The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that customs authorities cannot deny the benefit of a concessional customs duty exemption merely on assumptions regarding the classification of imported goods, particularly in the absence of any scientific test report.

The Bench comprising Justice Ashok Jindal (Member-Judicial) and K. Anpazhakan (Member-Technical) carefully examined the statement recorded from the Director of the importing company during investigation and set aside the demand for differential customs duty and the consequential penalty after finding that the adjudicating authority had incorrectly relied on statements that were never made by the importer. 

The appellant/assessee challenged an order of the Commissioner (Appeals) upholding the denial of exemption under Notification No. 82/2017-Customs dated October 27, 2017.

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The dispute related to six Bills of Entry filed for the import of “Chinlon Knitted Bonded Fabrics” and “Bonded Fabrics (Eva Lycra)” from China. The importer classified the goods under Customs Tariff Heading (CTH) 60069000, claiming the benefit of the concessional rate of duty available under Serial No. 169 of the exemption notification. The goods were initially cleared upon payment of the applicable concessional duty. 

Subsequently, the Customs Department initiated an investigation, alleging that the imported fabrics were made of synthetic fibres and therefore ought to have been classified under tariff entries 60063100, 60063200, 60063300 or 60063400, which were not eligible for the exemption claimed. Based on this reasoning, a show cause notice dated September 18, 2020 was issued invoking the extended period of limitation, demanding differential customs duty along with penalty under Section 114A of the Customs Act, 1962. 

The Department argued that Chapter 60 of the Customs Tariff classifies knitted or crocheted fabrics based on their constituent material. According to the Revenue, tariff item 60069000 applies only to knitted fabrics that are not made of wool, cotton, synthetic fibres or artificial fibres.

During investigation, the importer admitted that the imported fabrics were synthetic in nature. The Department further alleged that the fabrics were bleached and dyed, making them classifiable under tariff headings applicable to synthetic fibre fabrics. On this basis, it denied the exemption notification and confirmed the duty demand. 

The importer challenged the reclassification on multiple grounds.

It argued that the show cause notice had been issued nearly two years after clearance of the goods and was therefore barred by limitation. More importantly, the importer contended that Customs authorities had changed the tariff classification without obtaining any laboratory or technical test report establishing that the imported fabrics were bleached and dyed.

According to the appellant, the adjudicating authority had reached its conclusion purely on assumptions rather than evidence. 

The Tribunal noted that the recorded statement merely stated that the imported products were different types of fabrics having different uses and were synthetic in nature. Significantly, nowhere in the statement had the importer admitted that the fabrics were bleached and dyed, contrary to what had been recorded by the adjudicating authority. 

The Tribunal observed that the adjudicating authority had proceeded on an entirely erroneous factual premise.

It held that the finding that the imported fabrics were bleached and dyed had no evidentiary basis whatsoever. The adjudicating authority had attributed words to the importer that were absent from the recorded statement and had failed to support its conclusion with any laboratory analysis or technical examination of the goods.

The Bench observed that in matters involving tariff classification, particularly where the classification depends upon the physical characteristics of the goods, scientific evidence assumes considerable importance. In the absence of any test report establishing that the imported fabrics possessed the characteristics alleged by the Department, the exemption benefit could not be denied merely on assumptions. 

Setting aside both the Order-in-Original and the Order-in-Appeal, the CESTAT held that the denial of the exemption notification was legally unsustainable.

The Tribunal ruled that since the Revenue failed to produce any evidence demonstrating that the imported fabrics were bleached and dyed, the reclassification itself could not be sustained. Consequently, the demand of differential customs duty and the penalty imposed under Section 114A of the Customs Act were also set aside.

The appeal was accordingly allowed with consequential relief to the importer. 

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