0.3% or more of nickel - 0.06% or more of niobium - 0.6% or more of silicon - 0.05% or more of titanium - 0.3% or more of tungsten (wolfram) - 0.1% or more of vanadium - 0.05% or more of zirconium - 0.1% or more of other elements (except sulphur, phosphorus, carbon and nitrogen), taken separately.” the criterion based on boron content is the least being 0.0008%. appellants in this case claim that the impugned goods satisfied the criterion in respect of boron content and hence the impugned goods are to be considered as ‘alloy steel’ and, therefore, the duty imposed on non-alloy steel will not apply in respect of these consignments. 5. based on the test reports, the customs authorities have classified the impugned goods as non-alloy steel whereas the appellants are claiming the same to be of alloy steel on the basis of the very same test reports. in this respect, both sides have given summaries of their arguments made at the time of personal hearing which are reproduced below:- i. summary of submissions by the appellants: “a. nml’s admission that classification not possible nullifies show cause notice: i. the impugned order-in-original has failed to appreciate that the entire exercise of issuing the initial show cause notice dated 5.11.2008 (page 253 of common paper book) was based on report no.20077 issued by nml dated 27.06.2008 that classified the samples as non-alloy steel (page 3 of the common additional paperbook-i). today, after re-testing the samples as per order of this tribunal, nml, vide letter dated 11.03.2010 (page 363 of common paperbook) has stated that classification of the samples into alloy and non alloy steel is not possible as there are various uncertainties in measurement. in the light of this, the impugned order is wholly unreasonable in even taking the other factors into account. ii. the deposition dated 02.08.2010 of the scientist-in-charge who had issued the test results categorically states that uncertainty / variation to an extent of 0.006 to 0.0012% in analyzing the boron content using the oes method is inevitable. (page 388 of common paperbook) b. burden of proof lies on the respondent: a. the impugned order has failed to take into account that as per various decisions of the hon’ble supreme court, the burden of proving that a certain commodity falls in a particular tariff lies upon the revenue department. the respondent in the present case has produced no iota of evidence to show that the steel billets were non-alloy steel. on the contrary, nml has communicated their inability to classify the billets as alloy or non-alloy and the commissioner of customs vide letter dated 05.05.2010 had requested nml to furnish the test results from which appropriate classification may be deducted. the following judgments are relevant in this regard: i. (1997)2 scc 677 hindustan ferodo ltd v cce, bombay (paras 4 and 5) ii. (2006) 5 scc 208 hpl chemicals ltd v cce, chandigarh (paras 28 and29) iii. (2003) 4 soc 762 polyglass acrylic manufacturing co ltd v. cce, vishakapatnam c. no deliberate misdeclaration/ concealment: a. the impugned order has erroneously concluded that the appellant has deliberately mis-declared the description of the goods as alloy steel with the view to evade export duty and that the seller and the buyer inter-se never intended to transact a new commodity other than the non-alloy steel. it is pertinent to note that the appellant had nowhere concealed that they had specifically included boron to avail the benefit of notification 66/08 dated 10.05.2008. to avail the exemption notification the appellant had not gone beyond the ambit of law. tax planning cannot be termed as tax evasion. b. further, the appellant had, right from the beginning consistently been saying that the purchase order for non alloy steel billets was altered to alloy steel billets with boron content of 0.0008%. they had not concealed this fact nor had they contradicted it. the deposition of mr. rohan mhatre (representative of the buyer) (page 293 of common paperbook) clearly states that order was placed for alloy steel billets only. c. the impugned order has erred in observing that the purchase order for alloy steel billets and non alloy steel billets quoted the same price and the cost of ferro boron was not included in the cost of alloy steel and therefore, it was clear that the appellant had mis-declared non alloy steel as alloy steel and had attempted to clear it so. the same is absolutely unsustainable as even the test reports furnished by nml would reveal that all 76 samples contained a certain percentage of boron and that the same will not be the case unless boron has been included in them. the cost of boron was insignificant when compared to the duty payable in case of export of non alloy steel. the business transaction would have become unviable if the cost of duty element would be added to the price. therefore, a conscious decision was taken to include boron which would not adversely affect the steel billets but would improve its ability to harden. d. purchase of ferro boron before initiation of enquiry: a. ferro boron was purchased on 10.06.2008 and used from 11.06.2008 as stated by the production manager of the appellant unit in his statement dated 12.08.2008 (page 243 of common paperbook). the consignment in question therefore contained billets manufactured after 11.06.2008 as well. the enquiry from the department was initiated only vide letter dated 25.06.2008 (page 63 of common paperbook) and it is therefore clear that ferro boron was purchased prior to initiation of enquiry itself. e. uncertainty element to be applied in favour of the assessee: a. the appellant submits that in the following case laws the tribunal had held that tolerance limit, if any, has to be applied in favour of the assessee for the purpose of classification. i. 1996 [84] elt 53 - new shorrock mills vs. collector of central excise ii. 1998 [102] elt 420 - morarjee gokuldas spg. wvg. co. ltd vs. cce iii. 1991 [53] elt 138 - collector of central excise vs. ocm [india] ltd iv. 2005 [188] elt 296 - new shorrock mills vs. commissioner of central excise, v. 1991(56) elt 477 - ramnarayan mills ltd vs. collector of central excise, vi. 1998 (111) elt 862 - swami samartha shetkari va vinkari sahakari soot girni niyamit v. cce vii. 2003 (156) elt 768 - kripal springs (india) ltd v. commissioner of central excise viii. 2004 (167) elt 175 - ujagar textile inds ltd v. commissioner of central excise f. the view in favour of assessee to be taken into account: a. assuming without admitting that two views are possible, the impugned order has failed to take into account the well established position of law that in such cases, the view in favour of the assessee has to be taken. the same is reiterated in the following cases: i. (1997) 10 scc 291 - collector of customs, madras v. lotus inks ii. (2002) 7 scc 591 - union of india and others v. onkar s. kanwar and others g. re-testing of samples that had the required boron content unwarranted: it is pertinent to note that out of 76 samples, since 37 had already been certified as having the minimum boron content of 0.0008% to be classified as alloy steel. however the same were unnecessarily tested again. the appellant sent a letter dated 01 .07.2010 communicating its objections to the re-testing of the samples that had the required content of boron. (page 383 of common paperbook) h. enhancement of redemption fine and penalty unwarranted: a. the impugned order-in-original has failed to appreciate that the entire exercise of issuing the initial show cause notice dated 05.11.2008 was based on report no 20077 issued by nml dated 27.06.2008 that classified the samples as non-alloy steel (page 3 of common additional paperbook - i). today, after re-testing the samples as per order of this tribunal, nml, vide letter dated 11.03.2010 (page 363 of common paperbook) has stated that classification of the samples into alloy and non alloy steel is not possible as there are various uncertainties in measurement. in light of this, the very basis for confiscation of goods itself is vitiated and levy of redemption fine is unwarranted. further, the appellants have vide their letter dated 01.07.2009 (page 305 of common paperbook) conveyed their intention to take back the goods for sale in the domestic market, thereby not even seeking the benefit of notification no 66/2008. b. without prejudice to the other contentions, having made a finding that in only in 31 samples the boron content was found to be less than 0.0008% and that the remaining samples had a boron content of 0.0008% or more, the impugned order has arbitrarily declared the entire lot to be non-alloy steel billets. this finding is preposterous, baseless and completely untenable. c. the case of the appellant has only been vindicated further in the second round subsequent to the remand as the inability to classify the goods as alloy or non-alloy and refusal to apply the tolerance limit to the goods is purely arbitrary and unjustified. in such circumstances, the respondent has not shown any reasons whatsoever to (i) penalize the appellant and (ii) to enhance the penalty over the amount originally issued as penalty against the appellant. this further evidences the arbitrary manner in which the respondent has sought to harass the appellant. d. further, the impugned order is erroneous as it seeks to levy a personal penalty, which can be done only if there is a mala tide intention to evade duty. in the instant case, since it is clearly established that two views may be possible, the appellant cannot be imputed with a penalty, as there is a complete absence of any mala fides on the part of the appellant.” the appellants, accordingly, plead for this hon’ble tribunal to take the present written arguments on record, set aside the impugned order-in-original no 13642 of 2010 dated 19.11.2010 and thus render justice. ii. summary of submissions by the department: “a. testing of samples and applying of uncertainty to the test results, in para 22 of the 010 dated 19.11.2010, the adjudicating authority has discussed that both the test laboratories viz. nml and kidao have mentioned about uncertainty of 0.0006 and 0.0003 respectively in the measurement of boron content through optical emission spectrometer in the alleged alloy steel exported by the appellant. uncertainty can be applied both in the positive and negative directions and after applying uncertainty samples do not meet the minimum requirement of boron content of 0.0008 to be classified as alloy steel. the appellant’s objection for retesting of the entire consignment is not acceptable as they were present at the time of re-drawl of samples and did not object to the retestng of the entire consignment. the appellant’s contention that 37 out of 76 samples which tested positive after first testing by nml were not required to be tested again is not acceptable as samples on application of negative uncertainty did not cross the qualifying value for classifying the product. further, uncertainty is involved in testing boron contents on each occasion, the drawl of samples from the entire consignment was required to arrive at the correct results. further, for 43 samples which as per appellant have tested positive after retesting, the benefit of the same should have been be given to them, this contention of the appellant is also not acceptable as on application of negative uncertainty, 74 samples in total fails the criterion for classifying them as alloy steel. since after applying test uncertainty, the export goods do not quantify as alloy steel, accordingly the adjudicating authority has rightly held that product fails to be classified as alloy steel. b. reliance placed by the assessee on various citations for applying uncertainty in their favour. the appellant has placed reliance on the following citations: 1. 