The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a ₹23.17 crore differential customs duty demand against Toyota Kirloskar Motor Pvt. Ltd. and held that the Customs Department had failed to establish why 226 imported automobile parts should be reclassified under tariff entries different from those declared by the company.

The bench of Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical  Member) sets aside a ₹17 crore redemption fine, confiscation of goods, interest and a penalty equal to the duty and interest demanded. While allowing Toyota’s appeal, the Tribunal left open a limited examination of any short payment concerning a separate group of 114 articles, subject to limitation and credit for duty already paid.

Buy Now: 50+ Judgements on Customs Valuation

The appellant/assessee imported automobile parts from Thailand, Indonesia and the Philippines through Chennai Sea Port and Kattupalli Port between 2017 and 2022. It declared the disputed goods, including a propeller shaft guard, fuel tank assembly and instrument panel components, principally under Customs Tariff Item 87089900 as parts and accessories of motor vehicles.

The company claimed a concessional 5% customs duty rate under Notification No. 46/2011-Customs, supported by certificates of origin under the ASEAN–India Free Trade Agreement. The Department did not question the genuineness of those certificates.

Following an investigation, the Department proposed to reclassify 226 articles, principally under Customs Tariff Item 87082900 as parts and accessories of motor vehicle bodies. It also sought to classify some articles under other headings. The Commissioner accepted the proposed reclassification, denied the concessional rate and confirmed differential duty of ₹23,17,45,224, along with interest. Goods valued at about ₹170.37 crore were held liable to confiscation, a ₹17 crore redemption fine was imposed, and a penalty under Section 114A of the Customs Act was ordered.

The Tribunal held that the burden of proving a proposed reclassification lay with the Department. For each article, the adjudicating authority needed to examine its objective characteristics and explain how those characteristics placed it in the proposed tariff entry.

According to the Bench, the Commissioner examined about 15 articles but applied the conclusion to all 226. The order did not provide an article-wise explanation of why the goods were parts of motor vehicle bodies, rather than motor vehicle parts covered by Toyota’s declared classification. A list of articles, technical descriptions and proposed tariff entries established what the Department alleged, but did not prove the allegation.

The Department had also referred to information said to be on Toyota’s website. The Tribunal noted that neither the notice nor the adjudication order reproduced any relevant passage, and no screenshot, printout or certified copy had been placed on record. Toyota’s failure to rebut material that had not been properly produced could not discharge the Department’s burden of proof.

The Bench also criticised the Commissioner’s failure to address an earlier CESTAT ruling between the same parties concerning the same tariff heading. It said an adjudicating authority could not disregard a binding appellate decision without even considering it.

As the proposed reclassification had not been established, Toyota’s declared classification for the 226 articles remained in place. The consequential denial of the notification benefit therefore fell as well. The Tribunal did not undertake a fresh, article-wise classification exercise of its own.

The Department had invoked the extended recovery period under Section 28(4) of the Customs Act, alleging collusion, wilful misstatement and suppression of facts. The Tribunal found no evidentiary foundation for those allegations.

Its reasoning was that the case relied on technical write-ups and photographs supplied by Toyota, as well as information the company was said to have published on its website. The descriptions entered in the bills of entry were not alleged to be false. A dispute over the tariff entry chosen for correctly described goods, the Bench held, did not by itself establish misdeclaration or suppression.

Toyota had also proposed revised classifications for certain other articles and voluntarily paid differential duty for an earlier period. The Tribunal said those payments could not be treated as evidence of an intention to evade duty.

A corrigendum issued in July 2024 replaced the demand calculation and introduced 14 articles across 81 bills of entry that had not appeared in the original annexure. The Tribunal held that, for those newly introduced articles, limitation had to be assessed from the date of the corrigendum. It found the demand relating to their clearances before 4 July 2019 beyond even the outer five-year limit.

The Bench also faulted the Commissioner’s treatment of payments Toyota said it had already made. The company asserted that it had voluntarily paid approximately ₹3.84 crore, but the adjudication order confirmed the demand without reconciling and crediting those amounts. The Tribunal held that determining duty due requires calculating the balance after verified payments are taken into account.

The Tribunal found no basis for confiscation under Section 111(m), observing that the goods’ declared description and value were not alleged to be untrue. It also rejected confiscation under Section 111(o): the certificates of origin were not challenged, and the Department had not identified a breached condition of the exemption notification.

With confiscation set aside, the ₹17 crore fine imposed in lieu of confiscation could not stand. The Bench additionally observed that the fine’s amount had been fixed without a market-price inquiry or an explanation of its calculation. The penalty under Section 114A and the interest demand were also set aside.

The 114 articles in a separate annexure stand on a different footing. Toyota itself had proposed a revised classification for these goods, which the Department accepted; their classification was not the issue before the Tribunal. The dispute concerned the calculation of any remaining duty and the applicable limitation period.

The Tribunal permitted the proper officer to determine any surviving short payment for those 114 articles in accordance with law, after verifying and crediting amounts already paid and giving Toyota an opportunity to be heard. Any amount paid in excess of the liability finally determined must be dealt with under the law.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: Used Railway Rails Can’t Be Taxed as Track Material Without Proof They Are Fit for Reuse: CESTAT