Customs Cannot Reclassify Fabrics Without Laboratory Test To Determine Composition: CESTAT Kolkata

On 25 August, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata held that Customs authorities cannot change the classification of imported fabrics merely on the basis of their description without conducting a laboratory test to determine their actual composition.

A Bench comprising Judicial Member R. Muralidhar and Technical Member K. Anpazhakan set aside a Rs. 39.12 lakh differential customs duty demand against Elvance Overseas LLP, holding that the Department could not treat fabrics described as “Polyester Warp Knitted Fabrics” as 100% synthetic without scientific evidence establishing their fibre composition. It observed:

“We further find that no Textile Committee report, no CRCL report, no NABL laboratory report and no scientific analysis has been adduced to substantiate the allegation of mis-classification against the importer-appellant... without any laboratory report negating the existing classification, the classification adopted cannot be altered.”

The case concerned five consignments imported by Elvance Overseas LLP and described as “Mixed Lot of Polyester Warp Knitted Fabrics”, valued at about Rs. 3.38 crore. The importer paid customs duty at the concessional rate of 10%, and Customs assessed and cleared the goods without raising any objection to their classification.

Later, the Department took the view that the goods, being described as polyester fabrics, should be treated as fabrics made of synthetic fibres and subjected to a higher rate of duty. This resulted in a differential customs duty demand of Rs. 39.12 lakh, along with interest and penalties. The Commissioner (Appeals) upheld the demand, following which the importer approached the CESTAT.

The Tribunal found that the Department had neither drawn samples of the imported fabrics nor tested them to determine their actual composition. It held that the composition of a fabric cannot be established merely from an invoice, packing list or visual examination. A mixed fabric also cannot automatically be treated as 100% synthetic without scientifically determining its fibre composition.

The Bench rejected the Department's assumption that the words “Polyester Warp Knitted Fabrics” necessarily meant that the entire fabric was made of polyester. It explained that polyester could form only one part of the fabric, while another part could be made from a different material. The description alone, therefore, could not establish that the fabric was 100% polyester.

It also noted that Customs had originally examined the goods, accepted their classification and cleared them. The Department later sought to change that classification without producing any fresh evidence of mis-declaration by the importer. It held that the Revenue must support such a change with proper evidence and cannot proceed merely on an assumption.

Accordingly, the CESTAT upheld the classification adopted by Elvance Overseas LLP and its entitlement to the concessional 10% customs duty. It set aside the Rs. 39.12 lakh differential duty demand, interest and penalties, and allowed the appeal.

For the Appellant: Elvance Overseas LLP: R.N. Bandyopadhyay, Advocate; Sukanya Roy, Consultant; and Rupsha Chatterjee, Advocate.

For the Revenue: Subrata Debnath, Authorised Representative.