The Kolkata bench of the Customs, Excise & Service Tax Appellate Tribunal(CESTAT) set aside the Penalty imposed under the Customs Act, 1962 in the absence of misdeclaration as there was no Change in the Classification of Denim Fabric as per the Central Revenues Control Laboratory (CRCL) Report.
M/s S. K. Enterprises, the appellant challenged the impugned order, passed by the Commissioner of Customs, Shillong, wherein he ordered for confiscation of the goods imported vide Bills of Entry under Section 111(m) of the Customs Act, 1962. However, he gave the option to redeem the goods on payment of a redemption fine of Rs.25,00,000/-. Customs duty of Rs,1,28,82,505/- in total has been confirmed in respect of the goods imported vide the said four Bills of Entry. The penalty of Rs.1,28,82,505/- has also been imposed under Section 114A of the Customs Act.
While passing the Final Order, the Tribunal has ordered for retesting of the remnant samples at CRCL, New Delhi, after following proper procedure. The remnant samples were retested at CRCL, New Delhi and a copy of the Report was given to the Appellant.
The Appellant imported the goods vide the said four Bills of Entry declaring the same as Cotton Polyester Fabrics classifiable under Customs Tariff Heading (CTH) 52113190. On examination, the department observed that the goods imported were Blue Coloured fabrics of ‘Denim’ classifiable under CTH 52114200. Samples were drawn in the presence of DRI officers and sent for testing to the Customs Laboratory, Kolkata and the Textile Committee Laboratory, Mumbai.
The Reports received from the Laboratories indicated that the samples had the characteristics of Denim fabrics and the fabrics were three-thread twill weave woven fabric in the construction of the fabric, blue coloured (dyed) yarns entirely made of cotton in one direction and white textured polyester multifilament yarn reinforced with other material in the other direction has been used. Based on the Test Report, DRI concluded that the imported goods are ‘Denim fabrics’ and merits classification under CTH 52114200.
Two Show Cause Notices were issued proposing for confiscation of the goods. Both the Notices were adjudicated and demands were confirmed. On appeal, the Tribunal has passed the Final Order. The impugned order has been passed in pursuance of the Tribunal’s remand order.
The Chapter Notes of Chapter 52 defines Denim fabrics. As per the Chapter Notes, Denim” is a fabric of yarns of different colours, three thread or four thread twill, including broken twill, warp-faced, warp yarn of which are of the same colour, and weft yarn of which are unbleached, dyed of a lighter shade of the colour of the warp yarn.
It was submitted that there is no material in the show cause notice to show that there was an assessment done in respect of all four Bills of Entry. In the absence of any assessment so made, the question of short levy under section 28 would not arise.
Note to Chapter 52 and Test Report, the two-member bench comprising Mr R Muralidhar Member (Judicial) and Mr K Anpazhakan Member (Technical) observed that the colour of the weft yarn does not satisfy the definition of Denim as mentioned in Chapter Note 52. The composition of elastomeric material in the weft yarn indicates that the Test Report does not fully satisfy all the conditions required to classify the fabric as a Denim fabric.
The Test Report only indicates that the fabric has the characteristics of Denim fabrics. The Test Report did not categorically say that the fabric is a Denim Fabric. Fabrics having the characteristics of Denim fabric cannot be equated with the Denim fabric itself if it does not otherwise satisfy the requirements of Chapter Note 52.
The fabric contains both Cotton and polyester in the ratio of 79.% and 16.8% respectively. Thus, the Tribunal held that the fabric is rightly classifiable under the CTH 52113190 as Cotton Polyester fabric. Accordingly, we uphold the classification declared by the Appellant in the Bills of entry and reject the department’s reclassification of the fabric.
Since the fabric is classifiable under the CTH 52113190, the demand for differential duty of customs in the impugned order is not sustainable. Since there is no misclassification of the goods imported, the confiscation of the goods is not warranted. The CESTAT set aside the penalty imposed on the Appellant and the impugned order.
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