ITC Limited Vs Commissioner of Customs: CESTAT Bangalore Clarifies Classification of Monodisperse Aerosol Generator

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, in ITC Limited Vs Commissioner of Customs, has delivered a significant ruling on the customs classification of a “Monodisperse Aerosol Generator” imported for research and development activities. The central question was whether the equipment was correctly classifiable under Customs Tariff Heading (CTH) 9027, as declared by the assessee, or under CTH 9032, as reclassified by the Department.

The Tribunal ultimately upheld classification under CTH 90278090, treating the machine as part of an integrated analytical system rather than a standalone regulating or controlling device under CTH 9032. It also rejected the invocation of the extended period of limitation and the imposition of penalty under Section 114A of the Customs Act, 1962.

Background of the Dispute

Status of the Assessee and Nature of Import

ITC Limited operates the ITC Life Sciences and Technology Centre, a research facility recognized by the DSIR (Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India). The facility engages in research and development of diverse products, for which sophisticated analytical equipment is required.

Under Bill of Entry No. 3301122 dated 20.05.2019, ITC imported:

• “1520 Monodisperse Aerosol Generator: w/Acc-SN (230-20190417-01)”
  • Declared classification: Customs Tariff Item (CTI) 9027 5090
  • Duty: 0% Basic Customs Duty, 0% Social Welfare Surcharge, 18% IGST
  • Assessable value declared: Rs. 25,22,168.76
  • IGST paid @18%: Rs. 4,53,990.20

In the same consignment and Bill of Entry, ITC also imported the following complementary instruments:

1. 3321 Aerodynamic Particle Sizer: w/ACC-SN (71913011)
2. 1090 Electrical Neutralizer (Corona-based): w/Acc-SN (109020190411-0171913011)
3. 3302A Aerosol Diluter: w/ACC-SN (3302191501)

The assessee later clarified that the product ought to have been classified under CTI 9027 8090 instead of 9027 5090, but consistently maintained that the correct tariff heading was 9027.

Department’s Allegations and Orders

The Department alleged that:

• The product had been misclassified under CTH 9027, and
• It should instead fall under Customs Tariff Heading 9032 8990 (instruments and apparatus for automatic regulation or control).

Proceedings were initiated through a show cause notice dated 05.07.2021. The adjudicating authority, by Order-in-Original dated 29.11.2021:

• Rejected the classification under CTH 9027
• Reclassified the goods under CTI 9032 8990
• Confirmed differential duty with interest
• Imposed an equivalent penalty under Section 114A of the Customs Act, 1962

The Commissioner (Appeals), by Order-in-Appeal dated 16.02.2023, upheld this order. The assessee, dissatisfied with this outcome, preferred an appeal before the CESTAT, Bangalore.

Functioning of the Aerosol System and Role of the Imported Product

Integrated Analytical System for Aerosol Study

During the hearing, the assessee explained that the Monodisperse Aerosol Generator was not a standalone device but an integral part of a composite system designed for physical and chemical analysis of aerosols. The system comprised:

• Monodisperse Aerosol Generator (imported product in dispute)
• Electrical Neutralizer
• Aerosol Diluter
• Aerodynamic Particle Sizer Spectrometer
• Mass Flow Controller, Flow Meter, and Vacuum Pump

These components work together and sequentially to generate, condition, and analyze aerosol particles.

Step-by-Step Process Explained

The assessee described the process followed in the laboratory as:

1. Generation of aerosols

   • Aerosol particles are first produced using the Monodisperse Aerosol Generator.

2. Neutralization of charge

   • The aerosol then passes through the Electrical Neutralizer, which neutralizes positive or negative charges on the particles.

3. Dilution to required concentration

   • A portion of the neutralized aerosol is processed through the Aerosol Diluter to obtain the desired concentration.

4. Measurement of size and concentration

   • The diluted aerosol is then examined using the Aerodynamic Particle Sizer Spectrometer, which measures:
     • Particle size
     • Particle concentration