ROHAIL ENTERPRISES, KARACHI VS ADDITIONAL COLLECTOR OF CUSTOMS ADJUDICATION-II, KARACHI, 2018 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 924 (2015)

Customs Act (IV of 1969)---

----Ss. 25, 32, 79, 80 & 194-A---Import of 'Calcium Premium Batteries'--- Misdeclaration--- Determination of customs value---Appellants/importers, had imported goods by declaring item 'Calcium Premium Batteries'---Scrutiny of Goods Declaration, had revealed that importer had mis-declared the PCT heading '8507.2090', C.D. 20%, whereas the examination staff, had confirmed that subject goods were 'automotive batteries', which were correctly classifiable under PCT heading 8507.1020 (C.D. 35% add C.D. 15%)---Importer was alleged to have mis-declared the PCT heading of goods to avoid correct levy of customs duty, additional customs duty and taxes---Goods, were examined twice by the customs examination staff; in both the examination reports, customs staff had confirmed the declared description as "Calcium Premium Batteries"---Customs Authorities, had not given any basis to ignore the description declared by the importers and twice confirmed by the customs examination staff---Customs Authorities had not given the basis/document that the impugned batteries contained lead, calcium electrodes, which fell under Sub-heading 8507.1020---Order-in-original did not show that the batteries were meant for vehicles, mentioned against Sub-heading 8507.1020, and not meant for the vehicles mentioned against Sub-heading 8507.1010---Held, that goods in question were classifiable under heading 8507.8000 at 10% duty---Appeal was allowed and the order-in-original was set aside, in circumstances.

Ghulam Nabi for Appellant.

Abdul Ghani, E.O. Present for Respondents.

Date of hearing: 16th December, 2014.

ORDER

MOHAMMAD YAHYA, MEMBER (TECHNICAL-I)---This order shall dispose of the instant appeal filed by Messrs Rohail Enterprises, against the Order-in-Original No.227796 dated 23.6.2014, passed by the Additional Collector of Customs, Adjudication-II, Karachi.

2.Brief facts of the case are that the appellants had imported goods by declaring item Calcium Premium Batteries vide GD No. KAPE-107691-28-05-2014 dated 28.05.2014. The importer determined his liability of payment of applicable duty and taxes and sought clearance under Section 79(1) of the Customs Act, 1969. In order to check as to whether the importer has correctly paid the correct and legitimate amount of duties and taxes the under reference GD was selected for scrutiny in terms of Section 80 of Customs Act, 1969. Scrutiny of Goods Declaration in the light of examination report reveals that the importer has mis-declared the PCT heading (Declared PCT heading 8507.2090, CD 20%) whereas the examination staff vide their examination and re-examination reports has categorically confirmed that the subject goods are automotive batteries which are therefore correctly classifiable under PCT heading 8507.1020 (CD 35%, Add. CD 15%). The uploaded documents i.e. catalogue and B/L also confirm that these are automotive batteries. Furthermore, from image No.10 uploaded with the examination report it can be read "This batter is only for starting engine of vehicles. Do not apply this battery for other uses." The importer has thus mis-declared the PCT heading of goods to avoid correct levy of customs duty, additional customs duty and taxes. The offending value of goods comes to Rs.3,896,138/-. Total loss of revenue involved is Rs.2,083,608/-.

3.The Additional Collector of Customs, Adjudication-II, after going though the arguments of the appellants and the Department ordered:

