The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has upheld a differential customs duty demand of Rs. 61.82 lakh holding that imported DHA algae oil must be classified under Chapter 15 of the Customs Tariff rather than Chapter 29 merely because it contains docosahexaenoic acid (DHA).
The bench of Dr. Rachna Gupta (Officiating President) and Hemambika R. Priya (Technical Member) found that the imported product was an edible oil containing a mixture of fatty acids, rather than a separate chemically defined organic compound qualifying for classification under Chapter 29.
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The bench upheld the adjudication order, including the differential duty demand, interest, penalties and appropriation of the bank guarantee furnished by the company.
The dispute arose from a Bill of Entry filed for goods imported from China and supplied by Kangcare Biotech Company Limited, Nanjing.
The importer described the goods as “DHA Algae Oil” and claimed classification under Customs Tariff Heading (CTH) 29161590. It also claimed the benefit of Serial No. 185 of Notification No. 50/2017-Customs dated June 30, 2017.
Customs Department noticed that the certificate of origin uploaded through the e-Sanchit system mentioned a different classification, 2106909090. The discrepancy prompted a preventive examination of the consignment by officers of the Special Intelligence and Investigation Branch.
The examination, conducted on October 23, 2019, found the goods packed in aluminium containers in liquid form. Batch-wise samples were drawn and sent to the Central Revenue Control Laboratory and Shriram Institute of Industrial Research for testing.
The laboratories were asked to examine the product’s composition, whether it could be used directly as a food supplement, whether it was a vegetable fat or oil, and whether it was natural or chemically modified.
Following the investigation, Customs alleged that the goods had been incorrectly classified to obtain an exemption benefit. A show cause notice dated September 18, 2020, proposed classification under CTH 15159099 and demanded differential customs duty of ₹61,82,256 for Bills of Entry filed between May 2015 and January 2020.
The notice also proposed confiscation, recovery of interest and penalties under the Customs Act, 1962.
The Principal Commissioner confirmed the demand through an order dated September 23, 2021. Since the goods had been provisionally released, a redemption fine of ₹3 lakh was imposed in lieu of confiscation. The adjudicating authority imposed penalties but refrained from imposing a penalty under Section 114AA.
The importer argued that the discrepancy in the certificate of origin had subsequently been corrected by the issuing authority. According to the company, the original classification mismatch could therefore no longer justify an allegation of misdeclaration.
It further submitted that the imported oil contained a substantial proportion of DHA, an omega-3 fatty acid, and that DHA was a chemically defined compound falling within Chapter 29.
The company relied on the laboratory findings to contend that the product consisted predominantly of fatty acids, with DHA accounting for more than half of its composition. It argued that its description of the goods as DHA algae oil was accurate and that classification under CTH 29161590 was justified.
The importer also challenged the invocation of the extended limitation period. It maintained that there was no wilful misstatement or suppression of facts and sought the setting aside of the demand and penalties.
The department argued that the laboratory reports identified the goods as algae oil containing several fatty acids, rather than a pure fatty acid.
According to Customs, the presence of DHA did not alter the product’s essential character as a vegetable oil. The department therefore maintained that the goods belonged under Chapter 15.
The department also defended the invocation of the extended limitation period under Section 28(4), alleging that the importer had deliberately adopted a classification attracting an exemption benefit despite the different heading appearing in the original certificate of origin.
The Tribunal explained that classification must begin with the wording of the tariff headings and the relevant Section and Chapter Notes under Rule 1 of the General Rules for Interpretation.
It referred to the Harmonised System of Nomenclature and its explanatory notes as important aids in resolving classification disputes. The bench cited the Supreme Court’s decisions in CCE v. Woodcraft Products Limited and Commissioner of Central Excise, Salem v. Madhan Agro Industries (India) Private Limited in discussing their interpretative role.
The Tribunal observed that, in most cases, classification can be resolved at the Rule 1 stage itself by examining the headings and applicable notes.
Applying that approach, it compared Chapter 15, concerning fats and oils, with Heading 2916, concerning specified organic acids and their derivatives, and Heading 2106, concerning food preparations not elsewhere specified or included.
The Tribunal found that the imported product contained several saturated and unsaturated fatty acids in different proportions. The laboratory findings discussed in the order placed DHA content at approximately 50–55%.
The bench explained that fatty acids are constituents of edible oils and that their presence does not, by itself, turn an oil into a separate chemically defined organic compound.
It noted that Chapter 29 generally applies to separate chemically defined organic compounds, subject to the applicable Chapter Notes. It also referred to the exclusion from Heading 2916 of oleic acid below the specified 85% purity threshold and other fatty acids below 90% purity.
On the evidence before it, the Tribunal concluded that the goods were a mixture of fatty acids forming part of an edible oil, rather than pure DHA fatty acid meeting the requirements for classification under Chapter 29.
The presence of an individual constituent associated with a chemical heading was therefore insufficient to bring the entire oil within that heading.
The Tribunal rejected the argument that the product’s intended use in the food industry supported the importer’s classification.
It held that classification depended on the product’s characteristics and composition at the time of importation. End use would be relevant where the tariff entry expressly made it a classification criterion.
In this context, the bench referred to the Supreme Court’s decision in Commissioner of Customs v. Welkin Foods, as cited in the order, for the principle that a product’s end use is generally irrelevant unless the tariff entry specifically refers to it.
The Tribunal held that Heading 1515 provided the specific description applicable to the imported oil.
It reasoned that Heading 2916 concerned specified acids and derivatives, while Heading 2106 was a residual entry for food preparations not elsewhere specified or included. Since the imported product was covered as an edible oil under Heading 1515, the residual food-preparation heading did not apply.
The bench accordingly held that the importer had wrongly classified the goods under Chapter 29 and had wrongly claimed the exemption benefit under Serial No. 185 of Notification No. 50/2017-Customs.
The Tribunal upheld the adjudication order in all respects, including the differential customs duty demand, interest, penalties and appropriation of the bank guarantee, and dismissed the appeal.
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