The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside customs duty demands, penalties and redemption fines imposed in five appeals involving exports of rice, holding that proceedings under Section 28 of the Customs Act, 1962 cannot be initiated before a provisional assessment under Section 18 is finalized.
The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that where goods had been exported after provisional assessment and were no longer available for confiscation, a redemption fine under Section 125 of the Customs Act could not legally be sustained.
The Bench further found that the department could not conclusively determine the classification of the rice merely on the basis of inconclusive laboratory reports, particularly when the exporter’s request for cross-examination of the Chemical Examiner had not been considered.
Buy Now: 70+ Judgements Indirect Tax – July 2026 | E-Magazine
The appeals concerned five exporters and different periods between November 2022 and February 2023. The disputed amounts were ₹26,96,620, ₹38,97,150, ₹6,44,834, ₹10,27,989 and ₹60,72,688 respectively, aggregating to approximately ₹1.43 crore.
The orders under challenge had confirmed customs duty demands along with interest and penalties and had also imposed redemption fines. The Tribunal found that the central issue was common to all five matters and therefore considered them together.
The lead appeal was filed by an exporter of rice holding an Import Export Code. The exporter had filed shipping bills at Ludhiana port declaring the goods as “Parboiled Rice/Indian Parboiled Rice” under Customs Tariff Heading (CTH) 10063010.
The consignments were examined in accordance with Customs Instruction No. 29/2022 dated October 29, 2022. Representative samples were drawn and forwarded to the Central Revenues Control Laboratory (CRCL), New Delhi, for testing.
Pending receipt of the test reports, the goods were permitted to be exported on a provisional basis after execution of bonds. The subsequent CRCL reports stated that the samples possessed characteristics of non-parboiled rice, leading the department to take the view that the goods were classifiable under CTH 10063090.
On this basis, the department considered that export duty at the rate of 20% was payable and alleged that the goods had been deliberately mis-declared to avail an exemption. Proceedings were consequently initiated under Section 28(4) of the Customs Act, 1962, seeking recovery of duty, interest, redemption fine and penalty.
A central argument before the Tribunal was that the goods had not undergone a final assessment.
The exporters pointed out that the bonds executed at the time of export specifically stated that, if the cargo failed the test report, the exporter would pay the duty finally assessed along with applicable interest, fine or penalty. According to the exporters, this language clearly demonstrated that the assessment was provisional and had been undertaken under Section 18 of the Customs Act.
They therefore argued that the department could not straightaway invoke Section 28 to recover alleged short-paid or unpaid duty without first finalizing the provisional assessment.
The exporters also relied upon the Customs (Finalization of Provisional Assessment) Regulations, 2018, particularly Regulation 5, which requires the proper officer to finalize the provisional assessment within two months from receipt of the test reports.
It was submitted that the prescribed process had not been followed and the assessments had remained unfinalized. The exporters therefore contended that the subsequent demand proceedings were premature and legally unsustainable.
The Customs Department took a different position.
According to the department’s Authorized Representative, the matter did not involve provisional assessment under Section 18. Instead, it was argued to be a case of re-assessment under Section 17 of the Customs Act.
The department contended that where the proper officer does not accept the self-assessment made by an importer or exporter, the law permits re-assessment after verification. It was further argued that the goods had merely been provisionally released and that the procedure followed could not be treated as provisional assessment. Reliance was placed on judicial precedents concerning Section 17.
The Tribunal, however, rejected this characterization after examining the documents and the language of the bonds executed by the exporters.
The Tribunal’s primary finding was that the documents on record demonstrated that the exporters had been allowed to export the goods on the basis of provisional assessment under Section 18.
The Bench closely examined the conditions contained in the bonds and noted that the exporters had undertaken to pay the differential duty that would become payable upon final assessment. According to the Tribunal, this made it clear that the department’s argument that the assessments were not provisional could not be accepted.
The Tribunal consequently held that once provisional assessment had been resorted to, the assessment was required to be finalized in accordance with the Customs (Finalization of Provisional Assessment) Regulations, 2018.
