Per Shri S.S. GARG

1. The present appeal is filed by the Revenue against the impugned order dated 11.06.2014 passed by the Commissioner (Appeals) whereby the Commissioner (Appeals) has rejected the appeal of the Department and upheld the Order-in-Original.

2. Brief facts of the present case are that the respondent / importer had imported ‘Sensor Bag Assembly’ vide 134 Bills of Entry and classified the same under CTI 90328910. The subject goods are mounted on the floor inside the lower center finish panel and are consisting of an air bag sensor, safing sensor, diagnosis circuit, ignition control, drive circuit etc., which cannot be disassembled. The department disputed the classification adopted by the respondent and was of the view that the subject goods are classifiable under CTI 87089500 as “Safety airbags with inflator system; parts thereof” and in this regard, four show cause notices dt. 21.03.2012, 28.05.2012, 12.10.2012 and 17.10.2012 were issued demanding differential duty to the tune of Rs.70,96,408/- along with interest on the ground that the subject goods are nothing but parts and accessories of motor vehicles and are specifically covered under CTI 87089500 as “Safety Airbag with inflator system; parts thereof”. The respondent filed detailed reply to the show cause notice justifying their classification. After following due process, the original authority vide its Order-inOriginal No.21261/2013 dt. 12.07.2013 held that the subject goods did not merit classification under CTH 9032 as in order to merit classification under Heading 9032, the instrument or automatic regulator must maintain a factor at a desired value by measuring it constantly or periodically. No such function is performed in the present case and hence, the department held that the subject goods would merit classification under Heading 8537. Aggrieved by such Order-in-Original, the department filed an appeal before the Commissioner (Appeals) and the Commissioner (Appeals) vide impugned Order-in-Appeal No.882/2014 dt. 11.06.2014 upheld the findings in the OIO dt. 12.07.2013 and rejected the department appeal. Hence the present appeal.

3. Heard both sides and perused the materials on record.

4. The Ld. A.R appearing for the Revenue submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law. He further submits that the impugned order is not legal and proper on the grounds that :

(a) The Commissioner (Appeals) has solely relied on Harmonised System of Nomenclature, wherein the heading 87089500 was introduced from 01.04.2007, correspondingly, in Customs Tariff Act, 1975 / Central Excise Tariff Act, 1985, the following heading was introduced :

“Safety Airbag with inflator system; parts thereof”

So, all the parts of safety airbags with inflator system, without any exception, need to be classified under this heading 87089500 as it exists now, however, in HSN (Para “O” introduced in HSN from 1.4.07), while all types of such safety bags with inflator system (with examples) in regard to “parts thereof” there is exclusion to “Remote Sensor on Electronic Controllers; but such an exclusion is not in the above statutory tariff. While HSN is a safety guide to classification, which is a settled law, it has only persuasive force and not legal force, so in the absence of such exclusion in the “Statute”, remote sensor or electronic controllers, are also parts of safety airbags with inflator system and hence legally / statutorily classifiable under 87089500 (only) as per the department appeal.

(b) The appellate authority in the appeal order has observed that electronic device using electricity for its function can be treated as electronic equipment, and the same is excluded from the purview of Chapter 86-88. As per Customs law, there is no exclusion in heading 87089500, but the order of the Appellate Authority do not conform to the above statutory entry or parts without any exclusion and thus the same is not acceptable.

(c) The present entry/heading in the statute (i.e.87089500) is “safety airbags with inflator system, parts thereof”. But there is no exclusion to programmable controller (85.37) in statutory heading 87089500 in CTA 1975/CETA 1985 and Automatic Regulating on controlling instruments/apparatus (classifiable under 90.32) in the present heading 87089500 to these, as in HSN (Para-O to Chapter 87.08 introduced from 01.04.07). Hence in the absence of such statutory exclusion in the entry/heading 87089500, the above parts are also classifiable in unqualified part entry viz. “parts thereof” in 87089500, hence the decision of Commissioner (Appeals) in upholding the orders of the original authority is not acceptable.

5. On the other hand, Ld. Counsel for the respondent justified the impugned order and submitted that the subject goods are not classifiable under CTI 87089500 as “Safety Airbags with inflator system; parts thereof”. He further submits that the learned Commissioner (Appeals) in the OIA has recorded the finding that the imported item is a programmable device and does activation of the airbag based on logic, timing and sequencing, it is a programmable controller falling under the heading 8537. The impugned order has further recorded that the subject goods are programmable controllers which merit classification under CTH 8537 and cannot be classified under CTH 8708 as parts of motor vehicle. He further submits that the impugned order has made reference to HSN Explanatory Notes to Heading 8708 to state that the Heading excludes remote sensors or electronic controllers, as they are not considered to be parts of the inflator system. He further submits that Commissioner (Appeals) has observed that HSN Explanatory Notes cannot be relied upon to properly determine the classification and the exclusion provided in the HSN Explanatory Notes will not apply to reading statutory entries and that in the absence of any such statutory exclusion, the subject goods cannot be considered to have been excluded from the purview of CTH 8708. He further submits that the HSN Explanatory Notes is a guide to interpret Customs Tariff Act, 1975. The WCO has published detailed Explanatory Notes to the HSN which have long been recognized as a safe guide to interpret the Schedules to the Customs Tariff. He submits that in order to interpret the relevant Headings, Sub-headings and Section Notes under the First Schedule of the Customs Tariff, reliance can also be placed on the Explanatory Notes to the HSN. In support of this submission, he relied upon the decision of the Apex Court in the case of Commissioner of Customs Vs Wood Craft Products Ltd. reported in 1995 (77) ELT 23 (SC) wherein the Hon’ble Supreme Court held that in case of doubt, HSN is a safe guide for ascertaining the true meaning of any expression used in the Act, unless there is an express different intention indicated in the Customs Tariff itself. He also relied upon the following decisions :

