CESTAT Ahmedabad Upholds Fabric Reclassification Based On CRCL Test, Remands Valuation, SEZ Exemption

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, has upheld the reclassification of imported synthetic fabrics, holding that laboratory test results clearly disproved the importer's declaration and rejecting a retesting plea raised after 11 years, while remanding valuation and SEZ exemption issues for fresh adjudication.

A bench of Judicial Member Somesh Arora and Technical Member Satendra Vikram Singh allowed the Revenue's appeal against relief granted to Om Siddh Vinayak Impex Pvt. Ltd., finding that the CRCL test report conclusively established the composition of the goods.

The case arose from the import of 25,603.2 kg of synthetic fabric from China, declared as “100% polyester plain dyed fabrics” under a tariff entry applicable to fabrics containing at least 85% texturized polyester yarn, along with a claim for exemption under a 2000 Customs Notofication.

However, testing by CRCL, Kandla, revealed that the fabric contained only about 60–63.5% texturised yarn. The department accordingly reclassified the goods under a higher-duty entry, enhanced the assessable value, and confirmed a differential duty demand of Rs 71,57,744.

The Commissioner (Appeals) had set aside the demand, citing non-supply of the test report and questioning its adequacy. Reversing this, the Tribunal found no material to discard the CRCL findings.

Dismissing the importer's challenge, the Bench said:

“We find that the records nowhere, show that the test report was discarded by the assessing officer. There is also no correspondence from the respondent raising doubts about the said test reports till February 2014 when they, for the first time, requested for retesting of sample knowing well that remnant samples were not available. The request for retesting of samples received after a gap of 11 years from the date of import, was not acceded to by the department due to non-availability of samples and also, as the matter was under de-novo adjudication.”

The tribunal underscored that the test report remained undisputed for years and was sufficient to determine classification:

“We are of the view that there was no dispute in the test reports of CRCL Kandla either from the department side or by the respondent till Feb 2014 (when the respondent raised the issue of retest after finding that remnant samples are not available). We also find that the test reports given by CRCL Kandla gives composition of goods and thus, it is adequate to determine classification of imported goods.”

Holding that the declared entry required at least 85% texturized yarn, the bench concluded that the importer's classification was incorrect and upheld the reclassification adopted by the adjudicating authority.

On valuation, however, the Tribunal found that the department had enhanced the assessable value without following the prescribed Customs Valuation Rules or disclosing the basis and comparable data relied upon. It directed a fresh determination after supplying relevant material and granting the importer an opportunity to respond.

On the SEZ exemption issue, the tribunal noted ambiguity in the Letter of Permission (LOP) regarding the scope of permitted raw materials.

The bench observed:

“From LOP, we observe that both raw materials and the finished goods have been mentioned in the same column. Therefore, office of the Development Commissioner can only clearly intimate as to which of the raw materials were permitted to be procured against this LOP.”

Directing that this ambiguity be clarified by the Development Commissioner, the tribunal asked the adjudicating authority to decide the exemption issue afresh while remaining within the scope of the show cause notice.

Accordingly, the tribunal upheld the classification but remanded the issues of valuation and SEZ exemption for fresh adjudication.

For Appellant: Girish Nair, Assistant Commissioner

For Respondent: Paresh M Dave, Advocate with Sudhanshu Bissa, Advocate