1996 (84) elt 53 - m/s.new shorrock mills vs collector of central excise 2. 1998 (102) elt 420 - m/s.morarjee gokuldas spg.wvg.co.ltd vs cce 3. 1991 (53) elt 138 - m/s.collector of central excise vs 0cm (india) ltd 4. 2005 (188) elt 296 - m/s.new shorrock mills vs commissioner of central excise 5. 1991 (56) elt 477 - m/s.ramnarayan mills ltd vs collector of central excise 6. 1998 (111) elt 862 - m/s.swami samartha shetkari va vinkari sahakari soot girni niyamit vs cce. 7. 2003 (156) elt 768 - m/s.kripal springs (india) ltd vs commissioner of central excise 8. 2004 (167) elt 175 - m/s.ujagar textile inds ltd vs commissioner of central excise. for applying uncertainty in the test measurements in their favour. the same is not acceptable as facts and circumstances of each case are different and totally distinguishable from the facts and circumstances of the instant case. in m/s. new shorrock mills vs collector of central excise, the citation that has been heavily relied upon by the appellant, the item in dispute was cotton polyester blended fabric, in which there was a variation of approx 6-7% in polyester fibre, whereas, in the instant case, there are multiple constituents in the export product and there is huge variation in the content of distinguishing alloy element ie., boron, which is in the range of more than 100% of the absolute value of boron ascertained through the tests. further, the test results shows that the other alloying elements are no where close to the percentage of same required to classify them as alloy. in the other citations relied upon by the appellants the composition of the product and percentage variations found in the tests either for the presence of constituents / character of the constituent are same as in the case of m/s.new shorrock mills vs collector of central excise and ratio of the same cannot be applied to the instant case where multiple constituent are involved and percentage variation in the test results for the critical constituent required for classifying the product is more than 100%. c. documentary evidences to show deliberate misdeclaration of export, (1) amendment of sale contracts and letter of credit after imposition of export duty, at para 16 of the oio dated 19.11.2010, the adjudicating authority has discussed various sale contracts executed by the appellant with m/s. al usaimi for supply of non alloy steel grade (prime) of quality 3sp/ps, these contracts were signed before shipment of the impugned consignments and were for export of non alloy steel blades of quality 3sp/ps which is a russian steel grades for non alloy steel. the price of said steel was negotiated at usd 950 per mt. a sequential reading of all sales contracts discussed in para 16 of the oio, particularly the signed copy of the sales contract sent by the met gulf to shri.rajendiran, managing director of m/s.sumangala steel (p) ltd, on 8th june, 2008 (that is much after imposition of export duty on non-alloy steel on 10.05.2008 and just prior to the entering of impugned goods for export by m/s.sumangala steel (p) ltd, between l9 and 25 of may 2008, between the nuyer (m/s.al usaimi) and seller (m/s.sumangala steel (p) ltd) clearly establishes that in the instant case the buyer always wanted to buy: (1) non-alloy steel billets (prime) with the (2) chemical composition of c - 0.14% - 0.22% mn-0.40% - 0.65% si - 0.15% - 0.35% p - 0.065% max s - 0.050% max (which does not have any boron element) (3) of quality: 3sp/ps (which a russian specification for non-alloy steel) (4) with a clear agreement that ‘15% of export tax on fob value to be borne by the seller’, that is m/s.sumangala steel (p) ltd. though, in some of these sales contracts m/s.sumangala steel (p) ltd have tried to insert certain changes in description (so as to change it to steel billets prime), composition to insert boron element in the end while keeping percentages of other elements unchanged (though continuing to show quality as 3sp/ps, which is a russian specification for non-alloy steel), and in certain copies changes in force majeure clause regarding the liability of export duty if any levied by the government of india, but with the same fob price as that of non alloy steel, though admittedly the price of alloy steel should be higher than that of non-alloy steel. in any case, the last signed copy of the contract which was sent to shri.rajendiran, managing director of m/s.sumangala steels (p) ltd on 8th june, 2008 is for supply of non-alloy steel billets of quality 3sp/ps and with no boron content. (2) the changes in the description of the product were communicated vide e-mail dated 08.06.2008 which is after signing of the original contract and imposition of export duty on the non-alloy steel. the said changes were done with the clear objective of evading export duty on the goods. (3) apart from above, in para 19 of the oio, the adjudicating authority has discussed various e-mails exchanged between the appellants and their buyers which are prior to imposition of the export duty in which amendments were sought to be made on the lc for their sale contracts with m/s.al usaimi. as per these e-mails the product to be exported was non- alloy steel grade. therefore, filing of the shipping documents for export of alloy steel blade was with the clear intent of evading export duty and was in direct conflict and at variance with the description of export product agreed to in the sale contracts and the lcs and hence clearly a misdeclaration on the part of the appellants. d. statements of various individuals showing non consumption of boron in manufacture of export product and deliberate attempt to misdeclare the export product to evade payment of export duty. (1) deliberate misdeclaration of the export product to evade export duty, (i) as per the statement of shri.rohan anand kumar mhatre, general manager, m/s.mac steel international far east ltd., india, liasion office mumbai, a representative of the appellant’s buyer in india, till may 2008 they were buying / had made contract with the appellants for supply of non alloy steel grade. (ii) shri.rohan anand kumar mhatre, general manager when asked whether the buyer m/s.mac steel international far east had really placed orders for supply of alloy steel with the appellant on the basis of which they have placed orders with appellant after june 2008, shri rohan anand kumar mhatre stated that he had never come across any such authentic / signed request for the supply of alloy steel from their buyers; however, they have to run their business and they came to know that alloy steel does not attract export duty at 15% advalorem as in the case of non-alloy steel and hence by declaring the product as alloy steel to the customs surely helped appellant in saving export duty and hence they were in a position to supply cheaper goods to their buyers. shri rohan anand kumar mhatre also stated that for this they had entered into purchase contracts with appellant wherein it has been agreed upon between them that the appellant would continue to supply them non-alloy steel showing boron as alloy element and declared the said poduct as alloy steel to evade 15% export duty. (iii) he has admitted that 3sp grade of non-alloy steel is a russian standard for non-alloy steel and the appellant had always been supplying to them 3sp grade of steel and not alloy steel at any time. (iv) he has also admitted that he had coordinated with m/s.sspl for persuading them to be party in this modus operandi, being indian counterpart of his company. shri rohan anand kumar mhatre also accepted that for said acts of commission and omission, he had acted as per the instructions of his company directors from his head office located at hong kong so as to continue getting business for his company as it was necessary for the survival of their mumbai regional office in light of the new provisions introduced by indian government thereby levying 15% duty on non-alloy steel. (v) he also agreed that one of their employee shri vinod bane has sent e-mail instructing ms.salomi of the appellant to delete the word alloy from all the shipping documents since alloy steel attracted import tax in philippines. (2) consumption of boron as alloying element, (i) regarding consumption of boron as alloying element in production of alleged alloy steel, the managing director of the appellant firm sh.rajendiran sabanayagam, has himself mentioned that they had purchased ferro boron from m/s.oswal minerals, bangalore, as per the invoice no.209 dt.09.06.2008 and 322 dt.13.06.2008, and has used the same as per the production personnel of their firm on 11.06.2008. on enquiry he could not offer any comment as to the source of boron for production of alloy steel from 5th june to 10th june 2008, which have been exported by misdeclaring as alloy steel. (ii) though the production manager of the appellant shri.sailesh kumar singh in his statement dated 12.08.2008 has stated that they started manufacturing boron grade alloy steel from 5th june 2008 by using the alloy steel scraps (boron) up to 10th june 2008. however the same is not supported by any documentary evidence and same is also not acceptable for the reason that the percentage value of the other alloying constituents would have also increased in the same proportion as boron which is not corroborated by such proportional increase in the value of other constituents in the test reports given by the nml. further, they have not given any evidence to show that they have installed necessary plant and machinery to manufacture alloy steel as production of the same require different plant and machinery for controlling the percentage of various alloying elements. e. fine and penalty is sustainable in the peculiar fact and circumstances of the case, this is peculiar case in which the appellant in collusion with the buyers have modified the basic sale documents and letters of credit to misdeclare their product, in order to save the payment of export duty on actual misdeclared export of non alloy steel. as an ingenuine modus operandi, they have very