CESTAT Mumbai Quashes ₹4.47 Crore IGST Demand on Imported Diagnostic Kits: Customs Officers Lack Jurisdiction to Alter GST Rates

Introduction to the Dispute

The intersection of customs law and the Goods and Services Tax (GST) framework often creates complex interpretational challenges, particularly concerning the classification of imported goods and the corresponding applicable tax rates. A significant judicial pronouncement addressing this overlap was delivered by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in the matter of Ortho Clinical Diagnostics India Pvt Ltd Vs Commissioner of Customs (Import).

The core of the dispute revolved around the appropriate rate of Integrated Goods and Services Tax (IGST) applicable to various imported diagnostic kits and consumable reagents. The customs authorities had challenged the assessee's self-assessed IGST rates of 5% and 12%, subsequently reclassifying the goods under a residuary entry to impose a higher rate of 18%. This reclassification resulted in a substantial differential duty demand, accompanied by confiscation orders and penalties. The Tribunal's comprehensive analysis of the statutory boundaries of customs officers under the Customs Act, 1962 and the Integrated Goods and Services Tax Act, 2017 provides critical clarity on jurisdictional limits and the burden of proof in classification disputes.

Factual Matrix of the Case

The assessee, engaged in the import of medical and diagnostic supplies, filed bills of entry for goods comprising ELISA diagnostic kits, CLIA diagnostic kits, diagnostic reagents on a backing, calibrators, controls, and various other consumable reagents (such as wash solutions, wash buffers, reference fluids, diluent packs, maintenance packs, and marker kits).

For the purpose of basic customs duty, the goods were classified under Tariff Item 3822 0019 of the First Schedule to the Customs Tariff Act, 1975. Notably, this classification was never disputed by the Revenue in the show cause notice.

However, a dispute arose regarding the applicable IGST rate under Notification No. 01/2017-Integrated Tax (Rate) dated 28 June 2017:

• Assessee's Claim: The assessee claimed a 5% IGST rate for the ELISA and CLIA diagnostic kits, arguing they were specifically covered under Serial No. 180 of Schedule I (List 1). For the remaining diagnostic reagents and consumables, the assessee claimed a 12% IGST rate, relying on the description "all diagnostic kits and reagents" under Serial No. 80 of Schedule II.
• Revenue's Stance: The adjudicating authority—the Commissioner of Customs-III (Import), ACC, Mumbai—rejected these claims. Without providing a detailed, item-wise rebuttal, the authority concluded that the goods should be classified under Tariff Item 3822 0090. Consequently, the authority applied the residuary entry (Serial No. 453 of Schedule III), which attracts an 18% IGST rate for goods not specified in any other schedule.

This divergence led to a confirmed differential duty demand of ₹4,47,00,863, as per the order dated 2 July 2020. Furthermore, the adjudicating authority ordered the confiscation of the imported goods under Section 111 of the Customs Act, 1962 and imposed a penalty under Section 112 of the same Act.