The importance of revenue neutrality

EXPERT EYE

While making classification of goods we sometimes come across two alternative ways, which are both almost right, but the revenue involved are the same. Sometimes it happens that even if the revenue is different, it is modvatable. The officers often spend a lot of time to determine what exactly is the correct classification. Basically it is a waste of time.

When the revenue is the same, it is better not to do hair splitting but to get on with other work. But this simple thing is not written in any instruction clearly. So the Supreme Court has now given a ruling in the case of Commissioner of C. Ex., Pune vs. Coca-Cola India Pvt. Ltd "" 2007(213) ELT 490(SC), which will do a yeomen service to the cause of simplification of administration in regard to classification. In this case the issue related to the classification of beverage concentrates as to whether it was classifiable under one sub heading or another of a particular tariff heading. In either case the duty was modvatable and therefore the consequence was revenue neutral. In view of this the Supreme Court rejected the appeal filed by the Revenue, which wanted exactly the correct classification. The Supreme Court made it clear that when two alternative classifications ultimately become revenue neutral, it is not necessary to spend time on what exactly would have been the correct classification. This is a very significant decision because there are a very large number of items, which attract same rate of duty. For example, plates, sheets, films, foils and strips of plastics, non-cellular and not reinforced, laminated, supported or similarly combined with other materials are classifiable under 3920 10 11, 3920 10 12, 3920 10 19, 3920 10 91, 3920 10 92, 3920 10 99, 3920 69 21, 3920 69 22, 3920 69 29, and so on in customs tariff but all of them attract the same rate of duty namely 10 per cent. It is quite difficult to put it under exactly correct sub-classification head under the six digit unless one sees the literature of the manufacturer or does chemical test. So for practical purposes it is better to merely go by the declaration of the importer and complete the classification since the consequence is revenue neutral. Trying to do the most correct classification would be a waste of time. It is one good example of the dictum, 'The best is often an enemy of the good'.

However, in the cases of an offence committed either by misdeclaration of value or by taking wrong modvat credit, the same principle of revenue neutrality does not absolve the rule breakers from being penalised. For the fact of committing the offence remains, even though the revenue effect is neutral. In the case of Punjab Tractors vs. Commissioner of C. Ex. "" 2005 (181) E.L.T. 380 (S.C.), the Supreme Court has held that availing of modvat credit for exempted goods, which is not admissible and then reversing it invites penalty even though it is revenue neutral since the offence has nevertheless been committed. The same decision has also been given by the Tribunal in the case of Crompton Greaves vs. Commissioner of C. Ex. "" 2004 (177) E.L.T. 1032 (Tri.-Mumbai). Here the manufacturer gave wrong declaration of value and took modvat credit which made it revenue neutral. The Tribunal held that the offence of misdeclaration needs to be penalised even if the consequence is revenue neutral.

The conclusion is that two classifications, if revenue neutral, need not invite action but if there is an offence, it is actionable even in cases of revenue neutrality.

smukher2000@yahoo.com