intelligently chosen boron as the alloying element to qualify their product as alloy steel as boron cannot be easily detected in alloy steel except under controlled laboratory analysis and is also present as residue element in the metal scrap which is used as raw material for the manufacture of non alloy steel. in fact ferro boron purchased for alloying was never utilized in the production of impugned export consignments. the appellants contention that alloy steel scrap was purchased and used to alloy boron is also not supported by any documentary evidence and corresponding increase in the percentage value of other alloying constituents as reflected from test results obtained from nml to support their case. they have also not adduced any positive evidence to prove that they have made necessary addition to the plant and machinery to manufacture alloy steel as same requires different plant and machinery to control the percentage of various metal constituents. except boron which has not tested positive in test results, the value of other alloying elements is no where close to the standard values prescribed for the same. the assessee has not provided any literature to contest that the alloy material manufactured by them conforms to any standard specifications of any standard grades of steel accepted and notified either by aisi or isi. they have also not indicated the specific application to which such nature of alloy steel will be put use to. this only leads to the conclusion that boron was never used in production before 11.06.2008 and use of alloy steel scrap as source of boron for production up to 10.06.2008 is only an afterthought and an attempt to escape export duty and penal liabilities. since the appellants have colluded to change the basic sale documents and the letters of credit after imposition of the export duty on the export product and have also deliberately misdeclared the description of the export product to save export duty with other corroborative evidences discussed above and in the oio dated 19.11.2010, the goods have been rightly confiscated and penalties have been rightly imposed on the appellant and the managing director of the appellant firm.” 6. we have considered the submissions made by both sides in detail as also the case records and the clarification given by the concerned scientist from nml at the time of hearing of the case. we find that as per the second test conducted by nml on 27.5.2010, 31 samples showed boron content less than 0.0008% whereas 42 samples showed boron content as 0.0008% or more, the highest being 0.0014%. the scientist from nml clarified that the testing method gives rise to uncertainty to the extent of 10.0006%. we find that the 31 samples which were tested to be below 0.0008% were in the range of 0.0003% to 0.0007%. by applying uncertainty on the positive side, i.e. by adding 0.0006% to the test result, it is seen that all these 31 samples would also go above 0.0008%. it is well settled that when the error margin or tolerance limit is applied and the resultant value conforms to the declared value, no case can be held to have been proved against the assessee. the decision of the tribunal in the case of new shorrock mills (supra) allowed the appeal of the assessee on this score. 7. what is surprising in this case is that the concerned scientist from nml has indicated an error margin which is as high as 200%. for example, in respect of sample from heat no.607b, boron content has been indicated by nml on the second test as 0.0003%. an error margin to the extent of 0.0006% on the positive side takes it up to 0.0009% which is 200% more than the tested value of 0.0003%. normally, the tolerance limits (error margin) are within 1-5%. in the cited decision, in new shorrock mills (supra), the tolerance limit was 2.5% and 3%. it is a pity that the board has directed the field officials to apply the borrowed definition of alloy steel from the import schedule of the customs tariff for the purpose of applying export duty in its letter dt. 3.6.2008, but has not made arrangements for proper testing of boron content as is glaringly observed in this case. a test method giving results which are uncertain to the extent of 200% is of no value for the purpose of tariff determination. 8. it is well known that in the context of definition of alloy steel under the hsn, accurate quantification of boron in steel poses a special challenge for customs administrations all over the world. this is because of the amount of boron required to render a product classifiable as alloy steel is very low (0.0008% or 8 ppm). this problem does not seem to have been addressed by the indian customs administration whereas in other countries similarly applying the hsn, methods have been developed to determine the boron content accurately. for example, the ‘customs and border protection laboratory bulletin’ (volume 12 number 1) of the us customs has published a paper on ‘determination of boron in steel by emission spectrometry’ authored by yousuf qureshi and carson watts which shows that by employing optical emission vacuum spectrometric analysis, boron content in alloy steel can be accurately determined at levels ranging from 0.001% to 0.0026%. it is indicated in the paper that the analysis is straight forward, requires minimal sample preparation and results in correct characterization of a sample for tariff purposes. the paper also indicates that even for samples which have boron content near 0.0008% tariff breakpoint, the emission spectrograph provides a value for boron within the certified tolerances. it is surprising that with all the money invested in the customs laboratory and in the nml, the tests done in india provide no accuracy and the error margin goes upto 200% which is of no use for the tariff purposes. we hope that the board pays attention to this area and necessary testing facilities are made available so that the hsn based import tariff can be used for export duty purposes in the context of alloy steel with low boron content. 9. the test results obtained by the customs authorities in this case indicate that 42 samples satisfied the tariff breakpoint of 0.0008%. other 31 samples would also cross the tariff breakpoint when the positive error margin of 0.0006% indicated by nml scientist is applied. we also note that some of these 31 had crossed the tariff breakpoint earlier in the testing done by nml the first time. under the circumstances, it cannot be held that the appellants have misdeclared the impugned goods in regard to the declared boron content. 10. there was a suggestion by ld. sdr that the negative error margin would take some of the samples below the tariff breakpoint, but obviously the negative error margins cannot be used just to prove the department’s case. only when, after applying the positive error margins, the value remains below the tariff breakpoint, can a case of misdeclaration be said to have been proven against the appellants, which is not the case here. 11. coming to the other circumstantial evidence canvassed by the ld. sdr, first of all, we note that when the impugned goods have undergone chemical test, that becomes the primary determinative factor to adjudge existence of misdeclaration or otherwise. as seen above, it cannot be concluded against the appellants on the basis of test results that they have misdeclared the impugned goods. under the circumstances, the other evidence sought to be relied upon by the department have little value. 12. moreover, most of the submissions made in this regard on behalf of the department are to the effect that the appellants had contracted to supply non-alloy steel and that the necessary purchase and other documents made earlier were indicative of that. however, we find that the impugned goods have been entered for export well after a month of change in the tariff and introduction of the export duty. the appellants had ample time to renegotiate the sale and if they have been able to persuade the customers to accept alloy steel with the minimum boron content and have reorganized their documentation, that alone would not prove a case of misdeclaration and evasion unless the impugned goods have indeed been misdeclared. as we have held above, the chemical examination does not point to lack of boron content in the impugned goods to the specified extent after applying the error margins. under the circumstances, the charge of misdeclaration cannot be held against the appellants on the basis of changes made in the various documents. instead of the department alleging that the appellants have taken advantage of low percentage of boron specified to convert non-alloy steel to alloy steel and uncertainty in the in boron content determined, the department could have either applied a different criteria for the purpose of charging export duty, or if the definition in the import tariff was to be applied, then arrangements should have been made for proper determination of boron content with far greater accuracy as is being done in other countries. 13. the appellants have also explained that the addition of boron does not add significantly to the cost and, therefore, they did not have to enhance the price much. they have also stated that they purchased ferro boron and before that they have used scrap containing boron to produce alloy steel containing boron. these arguments cannot be wished away when the chemical test shows boron content in each of the samples and the error margin in the testing of nml prevents the goods from being characterized as having boron content lower than the tariff breakpoint. it has been argued on behalf of the department that what was entered for export was non-alloy steel conforming to russian standard 3 sp grade, but we do not find any testing done in that regard to establish the same. the arguments made on behalf of the department suggesting that the appellants should show that they had plant and machinery to produce boron steel and that they have not shown any proof that they have manufactured any standard grades of alloy steel etc. cannot be pressed against the appellants when the department has failed to discharge its initial burden to prove the alleged misdeclartion on the basis of chemical test undertaken at the nml. 14. we also find that there is no inculpatory statement to the effect that no boron was used or that the impugned goods were free from boron. consequently, we are of the view that the department’s case is not proved beyond doubt and the benefit of doubt goes in favour of the appellants. we, however, note that the impugned goods have not been allowed to be exported and the appellants have already taken it back into town. under the circumstances, we also do not find any reason to uphold the confiscation of the impugned goods, imposition of redemption fine and imposition of penalties on the appellant-company and the appellant-managing director. the impugned order is set aside and the appeals are allowed.