The Tribunal noted that the statutory two-month period prescribed under Regulation 5 from receipt of the test reports had not been complied with and that the assessments had still not been finalized.
The Tribunal relied upon the earlier decision of the Principal Bench in Saharsh Distributors Pvt. Ltd. v. Commissioner of Customs, New Delhi, where proceedings under the corresponding recovery provision were held unsustainable when initiated before completion of provisional assessment.
The reasoning is significant: Section 28 deals with recovery of duties that have not been levied, have been short-levied or have been erroneously refunded. Where an assessment remains provisional, the final duty liability has not yet been determined. Consequently, the Tribunal held that a demand alleging short levy or non-levy cannot properly be raised before completion of the assessment process.
The Chandigarh Bench also referred to the Supreme Court’s decision in Commissioner of Central Excise & Customs, Mumbai v. ITC Ltd., which supports the principle that recovery proceedings cannot be initiated before completion of the relevant assessment process in a case involving provisional assessment.
The Tribunal found additional support for its conclusion in a departmental communication dated October 5, 2023.
In that letter, the department itself referred to the bonds executed by the exporters and their obligation to pay the duty finally assessed if the test reports were adverse. The Tribunal observed that this language itself demonstrated that final assessment had yet to take place.
The exporters responded on October 10, 2023, specifically maintaining that the goods had been provisionally assessed under Section 18 and that the assessments had not been finalized.
They also disputed the CRCL test results and sought cross-examination of the Chemical Examiner who had determined the nature of the goods. The Tribunal noted that no communication accepting or rejecting this request had been made by the department till the time of the decision.
The Tribunal rejected the department’s contention that the matter represented a simple re-assessment under Section 17.
The Bench observed that there was no document on record, apart from the impugned orders themselves, which established the department’s claim that the proceedings were based on re-assessment rather than provisional assessment.
The Tribunal therefore concluded that the Show Cause Notices issued under Section 28 before finalization of the assessments were premature. The assessment was required to be finalized in accordance with law before the department could proceed with recovery under Section 28.
The Tribunal separately examined the classification dispute arising from the CRCL reports.
The department had relied primarily upon the laboratory reports stating that the samples possessed characteristics of non-parboiled rice. However, the Tribunal noted that the reports did not definitively establish the exact nature of the rice exported.
The Bench observed that the distinction between parboiled and non-parboiled rice could be very narrow and that determination of tariff classification required consideration of the Customs Tariff, General Rules for Interpretation of the Customs Tariff and HSN Explanatory Notes.
The Tribunal emphasized that a test report constitutes expert opinion intended to assist in understanding the technical characteristics of a product. It does not, by itself, have a binding effect in determining the final legal classification.
According to the Bench, the final classification is a quasi-judicial function to be undertaken by the competent adjudicating authority in accordance with the applicable tariff provisions.
The Tribunal took note of the exporter’s specific request to cross-examine the Chemical Examiner.
The request had been made after the exporter disputed the test results, but it had not been acted upon by the department. The Tribunal held that deciding the classification merely on the basis of an inconclusive test report, particularly when the request for cross-examination had not been addressed, was legally unsustainable.
However, the Tribunal was careful not to decide whether the goods were, on merits, correctly classifiable as parboiled or non-parboiled rice.
Instead, it expressly confined its decision to the core procedural and jurisdictional question of whether the assessments were provisional under Section 18 or constituted re-assessments under Section 17.
The Tribunal also examined the redemption fines and penalties imposed by the lower authorities.
It noted that the goods had never been seized under Section 110 of the Customs Act and had not been provisionally released following seizure. Rather, they had been exported after execution of bonds under Section 18.
Since the goods had already left India and were therefore no longer available for confiscation, the Tribunal held that a redemption fine under Section 125 could not legally be sustained.
The CESTAT set aside the impugned orders and allowed all five appeals, granting consequential relief in accordance with law.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
Read More: Overseas Education Admission Facilitation Services Not “Intermediary Services”: CESTAT