a. CC v. Business Forms [2002 (142) ELT 18 (S.C.)]

b. O. K. Play (India) Ltd v CCE [2005 (180) E.L.T. 300 (S.C.)]

6. Ld. Counsel also relied upon Instruction No.01/2022-Customs dated 01.02.2022 wherein it has been stated that goods must be classified after taking into consideration the relevant HSN Explanatory Notes as well. He further submits that the relevant terms of the Headings along with Section and Chapter Notes and the HSN Explanatory Notes should be considered for determining the classification of the goods. The respondent placed reliance on the HSN Explanatory Notes to Heading 8708 where electronic controllers are excluded from Heading 8708. He further submits that it is a settled position of law that burden of proving the correct classification is on the department and for this submission, he relied upon the following decisions :

a. H.P.L Chemicals vs. Commissioner of Central Excise, 2006 (197) E.L.T. 324 (S.C.)

b. Puma Ayruvedic Herbal (P) Ltd. v. Commissioner of C. Ex., Nagpur [2006 (196) E.L.T. 3 (S.C.)]

7. The Ld. Counsel further submits that it is also a settled position that the classification adopted by the assessee should be sustained when the Revenue is unable to discharge the burden to reclassify the product under a different heading. In this regard, the learned counsel placed reliance on the decision in the case of Warner Hindustan Ltd. Vs CCE – 1999 (113) ELT 24 (SC) wherein the Hon’ble Supreme Court held that when the classification proposed by the department cannot be sustained, then irrespective of the fact that as to whether or not the classification of the assessee is proper, the same would prevail. He further submits that the said decision has been followed by the Tribunal in the case of Pepsico Holdings Pvt. Ltd. Vs CCE - 2019 (25) G.S.T.L 271(Tri.- Mumbai) and also in the case of Sunrise Traders & Ors. Vs CC 2022 (1) TMI 468 CESTAT AHMEDABAD. Ld. Counsel finally submitted that when the classification proposed by the department fails, the correct course of action would be to sustain the classification adopted by the respondent.

8. After considering the submissions of both the parties and perusal of materials on record, we find that the only issue involved in the present case is whether the subject goods viz. ‘Sensor Bag Assembly” is classifiable under CTI 87089500 as claimed by the Department or classifiable under CTI 90328910 as claimed by the respondent. Further, we find that the original authority after considering the submissions of the respondent came to the conclusion that the subject goods did not merit classification under CTH 9032 as claimed by the respondent because in order merit classification under Heading 9032, the instrument or automatic regulator must maintain a factor at a desired value by measuring it constantly or periodically. No such function is performed in the present case. Rather, the original authority held that the subject goods would merit classification under Heading 8537. Further, we find that the appellate authority has also upheld the Order-inOriginal classifying the said goods under Heading 8537. Further, we find that the subject goods are not classifiable under CTI 87089500 as “Safety airbags with inflator system; parts thereof” because there is an exclusion in HSN Explanatory Notes to Heading 8708 where electronic controllers are excluded from Heading 8708. In this regard, relevant portion of the HSN Explanatory Notes are extracted below for ease of reference :

“(O) Safety airbags of all types with inflator system (e.g., driver-side airbags, passenger-side airbags, airbags to be installed in door panels for side-impact protection or airbags to be installed in the ceiling of the vehicle for extra protection for the head) and parts thereof. The inflator systems include the igniter and propellant in a container that directs the expansion of gas into the airbag. The heading excludes remote sensors or electronic controllers, as they are not considered to be parts of the inflater system.”

9. Further, we find that the main ground on which the Revenue has filed this appeal is that HSN Explanatory Notes which has been relied upon by the authorities below cannot be relied upon to determine the classification. This submission of the Revenue has been negated by number of decisions of the Hon’ble Apex Court wherein it has been consistently held that HSN Explanatory Notes is a guide to interpret the Customs Tariff Act, 1975. In this regard, we may refer to the decision of the Hon’ble Apex Court in the case of Collector of Customs, Shillong Vs Wood Craft Products Ltd. cited supra wherein the Hon’ble Apex Court in para-12 has held as under :

“12. It is significant, as expressly stated, in the Statement of Objects and Reasons, that the Central Excise Tariffs are based on the HSN and the internationally accepted nomenclature was taken into account to “reduce disputes on account of tariff classification”. Accordingly, for resolving any dispute relating to tariff classification, a safe guide is the internationally accepted nomenclature emerging from the HSN. This being the expressly acknowledged basis of the structure of Central Excise Tariff in the Act and tariff classification made therein, in case of any doubt, the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act. The ISI Glossary of Terms has a different purpose and, therefore, the specific purpose of tariff classification for which the internationally accepted nomenclature in HSN has been adopted, for enacting the Central Excise Tariff Act, 1985, must be preferred, in case of any difference between the meaning of the expression given in the HSN and the meaning of that term given in the Glossary of Terms of the ISI.”