Judgment:

Dr. Chittaranjan Satapathy

1. Heard both sides. The impugned goods were not allowed to be exported by the customs authorities holding them to be non-alloy steel. The matter came before the Tribunal earlier when it was found that the test reports obtained by the appellants from M/s.Kidao Laboratories and the test reports got by the customs authorities from M/s.National Metallurgical Laboratory (NML) were different. The matter was remanded for fresh decision after retesting of the samples by the NML. The jurisdictional Commissioner has since passed a fresh order against which the present appeals have been preferred.

2. In the impugned order, the adjudicating Commissioner has held the impugned goods to be non-alloy steel. He has confiscated the goods and has allowed the same to be taken back on payment of a redemption fine of Rs.45 lakhs. He has imposed penalties of Rs.12 lakhs and Rs.5 lakhs on the appellant-company under Sections 114 and 114A of the Customs Act, 1962. He has also imposed penalties of Rs.5 lakhs and Rs.3 lakhs respectively under the said sections against the appellant-Managing Director. As the results of the NML test reports were not very clear, particularly with reference to the error margin, when the mater was heard on 8.9.2011, the Bench had directed the concerned scientist of NML to be present at the time of next hearing. He was accordingly present at the time of next hearing on 2.2.2012.

3. The impugned goods were sought to be exported under 5 shipping bills dated between 19.6.2008 and 25.6.2008. The goods were declared as ‘alloy steel billets of prime quality’. Ordinarily, there is no duty on export of goods out of India except in a few cases. In respect of ‘non-alloy steel, ingots or prime form’, export duty of 15% advalorem has been imposed vide Notification No.66/08-Cus. dt. 10.5.08. Appellant-exporter used to earlier export non-alloy steel only but since, after imposition of duty on such steel, they had filed the impugned shipping bills declaring the goods as alloy steel, a question has been raised as to whether there has been any misdeclaration to avoid export duty imposed on 10.5.2008. The export tariff schedule does not contain any definition of alloy and non-alloy steel. However, the Board in its clarification dt. 3.6.2008 has stated that the description of relevant entries for the purpose of Notification No.66/08 have been borrowed from the import schedule of the Customs Tariff and that the relevant rules of interpretation applicable to the import schedule may be followed for deciding whether a particular steel product will attract export duty or not.

