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M/S. KHANDWALA FINSTOCK PRIVATE LIMITED vs UNION OF INDIA & ORS.

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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 05 October 2023
Judgment pronounced on: 02 November 2023

+ W.P.(C) 8347/2020 & CM APPL. 27120/2020-Int. relief
M/S. KHANDWALA FINSTOCK PRIVATE LIMITED
….. Petitioner
Through: Mr. Tarun Gulati, Sr. Adv. with Mr. Kishore Kunal, Mr. Runjhun Pare, Advs.

versus

UNION OF INDIA & ORS. ….. Respondents
Through: Mr. Zoheb Hossain, Sr. SC with Mr. Vivek Gurnani, Adv. for CBIC.
Mr. Anurag Ahluwalia, CGSC for UOI.

CORAM:
HON’BLE MR. JUSTICE YASHWANT VARMA
HON’BLE MR. JUSTICE DHARMESH SHARMA

J U D G M E N T
YASHWANT VARMA, J.
1. By way of the present writ petition, the petitioner questions the validity of the impugned orders dated 04 September 2020 and 07 September 2020 passed by the Principal Commissioner of Customs, the second respondent herein. By the impugned order the second respondent has rejected the classification of gold coins imported vide 27 Bills of Entry under CTH 7114 1910 as claimed by the petitioner and held that these goods are correctly classifiable under CTH 7118 9000 of the Customs Tariff Act,1975.
2. The petitioner seeks to invoke the jurisdiction of this Court to assail the validity of the Order-in-Original notwithstanding the existence of a statutory remedy of appeal, primarily on the ground that the same is based on a wholly erroneous understanding and appreciation of the judgement dated 14 November 2019 which was rendered inter partes in W.P.(C) 9225/2019 titled as Khandwala Enterprise Private Limited vs. Union of India and Ors1.
3. The grievance of the petitioner essentially is that the second respondent appears to have construed the judgment rendered in Khandwala Enterprise as having finally determined the question of whether the articles imported by the petitioner were liable to be classified under CTH 7114 1910 or 7118 9000. According to Mr. Gulati, learned senior counsel appearing in support of the petition, the second respondent incorrectly proceeds on the assumption that this Court had conclusively held that the articles imported by the petitioner were liable to be classified under CTH 7118 9000. It was in the aforesaid backdrop that Mr. Gulati had submitted that since it was ex facie evident that the impugned orders had completely misconstrued the judgment rendered inter partes, the ends of justice would warrant an appropriate clarification being rendered by the Court in this regard whereafter the petitioner may be accorded the liberty to pursue the appellate remedy.
4. We had in this context and consequently accorded liberty to Mr. Gurnani, learned counsel appearing for the respondents, to obtain instructions. When the petition was called finally on 05 October 2023, Mr. Gurnani submitted that the respondents would take the position that no clarification was warranted and that the writ petition is liable to be dismissed outrightly on the ground of alternative remedy.
5. It was in the aforesaid backdrop that we had proceeded to hear submissions addressed by respective sides on merits. Before proceeding ahead and for the purposes of appreciating the context in which the present writ petition has reached this Court, we deem it appropriate to notice the following salient facts.
6. The petitioner is stated to be engaged in the business of import and trade in gold, gold articles and assorted gold jewellery. On 07 August 2009, the Republics of India and Korea entered into a Comprehensive Economic Partnership Agreement2 which shall hereinafter and for the sake of brevity be referred to as the “Indo-Korean CEPA”. The petitioner claimed exemption from payment of customs duties based on the exemption provisions as contained in the Indo-Korean CEPA. In extension of the aforesaid Agreement between the Republics of India and Korea, the Department of Revenue issued a Notification No. 152/2009-Customs dated 31 December 2009 as amended by Notification No. 66/2016-Customs dated 31 December 2016, extending the benefit of Nil Basic Customs Duty3 to all goods falling under CTH 711021 to 711890 subject to the production of a certificate pertaining to the country of origin. The relevant parts of the aforesaid Notification are extracted hereinbelow: –
“Notification No. 152/2009-Customs dated 31.12.2009
Exemption of Customs duty on certain goods when imported into India from the Republic of Korea

G.S.R.(E).- In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts goods of the description as specified in column (3) of the Table appended hereto and falling under the Chapter, Heading, Sub-heading or tariff item of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) as specified in the corresponding entry in column (2) of the said Table, when imported into India from the Republic of Korea, from so much of the duty of customs leviable thereon as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the aforesaid Table:

Provided that the importer proves to the satisfaction of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, that the goods in respect of which the benefit of this exemption is claimed are of the origin of Republic of Korea, in accordance with the provisions of the Customs Tariff (Determination of Origin of Goods under the Preferential Trade Agreement between the Governments of the Republic of India and the Republic of Korea) Rules, 2009, published in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 187/2009-Customs (N.T.), dated the 31st December, 2009.

2. This notification shall come into force with effect from 1st January, 2010.
Table

S.No.
Chapter, Heading, Sub-heading or Tariff Item
Description of goods
Rate
526
711021 to 711890
All Goods
0.00

7. The Department of Revenue thereafter and in terms of a Notification No. 01/2011-CE dated 01 March 2011 granted exemption from payment of excise duty beyond 01% ad valorem duty imposed on goods of specified descriptions falling under the Central Excise Tariff. Entry 89 of the aforesaid Notification and which alone is relevant for our purposes is reproduced hereinbelow:
S.No.
Chapter or heading or sub- heading or tariff item of the First Schedule
Description of the excisable goods

89
7114
Articles, other than jewellery, of—
(a) gold,
(b) silver,
(c) platinum,
(d) palladium,
(e) rhodium,
(f) iridium,
(g) osmium, or
(h) ruthenium,
manufactured or sold under a brand name.
Explanation. – 1. For the purpose of this exemption, “brand name” means a brand name or trade name, whether registered or not, that is to say, a name or a mark, such as a symbol, monogram, label, signature or invented words or any writing which is used in relation to a product, for the purpose of indicating, or so to indicate, a connection in the course of trade between the product and some person using such name or mark with or without any indication of the identity of that person.
2. An identity put by a jeweller or the job worker, commonly known as ‘house-mark’ shall not be considered as brand name.
3.‘articles’ in relation to gold shall mean anything (other than ornaments), in a finished form, made of, or manufactured from or containing, gold and includes any gold coin and broken pieces of an article of gold but does not include primary gold, that is to say, gold in any unfinished or semi-finished form including ingots, bars, blocks slabs, billets, shots, pellets, rods, sheets, foils and wires.

