RECLASSIFICATION NOT SUSTAINABLE UNLESS PROPOSED IN SHOW CAUSE NOTICE

[Mr. M. GOVINDARAJAN]

In taxation matters the Adjudicating Authority, while making assessment in respect of doubted cases, issues a show cause notice to the assessee indicating the nature of non compliance of provisions of Act and Rules.  The show cause notice will also stipulate the date within which the reply should be filed by the assessee.  The assessee is to give reply within the time fixed as last date in the show cause notice along with the documents he relied on.  On receipt of the reply to the show cause notice, the Adjudicating Authority will adjudicate the case after giving reasonable opportunity of being heard.  The Adjudicating Authority cannot travel beyond the show cause notice. This principle is also applicable to the customs matter in reclassification of imported materials.

In TRISHAA OVERSEAS VERSUS COMMISSIONER OF CUSTOMS (NS-III) RAIGAD [2021 (6) TMI 671 - CESTAT MUMBAI], the appellant filed a bill of entry with a declared value of ₹ 11,29,709/-.  The appellant claimed the following are the contents in the said consignment-

• baby garment woolen knitted top - 38100 pieces priced at ₹ 14.49 apiece for value of ₹ 5,52,069;
• baby garments woolen knitted jacket - 38100 pieces priced at ₹ 14.49 apiece for value of ₹ 5,52,069 - 21000 pieces priced at ₹ 20.89 apiece for value of ₹ 4,38,690;
• men’s knitted glove - 16800 pairs priced at ₹ 4.59 a pair for value of ₹ 77,112; and
• baby knitted glove - 18000 pairs priced at ₹ 3.13 a pair for value of ₹ 56,340.

The appellant paid the duty based on self assessment.   On clearance the said consignment was put on hold for further investigation.  The physical examination of the consignment was carried out.  Further a reference was made to ‘inter-ministerial Textile committee’ for ascertainment of prohibited dyes. 

During physical examination it was found that the consignment was found to include ‘baby top sets’ (360 pieces with value of Rs/ 9172.80 at ₹ 25.48 apiece) without corresponding declaration in the bill of entry.  The Textile Committee observed that  the samples of ‘baby woolen garment top’ and ‘baby woolen garment jacket’ were found to be composed of ‘polyester yarn’ and for girls/boys.  The Textile Committee advised the Department to revise the classification from tariff item no. 6111 30 00 to tariff item no. 6106 20 10 and tariff item no. 6203 33 00 of First Schedule to Customs Tariff Act, 1975 

On the basis of the above the Department rejected the declared value of both the products.  Both the products were subjected to re-assessment at ₹ 36.81 apiece and at ₹ 145.32 apiece (₹ 14,02,461 and ₹ 30,08,124 instead of ₹ 5,52,069 and ₹ 4,38,690 respectively) adopted from that of comparable goods, under the authority of rule 5 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. There was an enhanced duty liability to ₹ 10,70,248.05 and ₹ 71,05,606.20 from ₹ 1,43,538 and ₹ 1,12,034 as self-assessed). The importer, though denying any complicity in the consigning of the undeclared goods, acquiesced in the duty liability of ₹ 2577.55 arising thereon.

The appellant file the present appeal challenging the order passed by Commissioner of Customs,(NS-III) for the enhancement  of duty.    The appellant did not question the duty liability on the undeclared goods.  The appellant questions the finding that the importer had deliberately attempted to evade duties of customs.  The appellant put forth the following arguments before the Appellate Tribunal-

• The adjudicating authority had been less than diligent in the discharge of his obligation by subordinating his statutory responsibilities to the advisory promptings of the Textile Committee.
• Even a superficial exercise of perusing the rival descriptions in the tariff had not been undertaking for, if he had, the benchmarking of ‘baby garments’ in note 6 of chapter 61 of First Schedule to Customs Tariff Act, 1975 would have been all too apparent. 
• The importer had not been placed on notice of the evidence, in the form of relevant bills of entry, for adoption of prices in other declarations for enhancement of value of the impugned goods.

The Department contended that the proceedings were initiated on collegial expertise of the Textile Committee, entrusted with specific responsibility by the Central Government.   The appellant had mis-declared the composition of the garments owing to which the revised classification, and rejection of declared value for assessment, was a natural consequence.   The Department prayed for the dismissal of the appeal.

The Appellate Tribunal observed that the appellant had, in the bill of entry, sought coverage under ‘of synthetic fibres’ within ‘Babies’ garments and clothing accessories, knitted or crocheted’ corresponding to tariff item no. 6111 30 00.  the adjudicating authority based on the expert guidance of the Textile Committee, found it appropriate to bring the ‘baby garments top’ under ‘of synthetic fibres’ within ‘Women’s or girls’ blouses, shirts and shirt-blouses, knitted or crocheted’ corresponding to tariff item no. 61062010 of the First Schedule to Customs Tariff Act, 1975. 

In respect of ‘baby garments jackets’ the adjudicating authority, apparently inspired by the expertise of the Textile Committee, decided that the description ‘of synthetic fibres’ under Jackets and blazers’ within Men’s or boys’ suits, ensembles, jackets, blazers, bib and brace overalls, breeches and shorts (other than swimwear)’ corresponding to tariff item no. 6203 33 00 of the First Schedule to Customs Tariff Act, 1975 to be more appropriate.

The Appellate Tribunal considered deciding whether the advice given by the Textile Committee was correct on which basis the Adjudicating Authority acted upon.  The classification done by the appellant on the goods imported are controverted by the Textile Committee for the following two reasons-

•  the articles were made of polyester fibre, and not of wool as described in the bill of entry; and
•  On the visual examination it was found these to be intended not for babies but for girls and boys.

The ‘boys’ jackets’, found not to be knitted, was sought to be fitted within chapter 62 of First Schedule to Customs Tariff Act, 1975.

The Appellate Tribunal observed that the impugned order changing classification of imported goods from declared classification under Tariff Item No. 6111 30 00 to Tariff items 6106 20 10 and 6203 33 00 of Customs Tariff Act, 1975 only on the basis of advice of Textile Committee.  The Textile Committee, in its advice, stated that imported goods are not baby garments but women/ladies garments and jackets.  The Appellate Tribunal held that the Adjudicating Authority was erred in blindly following the advice of the Textile Committee without going into Chapter Notes 6(a) and 6(b) of Chapter 61 which classifies baby garments on basis of length of garments.  In the present case the length of import garments is within the length stipulated in the Notes.  The Appellate Tribunal further held that as regards to the reclassification of jackets under Tariff item 6106 20 10 is not sustainable as it was never proposed in the show cause notice.  Since the value was enhanced only on account of change in classification the said enhancement was also not sustainable.  Some pieces of garments were found undeclared on examination.  The appellant is liable for duty and penalty for these garments.  The same is not contested by the appellant.  The Appellate Tribunal set aside the impugned order except for demand and penalty on undeclared goods.