January 20, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata has set aside a demand for differential Integrated Goods and Services Tax, interest and penalties raised by the Customs Department against MRK Impex Private Limited, holding that broken and salvaged shaft pieces recovered from ship-breaking activities cannot be treated as crank shafts under the Customs Tariff.

The ruling was delivered by a Bench comprising Judicial Member R. Muralidhar and Technical Member Rajeev Tandon in Customs Appeal No. 76038 of 2023. The Tribunal held that once a ship is dismantled, its components lose their original identity and commercial character. As a result, broken and cut shaft pieces recovered during ship-breaking are rightly classifiable as “articles of iron and steel” under Heading 7326 of the Customs Tariff Act, and not as crank shafts under Heading 8483.

The appellant is engaged in the manufacture of iron and steel products and imports iron and steel shaft and crankshaft pieces obtained from dismantled ships. In July 2018, a consignment described as “Iron and Steel Shaft (Parts of Ship)” was imported and cleared under CTH 73269080 with the benefit of a SAFTA Certificate. The goods were physically examined by Customs at the time of import and were assessed and cleared as declared.

Nearly two years later, the Customs Department issued a show cause notice dated 10 September 2020 proposing to reclassify the goods under CTH 84831092, applicable to crank shafts for compression-ignition engines, attracting IGST at 28 percent along with interest and penalties under Sections 112 and 117 of the Customs Act, 1962. The Department alleged mis-declaration and invoked the extended period of limitation under Section 28(4) of the Act.

The adjudicating authority and the Commissioner (Appeals) accepted the Revenue’s case, prompting the importer to approach the Tribunal. Allowing the appeal, CESTAT noted that Heading 84831092 applies specifically to crank shafts for engines falling under Heading 8408 and could not cover broken and salvaged ship parts. The Bench observed that the imported goods consisted of cut and damaged portions of shafts which were no longer identifiable as crank shafts used in diesel or semi-diesel engines.

The Tribunal placed reliance on the commercial invoice and the SAFTA Certificate, both of which consistently described the goods under Heading 7326. It found no legally sustainable basis for the Department to reopen and alter the classification after clearance, particularly when the goods had already been examined and assessed by Customs.

Emphasising certainty and consistency in tax administration, the Bench noted that similar imports had earlier been classified under Heading 7326, including in the case of Laxmi Metal Works, which had attained finality. It further held that the original assessment had not been reviewed or challenged at the relevant time and had therefore attained finality, making the subsequent show cause notice untenable.

The Tribunal also rejected the invocation of the extended limitation period, finding no concealment or misrepresentation by the importer. It recorded that the case was revenue neutral, as any additional duty paid would have been available as credit, negating any intent to evade tax.

In view of these findings, CESTAT set aside the reclassification under CTH 84831092, quashed the demand for differential IGST, interest and penalties, and allowed the appeal in full with consequential relief in accordance with law.