"I have examined record of the case, written reply of the importer, comments of Deputy Collector (Group-V), MCC Appraisement-East and heard arguments of the representative of the importer. It has been alleged by the department that the importer mis-declared classification of the impugned goods. During the course of examination as well as re-examination of the instant consignment, the examination staff categorically confirmed that the subject impugned goods are Automotive Batteries, which are correctly classifiable under PCT heading 8507.1020, (Customs Duty 35%, Add. Customs Duty 15%) and documents uploaded i.e. catalogue and B/L also confirmed that these are Automotive Batteries. The contention of the representative of the importer is that Calcium Battery is not classifiable under any sub-head of 8507.1000 i.e. 8507.1010, 8507.1020 and 8507.1090. Being Calcium along with Lead Battery the impugned product is classifiable under 8502.2090. The classification of Batteries is on basis of constituent electrodes, therefore, by virtue of Calcium contents for movement of electron (electricity) in the impugned batter it is not classifiable as Lead Acid Battery which based on lead/lead oxide or antimony electrodes. However, this argument has appropriately been responded to by the department to the effect that in the instant consignment only Antimony, a chemical element used in Lead acid batteries, is replaced with the Calcium Alloy but these are essentially lead acid batteries. Thus it is clearly established that the batteries are auto batteries classifiable under PCT heading 8507.1020 but have been mis-classified by the importer under PCT heading 8507.2090.

In the light of above discussion, I am convinced that the charges levelled in the show-cause notice stand established accordingly the offending goods are confiscated under clauses 14 and 45 of Section 156(1) of the Customs Act, 1969 for violation of the provisions of sections 32(1), 32(2) and 79(1) ibid. However, an option is given to the importer to redeem the offending goods under section 181 of Customs Act, 1969 on payment of a fine equal to 20% of the value of offending goods which is calculated as Rs.779,228/- (ascertained value of the goods Rs.3,896, 138/-) as prescribed under S.No. 1(e) of the TABLE to S.R.O. 499(I)/2009 dated 13th June, 2009. The redemption fine shall be in addition to leviable duty and taxes thereon. A penalty of Rs.200,000/- is also imposed on the importer under Clause (14) of Section 156(1) of Customs Act, 1969."

4.Being dis-satisfied with the Order-in-Original the appellant filed an appeal in which he stated as under:

"That the consignments reached Karachi Port, the Appellant filed Home Consumption Good Declaration before the Respondents Nos.2 and 3. The Appellant had correctly declared the quantity, description, origin, value and H.S. Code of the goods imported by him. The appellant had declared the value of the consignments of Rs.2,733,091/- vide G.D. No.KAPE-HC-107691 dated 28.5.2014.

That the Appellant had correctly declared the correct value and classification of the goods as the imported heavy-duty batteries of 150 Amperes and 200 Amperes are used for "heavy-duty" purposes such as Solar, UPS and Heavy Generating Sets.

That the Petitioner imported 420 units of Calcium Battery, and inadvertently declared HS 8507.2090 in the GD and paid duties @ 20% CD, S.T. 17% Add S.T. 3%, I. Tax 5% whereas the subject goods were correctly classifiable under PCT 8507.8000 @ 10% CD with no ACD. As the duties at higher rates were paid inadvertently by the importer, therefore, the excess duties paid (the difference between leviable duty on PCT 8407.2090 and 8507.8000) are liable to be refunded under Section 33 of the Customs Act, 1969.

That the under discussion battery is calcium-based, whereas the batteries of 8507.1010 are lead acid batteries as is depicted from HS scheme of 85.07 as follows:

.

That it is clear that 8507.1000 at single dash level (-) cover "Lead-acid (battery) of kind used for starting engines". Therefore, any heading related with 8507.1000 will also cover Lead-acid type accumulators only. Hence 8507.1010 only cover car batteries based on Lead-Acid mechanism. Similarly 8507.1020 and 8507.1090 are Lead Acid Batteries. The HS code 8507.2000 at single dash level (-) covered "other Lead Acid Accumulators" again based on Lead Acid technique. The headings arising out of 85071000 i.e. 8507.2010 cover batteries used in telephone exchange and 8507.2090 (again lead acid accumulator) covers "other". The HS code 8507.3000 covers Nickel-Cadmium batteries whereas 8507.4000 covers Nickel-iron batteries, 8507.5000 cover Nickel-Metal Hydride 3 Batteries and 8507.6000 cover Lithium-lon Batteries. None of the above headings which cover specific products classify the "Calcium Batteries", therefore, Calcium Batteries fall for classification in the basket heading 8507.8000 @ CD 10% with no additional duty.

