ALO Law Office- IDT Tax I Arbitration I Litigation
Date: 17.02.2026
CESTAT Chandigarh Sets Aside Reclassification of Alloy Steel Scrap as Alloy Steel Bars
This Article has been written by Advocate Ravi Shekhar Jha-BALLB & LLM (Constitutional Law) based in New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email id intelconsul@gmail.com or on his Mobile +91-9999005379.
The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Chandigarh recently delivered a significant judgment in the case of M/s Shri Balaji International vs. Commissioner of Customs, Ludhiana. โ This case revolved around the classification of imported goods and the subsequent imposition of penalties and fines. โ The judgment, pronounced on February 16, 2026, provides valuable insights into the interpretation of customs laws and the importance of adhering to section and chapter notes of the Customs Tariff Act. โ
Background of the Case
M/s Shri Balaji International filed three bills of entry on September 5, 2017, for the clearance of alloy steel scrap under the classification code 7204 2990 of the Customs Tariff Act, 1975. โ However, upon examination by the Special Intelligence and Investigation Branch (SIIB) of Customs House, Ludhiana, the goods were suspected to be misdeclared. โ The authorities seized the goods on October 9, 2017, under the belief that they were not scrap but alloy steel bars, which are classified under 7224 9099. โ
Following an investigation, a show-cause notice was issued on February 8, 2018, and the adjudicating authority reclassified the goods as alloy steel bars, imposing penalties and redemption fines. โ The appellants challenged this decision before the Commissioner (Appeals), who upheld the lower authority’s order. Consequently, M/s Shri Balaji International filed appeals before the CESTAT.
Key Arguments Presented โ
Appellant’s Arguments:
- Misclassification of Goods: The appellant argued that the Revenue failed to classify the goods as per the relevant section and chapter notes of the Customs Tariff Act. โ They emphasized that the goods were not usable as alloy steel bars due to their chemical composition and physical condition, and thus should be classified as scrap under 7204 2990.
- Definition of Waste and Scrap: The appellant referred to Section Note 8 of the Customs Tariff Act, which defines waste and scrap as metal goods that are not usable due to breakage, cutting-up, wear, or other reasons. โ They contended that the goods met this definition and were unsuitable for their intended use. โ
- Chartered Engineer’s Report: The appellant highlighted the findings of the chartered engineer, who confirmed that the goods were off-specification and unsuitable for their intended use due to their chemical composition. โ The report stated that the material could only be used for melting purposes, further supporting the classification as scrap. โ
- Revaluation Concerns: The appellant argued that the authorities revalued the goods without proper justification or reference to contemporaneous prices. โ They also contended that the case law cited by the Commissioner (Appeals) was not applicable to their situation.
Respondent’s Arguments:
The Revenue reiterated the findings of the lower authorities, emphasizing the chemical composition of the goods as the basis for their classification as alloy steel bars. โ
Tribunal’s Observations and Decision
After hearing both sides and reviewing the case records, the Tribunal made the following observations:
- Misinterpretation of Section Notes: The Tribunal found that the original and appellate authorities had ignored the relevant section and chapter notes of the Customs Tariff Act, particularly the definition of waste and scrap under Section Note 8. โ
- Chartered Engineer’s Report: The Tribunal noted that the chartered engineer’s report clearly stated that the goods were off-specification and unsuitable for their intended use. โ The report concluded that the material could only be used for melting purposes, which aligns with the definition of scrap. โ
- Lack of Evidence: The Tribunal observed that the Revenue failed to provide concrete evidence to support the classification of the goods as alloy steel bars. โ The authorities relied solely on the chemical composition without considering the physical condition and usability of the goods.
- Unsustainable Classification and Revaluation: The Tribunal held that the classification and revaluation of the goods by the authorities were not sustainable under the law. โ The goods were deemed to be scrap, and the penalties and fines imposed were set aside.
Final Order
The Tribunal allowed the appeals filed by M/s Shri Balaji International, setting aside the impugned orders and granting consequential relief as per the law. โ This decision underscores the importance of adhering to the definitions and guidelines provided in the Customs Tariff Act when classifying goods. โ
Key Takeaways
- Importance of Section Notes: The case highlights the critical role of section and chapter notes in determining the correct classification of goods under the Customs Tariff Act. โ
- Role of Expert Opinions: The chartered engineer’s report played a pivotal role in establishing the nature of the goods and their classification as scrap. โ
- Burden of Proof: The judgment emphasizes that the burden of proof lies with the Revenue to provide concrete evidence when challenging the classification of goods.
- Judicial Precedence: The Tribunal clarified that judicial precedence must be applied appropriately, considering the specific facts of each case.
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Source: CESTAT Chandigarh
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