DEPUTY COLLECTOR OF CUSTOMS (IMPORTS), MODEL CUSTOMS COLLECTORATE, FAISALABAD VS E.R. BROTHERS, FAISALABAD, 2018 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 1916 (2017)

Customs Act (IV of 1969)---

----Ss. 15, 16 & 17---Import Policy Order, 2016 Appendix-C---Confiscation of goods being not importable---Declaration for old/used machinery and some new items---Examination process revealed that the old and used goods were not importable in such condition under the provisions of Appendix-I of the Import Policy Order, so were detained---Adjudicating Officer ordered outright confiscation of the goods being not importable in such condition---Collector of Customs (Appeals), modified, the impugned order, holding that goods were correctly classified under PCT Heading 8504.4090, which were importable in such condition under the Import Policy, 2016---Goods were ordered to be released against duty and taxes leviable thereon---Validity---Goods imported would only be classifiable in their respective PCT Heading if those were imported separately; however, in event of those being imported along with a another system, notwithstanding the fact that those had been individually packed or that those fell under PCT Headings, same merited classification under PCT Heading 8504.4090 being integral components of a composite system---Imported goods in old and used condition, was not hit by Appendix-C of Import Policy Order, 2016 being part of a composite system classified under PCT Heading 8504.4090---Appellate order was upheld, by the Tribunal accordingly.

Muhammad Awais Kamboh for Appellant.

Malik Muhammad Arshad for Respondents.

JUDGMENT

OMAR ARSHAD HAKEEM, MEMBER (JUDICIAL).---This judgment shall dispose of an appeal filed against Order-in-Appeal No.47/2017 dated 25.01.2017 passed by the learned Collector of Customs, (Appeals) Lahore.

2.Precise facts of the core controversy involved in the instant appeal are that Messrs E.R. Brothers, Faisalabad imported a consignment of old/used machinery and some new item from U.K. in Container No. SUDU-668327-0 (1x40') at the Customs Dry Port, Faisalabad. The inventory-cum-examination report consisting of 6-pages was compiled under the direction and supervision of the Customs staff. Thereafter G.D. No.FDRY-HC-98 dated 21.12.2016 was filed. In the examination process, it was revealed that the old and used Rechargeable Dry Batteries separated/delinked the old/used Rechargeable were not importable in used condition under the provision of Appendix-C of the Import Policy Order so the old and used batteries were detained. The importer protested that the batteries were integrated operation part and parcel of the completed UPS units and the importer made a request for released of the same to the Additional Collector of Customs, Faisalabad, but of no avail. In order to avoid demurrages and to get release of other goods, the importer made a request for summary adjudication of the detained batteries. The adjudicating officer vide assessment order dated 23.12.2016 ordered for outright confiscation of the old and used rechargeable dry batteries being not importable in used condition under the provisions of Appendix-C of the Import Policy Order.

3.Being aggrieved from the aforesaid assessment order M/s. E.R. Brothers filed an appeal before the learned Collector of Customs (Appeals), Lahore, who vide impugned order modified it in the following manner:--

"I have examined the case record, considered the ground of appeal and verbal arguments advanced by the learned counsel of the appellant and the departmental representative during hearing proceedings. The facts of the case establish that the batteries have been imported along with the UPS and these are of the specifications and purpose of the import of batteries is to charge the UPS and they are going to be installed with the UPS in order to operate the same. In view of the above, the imported UPS with batteries are correctly classified under PCT Heading 8504.4090 which are importable in second hand condition under the Import Policy, 2016. Consequently I order for release of old and used rechargeable dry batteries (Power Safe 6 Volts -173 AH) (135 pcs) against duly and taxes leviable thereon. The instant appeal is accepted and the assessment order dated 23.12.2016 is set aside to the above extent only."

4.Being aggrieved from the aforesaid order of the learned Collector of Customs (Appeals), Lahore the appellant/department has filed the instant appeal before this Tribunal on the following grounds:--

(a)It is submitted that the importer had declared used dry batteries independently in the GD and not with the old and used UPS. No connecting devices, racks were found in the said container. The importer has failed to justify that if the batteries were a part of the UPS systems then shy they declared the batteries separately.

(b)That the importer did not present anything to prove that the batteries are commensurate with the UPS system. It is also to be noted that the importer has himself declared the batteries under PCT Heading 8507.2090 in the GD and declared UPS under PCT Heading 8504.4090 which itself shows that the importer was not clear about the status of classification/importability of the imported old and used batteries. The assertion that the Collectorate has wrongly classified the impugned goods is thus factually incorrect. Further the Import Policy only allows the import of old and used UPS systems and not used batteries. Import of old and used batteries is specifically banned under the IPO in vogue. The importer is only claiming that batteries are part of UPS system to hoodwink the condition of IPO which banned its import in used condition. Classification of such quantity of used batteries with the UPS system will open flood gate of imports in violation of IPO.

(c)That the goods were only detained and submitted in the State Ware House for safe custody on the request of the clearing agent. Proper adjudication process was yet to be initiated. The Importer in order to circumvent the adjudication proceedings filed appeal before the Collector Appeals, who ignored this fact while deciding the case that the appeal was to be filed against an ONO duly passed by the competent authority which in this case had not been passed.