4. Under the import schedule, based on HSN, alloy steel is defined as follows:-

“Steels not complying with the definition of stainless steel and containing by weight one or more of the following elements in the proportion shown:

- 0.3% or more of aluminum

- 0.0008% or more of boron

- 0.3% or more of chromium

- 0.3% or more of cobalt

- 0.4% or more of copper

- 0.4% or more of lead

- 1.65% or more of manganese

- 0.08% or more of molybdenum

- 0.3% or more of nickel

- 0.06% or more of niobium

- 0.6% or more of silicon

- 0.05% or more of titanium

- 0.3% or more of tungsten (wolfram)

- 0.1% or more of vanadium

- 0.05% or more of zirconium

- 0.1% or more of other elements (except sulphur, phosphorus, carbon and nitrogen), taken separately.”

The criterion based on boron content is the least being 0.0008%. Appellants in this case claim that the impugned goods satisfied the criterion in respect of boron content and hence the impugned goods are to be considered as ‘alloy steel’ and, therefore, the duty imposed on non-alloy steel will not apply in respect of these consignments.

5. Based on the test reports, the customs authorities have classified the impugned goods as non-alloy steel whereas the appellants are claiming the same to be of alloy steel on the basis of the very same test reports. In this respect, both sides have given summaries of their arguments made at the time of personal hearing which are reproduced below:-

I. SUMMARY OF SUBMISSIONS BY THE APPELLANTS:

“A. NML’s admission that classification not possible nullifies show cause notice:

i. The impugned order-in-original has failed to appreciate that the entire exercise of issuing the initial show cause notice dated 5.11.2008 (page 253 of Common Paper book) was based on Report No.20077 issued by NML dated 27.06.2008 that classified the samples as Non-Alloy Steel (page 3 of the Common Additional Paperbook-I). Today, after re-testing the samples as per order of this Tribunal, NML, vide letter dated 11.03.2010 (Page 363 of common Paperbook) has stated that classification of the samples into alloy and non alloy steel is not possible as there are various uncertainties in measurement. In the light of this, the impugned order is wholly unreasonable in even taking the other factors into account.

ii. The deposition dated 02.08.2010 of the scientist-in-charge who had issued the test results categorically states that uncertainty / variation to an extent of 0.006 to 0.0012% in analyzing the boron content using the OES method is inevitable. (Page 388 of Common Paperbook)

B. Burden of proof lies on the respondent:

a. The impugned order has failed to take into account that as per various decisions of the Hon’ble Supreme Court, the burden of proving that a certain commodity falls in a particular tariff lies upon the revenue Department. The respondent in the present case has produced no iota of evidence to show that the steel billets were non-alloy steel. On the contrary, NML has communicated their inability to classify the billets as alloy or non-alloy and the Commissioner of Customs vide letter dated 05.05.2010 had requested NML to furnish the test results from which appropriate classification may be deducted. The following judgments are relevant in this regard:

i. (1997)2 SCC 677 Hindustan Ferodo Ltd v CCE, Bombay (Paras 4 and 5)

ii. (2006) 5 SCC 208 HPL Chemicals Ltd v CCE, Chandigarh (Paras 28 and29)

iii. (2003) 4 SOC 762 Polyglass Acrylic Manufacturing Co Ltd v. CCE, Vishakapatnam

C. No deliberate misdeclaration/ concealment:

a. The impugned order has erroneously concluded that the appellant has deliberately mis-declared the description of the goods as alloy steel with the view to evade Export duty and that the seller and the buyer inter-se never intended to transact a new commodity other than the non-alloy steel. It is pertinent to note that the appellant had nowhere concealed that they had specifically included boron to avail the benefit of Notification 66/08 dated 10.05.2008. To avail the exemption notification the appellant had not gone beyond the ambit of law. Tax planning cannot be termed as tax evasion.

b. Further, the appellant had, right from the beginning consistently been saying that the purchase order for non alloy steel billets was altered to alloy steel billets with Boron content of 0.0008%. They had not concealed this fact nor had they contradicted it. The deposition of Mr. Rohan Mhatre (representative of the buyer) (Page 293 of Common Paperbook) clearly states that order was placed for alloy steel billets only.

c. The impugned order has erred in observing that the purchase order for alloy steel billets and non alloy steel billets quoted the same price and the cost of Ferro Boron was not included in the cost of alloy steel and therefore, it was clear that the appellant had mis-declared non alloy steel as alloy steel and had attempted to clear it so. The same is absolutely unsustainable as even the test reports furnished by NML would reveal that all 76 samples contained a certain percentage of Boron and that the same will not be the case unless Boron has been included in them. The cost of Boron was insignificant when compared to the duty payable in case of export of non alloy steel. The business transaction would have become unviable if the cost of duty element would be added to the price. Therefore, a conscious decision was taken to include Boron which would not adversely affect the steel billets but would improve its ability to harden.

D. Purchase of Ferro Boron before initiation of enquiry:

a. Ferro Boron was purchased on 10.06.2008 and used from 11.06.2008 as stated by the Production Manager of the appellant unit in his statement dated 12.08.2008 (Page 243 of Common paperbook). The consignment in question therefore contained billets manufactured after 11.06.2008 as well. The enquiry from the Department was initiated only vide letter dated 25.06.2008

(Page 63 of Common paperbook) and it is therefore clear that Ferro Boron was purchased prior to initiation of enquiry itself.

E. Uncertainty element to be applied in favour of the Assessee:

a. The appellant submits that in the following case laws the Tribunal had held that tolerance limit, if any, has to be applied in favour of the assessee for the purpose of classification.

i. 1996 [84] ELT 53 - New Shorrock Mills Vs. Collector of Central Excise

ii. 1998 [102] ELT 420 - Morarjee Gokuldas Spg. Wvg. Co. Ltd Vs. CCE

iii. 1991 [53] ELT 138 - Collector of Central Excise Vs. OCM [India] Ltd

iv. 2005 [188] ELT 296 - New Shorrock Mills Vs. Commissioner of Central Excise,

v. 1991(56) ELT 477 - Ramnarayan Mills Ltd Vs. Collector of Central Excise,

vi. 1998 (111) ELT 862 - Swami Samartha Shetkari Va Vinkari Sahakari Soot Girni Niyamit v. CCE

vii. 2003 (156) ELT 768 - Kripal Springs (India) Ltd v. Commissioner of Central Excise

viii. 2004 (167) ELT 175 - Ujagar Textile Inds Ltd v. Commissioner of Central Excise

F. The view in favour of assessee to be taken into account:

a. Assuming without admitting that two views are possible, the impugned order has failed to take into account the well established position of law that in such cases, the view in favour of the assessee has to be taken. The same is reiterated in the following cases:

i. (1997) 10 SCC 291 - Collector of Customs, Madras v. Lotus Inks

ii. (2002) 7 SCC 591 - Union of India and Others v. Onkar S. Kanwar and Others

G. Re-testing of samples that had the required boron content unwarranted:

It is pertinent to note that out of 76 samples, since 37 had already been certified as having the minimum boron content of 0.0008% to be classified as alloy steel. However the same were unnecessarily tested again. The appellant sent a letter dated 01 .07.2010 communicating its objections to the re-testing of the samples that had the required content of boron. (Page 383 of Common Paperbook)

