CESTAT Chennai sets aside customs demand on Natural Rubber Latex: extended period not available without wilful misstatement

Background of the Dispute

The case of TTK Protective Devices Ltd Vs Commissioner of Customs (CESTAT Chennai) arose from Order-in-Original No. 43072/2015 dated 30.11.2015, passed by the Commissioner of Customs, Chennai–IV. The Commissioner had reclassified imported consignments of “Natural Rubber Latex Concentrate” and raised a substantial customs demand along with interest and penalty.

The assessee, engaged in the manufacture of contraceptives, was importing Natural Rubber Latex Concentrate under CTH 4001 2910 (Hevea), availing a basic customs duty (BCD) rate of 20% under Notification No. 21/2002 Cus dated 01.03.2002 (Sl. No. 491). The department, however, took the view that the product ought to have been classified under CTH 4001 1020 / 40011020, which attracts a higher BCD of 70%.

This reclassification affected five Bills of Entry (BEs) pertaining to the period 01.04.2011 to 31.03.2012, resulting in a confirmed demand of ₹92,18,355/- towards differential duty, along with interest and an equivalent penalty under Section 114A of the Customs Act, 1962.

The core issues before the Tribunal were:

  • Whether the extended limitation under Section 28(4) of the Customs Act, 1962 was validly invoked; and
  • Whether there was any suppression of facts, wilful misstatement, or deliberate misdeclaration by the assessee justifying such invocation.

The Tribunal ultimately allowed the appeal only on the ground of limitation, without adjudicating on the merits of classification.

Facts and Proceedings

Nature of Imports and Assessment Pattern

  • The assessee, an Accredited Client Programme (ACP) importer, regularly imported Natural Rubber Latex Concentrate under the trade name “EXCEL TEX-D” from M/s. Kuala Lumpur Kepong Berhad, Malaysia.
  • For the disputed period (April 2011 to March 2012), the goods were declared and self-assessed under CTH 4001 2910 (Hevea), attracting BCD @ 20%.
  • Prior to this period, the assessee had imported identical or similar consignments, which had been assessed by departmental officers under the same heading 4001 2910, without any objection from Customs over a substantial number of BEs (about 59 earlier Bills of Entry).

Being an ACP client, the assessee’s BEs were facilitated through the Risk Management System (RMS) and were generally cleared on the basis of self-assessment, without routine physical examination.

Audit and Issue of Show Cause Notice

  • A Central Excise Audit Team (Chennai II) conducted an audit of the assessee’s unit for the period April 2011 to March 2012.
  • During this audit, it was noticed that “Natural Rubber Latex Concentrate” in liquid form had been classified under CTH 4001 2910, though the audit team believed that the goods were correctly classifiable under CTH 40011020 with a higher rate of customs duty.
  • The department’s view was that:
    • All natural rubber latex, being in liquid form, fell under CTH 4001 10 – “Natural rubber latex, whether or not prevulcanized”; and
    • The specific sub-heading “Hevea” under 4001 2910 applied only to natural rubber in other forms (such as strip, sheet, etc.), not latex in liquid form.

On this basis, a show cause notice (SCN) dated 09.03.2015 was issued, proposing:

  • Reclassification of the goods under CTH 40011020;
  • Recovery of differential duty of ₹92,18,355/- under Section 28(4) of the Customs Act, 1962;
  • Interest under Section 28AA; and
  • Penalty equal to the duty amount under Section 114A.

The SCN invoked the extended limitation period on the ground that the BEs were self-assessed, facilitated through RMS without officer verification, and that the assessee had misclassified the goods leading to short payment of duty.

Order-in-Original

The Commissioner of Customs, Chennai–IV, through the impugned Order-in-Original dated 30.11.2015, accepted the department’s stand and held that:

  • The imported consignments were to be classified under CTH 4001 1020 / 40011020;
  • The assessee had short-paid customs duty;
  • The extended period under Section 28(4) was applicable; and
  • Differential duty of ₹92,18,355/-, interest, and an equivalent penalty under Section 114A were payable.

The assessee challenged this order before the CESTAT, Chennai.

Arguments on Behalf of the Assessee

Classification and Nature of Goods

The learned counsel for the assessee advanced the following key submissions:

  1. Correct Classification under CTH 4001 2910 (Hevea)
    • Latex is a liquid dispersion obtained from rubber trees, typically described as a stable colloidal dispersion of a polymer in an aqueous medium.
    • “Hevea” refers to a particular rubber tree species – Hevea brasiliensis, known to yield latex with higher solid (rubber) content compared to ordinary varieties.
    • HSN Explanatory Notes and the tariff structure under heading 4001 specifically carve out sub-heading 4001 2910 – “Hevea” as a distinct variety based on type/kind, not merely physical form.