2025 (5) TMI 2016 - AT - Customs

Misdeclaration of the description of the imported goods as RBD Palmolein Mixture - entitlement to customs duty exemption under a Free Trade Agreement - availment of the benefit of import at Nil rate of Basic Customs Duty BCD under exemption Notification No. 26/2000 - demand of duty - invoking extended period of limitation - imposition of penalties under Sections 114A and 112 (a) - HELD THAT - Although the goods were imported in 2004 and samples were drawn in 2004 there was evidently no reason for the appellant to ask for a retest until it was made aware that the test reports were received and that they were against the appellant and that they would be used against the appellant to fasten duty liability and impose penalties. All these things were clear when the SCN was issued by the Commissioner in 2009 relying on the test reports and then the appellant sought re-test. Thus the entire delay of five years from 2004 to 2009 was caused by the Commissioner in issuing the SCN. He relied on the test report received five years before but refused to send the samples for re- testing on the ground that the request for re-test was made after five years. There could have been better clarity on the nature of the goods imported and if they were NOT RBD Palmolein mixture as declared had the samples been re-tested but the Commissioner by denying re-test removed that possibility. Another possibility of finding the truth would have been to cross-examine the persons who tested the samples. This would have thrown more light on the nature of tests conducted and if they had also tested the samples for RBD Palmolein mixture or if they had otherwise concluded that the samples were not RBD Palmolein mixture . The appellant sought cross examination which was denied by the Commissioner on the ground that the test reports have been rendered between 12.3.2004 and 10.6.2004 under two different Directors of CFL Ghaziabad and all show that the samples conform to the standards laid down under PFA Rules for RBD Palmolein. Another reason given by the Commissioner was that the test reports were shown to two of the persons whose statements were recorded under section 108 and at that time they had not contested the test reports. However we find what the Commissioner does not state is that none of the test reports say that the samples do not conform to RBD Palmolein mixture or that the goods were not RBD Palmolein mixture. At the time of recording the statement the individuals may or may not have contested the test reports but when the test reports were proposed to be used against the appellant to fasten duty liability and impose penalties in the SCN issued in 2009 the appellant did have a right to contest the test reports. Thus the Commissioner removed any possibility of having an expert opinion or test report which can support the case of the department that the imported goods were NOT RBD Palmolein mixture as declared. This conclusion in the impugned order is not borne out of the test reports. Therefore the allegation that the appellant had mis-declared the nature of goods is not substantiated. To sum up a) The SCN and the impugned order are based on three types of documents- the Bills of Entry Statements of various persons and test reports. b) The Bills of Entry filed by the appellant are not in dispute. c) All statements of various persons recorded under section 108 of the Act have become irrelevant to prove the case because the Commissioner did not admit them following the procedure prescribed under section 138B of the Act. d) The test reports are one-sided; while they say that the samples meet the criteria for RBD Palmolein nowhere do they say that the samples were NOT RBD Palmolein mixture nor do they suggest that the samples were tested for RBD Palmolein mixture; this was possibly due to reason that the CFL was not asked if the goods were RBD Palmolein mixture as described or not. e) Another possibility of getting clarity about what the imported goods were and what they were not was to re-test the samples which was denied by the Commissioner on the ground that the request was made five years after the import when in fact the delay was solely on account of the Commissioner issuing the SCN five years after the goods were imported and samples were tested. Thus the Commissioner denied the appellant its right on account of his own wrong viz. the delay of five years in issuing the SCN. f) Another possibility of finding the true nature of the goods could have been to cross-examine the experts who tested the samples but that was also denied by the Commissioner. Thus the allegation of mis-declaration of the nature of the goods in the Bills of Entry and consequential demand of duty and interest and the penalties cannot be sustained. The appeal is allowed and the impugned order is set aside with consequential relief to the appellant.

Summary

The core legal questions considered by the Tribunal in this appeal revolve around the classification and description of imported goods and the consequent entitlement to customs duty exemption under a Free Trade Agreement. Specifically, the issues are:

1. Whether the imported goods declared as "RBD Palmolein mixture" in the Bills of Entry were in fact "RBD Palmolein" as alleged by the Customs authorities.

2. Whether the denial of exemption notification benefit and consequent demand of customs duty, interest, and penalties under the Customs Act, 1962, based on the alleged mis-declaration, is justified.

3. The evidentiary value and admissibility of statements recorded under section 108 of the Customs Act and test reports from the Central Food Laboratory (CFL), Ghaziabad.

4. The procedural propriety of the Commissioner's refusal to allow re-testing of samples and cross-examination of experts who conducted the tests.