H. Enhancement of redemption fine and penalty unwarranted:

a. The impugned order-in-original has failed to appreciate that the entire exercise of issuing the initial show cause notice dated 05.11.2008 was based on Report No 20077 issued by NML dated 27.06.2008 that classified the samples as Non-Alloy steel (Page 3 of Common Additional Paperbook - I). Today, after re-testing the samples as per order of this Tribunal, NML, vide letter dated 11.03.2010 (Page 363 of Common Paperbook) has stated that classification of the samples into alloy and non alloy steel is not possible as there are various uncertainties in measurement. In light of this, the very basis for confiscation of goods itself is vitiated and levy of redemption fine is unwarranted. Further, the appellants have vide their letter dated 01.07.2009 (Page 305 of Common paperbook) conveyed their intention to take back the goods for sale in the domestic market, thereby not even seeking the benefit of Notification No 66/2008.

b. Without prejudice to the other contentions, having made a finding that in only in 31 samples the boron content was found to be less than 0.0008% and that the remaining samples had a boron content of 0.0008% or more, the impugned order has arbitrarily declared the entire lot to be non-alloy steel billets. This finding is preposterous, baseless and completely untenable.

c. The case of the appellant has only been vindicated further in the second round subsequent to the remand as the inability to classify the goods as alloy or non-alloy and refusal to apply the tolerance limit to the goods is purely arbitrary and unjustified. In such circumstances, the respondent has not shown any reasons whatsoever to (i) penalize the appellant and (ii) to enhance the penalty over the amount originally issued as penalty against the appellant. This further evidences the arbitrary manner in which the respondent has sought to harass the appellant.

d. Further, the impugned order is erroneous as it seeks to levy a personal penalty, which can be done only if there is a mala tide intention to evade duty. In the instant case, since it is clearly established that two views may be possible, the appellant cannot be imputed with a penalty, as there is a complete absence of any mala fides on the part of the appellant.”

The appellants, accordingly, plead for this Hon’ble Tribunal to take the present written arguments on record, set aside the impugned order-in-original No 13642 of 2010 dated 19.11.2010 and thus render justice.

II. SUMMARY OF SUBMISSIONS BY THE DEPARTMENT:

“A. Testing of samples and applying of uncertainty to the test results,

In Para 22 of the 010 dated 19.11.2010, the adjudicating authority has discussed that both the test laboratories viz. NML and KIDAO have mentioned about uncertainty of 0.0006 and 0.0003 respectively in the measurement of Boron content through Optical Emission Spectrometer in the alleged Alloy Steel exported by the appellant. Uncertainty can be applied both in the positive and negative directions and after applying uncertainty samples do not meet the minimum requirement of Boron content of 0.0008 to be classified as Alloy Steel. The appellant’s objection for retesting of the entire consignment is not acceptable as they were present at the time of re-drawl of samples and did not object to the retestng of the entire consignment. The appellant’s contention that 37 out of 76 samples which tested positive after first testing by NML were not required to be tested again is not acceptable as samples on application of negative uncertainty did not cross the qualifying value for classifying the product. Further, uncertainty is involved in testing Boron contents on each occasion, the drawl of samples from the entire consignment was required to arrive at the correct results. Further, for 43 samples which as per appellant have tested positive after retesting, the benefit of the same should have been be given to them, this contention of the appellant is also not acceptable as on application of negative uncertainty, 74 samples in total fails the criterion for classifying them as alloy steel. Since after applying test uncertainty, the export goods do not quantify as alloy steel, accordingly the adjudicating authority has rightly held that product fails to be classified as alloy steel.

B. Reliance placed by the assessee on various citations for applying uncertainty in their favour.

The appellant has placed reliance on the following citations:

1. 1996 (84) ELT 53 - M/s.New Shorrock Mills Vs Collector of Central Excise

2. 1998 (102) ELT 420 - M/s.Morarjee Gokuldas Spg.Wvg.Co.Ltd Vs CCE

3. 1991 (53) ELT 138 - M/s.Collector of Central Excise Vs 0CM (India) Ltd

4. 2005 (188) ELT 296 - M/s.New Shorrock Mills Vs Commissioner of Central Excise

5. 1991 (56) ELT 477 - M/s.Ramnarayan Mills Ltd Vs Collector of Central Excise

6. 1998 (111) ELT 862 - M/s.Swami Samartha Shetkari Va Vinkari Sahakari Soot Girni Niyamit Vs CCE.

7. 2003 (156) ELT 768 - M/s.Kripal Springs (India) Ltd Vs Commissioner of Central Excise

8. 2004 (167) ELT 175 - M/s.Ujagar Textile Inds Ltd Vs Commissioner of Central Excise.

For applying uncertainty in the test measurements in their favour. The same is not acceptable as facts and circumstances of each case are different and totally distinguishable from the facts and circumstances of the instant case. In M/s. New Shorrock Mills Vs Collector of Central Excise, the citation that has been heavily relied upon by the appellant, the item in dispute was Cotton Polyester Blended fabric, in which there was a variation of approx 6-7% in polyester fibre, whereas, in the instant case, there are multiple constituents in the export product and there is huge variation in the content of distinguishing alloy element ie., Boron, which is in the range of more than 100% of the absolute value of Boron ascertained through the tests. Further, the test results shows that the other alloying elements are no where close to the percentage of same required to classify them as Alloy. In the other citations relied upon by the appellants the composition of the product and percentage variations found in the tests either for the presence of constituents / character of the constituent are same as in the case of M/s.New Shorrock Mills Vs Collector of Central Excise and ratio of the same cannot be applied to the instant case where multiple constituent are involved and percentage variation in the test results for the critical constituent required for classifying the product is more than 100%.

C. Documentary evidences to show deliberate misdeclaration of export,

(1) Amendment of sale contracts and letter of credit after imposition of export duty,

At Para 16 of the OIO dated 19.11.2010, the adjudicating authority has discussed various sale contracts executed by the appellant with M/s. AL USAIMI for supply of Non Alloy Steel Grade (prime) of quality 3SP/PS, these contracts were signed before shipment of the impugned consignments and were for export of Non Alloy Steel Blades of Quality 3SP/PS which is a Russian steel grades for Non Alloy Steel. The price of said steel was negotiated at USD 950 per MT.

A sequential reading of all sales contracts discussed in para 16 of the OIO, particularly the signed copy of the sales contract sent by the Met Gulf to Shri.Rajendiran, Managing Director of M/s.Sumangala Steel (P) Ltd, on 8th June, 2008 (that is much after imposition of export duty on Non-Alloy Steel on 10.05.2008 and just prior to the entering of impugned goods for export by M/s.Sumangala Steel (P) Ltd, between l9 and 25 of May 2008, between the nuyer (M/s.Al Usaimi) and Seller (M/s.Sumangala Steel (P) Ltd) clearly establishes that in the instant case the buyer always wanted to buy:

(1) Non-Alloy Steel Billets (Prime) with the

(2) Chemical composition of

C - 0.14% - 0.22%

MN-0.40% - 0.65%

SI - 0.15% - 0.35%

P - 0.065% MAX

S - 0.050% MAX

(Which does not have any boron element)

(3) Of Quality: 3SP/PS (which a Russian specification for Non-Alloy Steel)

(4) With a clear agreement that ‘15% of Export Tax on FOB value to be borne by the seller’, that is M/s.Sumangala Steel (P) Ltd.