8. On 18 February 2015, the Reserve Bank of India4 issued A.P. (DIR Series) Circular No.79 purporting to remove the prohibition on the import of gold coins and medallions. However, it becomes pertinent to note that the permission to import gold was extended only to certain identified agencies such as Nominated Banks, Star and Premier Trading Houses. RBI also proceeded to draw up Master Directions for Import on 01 January 2016, in terms of which the import of gold coins and medallions was proposed to be regulated.
9. In August 2017, the petitioner filed 27 Bills of Entry for clearance of goods declared as gold coins (other than legal tender) of different purity (99.5% and above) stated to have been imported from South Korea. The goods were classified by the petitioners as falling under CTH 7114 1910 and on the basis thereof, it claimed benefit of Nil rate of BCD in accordance with Serial No. 526 of the Customs Notification dated 31 December 2009 (as amended) and noticed hereinabove.
10. On 25 August 2017, the Department of Commerce issued a Notification No.25/2015-2020 restricting the import of goods falling under CTH 7113, 7114, 7115 and 7118 from South Korea. The relevant parts of that Notification are reproduced hereinbelow.
“S.O.(E).- In exercise of the powers conferred by Section 3(2) of the FT(D&R)Act, 1992 as amended from time to time, read with paragraph l.02 and 2.01 of the Foreign Trade Policy, 2015-2020, the Central Government hereby inserts Policy Condition No. 4 under Chapter 71 of the ITC(HS) 2017, Schedule- I (Import Policy) to read as under:-

“Imports from South Korea of articles of jewellery and parts thereof, of precious metal or of metal clad with precious metal under Exim code 7113; articles of goldsmiths’ or silversmiths’ wares and parts thereof, of precious metal or of metal clad with precious metal under Exim code 7114; other articles of precious metal or of metal clad with precious metal under Exim code 7115; and coins under Exim code 7118 are Restricted.”

2. The facility/protection under para 1.05 of FTP shall not be available for import of the above items from the date of restriction.

3. Effect of this Notification: Policy Condition No. 4 restricting imports of gold and silver under Exim Codes 7113, 7114, 7115 and 7118 from South Korea is inserted in Chapter 71 of ITC(HS)”

11. Post the issuance of the aforesaid Notification, the Principal Commissioner of Customs is stated to have addressed a letter to the Directorate General of Foreign Trade5 seeking clarifications with respect to the import policy of gold and silver. While responding to the aforesaid letter, the DGFT vide its Office Memorandum dated 06 September 2017, apprised the Customs authorities of the regulatory position in the following terms: –
“F. No. 01/89/180/36/AM-11/PC-II(A)
Government of India
Ministry of Commerce & Industry
Department of Commerce
Directorate General of Foreign trade

Udyog Bhawan, New Delhi
Dated the 6th September, 2017

Office Memorandum

Subject: Amendment in Import Policy of gold and silver under Chapter 71 of the ITC(HS) 2017-regd.

The undersigned is directed to refer to letter No. VIII(12) Import/Gr. III. IV & VI/KCPL/39/2016/1605 dated 30.08.2017 from the Commissioner (Customs) Air Cargo Complex seeking clarification on the above mentioned subject.
2. In the matter, it is clarified that date of reckoning of import is decided w.r.t. the date of shipment, as per Para 2.17 read with para 9.11 of the HBP (2015-20). Accordingly, shipments prior to 25.08.2017 may be considered for clearance by Customs. However, of late there has been an unprecedented surge in import of gold coins from South Korea under INDIA – Korea CEPA. Customs being the verifying agency for Rules of Origin (RoO) criteria of the imported goods, may like to examine these consignments of gold with due diligence to ensure that such imports have complied with the RoO under the Indo-Korea CEPA.
3. To further amplify the point, since Korea is not a gold producing Country, the point to be checked is whether the exported gold articles from Korea are complying with the ‘origin criteria’ of Product Specific Rules of Origin under India-Korea CEPA. It may so happen that gold coins are being imported into Korea only for export purpose without any conversion facility. This is the right time for India to undertake a physical verification exercise (of manufacturing facility/premises) in coordination with our counterpart in Korea.
4. Further, as it has been observed that consignments of gold coins are being imported under HS: 7114 from South Korea, whereas the gold coins are classified under HS: 71189000 subject to RBI guidelines. This aspect may also be examined while dealing with these consignments. In case, you find any mis-declaration, you may take appropriate action against the importer under the Customs Act.
This issues with the approval of DGFT.
Sd/-
(S.K. Mahapatra)
Dy. DGFT
Tel: 23061562 Ext: 277
E-mail: mohapatra.sk@nic.in
The Commissioner of (Customs)
Air Cargo Complex [Import]
New Customs House, New Delhi-110037.”

12. Thereafter and on 13 September 2017, RBI in terms of the said communication, formulated guidelines relating to the import of gold and relevant parts whereof are reproduced hereunder: –

“RESERVE BANK OF INDIA
www.rbi.org. in
FED.C.O. Trade (EXD)/2456/05.31.066/2017-18
September 13, 2017
Commissioner
Office of the Principal Commissioner of Customs
Air Cargo Complex (Import)
New Custom House
New Delhi 1100037
Madam
Import of Gold Medallions
Place refer to your letter No. F. No. VIII(12)/Import/Gr. III, IV &
VI/KCPL/39/2016/15453 dated August 24, 2017.
2. We wish to advise that import of gold is governed by the provisions of Foreign Trade Policy (FTP) and the guidelines of RBI are primarily for payment and reporting of import of gold. We also advise that agencies notified by DGFT under the FTP are allowed to import gold in bullion form and in the form of gold coins (finished goods). Accordingly, payment for only such import of gold is permitted under RBI guidelines. These agencies are:
(i) Agencies nominated by DGFT
(ii) Banks authorized by RBI and
(iii) Star and Premier Trading Houses (STH/PTH).
3. While 2 (i) and (ii) above are permitted to import gold on consignment basis, all domestic sale of gold should be against upfront payment. STH/PTH can import gold on Document against Payment (DP) basis as per their entitlement.
4. We also wish to inform that apart from the above mentioned agencies, others entities are not permitted to import gold coins (as well as medallions). Further, sale of gold coins and medallions by banks is prohibited Since import of gold in dore form is governed by DGFT guidelines and RBI does not regulate it. We request you to kindly seek final confirmation from DGFT in the matter of import of gold in any form.
Endt: FED C.O. Trade (EXD)/2481/US.31.066/2017-18 of date
Copy forwarded for information to Deputy Commissioner of Customs, Office of the Deputy Commissioner of Customs. Group 1-4, Air Cargo Complex, Devanahalli, Bangalore 560 300 with reference to her letter No. C. No. VII I/10/55/Gr. 1-4 BACC dated July 18, 2017
Sd/-
Assistant Manager”

13. Post the issuance of the notification dated 25 August 2017 issued by the Ministry of Commerce and the Office Memorandum dated 06 September 2017 emanating from the office of the DGFT, the respondents appear to have taken notice of the restrictions imposed on the import of gold coins. However, and significantly, the Commissioner of Customs (Imports) vide its letter dated 14 September 2017 addressed to the Central Board of Excise and Customs6 took the position that gold coins (other than legal tender), that is an article of gold struck in the form of a coin, would be covered under CTH 7114 and not CTH 7118. While arriving at that conclusion, the authority rested its view on CTH 7118 as framed along with the Harmonized System Nomenclature7 explanatory notes accompanying the said entry. It ultimately came to conclude that such gold coins were free of all restrictions at least till 24 August 2017. The aforesaid communication is extracted hereinbelow: –
“OFFICE OF THE COMMISSIONER OF CUSTOMS (IMPORTS)
NEW CUSTOM HOUSE, NEAR IGI AIRPORT, NEW DELHI – 110037
C. No. VIII/12/Import/Gr.-III, IV&VI/KCPL/39/2016/
Dated: 09.2017

To,
(1) The Commissioner (Customs),
Central Board of Excise & Customs,
North Block,
New Delhi – 110001
(2) The Joint Secretary,
Tariff Unit, Central Board of Excise & Customs,
New Delhi.
Sir,
Subject: – Amendment in import policy of gold and silver under Chapter 71 of the ITC (HS) 2017, Schedule –I (Import Policy) vide DGFT Notification No.25/2015-2020 dated 25.08.2017- reg.