10. Further, the Apex Court in the case of Commissioner of Central Excise, Delhi-III Vs UNI Products India Ltd. reported in 2020 (372) ELT 465 (SC) [LQ/SC/2020/469 ;] ,has held that HSN Explanatory Notes have strong persuasive value. The relevant portion of the decision is extracted below for ease of reference :

“…Revenue’s argument is that the Explanatory Notes have persuasive value only. But the level or quality of such persuasive value is very strong, as observed in the judgments of this Court to which we have already referred. Moreover, the Commissioner himself has referred to the Explanatory Notes in the order-in-original while dealing with the respondent’s stand. Thus, we see no reason as to why we should make a departure from the general trend of taking assistance of these Explanatory Notes to resolve entry related dispute.”

11. We also find that the department has also issued Instruction No.1/2022 dt. 1.2.2022 and the relevant para of the same is extracted below :-

“10. In light of the above, opinion from Ld. Additional Solicitor General was solicited. In terms of the opinion received, it is advised that, in general, the practice of assessment of such ‘parts’ or any change in it may holistically keep in view and in a speaking manner, all relevant aspects including HS Explanatory Notes, the relevant section and chapter notes and the various decisions of Hon’ble Supreme Court, such as those illustrated above.”

12. The above instruction is clear that the department itself is of the view that the classification must be determined only after taking into consideration the HSN Explanatory Notes. In view of the settled position of law as held in various decisions, we hold that the subject goods are not classifiable under CTI 87089500 as “Safety airbags with inflator system; parts thereof”, as claimed by the Department. Further, we find that it is settled position of law that the burden of proving the correct classification is on the Department as held in various cases relied upon by the respondent cited supra. We also find that it is a settled law that when the classification proposed by the department cannot be sustained, then irrespective of the fact as to whether or not the classification of the assessee is proper, the same would prevail. In this regard, we may reproduce the relevant findings of the Hon’ble Apex Court in the case of Warner Hindustan Ltd. (supra) wherein the Apex Court has held as under :

“2. The appellant manufactures what it calls “Halls Ice Mint tablets”. It classified these tablets as “Ayurvedic medicines” under Heading 3003.30 of the Central Excise Tariff. It was issued a notice to show cause why these tablets should not be classified under Tariff Heading 3003.19 as “patent or proprietary medicines”. The Assistant Collector, after hearing the appellant, held that the tablets were patent or proprietary medicines classifiable under Heading 3003.19. In appeal by the appellant, the Collector of Central Excise (Appeals) held that the tablets were Ayurvedic medicines classifiable under Heading 3003.30. The Excise authorities went in appeal to the Tribunal and, for the first time, took the stand that the tablets were correctly classifiable under Heading 17.04 as “confectionery”. The appellant, of course, stuck to its stand that the tablets were Ayurvedic medicines classifiable under Heading 3003.30. The Tribunal noted that the Assistant Collector had classified the tablets under Heading 3003.19, that is, as patent or proprietary medicines. This was clear indication that the stand of the Excise authorities prior to the stage of the appeal to the Tribunal was that the tablets were patent or proprietary medicines classifiable under Heading 3003.19. The Tribunal also noted that “both sides have not adduced any detailed arguments as to why these tablets can be considered as confectionery item or otherwise although a plea is there from the Collector in the grounds of appeal that the goods are assessable under Tariff 17.04". In our opinion, the Tribunal was quite wrong in these circumstances in allowing the appeal of the Excise authorities and classifying the mint tablets as items of confectionery under Heading 17.04. The correct course for the Tribunal to have followed was to have dismissed the appeal of the Excise authorities making it clear that it was open to the Excise authorities to issue a fresh show cause notice to the appellant on the basis that the tablets were classifiable under Heading 17.04 as items of confectionery. This would have given the appellant the opportunity to place on record such material as was available to it to establish the contrary. It is impermissible for the Tribunal to consider a case that is laid for the first time in appeal because the stage for setting out the factual matrix is before the authorities below.”

13. We also find that the decision of the Hon’ble Supreme Court in the case of Warner Hindustan Ltd. (supra) has been followed by the Tribunal in the case of Pepsico Holdings Pvt. Ltd and Sunrise Traders & Ors. cited supra.

14. In view of our discussions above, by following the ratio of decisions cited supra, we are of the considered opinion that there is no infirmity in the impugned order and we uphold the same by dismissing the appeal of the Revenue.