CESTAT Quashes 20-Year-Old Duty Demand, Rules in Favor of Importer in Landmark Textile Classification Case [Read Order]

The Mumbai Bench of The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has quashed a customs duty demand, firmly siding with an importer against the revenue department’s attempt to reclassify goods based on a disputed retest conducted without due process.

IMFA Trading Company, which had imported ‘Polyester fabrics’ in 2003. The goods were declared under Customs Tariff Item (CTI) 5407 6190, a classification confirmed at the time by the Textile Committee Laboratory; a specialized government body under the Ministry of Textiles. The importer paid the assessed duty, and the goods were cleared. Years later, the Directorate of Revenue Intelligence (DRI) initiated an investigation based on generic intelligence about potential misdeclaration in the sector. The DRI sent remnant samples to its in-house Central Revenue Control Laboratory (CRCL), which produced a new report suggesting the fabric was made of textured yarn, warranting a higher duty rate. This led to a demand for over ₹19 lakh in differential duty.

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The tribunal scrutinized the legal foundation of this demand. It found critical flaws in the department’s case. Most notably, the importer was never provided a legible copy of the CRCL's retest report, violating the fundamental principles of natural justice under Section 28 of the Customs Act, which mandates that a noticee must be informed of the basis of a demand. The bench emphasized that the original assessment, conducted by the specialized Textile Committee, could not be arbitrarily overturned by a general laboratory like the CRCL years after the fact without providing the importer a proper opportunity to defend itself.

The ruling heavily relied on established tribunal decisions in similar matters. It cited the Shri Lakshmi Cotsyn Ltd. (2011) case, which established that the Textile Committee is the specialized "specialist" agency for textile testing, whereas the CRCL is akin to a "general physician." That case also underscored that when test results are subjective and conflicting, the benefit of doubt must be given to the importer. The bench also referenced the Smart Designer (2019) case, which held that a retest by the Deputy Chief Chemist cannot overrule the original findings of the Textile Committee, especially when the proper procedure of a retest by the same specialized body was not followed.

The tribunal concluded that the entire demand was legally unsustainable. It found that the department failed to discharge its burden of proof for reclassification and that the belated retest, conducted without transparency or proper procedure, carried no weight. The 20-year-old demand was based on a process that lacked credibility and fairness.

The final order was pronounced by a bench comprising S.K. Mohanty, Member (Judicial), and. M.M. Parthiban, Member (Technical). The tribunal allowed the importer’s appeal, setting aside the demand and the impugned order, and bringing a long-standing dispute to a close in favor of the taxpayer.

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