That the classification of lead accumulators/batteries and "other" could also be confirmed from the Explanatory Notes to HS to Chapter 85 vide page XVI-8507-1 which depict as follows:

"Electric accumulators (storage batteries or secondary batteries) are characterized by the fact that the electrochemical action is reversible so that he accumulator may be recharged. They are used to store electricity and supply it when required. A direct current is passed through the accumulator producing certain chemical changes (charging); when the terminals of the accumulators are subsequently connected to an external circuit these chemicals changes reverse and produce a direct current in the external circuit (discharging). This cycle of operations, charging and discharging, can be repeated for the life of the accumulator.

Accumulator consists essentially of a container holding the electrolytes in which are immersed two electrodes fitted with terminals for connection to an external circuit. In many cases the container may be sub-divided, each sub-division (cell) being an accumulator in itself; these cells are usually connected together in series to produce a higher voltage. A number of cells so connected are called a batten. A number of accumulators may also be assembled in a larger container. Accumulators may be of the wet or dry cell type.

The main types of accumulators are:

(1)Lead-acid accumulators, in which the electrolyte is sulphuric acid and the electrodes lead plates or lead grids supporting active material.

(2)Alkaline accumulators, in which the electrolyte is usually potassium, or lithium hydroxide or thinly chloride and the electrodes are, for example;

i.Positive electrodes of nickel or nickel compounds and negative electrodes of iron, cadmium or metal hydride;

ii.Positive electrodes of lithiated cobalt oxide and negative electrodes of a blend of graphite;

iii.Positive electrodes of carbon and negative electrodes of metallic lithium or lithium alloy:

iv.Positive electrodes of silver oxide and negative electrodes of zinc."

That it is pertinent to mention that Lead-Acid battery uses Lead or Lead Oxide electrodes with antimony and for generation of steam of electrons electrolyte solution of lead sulphate (derived from sulphuric acid H2SO4) is needed to immerse both the electrodes. The electrochemistry of discharging and charging of lead accumulator is given below:

i)Discharge: In the discharged state both the positive and negative plates become lead (II) sulfate (PbSO4) and the electrolyte loses much of its dissolved sulfuric acid and becomes primarily water. The discharge process is driven by the conduction of electrons from the negative plate back into the cell at the positive plate in the external circuit.

Negative plate reaction (Anode Reaction):

Pb(s) + HSO- 4(aq) ---.PbSO4(s) + H+(aq) + 2- e

Positive plate reaction (Cathode Reaction):

PbO2(s) + HSO-4(aq) + 3H+(aq) + 2-e -.PbSO4(s) + 2H2O(I) The total reaction can be written:

Pb(s) + PbO2(s) + 2H2SO4(aq) --,2PbSO4(s) + 2H2O(I)

The sum of the molecular weights of the reactants is 642.6, so theoretically a cell can produce two faradays of charge from 642.6 g of reactants; or 83.4 amp-hours per kg (or 13.9 amp-hours per kg for a 12- volt battery). At 2 volts per cell, this comes to 167 watt-hours per kg, but lead-add batteries in fact give only 30 to 40 watt-hours per kg due to the weight of the water and other factors.

ii)Charging: In the charged state, each cell contains negative plates of elemental lead (Pb) and positive plates of lead(IV) oxide (PbO2) in an electrolyte of approximately 33.5% v/v (4.2 Molar) sulfuric acid (H2SO4). The charging process is driven by the forcible removal of electrons from the positive plate and the forcible introduction of them to the negative plate by the charging source.

Negative plate reaction:

PbSO4(s) + H+(aq) + 2-e Pb(s) + HSO-4 (aq)

Positive plate reaction:

PbSO4(s) + 2H2O(1) --PbO2(s) + HSO-4(aq) + 3H+(aq) + 2-e

Overcharging with high charging voltages generates oxygen and hydrogen gas by electrolysis of water, which is lost to the cell. Periodic maintenance of lead acid batteries requires inspection of the electrolyte level and replacement of any water that has been lost. Due to the freezing-point depression of the electrolyte, as the battery discharges and the concentration of sulfuric acid decreases, the electrolyte is more likely to freeze during winter weather when discharged.

