Supreme Court Restores Anti-Dumping Duty Demand on SBR Imports: Commissioner of Customs vs. Ballarpur Industries (2021)

Date of the Judgment: 21 September 2021

Citation: Civil Appeal Nos 5644-5645 of 2021

Judges: Dr Dhananjaya Y Chandrachud, J, Vikram Nath, J, and Hima Kohli, J.

Can a customs authority impose anti-dumping duty on imported goods based on test reports, even if the importer claims a different classification? The Supreme Court of India recently addressed this question in a case involving the import of a product called “Lutex,” which was claimed to be Latex by the importer, but was found to be Styrene Butadiene Rubber (SBR) by the customs department. This judgment clarifies the importance of proper classification of goods and the reliance on test reports in customs matters. The bench comprised of Dr Dhananjaya Y Chandrachud, J, Vikram Nath, J, and Hima Kohli, J, with the judgment authored by Dr Dhananjaya Y Chandrachud, J.

Case Background

The case involves M/s Ballarpur Industries Ltd. (the respondent), who imported a product they declared as “Lutex-701” and “Lutex-780”. The Customs Department, specifically the Commissioner of Customs, Pune (the appellant), believed these products were actually Styrene Butadiene Rubber (SBR) of the 1900 series, which is subject to anti-dumping duty when imported from Korea.

The Customs Department issued two show cause notices to the respondent. The first, dated 23 May 2006, covered five Bills of Entry for “Lutex-701.” The second, dated 30 June 2006, covered six Bills of Entry for “Lutex-780.” The department alleged that the respondent had mis-declared the goods and sought to impose anti-dumping duty, confiscate the goods, and levy interest and penalties.

The Commissioner of Customs, Pune, ruled in favor of the department, stating that the goods were indeed SBR of the 1900 series and subject to anti-dumping duty. The respondent appealed this decision to the Customs, Excise & Service Tax Appellate Tribunal (CESAT).

The CESAT overturned the Commissioner’s order, stating that there was no basis in the show cause notices to change the classification claimed by the importer and that the adjudicating authority had not examined the classification based on the laboratory report. The Commissioner of Customs then appealed to the Supreme Court.

Timeline:

Legal Framework

The case revolves around the interpretation and application of the following legal provisions:

• Section 111(m) of the Customs Act, 1962: This section deals with the confiscation of goods that have been mis-declared or improperly imported.
• Section 9A of the Customs Tariff Act, 1975: This section empowers the Central Government to impose anti-dumping duty on goods that are being dumped into the Indian market.
• Rule 23 of the Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995: This rule provides the procedure for imposing anti-dumping duty.
• Notification 100/2004-Cus dated 28 September 2004: This notification imposed anti-dumping duty on SBR of 1900 series originating in or exported from Korea.
• Tariff Item 4002 of the Customs Tariff Act, 1975: This item classifies “Synthetic rubber and factice derived from oils” and includes sub-categories like “Styrene butadiene rubber (SBR)” under 4002 11 00 and “Other” under 4002 19.

The anti-dumping duty was imposed based on the findings of the Designated Authority, which determined that SBR of 1900 series was being dumped into India, causing material injury to the domestic industry. The legal framework allows the government to impose duties to protect domestic industries from unfair competition.

Arguments

The arguments presented by both sides are summarized below:

Arguments by the Commissioner of Customs, Pune (Appellant):

• The show cause notices specifically mentioned that test reports from the Indian Rubber Manufacturers’ Research Association (IRMRA) indicated that the imported goods were SBR of the 1900 series, which is subject to anti-dumping duty.
• The test reports obtained by both the department and the importer from IRMRA confirmed that the goods were SBR of the 1900 series.
• The Commissioner of Customs had specifically considered and relied on these test reports.
• The Tribunal’s finding that the show cause notice did not refer to the classification made by the importer is incorrect.
• The Tribunal ignored material evidence, specifically the test reports, which warranted the Supreme Court’s intervention.

Arguments by M/s Ballarpur Industries Ltd. (Respondent):

• The respondent argued that the imported goods were not SBR of the 1900 series, but rather Latex, which is classified under CTH 40021100.
• The respondent contended that SBR of the 1900 series is a dry polymer, while the imported goods were in liquid form, widely used in the paper industry and known as Latex.
• The respondent relied on the Deputy Chief Chemist report which stated that the sample tested was in the form of white liquid and an aqueous emulsion of styrene butadiene.
• The respondent cited the Vanderbilt Rubber Handbook and an opinion from the University of Mumbai to support their claim that the goods should be classified as Latex.
• The respondent argued that the styrene content of the product is not the sole determinant for classifying it as SBR of the 1900 series.