(d)That the learned respondent No. 2 has ignored the crucial fact that it was the importer who declared the old/used rechargeable dry batteries separately falling under PCT Heading 8507.2090 against S. No. 25 of the inventory cum examination sheet which are not importable in the Appendix-C of IPO, 2016. The importer in the GD has not classified the batteries along with UPS systems.

(e)That the essential character of rechargeable dry batteries is to store and supply electrical power, regardless of its end use and classification is made keeping in view the essential character of the goods. The goods in question being a self contained complete and compact article is classifiable under no other PCT Heading that PCT Heading 8507.2010 which is not importable in old/ used condition under Appendix-C of the IPO, 2016. Classification of an article is contingent upon essential character/ function and not on its multiple uses.

5.I have given my anxious considerations to the contentions of learned counsel of the parties and perused the records.

6.The learned counsel for appellant has vehemently argued his case before me challenging the impugned order on multifarious grounds; He primarily argues that the impugned used batteries are not UPS batteries rather these are designed for Telephone Exchanges and are specifically classifiable under PCT Heading 8507.2010 thus were a subject of outright confiscation vide Sr. No. 29, Appendix "C" of the Import Policy Order, 2016, consequently the forum below erred in releasing the same; Secondly he argues that the impugned batteries being separately packed and not connected to the UPS could not be construed to be a part thereof thus the forum below erred; Thirdly he argues that the impugned batteries have no compatibility with the impugned UPS these have no connection with the same. Conversely the learned counsel for respondent defended the impugned appellate order and argued that the impugned batteries being an important component of impugned UPS System merited to be classified in consonance thereof with the impugned UPS under PCT Heading 8504.4090.

7.It is pertinent to note at the outset that although the learned counsel for appellant vehemently pleaded that the impugned used batteries are classifiable under PCT 8507.2010 as batteries for Telephone Exchanges and that they are in a complete mismatch with the accompanying UPS devices however, he could not impart any evidence to the effect that these were designed to be used specifically with the Telephonic Exchange Systems, or that the specifications thereof were at variance with the accompanying UPS devices.

8.A question then arises whether the impugned Electric Accumulators imported in consonance along with the UPS devices merit classification with the UPS or in their individual PCT Heading?

9.I begin by noting that classification of goods under the Pakistan Customs Tariff (PCT) is governed by the General Rules of Interpretation (GRIs).

GRI 1. In essence States that;

"the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRI may then be applied."

Section XVI (which encompasses Chapter 85) Note 3. States;

"Where a machine consists of individual components intended to contribute together to a clearly defined function then the whole falls to be classified in the heading appropriate to that function."

10.The Explanatory Notes (ENs) to the Harmonized Commodity Description and Coding System (HTS), which represent the official interpretation of the Tariff at the international level, facilitate classification under the HTS by offering guidance in understanding the scope of the Headings and the GRIs.

EN (VI) to Section XVI of the HTS in essence states;

"Composite machines consisting of two or more machines of different kinds, fitted together to form a whole, consecutively or simultaneously performing separate functions which are generally complementary are also classified according to the principal function".

11.It cannot be denied that the principal function of the impugned Uninterruptible Power Sources (UPS) is to provide a reliable, filtered and regulated source of AC power to secure against disturbances and interruptions from the main electrical power source, undeniably the UPS cannot work alone, it has to work in conjunction with a battery which is used to power its internal static converter.

12.Even when I look at its working, the UPS is connected to the principal source of power and also the critical equipment, and keeps on converting the power source to DC and stores it in the batteries, if there is a disruption in the principal supply of power, the UPS automatically switches to the backup power source re-converts the DC power stored by it in the batteries to a usable AC power which then is supplied to its feeding equipments. It thus can safely be assumed that an Uninterruptible Power Supply System consists of a composite of a UPS and its allied batteries.

13.In light of discussion imparted in preceding paras, the captioned question is thus answered in the manner that the impugned used electrical accumulators would only be classifiable in their respective PCT Heading if these were imported separately, however in event of these being imported along with a UPS System, notwithstanding the fact that these have been individually packed or that these fall under separate PCT Headings, the same merit classification with the system under PCT Heading 8504.4090 being integral components of a composite system this interpretation is in line with Section Note 3 Section XVI ibid EN(VI) to Section XVI to HTS supra.

14.Needless to emphasize that the impugned merchandise imported in old and used condition is not hit by Appendix-C of Import Policy Order, 2016 being part of a composite system classifiable under PCT Heading 8504.4090.

15.In view of above I uphold the impugned appellate order and declare that the forum below was correct in releasing the impugned old and used 135 pcs batteries under PCT Heading 8504.4090 against leviable duties and taxes.

16.Upshot of the above discussion is that this customs appeal being devoid of merits is dismissed with no orders as to costs.

17.Parties be informed through registered post A.D or by UMS.

18.File be consigned to record after completion.

HBT/95/Tax (Trib.) Appeal dismissed.