Reference is made to the Notification referred above vide which a new Policy Condition No. 4 has been inserted under Chapter 71 of the ITC (HS) 2017, Schedule –I (Import Policy) whereby imports from South Korea of goods covered under CTH 7113, 7114, 7115 and 7118 have been made “Restricted”.

2. In this regard, a letter dated 30.08.2017 issued from file of even number (copy enclosed) was sent to the DGCT, New Delhi seeking clarification in respect of applicability of the aforesaid DGFT Notification. In response, Office Memorandum dated 06.09.2017 issued under F.No. 01/89/180/36/AM-11/PC-II(A) by Shri S.K. Mohaptra, Dy. DGFT has been received in this office. A copy of the said OM dated 06.09.2017 is enclosed herewith.

3. At para 4 of the said OM dated 06.09.2017 it has been stated that consignments of gold coins are being imported under HS: 7114 from South Korea, whereas the coins are classified under HS:7118 9000 subject to RBI guidelines. This office has been advised to examine this aspect while dealing with these consignments.

4. In this context, it is stated that gold coins other than legal tender are excluded from CTH 7118 as per explanation provided in HSN Explanatory Notes (copy enclosed) and therefore, the same are covered under CTH 7114. As per import policy given in ITC (HS) Schedule I for CTH 7114, policy for imports of the goods covered under the said heading is ‘Free’ without any policy conditions. Further, reference is also made to RBI Master Circular No. 17/2016-17 dated 01.01.2016 updated as on 12.01.2017 (as available on RBI website). As per para C.11.I.iv of the said Master Circular, “The import of gods coins and medallions is permitted.”

5. In view of the above, this office is of the view that gold coins other than legal tender are covered under CTH 7114, that is an article of gold struck in the form o coin and there was no bar till 24.08.2017 on import of such gold coins. However, the matter is being brought to your kind for necessary clarification.”

14. On 16 February 2018 the CBEC issued an Office Memorandum stating that the classification of Gold Coins ought to be under CTH 7118 9000. The relevant portion of the Office Memorandum reads as:

“F.No: 20000/5/2015-OSD(ICD)
Govt. of India
Ministry of Finance
Dept of Revenue
Central Board of Excise & Customs

Room No. 227 A North Block, New Delhi
Dated 16th Feb. 2018

Office Memorandum

Subject: Classification of Gold Coins

Kindly refer to the letter no. VIII/12/ACCI/Gr-Ill, IV, VI dated 6th December 2017 from Commissioner of Customs (Import) regarding the above subject.

2. In the Customs Tariff heading 7118 reads as follows:

7118
71181000

71189000
Coin
– Coin (other than gold coin), not being legal tender
– other

10%

10%

2.1 Within this CTH, are included:
(i) coins (other than gold coin) which are “no longer legal tender” – 7118 10 00

(ii) All remaining COINs (includes all legal tender, regardless of constituent material, and Gold Coins) -7118 90 00
Accordingly, the classification of GOLD COINS ought to have been under 7118 90 00.

3. Furthermore, the communication exchanged with RBI dated 13th Sept. 2017 which has been enclosed with the subject letter, states that only nominated agencies can import gold coins or gold in primary forms. They have also categorically stated that other than the notified agencies/ banks/ Star & Premier Trading houses, import of gold coins and medallions is not permitted.

4. In view of the above, it appears that the issue of classification and the eligibility of the entities who imported “gold coins” during the period 1st July to 25th Aug 2017 under India-Korea FTA requires action in terms of Foreign Trade Policy.

5. This issues with the approval of the Board Chief Commissioner of Customs
Sd/-
(Mandeep Sangha)
Senior Technical Officer
New Customs House
Near 101 Airport
New Delhi.”

15. The issue of classification of articles of gold, other than legal tender, appears to have arisen for consideration of the Customs, Excise and Service Tax Appellate Tribunal8 Hyderabad Bench in the matter of Sri Exports vs. Commissioner of Customs, Hyderabad.9 While dealing with the aforesaid issue, CESTAT Hyderabad held as follows: –
“11. In view of the above discussions, it would be evident that as per the import policy notified by the DGFT, gold in any form, other than monetary gold, are placed under “FREE” category with policy condition subject to RBI regulations. The RBI in the master circular only prescribed regulation at Para C.11.1 for method of import and types of payment vis-à-vis credit facility by banks for gold imports by nominated agencies notified by DGFT and at Para C.11.2 for others. In fact, the RBI categorically permitted the banks to open Letters of Credit for maximum period of 90 days for importing gold in any form. Nowhere in the master circular, the RBI has notified category of persons eligible for import of gold and have not imposed any restrictions on such imports. In the present case, gold granules were neither imported on a consignment basis nor on a credit basis. The importer/appellant paid an advance payment through bank Letter of Credit/Swift. I find that the RBI directions, at the most, are restrictions made at regulating import and export of goods in terms of restrictions on current account transactions in foreign exchange but not prohibiting import and export of goods as such. Prohibitions are actionable in terms of Section 111 (b) of the Customs Act and restrictions are actionable in terms of Section 11 (2) of Foreign Trade (Development and Regulation) Act, 1992 as held by the Hon’ble High Court of Bombay in the case of Riddi Siddhi Bullions Ltd. v. Commissioner [2016 (333) E.L.T. A174 (Bom.)]. Accordingly, in my considered view, gold granules are not prohibited goods within the meaning of Section 2(32) of Customs Act, 1962.
12. Further, the Customs Act, 1962 does not authorise C.B.E. & C. to impose prohibitions by way of circulars, since as submitted supra, circular is not law. Therefore, the contention of the Learned Commissioner (Appeals) that the appellants are prohibited from importing gold granules, in terms of Circular No. 34/2013-Cus., dated 4-9-2013 and Circular No. 27/2016-Cus., dated 10-6-2016 is not legally sustainable. They are only clarificatory/procedural circulars, to give effect to the exemption contained in the above notifications, with special reference to disposal and monitoring of the gold imported, duty free, by the nominated agencies, in terms of the above notifications but do not impose any prohibitions/restrictions on the import of gold by others, on payment of appropriate Customs duty and the appellants have never claimed the benefit of the said exemption, as they are not nominated agency, specified in the FTP/Notification/Circular. Therefore, the Ld. Commissioner (Appeals) holding that, in terms of the said circulars, appellant was prohibited from importing gold is farfetched and without any legal basis.
13. In view of the above discussions, I hold that the appellants are eligible to import gold granules, in terms of Para C. 11.2 of RBI’s Master Direction No. 17/2016-17 , dated 1-1-2016 to which the said notifications and circulars are not applicable, Accordingly , the impugned order is set aside and the appeal filed by the appellant is allowed with consequential relief, if any.”

