Export Duty Recovery Premature Before Finalisation Of Provisional Assessment: CESTAT Chandigarh

The Chandigarh bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a ₹26.96 lakh export duty demand against S.K. Brothers.

The court held that duty recovery proceedings cannot be initiated before a provisional assessment is finalised.

The bench comprising Judicial Member S.S. Garg and Technical Member P. Anjani Kumar found that the rice consignments were allowed to be exported on provisional assessment while samples were being tested to determine the nature of the rice.

The Department later initiated recovery proceedings without first completing the final assessment.

“Once the bonds have been executed under Section 18, it is evident that the goods were permitted for export on the basis of a provisional assessment only,” the tribunal observed.

"Consequently, we hold that the Show Cause Notices issued to the Appellants before the finalization of assessment are premature, because the assessment is mandatorily required to be finalized in accordance with the law prior to the issuance of any Show Cause Notice under Section 28 of the Act. Accordingly, in view of this, the present proceedings are legally unsustainable", it therefore held.

The five appeals concerned exports of parboiled rice. Samples were drawn and sent to the Central Revenues Control Laboratory (CRCL), New Delhi, for testing. Pending the test results, the goods were allowed to be exported against bonds.

The CRCL reports later stated that the samples exhibited characteristics of non-parboiled rice. Based on the reports, the Department classified the goods as non-parboiled rice and took the view that 20% export duty was payable.

For S.K. Brothers, the Department confirmed a demand of ₹26.96 lakh for January-February 2023, along with interest, penalty and redemption fine. The connected appeals involved demands of ₹38.97 lakh, ₹6.44 lakh, ₹10.27 lakh and ₹60.72 lakh.

The exporters argued that the assessments had remained provisional and were never finalised. The rules governing provisional assessments require the proper officer to complete the final assessment within two months of receiving the test reports.

The tribunal found that the prescribed period had not been followed and that the final assessments had still not been completed. It relied on the principle that recovery proceedings cannot be initiated when the duty liability itself has not yet been finally determined.

The Department argued that this was a case of reassessment rather than provisional assessment. It also contended that the goods had merely been provisionally released.

The tribunal rejected the argument, finding that no document on record, apart from the impugned orders themselves, established that the shipping bills had been reassessed. The documents instead showed that the goods had been exported following provisional assessment.

Consequently, the bench held that the show cause notices issued before finalisation of the assessments were premature.It added that the assessment had to be finalised before a show cause notice for duty recovery could be issued.

The tribunal also considered the dispute over whether the exported rice was parboiled or non-parboiled. It noted that the CRCL reports only stated that the samples exhibited characteristics of non-parboiled rice and did not definitively establish the exact nature of the exported rice.

“The distinction between parboiled rice and non-parboiled rice is razor-thin,” the bench observed.

The tribunal further noted that the Department had not undertaken the classification exercise with reference to the Customs Tariff, the General Rules for Interpretation of the Customs Tariff, and the HSN Explanatory Notes.

The exporters had also sought cross-examination of the Chemical Examiner who prepared the reports, but the request remained unanswered.

The tribunal clarified that it was not finally deciding whether the rice was parboiled or non-parboiled. Its decision was confined to whether the assessments were provisional or amounted to reassessment.

The duty demands, penalties, and redemption fines were set aside. On the redemption fine, the tribunal noted that the goods had already been exported and were no longer available for confiscation, making the fine unsustainable.

The tribunal allowed all five appeals with consequential relief, if any, in accordance with law.

For Appellants: Advocates Naveen Bindal and Aryan Bindal,

For Revenue: Maheswar Maji and Amita Gupta, Authorised Representatives