Section 28 cannot reclassify completed nil-duty assessments where no differential duty is demanded.

Toyota Kirloskar Motors Pvt. Ltd. (“TKML”), an Indian automobile manufacturer, imported various automotive sensors from group companies through different ports and inland container depots.

Following an investigation by the DRI, the Department alleged that identical sensors had been classified under different Customs Tariff Headings during January 2019–June 2023, resulting in short-payment of customs duty.

The Commissioner confirmed differential duty of approximately ₹53.77 crore, while dropping part of the demand and appropriating amounts voluntarily deposited by TKML.

The dispute before the Tribunal principally concerned the classification of nine sensors, the proposed reclassification of 36 sensors for which no differential duty had been demanded, alternative FTA exemption claims, limitation, interest on differential IGST, confiscation, redemption fine and penalties imposed on TKML and its officers.

Whether the Exhaust Gas Temperature, Water Temperature and Inlet Air Temperature sensors were classifiable as thermistors under CTI 8533 4030, rather than as measuring instruments under CTI 9031 8000.

Whether the Oxygen, Air-Fuel Ratio and Nitrogen Oxide sensors were classifiable as gas-analysis apparatus under CTI 9027 1000, rather than under CTI 9031 8000.

Whether the Brake Pedal Sensor Assembly, Retainer Ultrasonic Sensor and Speed Sensor were correctly classifiable under the tariff headings declared by TKML, rather than under CTI 8708 3000, CTI 3926 9099 and CTI 9031 8000 respectively.

Whether Section 28 of the Customs Act could be invoked merely to reclassify 36 sensors where the show-cause notice raised no differential-duty demand.

Whether TKML was entitled to claim alternative preferential treatment under the applicable FTA notifications and whether the consequential duty demand was revenue-neutral.

Whether the differential IGST demand of ₹18,474 was liable to be set aside on account of availability of input-tax credit.

Whether the extended period of limitation under Section 28(4) was invocable in the absence of proof of collusion, wilful misstatement or suppression of facts with intent to evade duty.

Whether confiscation, redemption fine, interest on differential IGST and penalties under Sections 112(a), 114A and 114AA were sustainable.

The Tribunal applied Rules 1 and 6 of the General Rules for Interpretation of the Import Tariff, requiring classification according to the terms of the headings, Section and Chapter Notes, and the objective characteristics of the goods as imported.

It held that the burden of establishing a classification different from that declared by the importer lies on Revenue, relying on HPL Chemicals Ltd. v. CCE.

Specific tariff entries prevail over residuary entries, and CTI 9031 cannot be invoked where goods are specifically covered under CTI 8533, 9025 or 9027.

Under Section 2(2), Section 17 and Section 28 of the Customs Act, classification forms part of assessment; Section 28 concerns recovery of duty not levied, short-levied or short-paid and cannot be used merely to alter a completed nil-duty assessment where no duty recovery is proposed, as explained in Commissioner of Customs v. Canon India Pvt. Ltd., M/s Samsung India Electronics Pvt. Ltd. v. Principal Commissioner of Customs and Valeo India Pvt. Ltd. v. Commissioner of Customs.

Extended limitation under Section 28(4) requires positive evidence of collusion, wilful misstatement or suppression with intent to evade duty, consistent with Easland Combines and Uniworth Textiles.

Revenue neutrality requires actual eligibility for an alternative exemption or credit to the same assessee; it does not automatically extinguish substantive duty liability.

Finally, interest on IGST could not be demanded for imports made before 16 August 2024 because the statutory borrowing provision did not then expressly include interest, following Mahindra & Mahindra Ltd. v. Union of India and Flextronics Technology India Pvt. Ltd.

The Tribunal found that the temperature sensors contained thermistors whose resistance varied with temperature, while the ECU performed the subsequent processing, calibration or interpretation.

The presence of housing, connectors and protective components did not transform the sensors into complete measuring instruments; Revenue also failed to prove that the imported assemblies themselves converted the signal into a calibrated temperature value.

They were therefore classifiable under the specific thermistor entry, CTI 8533 4030, and not the residuary CTI 9031 8000.

The Oxygen, Air-Fuel Ratio and NOx sensors used zirconia-based electrochemical cells to determine the concentration of constituents in exhaust gas.

Their analytical function brought them specifically within CTI 9027 1000, notwithstanding that the resulting signals were transmitted to the ECU.

The Brake Pedal Sensor measured pedal position and movement but did not itself apply braking force or regulate the braking system; it was therefore a measuring instrument under CTI 9031 8000 and not a brake part under CTI 8708 3000.

The specially moulded ultrasonic-sensor retainer was designed principally for use in motor vehicles and was not shown to be a general-purpose article or a part of general use; it was accordingly classifiable under CTI 8708 9900 rather than CTI 3926 9099.

The Speed Sensor merely detected magnetic-field changes and generated an electrical pulse; since the ECU calculated wheel speed, the sensor itself was not a measuring instrument under CTI 9031. It was accepted under CTI 8543 7099.

As regards the 36 sensors, the Tribunal held that Section 28 could support reclassification where incorrect classification caused short-levy or non-levy of duty.

However, where no duty demand was raised, the proceedings merely sought to alter completed assessments. Such reclassification was beyond Section 28 and had to be pursued through the statutory assessment or appellate mechanisms.

The alternative FTA claims required factual examination of eligibility, certificates of origin and applicable rules of origin; the matter was therefore remanded.

The ₹18,474 differential IGST was set aside in the peculiar circumstances of the case.

The extended-period demand was also set aside because differing classifications and repeated declarations, without cogent evidence of intent to evade duty, did not establish suppression or wilful misstatement.

In consequence, confiscation, redemption fine and penalties were unsustainable.

No interest was payable on the pre-16 August 2024 differential IGST.

The classifications of the nine disputed sensors were set aside and TKML’s declared classifications were accepted: the three temperature sensors under CTI 8533 4030; the Oxygen, Air-Fuel Ratio and NOx sensors under CTI 9027 1000; the Brake Pedal Sensor Assembly under CTI 9031 8000; the Retainer Ultrasonic Sensor under CTI 8708 9900; and the Speed Sensor under CTI 8543 7099.

The reclassification of the 36 sensors for which no differential duty had been demanded was set aside, without preventing the Department from examining their classification in future Bills of Entry.

TKML’s alternative FTA exemption claims concerning the Ultrasonic, Height Control, Light Control and Cable Sub-Assembly Spiral sensors were remanded to the Original Authority for fresh consideration within 90 days, including the issue of revenue neutrality.

The ₹18,474 differential IGST demand was set aside.

The extended-period demand concerning the Accelerator Pedal, Clamp Skid Control, Plate Crank Angle and Knock sensors was held time-barred, while any normal-period demand remained governed by the original order.

Confiscation, redemption fine and penalties against TKML and the co-appellants were set aside, and no interest was payable on the differential IGST for the relevant pre-16 August 2024 period.