16. On 12 March 2019, the India Bullion and Jewellers Association Limited submitted a detailed representation for the consideration of the DGFT seeking to advocate a case that gold articles which are loosely or colloquially referred to as “gold coins”, although they may not fall in the category of legal tender, are liable to be classified under CTH 7114. The Association sought to contend that the restrictive prescriptions which form part of CTH 7118 would only apply to coins which are or had been at a particular point in time been considered to be legal tender. The Association thus contended that gold coins other than legal tender could not be placed under CTH 7118.
17. In the meanwhile, and more particularly on 30 April 2019, the issue of classification of gold coins other than legal tender again arose for determination before the Bangalore Bench of the CESTAT in the matter of Sri Exports vs. Commissioner of Customs, Bangalore10. CESTAT on this occasion and in terms of its judgement dated 30 April 2019, held as follows: –
“6. After considering the submissions of both the parties and perusal of the material on record, I find that the only allegations of the Department is that the appellant has imported the Gold Medallion of Purity 999.9 falling under CTH 71141910 of Customs Tariff Act, 1975 and the same is not permitted because the appellant is not a Nominated Bank or Nominated Agency or a Holder of a Status of a Star/Premier Trading House. As per the RBI regulations, it is only the Nominated Bank and Nominated Agency as notified by DGFT which is permitted to import the said goods. Further, I find that it is not in dispute that the Gold Medallion of Purity 999.9 fall under CTH 71141910 of CETA 1975 and as per the Import Policy, the “Articles of Gold” are classifiable under CTH 71141910 and are freely importable and there is no restriction and in view of the decisions cited supra, Gold Medallion fall within the definition of “Articles of Gold”. Further, I find that the appellants have imported the Gold Medallion which is classified as “Articles of Gold” from Korea and vide Notification No. 152/2009 dated 31.12.2009 the BCD leviable on the import of “Articles of Gold” from Korea falling under Chapter 71141910 is Nil. Further, I find that CBEC Circular No. 27/2016-Cus. Dated 10.06.2016 relied upon by both the authorities is not applicable in the facts and the circumstances of this case because the appellant is not a Nominated Agency but it is only an individual importer who has imported gold against advance payment or Letter of Credit (not exceeding 90 days) for home consumption, wholesale and retail sales. Further, the Master Direction issued by the RBI is also not applicable in the present case because that instruction of the RBI only applies to Nominated Banks and Nominated Agencies as notified by DGFT. Further, I also note that in the present case, the importer has not imported gold on consignment basis and therefore, the conditions laid down by the RBI is not applicable to the appellant. Another important aspect is that with regard to the same goods, the appellant has placed on record two Bill of Entries filed at Hyderabad Airport and imported the Gold Medallion from Korea under the same Notification and the same was cleared on Nil rate of duty. Further, I note that same goods is being cleared at Delhi Airport at Nil rate of duty and the Bill of Entries have been placed on record proving the clearance at Nil rate of duty at Delhi Airport. The appellant has also relied upon the judgment of the Hyderabad CESTAT in his own case wherein the goods imported was Gold Granules of the same purity to submit that on the identical grounds the Tribunal in Appeal No. C/30812/2018 has allowed the appeal of the appellant. In view of my discussion above, I am of the considered opinion that the impugned order is not sustainable in law and therefore, I set aside the impugned order by allowing the appeal of the appellant with consequential relief, if any and direct the Customs Authorities to clear the goods free of duty.”

18. On 31 May 2019, the Central Board of Indirect Taxes and Customs11 issued Circular No. 450/67/2019-Cus.IV stating that that the judgments of the CESTAT passed in appeals filed by M/s Sri Exports, were not ‘legal and proper’. The Circular read thus:
“F. NO. 450/67/2019. CUS IV
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
(CENTRAL BOARD OF INDIRECT TAXES & CUSTOMS)

Room 227B, North Block
New Delhi, dated 31st May, 2019

To
All Principal Chief Commissioners/Chief Commissioners of Customs/Customs (Preventive)
All Principal Chief Commissioners/Chief Commissioners of Customs & Central Taxes
All Principal Commissioners/Commissioners of Customs/ Customs (Preventive)

Subject:- Import of Gold Granules by entities other than
nominated agency/bank/ star house etc. reg.

Sir/ Madam,

Attention is invited to two CESTAT Judgments Sri Exports versus Commissioner of Customs. Hyderabad (Final Order No. A/31/194/2018, dated 22.11.2018 in Appeal No. C/30812/2018) and Sri Exports Versus C.C. Bangalore- Cus [arising out of No. 344/2018 dated 12.10.2018 passed by Commissioner of Customs, Bangalore-I) respectively. In the said orders passed by the Hyderabad and Bangalore benches of CESTAT, import of Gold granules has been allowed to be imported by an importer not being a nominated agency/bank/star house etc.

The said CESTAT orders have been examined in the Board. It is observed that the said orders are not legal and proper. Therefore, the Board has taken a decision that the said orders should be appealed against. Customs authorities at Hyderabad and Bangalore have been requested to take necessary action.

It is therefore, requested that any similar consignments pending clearance at the ports/airports may be dealt in terms of the FTP 2015-2020 and the Board’s decision above.

Yours Sincerely
Sd/-
(Zubair Riaz)
Director (Customs)”
19. It is pertinent to note that the aforementioned circular was amended vide Circular dated 9 September 2019. The amending Circular issued by the CBIC is reproduced hereunder:
“F No. 45G/67/2019-Cus.IV.
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Indirect Taxes & Customs)

Room 227B, North Block
New Delhi, dated 9th September, 2019
To
All Principal Chief Commissioners/Chief Commissioners of
Customs/ Customs(Preventive)
All Principal Chief Commissioners/Chief Commissioners of
Customs & Central Taxes
All Principal Commissioners/Commissioners of Customs/Customs (Preventive)

Subject: Import of Gold Granules by entities other than nominated agency/bank/ star house etc.-reg.

