2025 (3) TMI 69 - AT - Customs

Reclassification of goods on the basis of re-testing report of the imported remnant samples - no such re-test report is furnished to the appellants-importer - principles of natural justice - HELD THAT - The customs authorities had send remnant samples of imported goods subsequent to the clearance of such goods for retesting by CRCL which is a in-house laboratory of New Custom House. It is fact on record that the Less Charge- Cum-demand notice dated 23.12.2003 gives a reference to such test report as the samples is cut piece of dyed (Navy Blue) woven fabric made of non- textured polyester filament yarn (58.4%) Textured Polyester filament yarn (balance) and on this basis the department had gone ahead for re- classification of goods under CTI 5407 7200 for demanding higher customs duty. It is fact that there is no legible copy of CRCL re-test report is available on record and no such copy was furnished to the appellants- importer. Inasmuch as the imported goods have been examined by the jurisdictional customs authorities and after subjecting the imported goods for examination on first-check basis that too after testing by the Textiles Committee Laboratory and on the basis of such test report the imported goods had been cleared there appears no ground or evidence for re-testing the same goods under the pretext of alleged mis-declaration of goods by some other person. The essential requirements of legal provisions of Section 28 of the Customs Act 1962 such as service of notice of the basis on which the appellants-importer is being asked to pay the differential duty reasonable opportunity to be given for enabling them to present their representation for due consideration before passing of the order have not been carried out by the authorities below. This is evident from the fact that the original order does not even provide the re-test report; but it has gone in detail about the visit of Joint Director of CRCL to the Textiles Committee Laboratory to state that they did not follow the standard testing requirements to doubt the test report given by them earlier in confirmation of the imported goods as Non-texturized polyester yarn. Therefore the confirmation of the duty demand under Section 28 ibid does not stand the scrutiny of law. In the case of Ramchand Jashanmal Narwani 2019 (5) TMI 1577 - CESTAT MUMBAI involving similar set of facts the Co-ordinate Bench of the Tribunal has held that there is lack of any record to sustain the variation in test reports and dismissed the appeal filed by the department. Conclusion - The essential requirements of legal provisions of Section 28 of the Customs Act 1962 such as service of notice of the basis on which the appellants-importer is being asked to pay the differential duty reasonable opportunity to be given for enabling them to present their representation for due consideration before passing of the order have not been carried out by the authorities below. Demand of duty do not sustain. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issue in this case revolves around the reclassification of imported polyester fabrics and the subsequent demand for additional customs duty based on a re-test report from the Central Revenue Control Laboratory (CRCL). The primary question is whether the demand for duty arising from the reclassification of goods, based on a re-test report that was not furnished to the appellants, is legally sustainable.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework is primarily governed by Section 28 of the Customs Act, 1962, which outlines the procedure for demanding differential duty. The case also references several precedents where similar issues of reclassification and reliance on test reports were adjudicated, including decisions in the cases of Shri Lakshmi Cotsyn Limited, Atlas Mercantile Pvt. Ltd., Smart Designer, and Ramchand Jashanmal Narwani.

Court's Interpretation and Reasoning

The Tribunal examined whether the reclassification and subsequent demand for higher customs duty were justified. The court noted that the initial classification and duty assessment were based on the Textile Committee's test report, a specialized agency in textile matters. The reclassification was based on a CRCL report, which was not provided to the appellants, violating principles of natural justice.

Key Evidence and Findings

The original classification was based on a test by the Textile Committee, which identified the goods as non-texturized polyester yarn. The CRCL's re-test suggested a different classification, but the report was not furnished to the appellants. The Tribunal found no legible copy of the CRCL report in the records, and the appellants were not given an opportunity to contest the findings.

Application of Law to Facts

The Tribunal applied Section 28 of the Customs Act, emphasizing the need for due process, including providing the basis for the demand and allowing the appellants to present their case. The Tribunal found that the procedural requirements were not met, as the appellants were not informed of the re-test findings or given a chance to respond.

Treatment of Competing Arguments

The appellants argued that the initial test by the Textile Committee should prevail, as it was conducted by a specialized agency. They cited previous cases where similar reclassifications based on CRCL reports were dismissed. The department contended that the CRCL report justified the reclassification and higher duty. However, the Tribunal favored the appellants' argument, emphasizing the lack of procedural fairness and transparency in the reclassification process.

Conclusions

The Tribunal concluded that the reclassification and demand for additional duty were not legally sustainable due to procedural lapses, including the failure to provide the re-test report to the appellants and the lack of a fair opportunity to contest the findings.

SIGNIFICANT HOLDINGS

The Tribunal held that the procedural requirements under Section 28 of the Customs Act were not met, rendering the demand for additional duty unsustainable. It emphasized the importance of transparency and fairness in customs assessments, particularly when reclassification is based on new evidence not shared with the importer.

Preserve verbatim quotes of crucial legal reasoning

The Tribunal cited the case of Ramchand Jashanmal Narwani, emphasizing the lack of records to sustain the variation in test reports and the necessity for the importer to be notified of specific remnant samples needing re-testing.

Core Principles Established

The Tribunal reinforced the principle that procedural fairness and transparency are essential in customs assessments. It highlighted the need for importers to be informed of the basis for any reclassification and given an opportunity to contest such findings.

Final Determinations on Each Issue

The Tribunal set aside the impugned order dated 22.12.2022, ruling in favor of the appellants. It concluded that the reclassification and demand for additional duty were not legally sustainable due to the procedural deficiencies identified in the case.