iii)Ion motion: During discharge, H+ produced at the negative plates and from the electrolyte solution moves to the positive plates where it is consumed, while HSO- 4 is consumed at both plates. The reverse occurs during charge. This motion can be by diffusion through the medium or by flow of a liquid electrolyte medium. Since the density is greater when the sulfuric acid concentration is higher, the liquid will tend to circulate by convection. Therefore a liquid medium cell tends to rapidly discharge and rapidly charge more efficiently than an otherwise similar gel cell. However, the calcium battery uses no electrolytic solution again and again. The calcium based battery maintains a stable performance without ever electrolytic filling the solution throughout life.

That each Battery weighs approx 54 kgs to 61 kgs. Due to heavy weight and size of the Battery it cannot be fixed in Automotive. There is no space available in automotives to fix the battery except in heavy cranes, bulldozers, and heavy equipments.

That the Appellant is completely innocent in this matter. Until and unless mala fide against the Appellant is established neither penalty nor fine could be lawfully imposed against the Appellant.

That the Respondents have acted in violation of the Fundamental Rights of the Appellant under Articles 4 and 18 of the Constitution of Pakistan.

That by denying access to independent judicial forum for resolution of dispute the Fundamental Rights of the Petitioner have not only been violated but the principles of due process of law and natural justice have also been violated.

That the Appellant had filed a C.P D-3348 of 2014 against the Respondents for the release of the consignment. The Honourable High Court of Sindh issued directives to the Respondent No. 2 to release the consignment and the Honourable Court direction to the Appellant was to submit differential amounts of duty and taxes to the Nazir of the High Court of Sindh, and also issued directives to the Respondent to submit one representative sample with the Nazir of the High Court of Sindh.

That keeping in view of above it is clear that impugned calcium batteries are classifiable under PCT 8507.8000 @ 10% instead of 8507.1010 where the subject consignment was inadvertently classified and excess duties charged, forcibly, therefore refund of excess duties and security amount deposited with the Nazir High Court of Sindh, Karachi may kindly be released."

5.The respondent represented by Mr. Abdul Ghani, E.O. all along the proceedings whemently contested the very existence of any product such as Calcium Battery. According to him the impugned goods are Lead Acid Battery for automotives use. We have heard the arguments put forth by both the parties and perused the case record. At this point we consider necessary to briefly touch on Calcium Batteries and how they are manufactured and work.

Conventional Batteries:

Because lead is a very soft metal that when they manufacture the plate grid which holds the lead oxide together they need to strengthen that grid and they use 3% antimony to strengthen it. However it is the antimonial content that causes corrosion, water usage and self discharge (+1- 1% per day depending on temperature).

Low Maintenance:

By dropping the antimonial content from 3% to 1% they have reduced corrosion, water usage and self-discharge however these three elements are still present.

Calcium-Hybrid:

Because a Calcium-Calcium is an extremely difficult and immensely expensive process to develop some manufacturers have gone for a cheaper alternative and that is to use a conventional positive plate and a Calcium negative. This they call a maintenance-free battery, however this is not a true maintenance free battery as you still have antimony present which causes water usage. They then went further by putting shorter plates in the battery, thus increasing the volume of electrolyte, pretty much like putting a bigger fuel tank in your car - your will go further but you will still run out of fuel.

Calcium-Calcium Conventional:

This is using calcium for both the positive and negative plates but still using a conventional battery case and cover with vent caps with breather holes in. This battery will be low maintenance but as a battery charges hydrogen gas is given off and thus will escape through the holes in the vent caps and will result in water loss.

Sealed Calcium-Calcium:

Both calcium positive and negative plates. The case is completely sealed and the cover has a recombination chamber which collects the hydrogen gas and recombines it back into the respective cells thus effectively nullifying water usage.

Benefits of Calcium-Calcium MF Batteries:

>Completely maintenance free for its active life.

>Extremely low self-discharge providing there is no electrical drain on the battery. It could stand for up to one year and then still have enough power to start the vehicle. Ideal for vehicles, boats, machinery, motor homes. standby generators etc. that are not used on a regular basis.