The core of the dispute lies in the classification of the imported goods. The Customs Department relied on test reports identifying the goods as SBR of the 1900 series, while the importer claimed the goods were Latex, based on their physical state and industry usage.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court considered the following key issue:

1. Whether the Tribunal erred in setting aside the demand of anti-dumping duty on the product ‘Styrene Butadiene Rubber’ (SBR) classified under the heading 4002 of the First Schedule of the Customs Tariff Act, 1975 and imported from Korea.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court analyzed the submissions of both parties and the authorities as follows:

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Test Reports: The Court placed significant emphasis on the test reports from IRMRA, which indicated that the imported goods were SBR of the 1900 series. The Court noted that both the department and the importer had obtained these reports, and that the reports were not challenged.
• Flawed Reasoning of the Tribunal: The Court found that the Tribunal had made a superficial evaluation of the issues and had ignored material evidence, specifically the test reports. The Tribunal’s finding that the show cause notices lacked a basis to disturb the classification was found to be factually incorrect.
• Need for Merits-Based Decision: The Court emphasized that the Tribunal had not considered the case on merits and therefore deemed it appropriate to restore the proceedings back to the Tribunal for a fresh decision.

Logical Reasoning

Judgment

The Supreme Court, in its judgment, focused on the flawed reasoning of the Tribunal. The Court noted that the Tribunal had failed to consider the test reports from the IRMRA, which clearly stated that the imported goods were SBR of the 1900 series. The Court emphasized that the show cause notices did contain a basis to disturb the classification claimed by the importer, and that the Commissioner of Customs had relied on the test reports.

The Supreme Court did not make a final determination on whether the goods were indeed SBR of the 1900 series or Latex. Instead, the Court restored the proceedings back to the Tribunal for a fresh decision on the merits of the case. This means that the Tribunal will now have to consider the arguments of both sides, including the test reports and the evidence presented by the importer.

The Court’s decision highlights the importance of relying on test reports in customs matters. It also emphasizes the need for tribunals to consider all relevant evidence and make decisions based on a thorough evaluation of the facts and arguments presented by both sides.

The Supreme Court quoted the following from the show cause notice:

“Whereas, as per the test report No: RPT/0502588rt 14478/205 d ated. 03.03.2006 and Ref. No: IRMRA/RK/03 -06/23- RD d ated 06.03.2006 (copy enclosed) received from Indian Rubber Manufacturers Research Association (IRMRA), the sample goods found as STYRENE BUTADIENE RUBBER of 1900 series.”

“Whereas the goods imported in question were declared as ‘LUTEX 701’ in import document s and, not as ‘Styrene Butadiene Rubber (SBR) of 1900 Series which has been confirmed by Test Report dated 06.03.2006 from IRMRA.”

“6.4 It may be pertinent to again mention here that the said Importer themselves had also approached the IRMRA for an independent testing of the samples of Lutex 701 and Lutex 780 which were in their control and the said IRM RA, vide their Evaluation Report dated 14.09.2006, for the same goods under the control of the said Importer and which are also covered under the First Notice and the Second Notice conveyed the results thereof to the said Importer wherein the Styrene content was observed to be 64.44% and 66.75% respectively for Lutex 701 and Lutex 780.”

Key Takeaways

• Importance of Test Reports: Customs authorities can rely on test reports from recognized laboratories to determine the classification of imported goods.
• Thorough Evaluation: Tribunals must conduct a thorough evaluation of all evidence and arguments presented by both sides before making a decision.
• Classification Disputes: Importers must ensure that they accurately declare the description of the goods they are importing to avoid disputes with customs authorities.
• Remand for Merits: The case has been remanded back to the Tribunal for a decision on merits, meaning that the Tribunal will now have to consider the arguments of both sides, including the test reports and the evidence presented by the importer.

Directions

The Supreme Court set aside the judgment of the Tribunal dated 27 September 2017 and restored Appeal Nos. C/70 & 71/07 to the file of the Tribunal for determination afresh.

Specific Amendments Analysis

No specific amendments were discussed in the judgment.

Development of Law

The ratio decidendi of this case is that the Tribunal must consider all material evidence, including test reports, and provide a reasoned decision based on the merits of the case. The Supreme Court did not change any previous positions of law but emphasized the importance of following due process and considering all evidence.

Conclusion

The Supreme Court’s judgment in the case of Commissioner of Customs, Pune vs. M/s Ballarpur Industries Ltd. sets aside the Tribunal’s order and restores the case back to the Tribunal for a fresh decision on merits. The Court emphasized the importance of test reports and the need for tribunals to conduct a thorough evaluation of all evidence. The judgment highlights the significance of proper classification of goods and the reliance on test reports in customs matters.