Sir/ Madam,

Attention is invited to the instruction from even F. No. dated 31.5.19 on the above subject informing inter-alia that CBIC has directed respective field formations to appeal against CESTAT judgments in Sri Exports Versus Commissioner of Customs, Hyderabad [Final Order No. A/31494/2018, dated 27-11-2018 in Appeal No. C/30812/2018] and Sri Exports Versus G.G Bangalore-Cus [arising out of No. 344/2018 dated 12/10/2018 passed by Commissioner of Customs, Bangalore-I] respectively (copy enclosed).

2. As per the information received from the Principal Commissioner of Customs, Hyderabad, the said order passed by CESTAT Hyderabad has been suspended. Appeal has also been filed against the order of CESTAT, Bengaluru in the Karnataka High Court.

3. Subsequent to above Instructions. RBI vide letter dt. 18 June 2019 has stated that as per Master Direction dated July 1, 2016, it has been mentioned that Nominated banks and nominated agencies, as notified, by DGFT are permitted to import gold on consignment basis. Further, DGFT vide F. No 01/89/180/36/AM-11/PC-2 (A)/Pt.II/P-321 dated 21.6.19 has clarified that ‘individual parties not falling under the category of nominated agencies are not eligible for importing gold’, (copy enclosed)

4. In view of the above, last para of instruction dated 31.5.19 is modified to the effect that field formations may take suitable action in accordance with the above instructions of RBI/relevant master circulars/ extant FTP provisions and the clarification from DGFT dated 21.6.19 cited above besides provisions of the Customs Act with regard to pending or future imports of gold consignments.

Yours Sincerely
Sd/-
9.9.2019
(Zuber Riaz)
Director (Customs)”

20. Having broadly noticed the salient facts relevant to the issues that arise for our consideration, we find from the submissions which were addressed by Mr. Gulati and Mr. Gurnani that the dispute essentially revolves around the import of the judgment which was rendered inter partes in Khandwala Enterprise. The writ petition which had been preferred earlier had assailed the validity of the Show Cause Notices12 as well as the Office Memorandum and Circulars issued by the CBEC/CBIC, and the DGFT noticed hereinbefore. Before proceeding further, it would be apposite to take note of the contours of the challenge in the first writ petition and which would be evident from the following recital appearing in the judgment rendered by the Division Bench :-
“2. The writ petition seeks quashing of
(i) Office Memorandum, dated 16th February, 2018, issued by the Central Board of Excise and Customs (CBEC),

(ii) Circular, dated 31st May, 2019, issued by the Central Board of Indirect Taxes and Customs (the CBEC, as rechristened after the advent of the GST regime, referred to, hereinafter, as “the CBIC”),

(iii) Office Memorandum, dated 6th September, 2017, issued by the Director General of Foreign Trade (DGFT),

(iv) Show cause notice dated 15th July, 2019, issued to the petitioner by the Commissioner of Customs, ACC Import, New Delhi (hereinafter referred to as “the Commissioner”), and

(v) Show cause notice dated 19th July, 2019, issued to M/s. Mink Tradecom Private Limited (hereinafter referred to as “Mink”) by the Commissioner.”

21. The Court, upon noticing the provisions of the Foreign Trade Policy and by way of a preface to the challenge which stood raised, made the following pertinent observations in paragraphs 13, 14 and 15 of the judgment:-
“13. According to the Revenue, the gold coins imported by the petitioner under the aforesaid eight BS/E were appropriately classifiable, not under sub-heading 7114 19 10, but under sub-heading 7118 90 00 of the Tariff. Tariff Heading 7118 of the Tariff, with its sub-headings, may be reproduced thus:

Tariff item
Description of goods
Unit
Rate of duty
7118
Coins

7118 10 00
Coins (other than gold coin) not being legal tenders
Kg
10%
7118 90 00
Other
Kg
10%

14. Reliance has been placed, in the impugned show cause notice dated 12th July, 2019, on the Explanatory Note to Heading 7118 in the Harmonised System of Nomenclature (HSN), which provides that, “this heading applies to coins of any material (including precious metals) of officially prescribed weight and design, issued under Government control for use as legal tender”. The Show Cause Notice observes that the Explanatory Note also postulates that the heading also includes coins which are no longer legal tender.

15. It may be noted, here, that the Customs Tariff, in its eight-digit avatar, which came into being with effect from 2003, is based on the HSN, and the Explanatory Notes to the HSN are treated as practically of binding value, in interpreting entries under the Customs Tariff, where the entries in the Tariff are aligned to the entries in the HSN [C.C.E. v. Wood Craft Products Ltd., 1995 (77) E.L.T. 23 (S.C.); C.C. v. Business Forms Ltd., 2002 (142) E.L.T. 18 (S.C.).”

22. Proceeding then to firstly deal with the validity of the CBIC Circular dated 31 May 2019 and which had described the orders passed by the CESTAT Bangalore Bench in Sri Exports as “not legal and proper”, the Court held that the same was clearly objectionable and observed as under:-
“28. On going through the impugned Circular, dated 31st May, 2019, we find ourselves in agreement with Mr. Gulati. The concluding paragraph of the impugned Circular, dated 31st May, 2019, issued by the CBIC is, even on a first reading, plainly objectionable. It discloses a woeful lack of appreciation, by the author of the said Circular, of the most rudimentary principles of law and precedent. Decisions of the Tribunal are, in the absence of any rulings to the contrary, by authorities higher in the judicial echelons, binding on all field formations, as well as adjudicating authorities. Any act or decision, by an officer, lower in judicial hierarchy to the Tribunal – which would include all officers of the Department of Revenue and, in any case, every Customs or Central Excise Officer in the Government – which is contrary to the law laid down by the Tribunal, is not only ex facie unsustainable, but is also contemptuous of the Tribunal. The following well-known passages, from the judgment of the Supreme Court in U.O.I. v. Kamlakshi Finance Corporation Ltd.- 1991 (55) E.L.T. 433 (S.C.), merits reproduction, in this context:
“5. The learned Additional Solicitor General, however, submits that the learned Judges have erred in passing severe strictures against the two Assistant Collectors who had dealt with the matter. He submitted that these officers had given reasons for classifying the goods under Heading 39.19 and not 85.46 and could do no more. He submitted that they acted bona fide in the interests of Revenue in not accepting a claim which, they felt, was not tenable.
6. Sri Reddy is perhaps right in saying that the officers were not actuated by any mala fides in passing the impugned orders. They perhaps genuinely felt that the claim of the assessee was not tenable and that, if it was accepted, the Revenue would suffer. But what Sri Reddy overlooks is that we are not concerned here with the correctness or otherwise of their conclusion or of any factual mala fides but with the fact that the officers, in reaching their conclusion, by-passed two appellate orders in regard to the same issue which were placed before them, one of the Collector (Appeals) and the other of the Tribunal. The High Court has, in our view, rightly criticised this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not “acceptable” to the department – in itself an objectionable phrase – and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.