Though, in some of these Sales Contracts M/s.Sumangala Steel (P) Ltd have tried to insert certain changes in description (so as to change it to Steel Billets Prime), composition to insert Boron element in the end while keeping percentages of other elements unchanged (though continuing to show quality as 3SP/PS, which is a Russian specification for Non-Alloy Steel), and in certain copies changes in Force Majeure clause regarding the liability of export duty if any levied by the Government of India, but with the same FOB price as that of Non Alloy Steel, though admittedly the price of Alloy Steel should be higher than that of Non-Alloy Steel. In any case, the last signed copy of the contract which was sent to Shri.Rajendiran, Managing Director of M/s.Sumangala Steels (P) Ltd on 8th June, 2008 is for supply of Non-Alloy Steel Billets of quality 3SP/PS and with no boron content.

(2) The changes in the description of the product were communicated vide e-mail dated 08.06.2008 which is after signing of the original contract and imposition of export duty on the Non-Alloy Steel. The said changes were done with the clear objective of evading export duty on the goods.

(3) Apart from above, in para 19 of the OIO, the adjudicating authority has discussed various e-mails exchanged between the appellants and their buyers which are prior to imposition of the export duty in which amendments were sought to be made on the LC for their sale contracts with M/s.Al USAIMI. As per these

e-mails the product to be exported was Non- Alloy Steel Grade. Therefore, filing of the shipping documents for export of alloy steel blade was with the clear intent of evading export duty and was in direct conflict and at variance with the description of export product agreed to in the sale contracts and the LCs and hence clearly a misdeclaration on the part of the appellants.

D. Statements of various individuals showing non consumption of boron in manufacture of export product and deliberate attempt to misdeclare the export product to evade payment of export duty.

(1) Deliberate misdeclaration of the export product to evade export duty,

(i) As per the statement of Shri.Rohan Anand Kumar Mhatre, General Manager, M/s.Mac Steel International Far East Ltd., India, Liasion office Mumbai, a representative of the appellant’s buyer in India, till May 2008 they were buying / had made contract with the appellants for supply of Non Alloy Steel Grade.

(ii) Shri.Rohan Anand Kumar Mhatre, General Manager when asked whether the buyer M/s.Mac Steel International Far East had really placed orders for supply of alloy steel with the appellant on the basis of which they have placed orders with appellant after June 2008, Shri Rohan Anand Kumar Mhatre stated that he had never come across any such authentic / signed request for the supply of alloy steel from their buyers; however, they have to run their business and they came to know that alloy steel does not attract export duty at 15% advalorem as in the case of non-alloy steel and hence by declaring the product as alloy steel to the Customs surely helped appellant in saving export duty and hence they were in a position to supply cheaper goods to their buyers. Shri Rohan Anand Kumar Mhatre also stated that for this they had entered into purchase contracts with appellant wherein it has been agreed upon between them that the appellant would continue to supply them non-alloy steel showing boron as alloy element and declared the said poduct as alloy steel to evade 15% export duty.

(iii) He has admitted that 3SP grade of non-alloy steel is a Russian standard for non-alloy steel and the appellant had always been supplying to them 3SP grade of steel and not alloy steel at any time.

(iv) He has also admitted that he had coordinated with M/s.SSPL for persuading them to be party in this modus operandi, being Indian counterpart of his company. Shri Rohan Anand Kumar Mhatre also accepted that for said acts of commission and omission, he had acted as per the instructions of his company Directors from his Head Office located at Hong Kong so as to continue getting business for his Company as it was necessary for the survival of their Mumbai Regional Office in light of the new provisions introduced by Indian Government thereby levying 15% duty on non-alloy steel.

(v) He also agreed that one of their employee Shri Vinod Bane has sent e-mail instructing Ms.Salomi of the appellant to delete the word alloy from all the shipping documents since alloy steel attracted import tax in Philippines.

(2) Consumption of boron as alloying element,

(i) Regarding consumption of Boron as alloying element in production of alleged alloy steel, the Managing Director of the appellant firm Sh.Rajendiran Sabanayagam, has himself mentioned that they had purchased Ferro Boron from M/s.Oswal Minerals, Bangalore, as per the Invoice No.209 dt.09.06.2008 and 322 dt.13.06.2008, and has used the same as per the production personnel of their firm on 11.06.2008. On enquiry he could not offer any comment as to the source of Boron for production of alloy steel from 5th June to 10th June 2008, which have been exported by misdeclaring as alloy steel.

(ii) Though the Production Manager of the appellant Shri.Sailesh Kumar Singh in his statement dated 12.08.2008 has stated that they started manufacturing Boron grade alloy steel from 5th June 2008 by using the alloy steel scraps (Boron) up to 10th June 2008. However the same is not supported by any documentary evidence and same is also not acceptable for the reason that the percentage value of the other alloying constituents would have also increased in the same proportion as Boron which is not corroborated by such proportional increase in the value of other constituents in the test reports given by the NML. Further, they have not given any evidence to show that they have installed necessary plant and machinery to manufacture alloy steel as production of the same require different plant and machinery for controlling the percentage of various alloying elements.

E. Fine and penalty is sustainable in the peculiar fact and circumstances of the case,

This is peculiar case in which the appellant in collusion with the buyers have modified the basic sale documents and letters of credit to misdeclare their product, in order to save the payment of export duty on actual misdeclared export of non alloy steel. As an ingenuine modus operandi, they have very intelligently chosen Boron as the alloying element to qualify their product as alloy steel as Boron cannot be easily detected in alloy steel except under controlled laboratory analysis and is also present as residue element in the metal scrap which is used as raw material for the manufacture of Non Alloy Steel. In fact Ferro Boron purchased for alloying was never utilized in the production of impugned export consignments. The appellants contention that alloy steel scrap was purchased and used to alloy Boron is also not supported by any documentary evidence and corresponding increase in the percentage value of other alloying constituents as reflected from test results obtained from NML to support their case. They have also not adduced any positive evidence to prove that they have made necessary addition to the plant and machinery to manufacture alloy steel as same requires different plant and machinery to control the percentage of various metal constituents. Except Boron which has not tested positive in test results, the value of other alloying elements is no where close to the standard values prescribed for the same. The assessee has not provided any literature to contest that the alloy material manufactured by them conforms to any standard specifications of any standard grades of steel accepted and notified either by AISI or ISI. They have also not indicated the specific application to which such nature of alloy steel will be put use to. This only leads to the conclusion that Boron was never used in production before 11.06.2008 and use of alloy steel scrap as source of Boron for production up to 10.06.2008 is only an afterthought and an attempt to escape export duty and penal liabilities. Since the appellants have colluded to change the basic sale documents and the letters of credit after imposition of the export duty on the export product and have also deliberately misdeclared the description of the export product to save export duty with other corroborative evidences discussed above and in the OIO dated 19.11.2010, the goods have been rightly confiscated and penalties have been rightly imposed on the appellant and the Managing Director of the appellant firm.”