>High performance-Generally they are high performance batteries putting out high CCA's (Cold Cranking Amps).

> Vibration and impact resistant-High density pasted plates are used which improve life-cycle and are resistant to vibration.

>Resistant to thermal runaway-Conventional batteries being used in very hot applications, i.e. courier vans etc. are prone to a phenomenon called thermal runaway where the battery gets that hot that it just continues to accept charge that it eventually cooks itself. Calcium-Calcium are not prone to this phenomenon so that makes them ideal for this application.

>Reduced failure due to sulphation-As a conventional battery discharges at roughly 1% per day a battery not being used on a regular basis needs to be recharged every two months to prevent sulphation. Briefly what happens is that you have your battery plates which are surrounded by sulphuric acid. When a battery discharges sulphuric acid is absorbed into the plates, by recharging it the battery acid is pushed out of the plates and no damage is done. However if a battery is left in a discharged state for a period of time (i.e. even a couple of weeks) the sulphuric acid turns in a crystal called sulphotion, and once the plates are sulphated your can throw the battery away. Because Calcium-Calcium battery has an extremely low self-discharge the chances are that you will be using a vehicle/boat etc. within a year and thus recharging the batter and therefore preventing sulphation occurring.

>Increased life time - Because of high density plates, wrought calcium grids and reduced corrosion of the battery places and the fact that it will never be run dry, we can expect a longer service life.

Calcium-Calcium batteries are extremely difficult batteries to produce and many a manufacturer have fallen by the wayside due to failure in their attempt to make a Calcium-Calcium Battery.

We have every confidence in this product as the manufacturer has been producing the maintenance free batter since 1980 so have many years of experience and have thus perfected this technology.

(Reference: http://www.baybat.co.nz/calcium.html)

6.The appellants had described the goods as "Calcium Premium Battery Model CMF 150 and CMF 200" and declared PCT heading 8507.2090 @20% duty for the clearance thereof under section 79(1) of the Customs Act, 1969. With a view to check whether the appellants had correctly paid duty and taxes, GD was selected for scrutiny in terms of Section 80 of the Customs Act, 1969. A Show-Cause Notice No.CN 221757-10062014 dated 23-06-2014 was issued for deliberate mis-declaration of PCT hearing. ADC-Adjudication vide Order-in-Original No. 227796-23-06-2014 dated 2.7.2014 decided that goods were correctly classifiable under heading 8507.1020 @ 35% Customs Duty and imposed a redemption fine and personal penalty mis-declaring the PCT heading.

7.In order to understand the classification of batteries, PCT heading 85.07 is reproduced below:

8.The first single dash sub-heading deals with lead acid electric accumulators (Batteries) used for starting piston engines. The second single dash sub-heading deals with lead acid accumulators other than of a kind used for starting piston engines. The batteries other than lead acid are classifiable in other single dash sub-headings 8507.3000 to 8507.8000).

9.The appellants had declared in the GD that the goods were Calcium, Premium batteries. The goods were examined twice by the Customs examination staff. In both the examination reports Customs staff had confirmed the declared description 'Calcium Premium Batteries'. The respondents had not given any basis to ignore the description declared by the appellants and twice confirmed by the Customs examination staff. Even the respondents had not given the basis document that the impugned batteries contained lead-Calcium electrodes which fall for classification under sub-heading 8507.1020. It has also not given in the Order-in-Original that the batteries are meant for the vehicles mentioned against sub-heading-8507.1020 and not meant for the vehicles mentioned against sub-heading 8507.1010.

10.Keeping in view the examination reports given twice by the Customs Examination Staff confirming the description 'Calcium Premium Batteries', scheme of classification and facts about the existence, manufacturing and working of Calcium Batteries, it is held that the impugned goods are correctly classifiable under heading 8507.8000 @ 10% duty, accordingly the appeal is allowed and the Order-in-Original is set-aside. Appeal is disposed of with no order as to cost.

Order passed and announced accordingly.

HBT/70/Tax(Trib.) Appeal allowed.