7. The impression or anxiety of the Assistant Collector that, if he accepted the assessee‘s contention, the department would lose revenue and would also have no remedy to have the matter rectified is also incorrect. Section 35E confers adequate powers on the department in this regard. Under subsection (1), where the Central Board of Excise and Customs Direct Taxes comes across any order passed by the Collector of Central Excise with the legality or propriety of which it is not satisfied, it can direct the Collector to apply to the Appellate Tribunal for the determination of such points arising out of the decision or order as may be specified by the Board in its order. Under sub-section (2) the Collector of Central Excise, when he comes across any order passed by an authority subordinate to him, if not satisfied with its legality or propriety, may direct such authority to apply to the Collector (Appeals) for the determination of such points arising out of the decision or order as may be specified by the Collector of Central Excise in his order and there is a further right of appeal to the department. The position now, therefore, is that, if any order passed by an Assistant Collector or Collector is adverse to the interests of the Revenue, the immediately higher administrative authority has the power to have the matter satisfactorily resolved by taking up the issue to the Appellate Collector or the Appellate Tribunal as the case may be. In the light of these amended provisions, there can be no justification for any Assistant Collector or Collector refusing to follow the order of the Appellate Collector or the Appellate Tribunal, as the case may be, even where he may have some reservations on its correctness. He has to follow the order of the higher appellate authority. This may instantly cause some prejudice to the Revenue but the remedy is also in the hands of the same officer. He has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under S. 35E(1) or (2) to keep the interests of the department alive. If the officer‘s view is the correct one, it will no doubt be finally upheld and the Revenue will get the duty, though after some delay which such procedure would entail.

8. We have dealt with this aspect at some length, because it has been suggested by the learned Additional Solicitor General that the observations made by the High Court, have been harsh on the officers. It is clear that the observations of the High Court, seemingly vehement, and apparently unpalatable to the Revenue, are only intended to curb a tendency in revenue matters which, if allowed to become widespread, could result in considerable harassment to the assessee-public without any benefit to the Revenue. We would like to say that the department should take these observations in the proper spirit. The observations of the High Court should be kept in mind in future and utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which are binding on them.”
(Emphasis and underscoring supplied).”

29. It was, therefore, completely impermissible for the CBIC to, in the impugned Circular dated 31st March, 2019, direct field formations to deal with consignments pending clearance at airports in accordance with the view of the CBIC, rather than the orders of the Tribunal in Sri Exports versus Commissioner of Customs. Hyderabad (Final Order No. A/31/194/2018, dated 22.11.2018 in Appeal No. C/30812/2018) and Sri Exports Versus C.C. Bangalore-Cus [arising out of No. 344/2018 dated 12.10.2018 passed by Commissioner of Customs, Bangalore-I), merely because the CBIC felt that the said orders were not “legal and proper”. This direction flies in the face of two of the most fundamental principles governing adjudication, viz., firstly, that it is not open to any executive, or administrative, authority to control, in any manner, the adjudicatory process, and, secondly, that no adjudicating authority can be directed to act in conscious violation of the law. These principles are, indeed, so elementary, that we are astonished at the directions contained in the impugned circular dated 31st May, 2019. The authority issuing the said circular ought to have been aware of the fact that “dealing with” consignments pending clearance at ports and airports involves a process of adjudication, and that it was not open to any such authority, dealing with such consignments, to act in violation of binding decisions of the Tribunal. The concluding paragraph of the impugned Circular dated 31st May, 2019, issued by the CBIC, in our view, flies directly in the face of the law, as laid down by the Supreme Court in Kamlakshi Finance Corporation Ltd.

23. Insofar as the challenge which was raised to the CBIC Circular of 9 September 2019 is concerned, the Court in Khandwala Enterprise observed as follows:-
“38. Having said that, the CBIC may, quite legitimately, in exercise of the powers conferred on it by Section 151A of the Customs Act, issue circulars, or instructions, informing field formations of orders, passed by superior judicial authorities, if any, staying, setting aside, or otherwise interfering with orders passed by judicial authorities lower in the hierarchy, including the Tribunal. Indeed, this may be advisable, so that authorities, adjudicating similar cases would have, before them, the latest legal position, without having to spend time on research. Circulars issued in this regard must, however, stop there. Once the CBIC informs field formations – or adjudicating authorities – of the fact that orders passed by the Tribunal stand stayed by superior authorities, or that appeals, thereagainst, have been filed before higher fora, the decision, of whether to follow the order of the Tribunal, or not, has to be left to the adjudicating authority concerned. It is obvious that every authority, from the lowest to the highest, in the Indirect Tax echelons, would be aware of the fact that a judicial order, which stands set aside by a higher authority, has no precedential value. Whether, however, a judicial order, which stands stayed by a superior authority, retains, or loses, it is precedential value, is a more involved question. We do not wish to express any opinion thereon, essentially because the Show Cause Notices, issued to the petitioner and Mink, are pending, and we – unlike the CBIC – do not wish to place fetters on the exercise of judicial discretion, by the authorities entrusted with the task of the adjudication thereof. Suffice it to state that there is no absolute proposition, in law, that an order, of a lower judicial authority, completely loses, on its being stayed by a higher judicial authority, its entire precedential value. We prefer to rest our observations at that.”

24. The Court, however, refused to interfere with the SCN proceedings holding that interdiction of adjudicatory proceedings would clearly not be justified since the principal authority must be accorded the liberty to undertake adjudication and that the petitioners would, in any case, have the right to take recourse to appropriate remedies if they be aggrieved by any order passed in the course of disposal of the said SCNs.
25. However, since the issue of classification also appears to have been clearly raised and urged on behalf of respective parties, it went on to observe as under:-
“49. Para 4 of the aforesaid Office Memorandum, dated 6th September, 2017, issued by the DGFT, merely states that gold coins are classifiable under Heading 7118 9000 of the ITC(HS), whereas consignments of gold coins were being imported by wrongly classifying them under Heading 7114. Headings 7114 and 7118 of the ITC(HS) are completely aligned with the corresponding entries in the Tariff. A comparison of Sub-Headings 7114 and 7118 of the Tariff [or of the ITC(HS)] clearly reveals that, whereas Sub-Heading 7114 1910 of the Tariff [or of the ITC(HS)] deals with “articles of gold”, Heading 7118 9000 covers all coins which do not come within sub-heading 7118 1000, which deals with “coins (other than gold coins) not being legal tender.” All gold coins are, therefore, classifiable under sub-heading 7118 9000, of the Tariff, as well as of the ITC (HS). It is well settled that where an item is covered by an entry specific thereto, it has to be classified under the said entry and resort to all other entries would, ex facie, stand proscribed.

50. Gold coins being specifically classified under sub-heading 7118 9000 of the Tariff as well as of the ITC (HS), there can be no question of classifying gold coins under sub-heading 7114 1910.

51. In stating, in para 4 of the impugned Office Memorandum dated 6th September, 2017, issued by the DGFT, that gold coins fall within Heading 7118 9000 of the ITC (HS), and that, therefore, their import would be subject to RBI guidelines, the CBEC merely sets out the indisputable statutory position. We find no reason to interfere therewith.