6. We have considered the submissions made by both sides in detail as also the case records and the clarification given by the concerned Scientist from NML at the time of hearing of the case. We find that as per the second test conducted by NML on 27.5.2010, 31 samples showed boron content less than 0.0008% whereas 42 samples showed boron content as 0.0008% or more, the highest being 0.0014%. The Scientist from NML clarified that the testing method gives rise to uncertainty to the extent of 10.0006%. We find that the 31 samples which were tested to be below 0.0008% were in the range of 0.0003% to 0.0007%. By applying uncertainty on the positive side, i.e. by adding 0.0006% to the test result, it is seen that all these 31 samples would also go above 0.0008%. It is well settled that when the error margin or tolerance limit is applied and the resultant value conforms to the declared value, no case can be held to have been proved against the assessee. The decision of the Tribunal in the case of New Shorrock Mills (supra) allowed the appeal of the assessee on this score.

7. What is surprising in this case is that the concerned Scientist from NML has indicated an error margin which is as high as 200%. For example, in respect of sample from Heat No.607B, boron content has been indicated by NML on the second test as 0.0003%. An error margin to the extent of 0.0006% on the positive side takes it up to 0.0009% which is 200% more than the tested value of 0.0003%. Normally, the tolerance limits (error margin) are within 1-5%. In the cited decision, in New Shorrock Mills (supra), the tolerance limit was 2.5% and 3%. It is a pity that the Board has directed the field officials to apply the borrowed definition of alloy steel from the Import Schedule of the Customs Tariff for the purpose of applying export duty in its letter dt. 3.6.2008, but has not made arrangements for proper testing of boron content as is glaringly observed in this case. A test method giving results which are uncertain to the extent of 200% is of no value for the purpose of tariff determination.

8. It is well known that in the context of definition of alloy steel under the HSN, accurate quantification of boron in steel poses a special challenge for Customs administrations all over the world. This is because of the amount of boron required to render a product classifiable as alloy steel is very low (0.0008% or 8 ppm). This problem does not seem to have been addressed by the Indian Customs Administration whereas in other countries similarly applying the HSN, methods have been developed to determine the boron content accurately. For example, the ‘Customs and Border Protection Laboratory Bulletin’ (Volume 12 Number 1) of the US Customs has published a paper on ‘Determination of boron in steel by Emission Spectrometry’ authored by Yousuf Qureshi and Carson Watts which shows that by employing Optical Emission Vacuum Spectrometric Analysis, boron content in alloy steel can be accurately determined at levels ranging from 0.001% to 0.0026%. It is indicated in the paper that the analysis is straight forward, requires minimal sample preparation and results in correct characterization of a sample for tariff purposes. The paper also indicates that even for samples which have boron content near 0.0008% tariff breakpoint, the emission spectrograph provides a value for boron within the certified tolerances. It is surprising that with all the money invested in the Customs laboratory and in the NML, the tests done in India provide no accuracy and the error margin goes upto 200% which is of no use for the tariff purposes. We hope that the Board pays attention to this area and necessary testing facilities are made available so that the HSN based import tariff can be used for export duty purposes in the context of alloy steel with low boron content.

9. The test results obtained by the customs authorities in this case indicate that 42 samples satisfied the tariff breakpoint of 0.0008%. Other 31 samples would also cross the tariff breakpoint when the positive error margin of 0.0006% indicated by NML Scientist is applied. We also note that some of these 31 had crossed the tariff breakpoint earlier in the testing done by NML the first time. Under the circumstances, it cannot be held that the appellants have misdeclared the impugned goods in regard to the declared boron content.

10. There was a suggestion by ld. SDR that the negative error margin would take some of the samples below the tariff breakpoint, but obviously the negative error margins cannot be used just to prove the department’s case. Only when, after applying the positive error margins, the value remains below the tariff breakpoint, can a case of misdeclaration be said to have been proven against the appellants, which is not the case here.

11. Coming to the other circumstantial evidence canvassed by the ld. SDR, first of all, we note that when the impugned goods have undergone chemical test, that becomes the primary determinative factor to adjudge existence of misdeclaration or otherwise. As seen above, it cannot be concluded against the appellants on the basis of test results that they have misdeclared the impugned goods. Under the circumstances, the other evidence sought to be relied upon by the department have little value.

12. Moreover, most of the submissions made in this regard on behalf of the department are to the effect that the appellants had contracted to supply non-alloy steel and that the necessary purchase and other documents made earlier were indicative of that. However, we find that the impugned goods have been entered for export well after a month of change in the tariff and introduction of the export duty. The appellants had ample time to renegotiate the sale and if they have been able to persuade the customers to accept alloy steel with the minimum boron content and have reorganized their documentation, that alone would not prove a case of misdeclaration and evasion unless the impugned goods have indeed been misdeclared. As we have held above, the chemical examination does not point to lack of boron content in the impugned goods to the specified extent after applying the error margins. Under the circumstances, the charge of misdeclaration cannot be held against the appellants on the basis of changes made in the various documents. Instead of the department alleging that the appellants have taken advantage of low percentage of boron specified to convert non-alloy steel to alloy steel and uncertainty in the in boron content determined, the department could have either applied a different criteria for the purpose of charging export duty, or if the definition in the import tariff was to be applied, then arrangements should have been made for proper determination of boron content with far greater accuracy as is being done in other countries.

13. The appellants have also explained that the addition of boron does not add significantly to the cost and, therefore, they did not have to enhance the price much. They have also stated that they purchased ferro boron and before that they have used scrap containing boron to produce alloy steel containing boron. These arguments cannot be wished away when the chemical test shows boron content in each of the samples and the error margin in the testing of NML prevents the goods from being characterized as having boron content lower than the tariff breakpoint. It has been argued on behalf of the department that what was entered for export was non-alloy steel conforming to Russian standard 3 SP grade, but we do not find any testing done in that regard to establish the same. The arguments made on behalf of the department suggesting that the appellants should show that they had plant and machinery to produce boron steel and that they have not shown any proof that they have manufactured any standard grades of alloy steel etc. cannot be pressed against the appellants when the department has failed to discharge its initial burden to prove the alleged misdeclartion on the basis of chemical test undertaken at the NML.

14. We also find that there is no inculpatory statement to the effect that no boron was used or that the impugned goods were free from boron. Consequently, we are of the view that the department’s case is not proved beyond doubt and the benefit of doubt goes in favour of the appellants. We, however, note that the impugned goods have not been allowed to be exported and the appellants have already taken it back into town. Under the circumstances, we also do not find any reason to uphold the confiscation of the impugned goods, imposition of redemption fine and imposition of penalties on the appellant-company and the appellant-Managing Director. The impugned order is set aside and the appeals are allowed.