2025 (5) TMI 2020 - AT - Customs

Claim of duty drawback - Misdeclaration - discrepancy between the fabric composition declared on the labels and the actual fabric composition - demand along with applicable interest and penalty - HELD THAT - From the SCN and reply thereto we find that the dispute was only with regard to the declaration in the label /tag regarding the fabric composition and not the composition per se. Hence the scope of the appeal does not involve or require getting into the merit as regards the fabric composition is concerned. The appellant has explained that the internal miscommunication and misunderstanding resulted in errors in labelling but in so far as seven Shipping Bills were concerned there was no mismatch either with regard to the fabric composition or even the declaration of the same is concerned. Further the conduct of the appellant that upon re-import of the fabric in question which has been recorded in SCN at paragraph 11 that the appellant had vide their letter dated 19.05.2010 sought for provisional release of the goods after surrendering the duty drawback which was availed at the time of export. This according to us is an action in good faith since it was at least after three years thereafter that the SCN came to be issued; the reimport of the consignments was in July 2009. Hence we do not find any willful misdeclaration to claim the drawback as alleged by the Revenue and hence the consequential demand raised in the impugned order cannot sustain since it is an admitted fact that the appellant voluntarily remitted back the duty drawback sanctioned to them along with interest. Sustaining the consequential demand would therefore result in demanding the duty twice. For the above reasons no penalty could be levied and the impugned order requires to be set aside which we hereby do. Resultantly the appeal is allowed with consequential benefits if any as per law.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Tribunal is whether there was a misdeclaration in the fabric composition on the labels affixed to the exported and subsequently re-imported goods, which would justify the demand of consequential customs duty, interest, and penalty. Specifically, the issue centers on whether the discrepancy between the fabric composition declared on the labels and the actual fabric composition constitutes a willful misdeclaration warranting recovery of duty and imposition of penalty under the relevant customs laws.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Whether there was any misdeclaration of fabric composition on the labels affixed to the exported and re-imported goods, justifying the demand of duty and penalty.

Relevant Legal Framework and Precedents: The legal framework involves customs laws relating to import-export procedures, duty drawback claims, and the requirement of accurate declaration of goods' composition for customs and export purposes. The principle that misdeclaration, if established, attracts recovery of duty and penalty is well-settled. However, the burden lies on the Revenue to prove willful misdeclaration rather than mere clerical or labeling errors. Precedents emphasize that good faith actions by the importer/exporter, including voluntary surrender of duty drawback amounts, mitigate against imposition of penalty.

Court's Interpretation and Reasoning: The Tribunal focused on the factual matrix and documentary evidence rather than the technical correctness of fabric composition. It was undisputed that the actual fabric composition remained substantially unaltered; the only discrepancy was in the printed label on the goods, which was changed as per the foreign importer's requirement. The Textile Committee's test report confirmed the composition was almost matching the original, except for the label declaration. The Tribunal noted that the appellant had voluntarily surrendered the duty drawback amount claimed earlier, along with interest, before issuance of the Show Cause Notice (SCN), indicating good faith.

Key Evidence and Findings: The Textile Committee's test report was central, confirming the fabric composition's authenticity despite label discrepancies. The appellant's letter dated 19.05.2010 requesting provisional release of the goods after surrendering the duty drawback was significant evidence of voluntary compliance. The SCN and subsequent replies clarified that the dispute was confined to the label declaration, not the actual fabric composition. The Tribunal also noted that there was no mismatch in seven Shipping Bills regarding fabric composition declarations.

Application of Law to Facts: The Tribunal applied the principle that misdeclaration must be willful and material to attract duty and penalty. Since the appellant had corrected the error by surrendering the drawback amount and interest voluntarily, and since the actual fabric composition remained unchanged, the Tribunal concluded that there was no willful misdeclaration. The demand for duty and penalty was therefore unsustainable as it would amount to double recovery of duty already repaid by the appellant.

Treatment of Competing Arguments: The Revenue relied on the Textile Committee's report and the label discrepancy to argue misdeclaration and consequent recovery of duty and penalty. The appellant argued that the label change was per foreign importer's requirement and did not alter the actual fabric composition, and that the voluntary surrender of drawback amount negated any willful intent. The Tribunal sided with the appellant's explanation and conduct, finding no evidence of fraudulent intent or material misdeclaration.

Conclusions: The Tribunal held that the discrepancy in the label did not amount to misdeclaration of fabric composition in a manner warranting duty demand or penalty. The voluntary surrender of drawback amount and interest by the appellant demonstrated good faith and negated the Revenue's claim of willful misdeclaration. Therefore, the demand of duty, interest, and penalty was set aside.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt: "Hence, we do not find any willful misdeclaration to claim the drawback, as alleged by the Revenue and hence, the consequential demand raised in the impugned order cannot sustain since it is an admitted fact that the appellant voluntarily remitted back the duty drawback sanctioned to them, along with interest. Sustaining the consequential demand would therefore result in demanding the duty twice."

Core principles established include:

• A discrepancy in labeling that does not alter the actual composition of goods and is corrected by voluntary surrender of duty drawback does not constitute willful misdeclaration.
• Good faith actions by the appellant, such as voluntary repayment of drawback and interest, mitigate against imposition of penalty and duty demands.
• Double recovery of duty is impermissible; therefore, once the duty drawback is surrendered, consequential demand for duty cannot be sustained.

Final determinations on the issue were that the appeal was allowed, the impugned order demanding duty, interest, and penalty was set aside, and consequential benefits were granted to the appellant in accordance with law.