52. At the same time, it is also settled that the manner in which an import item is described in the Bs/E, is not necessarily conclusive regarding its classifiability. It is always open to an importer to contend that an item is not exactly conforming to the description contained in the Bs/E. It is only in cases in which an assessee avails certain benefits, whether by way of exemption or otherwise, based on the manner in which it describes or classifies its goods, that, at times, courts have taken a view that the assessee cannot, having availed such benefit, seek to resile from the description, or classification, advanced by it. This, however, is not such a case. Irrespective, therefore, of the manner in which the goods in question have been described in the Bs/E filed by it, there can be no estoppel on the petitioner establishing, before the adjudicating authority, by cogent and convincing evidence, that the goods imported by it are, nevertheless, entitled to the benefit of exemption. In case such a contention is advanced, the authority, adjudicating the Show Cause Notices dated 12th July, 2019/15th July, 2019, issued to the petitioner, and 28th June, 2019/19th July, 2019, issued to Mink, would have to consider and appreciate the contention on merits, and cannot refuse to do so merely on the basis of the impugned Office Memorandum dated 6th September, 2017, issued by the DGFT, or the impugned Office Memorandum dated 16th February, 2018, issued by the CBEC.”

26. It becomes relevant to pause here and note that it is some of the observations as appearing in the passages extracted above which have been primarily read and understood by the respondents as being an authoritative and conclusive finding with respect to the imported articles being classifiable under CTH 7118 9000.
27. The Court then proceeded to render adverse comments with respect to the Office Memorandum dated 16 February 2018 issued by the CBIC which had alluded to the communications issued by the RBI relating to the import of gold coins and gold in primary forms only through nominated agencies as being relevant for the purposes of classification of gold coins covered under the Indo-Korean CEPA. The Division Bench found that the aforesaid Office Memorandum clearly appeared to shackle the adjudicatory exercise which authorities under the Act were obliged to undertake and consequently observed that all such adjudications would have to be undertaken without being influenced by the aforesaid Office Memorandum. This would be evident from paragraphs 55 and 56 of the judgment which are reproduced hereinbelow:-
“55. We are unable to sustain, to any extent whatsoever, the aforesaid Office Memorandum, dated 16th February, 2018, issued by the CBEC. To us, it appears obvious that this Office Memorandum is a transparent attempt, on the part of the CBEC, to shackle the impartial exercise, by the competent adjudicating authorities, of adjudication of the Show Cause Notices issued to the petitioner and to Mink – and, quite possibly, to other similarly situated importers. When the issue of classification, and entitlement to exemption, of the gold coins, imported by the petitioner, and other similarly situated importers, is at large before competent adjudicating authorities, who are in seisin thereof, the CBEC was completely unjustified in issuing the Office Memorandum dated 16th February, 2018. The powers of the CBEC, as conferred by Section 151A of the Customs Act, cannot extend to issuance of executive instructions, or Office Memoranda, pronouncing on the merits of issues which are pending before adjudicating authorities. Such an attempt would result in reducing the adjudicatory process to a mockery, and deserves to be deprecated.

56. If the Revenue is of the opinion that an assessee has imported goods in violation of the law, or claimed the benefit of exemption to which it is not entitled, the grounds for such an opinion are required to be contained in the Show Cause Notice issued to the assessee. It is completely impermissible for the Revenue to issue a Show Cause Notice and, thereafter, seek to support, or even supplement, the recitals in the Show Cause Notice by way of Office Memoranda, or executive instructions, such as the Office Memorandum dated 16th February, 2018, under challenge in these writ petitions. In this respect, the Office Memorandum, dated 16th February, 2018, issued by the CBEC, is clearly distinguishable from the Office Memorandum dated 6th September, 2017 supra, issued by the DGFT. While the latter Office Memorandum, dated 6th September, 2017, of the DGFT, merely recited the fact of imports from Korea possibly being made in violation of the law, requiring that such imports be properly verified and, thereafter, proceeded to reiterate the statutory position to be found in the ITC (HS), the Office Memorandum, dated 16th February, 2018, of the CBEC practically adjudicates, by executive fiat, Show Cause Notices, such as those issued to the petitioners in these writ petitions. This is completely impermissible. Being, as it is, in the nature of executive trespass on the quasi-judicial terrain, the Office
Memorandum dated 16th February, 2018, must necessarily perish.”

28. The Court ultimately disposed of the writ petition in the following terms:-
“59. Resultantly, these writ petitions are disposed of, in the following terms:

(i) Circular No 450/67/2019-Cus. IV, dated 31st May, 2019, stands modified by Circular No 450/67/2019-Cus.IV, dated 9th September, 2019, issued by the Central Board of Indirect Taxes and Customs. While no orders are, therefore, required to be passed in respect of Circular dated 31st May, 2019, Circular dated 9th September, 2019, is quashed and set aside, to the extent of the directions contained therein, especially in para 4 thereof. The effect of the said Circular shall be read as limited to conveying of information, regarding the fact that Final Order No.A/31494/2018, dated 27th November, 2018, of the Hyderabad bench of the Tribunal, in Appeal No. C/30812/2018, and the Final Order, passed by the Bangalore Bench of the Tribunal against Order-in-Original No.344/2018, dated 12th October, 2018, passed by the Commissioner of Customs Bangalore-I, had been appealed against, and no more. The authorities, adjudicating the Show Cause Notices impugned in these writ petitions would be required, independently, and uninfluenced by the Circular dated 9th September, 2019, to examine, for themselves, whether such appeals have, in fact, been filed and, if so, the effect of the orders passed therein.

(ii) Para 8 of the impugned Show Cause Notices, dated
(a) 12th July, 2019/15th July, 2019, issued to the petitioner in WP(C) 9225/2019,
(b) 28th June, 2019/19th July, 2019, issued to M/s Mink Tradecom Pvt. Ltd, and
(c) 5th July, 2019/9th July, 2019, issued to the petitioner in WP(C) 9230/2019,
are quashed and set aside. The authorities, adjudicating the said Show Cause Notices, would do so, uninfluenced by para 8 thereof, and keeping in view the directions/observations contained in this judgment.
(iii) Office Memorandum No. 01/89/180/36/AM-11/PC-II(A), dated 6th September, 2017, issued by the DGFT, is upheld, to the extent of the position in law stated therein. However, the authority, adjudicating the Show Cause Notices, impugned in these writ petitions and enumerated in (ii) supra, would have to assess the applicability, of this Office Memorandum, to the facts of the case of the petitioners, on merits.
(iv) Office Memorandum No. 20000/5/2015-OSD (ICD), dated 16th February, 2018, issued by the Central Board of Excise and Customs, is quashed and set aside, to the extent it seeks to opine on the classification of the gold coins imported by the petitioners, and other importers similarly situated, and of the eligibility, of such gold coins, to exemption. The Show Cause Notices, impugned in these writ petitions, would be adjudicated on their own merits, uninfluenced by the opinion conveyed by the Office Memorandum dated 16th February, 2018. It is clarified, however, it is open to the Revenue to canvass, before the adjudicating authority/authorities, the stance reflected in the Office Memorandum dated 16th February, 2018 and, if it so chooses to do, the adjudicating authority/authorities would consider the justifiability of the said stance on its own merits.
(v) The prayers, in these writ petitions, for setting aside the Show Cause Notices enumerated hereinabove, are rejected. This Court clarifies that, subject to the observations made hereinabove, it has expressed no opinion on the merits of the said Show Cause Notices, or on the allegations made therein. Needless to say, however, the adjudication of the Show Cause Notices shall abide by the findings and observations recorded herein above”

