The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside an excise demand raised against a manufacturer of weld mesh used exclusively in poultry battery cages, holding that the Department failed to justify reclassifying the goods as “structures and parts of structures” under the Central Excise Tariff.
The bench of P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) ruled that the department had merely rejected the assessee’s declared classification without establishing why the alternative tariff heading was legally applicable.
The appellant/assessee is engaged in manufacturing various welded mesh components such as top mesh parts, bottom mesh parts, side partitions, door parts and centre partitions, all of which are specifically designed for use in poultry battery cages. These components are manufactured from galvanized iron (GI) wires and supplied to poultry farms in Tamil Nadu and Karnataka for assembly into poultry cage systems.
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The manufacturer had classified these products under CETH 84369100, treating them as parts of poultry keeping machinery or poultry incubators and brooders, which carried a nil rate of duty under the relevant notification. However, the Department disputed this classification and issued a show cause notice covering the period from April 1, 2012 to June 30, 2017, proposing to classify the products under CETH 73089090 as “other structures of iron or steel” and demanding central excise duty.
The Commissioner of GST & Central Excise, Coimbatore, confirmed the demand through an Order-in-Original dated November 29, 2017, prompting the manufacturer to approach the Tribunal.
The Tribunal observed that Heading 8436 specifically covers parts of poultry keeping machinery, whereas Heading 7308 generally covers iron and steel structures such as bridges, towers, roofs, doors, pillars and similar structural items prepared for use in construction.
According to the Tribunal, both entries are user-specific and industry-specific, making it necessary to carefully examine the nature and intended use of the goods before determining classification.
One of the strongest criticisms made by the Tribunal was directed at the Department’s approach in the show cause notice and adjudication order.
The Bench observed that while the Commissioner had devoted considerable discussion to rejecting the assessee’s classification under Heading 8436, there was virtually no reasoning explaining how Heading 7308 became the correct classification.
According to the Tribunal, merely rejecting one classification cannot automatically justify another unless supported by cogent legal and factual reasoning. The Department was required to establish why the goods answered the description of iron and steel structures, which it failed to do.
The Tribunal noted that there was no dispute regarding the manufacturing process or the exclusive use of the products.
The record showed that GI wire coils were straightened, cut, welded and fabricated into specially designed cage components according to customer specifications. These products were supplied exclusively to poultry farms for assembling poultry battery cages and were described in invoices as “Parts of Poultry Battery Cages made from GI Wire.”
Importantly, even the Department acknowledged during investigation that these products could not be used for general purposes and were manufactured exclusively for poultry battery cages.
The Commissioner had relied heavily on the Delhi High Court’s decision in Azra Poultry Equipments v. Union of India to reject the assessee’s classification.
However, the Tribunal observed that the reliance was misplaced because subsequent developments had altered the legal position. It noted that the Supreme Court had permitted withdrawal of the Special Leave Petition to allow the matter to be reconsidered by the Commissioner (Appeals), who subsequently accepted classification under Heading 84369100. The Tribunal also referred to the Chandigarh Bench’s decision in Shiva Poultry Equipments, which had taken note of these subsequent developments.
The Bench made a significant observation while comparing the nature of the goods with the description contained in Heading 7308.
It questioned how GI wires measuring only 2 mm to 4 mm, specifically fabricated into poultry cage components, could reasonably be treated as structures comparable to bridges, lock gates, towers, roofing frameworks, doors, windows, pillars or other heavy steel structures ordinarily covered by Heading 7308.
The Tribunal found that the Department had failed to produce any convincing material explaining how these specialized poultry cage components could fall within the scope of structural iron and steel products.
Holding that the Revenue had failed to discharge its burden of proving the correctness of the proposed reclassification, the Tribunal concluded that the Department had seriously erred in rejecting the assessee’s declared classification without proper justification.
The CESTAT set aside the Order-in-Original and allowed the appeal with all consequential benefits available under law.
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