Exporter’s Declaration in Shipping Bills Not False Merely Due to DRI’s Alternate Classification View: CESTAT sets aside Penalty u/s 114AA [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ), New Delhi held that an exporter’s declaration in Shipping Bills cannot be treated as false or incorrect merely because the Directorate of Revenue Intelligence (DRI) or other authorities hold a different opinion on classification.

The bench of Justice Dilip Gupta and P V Subba Rao observed that ‘The declaration in the Shipping Bills does not become false or incorrect simply because DRI takes a different view of the classification. No exporter has an obligation to conform to any future views of any officer of DRI, Audit, Preventive, etc. Penalty under section 114AA, therefore, cannot be imposed anyway in the matter regardless of the merits of the classification.”

The DRI investigations alleged that Pelican Quartz Stone, the appellant, misclassified “Engineered Quartz Stone” under Customs Tariff Heading (CTH) 68159990 instead of 68101990, thereby availing undue benefits under the Merchandise Exports from India Scheme (MEIS).

A show cause notice proposed re-assessment of past Shipping Bills, confiscation of exported goods valued at ₹11.63 crore, recovery of MEIS scrips under Section 28AAA of the Customs Act, 1962, and penalties under Sections 114 and 114AA. The Commissioner of Customs partly confirmed these proposals, leading to appeals by both the assessee and the Revenue.

The appellate tribunal ruled that classification is part of assessment, and once export goods are assessed and allowed clearance, the process concludes with export. Re-assessment by DRI after export is without authority of law. If Revenue seeks modification, the law provides only two routes, appeal under Section 128 or proceedings under Section 28 (restricted to recovery of duty not levied or short paid). Since no export duty was involved, Section 28 was inapplicable.

Further, the tribunal pointed out that classification differences are essentially matters of opinion. The exporter, supported by approvals from the Development Commissioner (SEZ), Assistant Commissioner (EOU sanction), and Central Excise officers, had declared classification in good faith.

Merely because DRI later held a different view, the declaration cannot be termed false said the bench. Also, it added that Section 113(i) (confiscation of goods) and penalty provisions under Sections 114 and 114AA cannot be invoked on such grounds.

It was held by the Tribunal that exporters have no obligation to anticipate or conform to possible future views of DRI or Audit officers on classification.

With regards to the MEIS benefits, the appellate bench found no evidence of fraud, wilful misstatement, suppression of facts, or even utilisation of scrips. Therefore, demand under Section 28AAA was also unsustainable.

While setting aside the impugned order, CESTAT allowed the assessee’s appeal and dismissed the Revenue’s appeal, holding that penalties under Sections 114 and 114AA were not required.

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