29. As would be evident from the operative directions as framed by the Court, the respondents had been called upon to dispose of the SCN proceedings uninfluenced by the Office Memorandum dated 16 February 2018. It was further and significantly observed that the Court had not intended to express any opinion on the merits of the proceedings as initiated or on the allegations made therein. It was additionally observed that the SCN proceedings would abide by the “findings” and “observations” forming part of the said decision.
30. The Principal Commissioner, while finalizing the aforenoted SCNs, has on a consideration of the various pleas raised by the petitioner and while dealing with the issue of classification, firstly held as under:-
“45. I find that classification under the Customs Tariff Act, 1975 (hereinafter referred to as “the CTA”) is governed by the principles contained in the General Rules for Interpretation (hereinafter referred to as “the GIR”). The GIR 1 provides that the classification of goods will be determined according to the terms of the headings of the First Schedule and any relative Section or Chapter Notes of the CTA. In the event that the goods cannot be classified solely on the basis of GIR 1, and if the headings or Chapter or Section Notes to the CTA do not require otherwise, the GIR 2 to the GIR 6 will then be applied in seriatim. Thus the GIR 1 is the foremost rule of classification of goods under the CTA, Which specifies the elements that can legally be used to classify products. For legal purposes classification is determined by the terms of the headings, the Section or Chapter Notes where relevant, and, If necessary and allowable, the other GIRs. Thus where the terms of the headings and any relevant Notes leave only one heading open for consideration, or they direct either the classification or the means of classification, then only the GIR 1 is used at heading level for classification of goods under the CTA. In this background, I examine the two competing tariff entries of CTH 7l14 and CTH 7118 of the First Schedule of the CTA. The relevant extract of the said two entries read as under:-

A. CTH 7114 1910 (as sought by the MINK):

Tariff item
Description of goods
Unit
Rate of duty
7114

7114 11
7114 11 10
7114 11 20
7114 19

ARTICLES OF GOLDSMITHS’ OR SILVERSMITHS’ WARES AND PARTS THEREOF OF PRECIOUS METAL OR OF METAL CLAD WITH PRECIOUS METAL
-Of precious metal, whether or not plated or clad with precious metal.
— of silver, whether or not plated or clad with precious metal.
—Articles
—Parts
–Of other precious metal, whether or not plated or clad with precious metal

Kg
Kg

15%
15%
7114 19 10
—Articles of gold
Kg
15%

B . CTH 71189000 (as proposed by the department):
Tariff item
Description of goods
Unit
Rate of duty
7118
7118 10 00

7118 90 00

COIN
-Coin (other than gold coin), not being legal tender
-Other

Kg

Kg

15%

15%

46. From the above, I find that heading 7118 covers coin of any metal. In the impugned case, goods are declared as coin, made of gold of 99.5% purity, not being legal tender. The goods being coin are squarely covered under CTH 7118 as the terms of the CTH 7118 under the CTA is COIN while the entry in CTH 7114 is in the nature of residuary items. Hence by application of the GIR 1, impugned goods merit classification under CTH 7118, provided it is not guided otherwise by Section Note for Section XIV and Chapter Note for Chapter 71 of the CTA which are relevant in this case. I do not find anything in the said Section Notes and Chapter Notes that excludes GOLD COIN from the CTH 7118. I also do not find any heading or sub-heading in Chapter 71 of the CTA or for that matter in any Chapter which has specific entry for “Coin” or “Gold Coin”. Therefore, I find that the classification of impugned goods remains under CTH 7118. This view also finds support from GIR 3(a), as discussed hereinafter, which provides that “the heading which provides the most specific description shall be preferred to headings providing a more general description.”

31. Proceeding to evaluate the issue of the relevant CTH under which gold coins, not being legal tender, are liable to be classified, it has come to record the following conclusions:-
“47. Now the issue to be decided is what would be the tariff item of gold coin, not being legal tender. From the above, it is clear that CTH 7118 covers coin made of any metal including precious metal. I find that tariff item 7118 1000 of the CTA covers Coin (other than gold coin), not being legal tender whereas tariff item 7118 9000 of the CTA refers to coin other than coin of tariff item 7118 1000 of the CTA. In other words, tariff item 7118 9000 of the CTA covers all coins which are not covered under tariff item 7118 1000 of the CTA Further, I find that the antonyms of the phrase ‘not being legal tender’’ is “being legal tender”. The logical deduction from this is that tariff item 7118 90 of the CTA would include:
(i) Coin (other than gold coin), being legal tender;
(ii) Gold coin, not being legal tender; and
(iii) Gold coin, being legal tender.
Therefore, impugned goods declared as coin, made of gold of 99.5% purity, not being legal tender are to be classified under tariff item 7118 9000 of the CTA.”

32. Proceeding to comment upon the purpose served by explanatory notes under the HSN, the Principal Commissioner has held as follows:-
“51. I find that the Explanatory Notes to the Harmonised System (hereinafter referred as “the HS”) are published separately by the WCO. While these notes do not form part of the legal provisions of the HS, it is important that they be consulted in case of any dispute of classification as they provide commentary on the intent and scope of provisions. However, it must be borne in mind that the Explanatory Notes are not an exhaustive, unchangeable commentary on the overall scope of the headings and subheadings of the HS but have to be read in context of entries in the Customs Tariff of member countries who have to align their Customs Tariff upto six digits of HSN and additional Chapter and Section Notes incorporated therein. Moreover, the GIRs are part of the Customs Tariff and have binding force being statutory provisions and thus take precedence over any other provision. Thus, the Explanatory Notes to the HS follow the systematic order of that instrument. They provide a commentary on the scope of each heading, giving a list of the main products included and excluded, together with technical descriptions of the goods concerned (their appearance, properties, method of production and uses) and practical guidance for their identification.”

33. On a due consideration of the explanatory note appended to CTH 7118 9000, the Principal Commissioner ultimately came to the following conclusion:-
“53. I find that Explanatory Notes explain that heading 7118: –
(i) covers coins of any metals (including precious metals) of officially prescribed weight and design, issued under government control for use as legal tender;
(ii) covers coins which are legal tender in the country of issue even if they are put up for general sale in presentation cases;
(iii) covers coins which are no longer legal tender:
(iv) covers coins which are made by stamping out blanks from sheet metal; which are then “struck” with the appropriate dies t