Issue-wise detailed analysis:

Issue 1: Correct classification of the imported goods - "RBD Palmolein mixture" versus "RBD Palmolein"

The relevant legal framework includes the Customs Act, 1962, the India-Sri Lanka Free Trade Agreement (ISFTA), and exemption Notification No. 26/2000-Cus dated 1.3.2000, which grants nil Basic Customs Duty (BCD) only on "RBD Palmolein mixture" and not on "RBD Palmolein." The appellant declared the goods as "RBD Palmolein mixture" in the Bills of Entry, seeking exemption under the ISFTA. The Customs authorities alleged mis-declaration, contending the goods were "RBD Palmolein" and thus not eligible for exemption.

The Tribunal examined the Bills of Entry (undisputed documents) and found that the goods were indeed declared as "RBD Palmolein mixture." The Customs relied on three categories of evidence to rebut this: (a) the Bills of Entry themselves, (b) statements recorded under section 108 of the Customs Act, and (c) CFL test reports.

Issue 2: Admissibility and evidentiary value of statements under section 108 and their compliance with section 138B

Section 108 statements are recorded by Customs officers during investigation but are not automatically admissible as evidence. Section 138B prescribes conditions for their relevancy: either the declarant is unavailable or the adjudicating authority admits the statement in the interests of justice. The Tribunal noted that the Commissioner did not apply the procedure under section 138B(1)(b) to admit these statements as evidence. Nor did any circumstances under section 138B(1)(a) exist to justify their automatic relevancy.

Consequently, the Tribunal held that the statements recorded under section 108 were irrelevant and could not be relied upon to prove mis-declaration.

Issue 3: Interpretation and probative value of CFL test reports

The CFL reports tested samples sent by Customs, which were described as "purported to be RBD Palmolein." The reports confirmed that the samples conformed to the standards for "RBD Palmolein" under the Prevention of Food Adulteration Rules, 1954. However, the reports did not mention testing against parameters for "RBD Palmolein mixture," nor did they state that the goods were not "RBD Palmolein mixture."

The Tribunal observed that the CFL was not instructed to test the samples as "RBD Palmolein mixture," which was the declared description. Hence, the reports were one-sided and did not conclusively establish that the goods were not "RBD Palmolein mixture." The question whether meeting the parameters for "RBD Palmolein" excludes meeting those for "RBD Palmolein mixture" was left unanswered by the reports.

Issue 4: Denial of re-testing and cross-examination of experts

The appellant requested re-testing of samples five years after import, which was denied by the Commissioner on the ground of delay. The Tribunal found this reasoning flawed because the delay was attributable to the Commissioner himself, who issued the Show Cause Notice (SCN) only after five years. The appellant could not have reasonably requested re-testing before knowing the adverse test results were being used against it.

Further, the Commissioner denied the appellant's request to cross-examine the experts who conducted the tests, citing the age of the reports and prior acceptance of the reports by persons whose statements were recorded. The Tribunal held that the appellant had a right to contest the test reports once they were proposed to be used for imposing duty and penalties, and denial of cross-examination was improper.

Application of law to facts and treatment of competing arguments

The Tribunal carefully balanced the evidence and procedural safeguards. It found that the Bills of Entry clearly declared "RBD Palmolein mixture." The statements under section 108 were inadmissible due to non-compliance with section 138B. The test reports, while confirming conformity to "RBD Palmolein" standards, did not negate the declared description nor tested the goods as "RBD Palmolein mixture." The refusal to allow re-testing and cross-examination deprived the appellant of a fair opportunity to rebut the allegations.

The Tribunal thus concluded that the allegation of mis-declaration was not substantiated on the record and the demand of duty, interest, and penalties could not be sustained.

Significant holdings include the following verbatim reasoning:

"The Commissioner, by not admitting [statements recorded under section 108] as evidence by following the procedure prescribed under section 138B(2), rendered all the statements recorded under section 108 and relied upon in the SCN irrelevant to prove the case."

"None of the test reports say that the imported goods were NOT 'RBD Palmolein mixture'. In fact, none of the reports indicate that the samples were even tested to see if they meet the parameters for 'RBD Palmolein mixture' which was the description of the imported goods by the appellant in the Bills of Entry."

"The Commissioner denied re-test on the ground that the request was made five years after the import when, in fact, the delay was solely on account of the Commissioner issuing the SCN five years after the goods were imported and samples were tested."

"The allegation of mis-declaration of the nature of the goods in the Bills of Entry and consequential demand of duty and interest and the penalties cannot be sustained."

Core principles established:

- Statements recorded under section 108 of the Customs Act must be admitted as evidence in compliance with section 138B to be relevant.

- Test reports must be comprehensive and test the goods as declared; partial or one-sided testing cannot be the basis for adverse conclusions.

- Delay caused by the adjudicating authority in issuing SCN cannot be used to deny the appellant's right to seek re-testing or fair opportunity to contest evidence.

- The burden lies on the Customs authorities to conclusively prove mis-declaration before denying exemption and imposing penalties.

Final determinations:

The Tribunal allowed the appeal, set aside the impugned order, and held that the demand of customs duty, interest, and penalties based on alleged mis-declaration of goods was unsustainable. The appellant was entitled to consequential relief.