Pranav B Prem

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that an exporter is under no obligation to anticipate or adhere to the views of the Directorate of Revenue Intelligence (DRI), audit, or preventive authorities in classifying goods in Shipping Bills. Once the exporter files the Shipping Bill based on his understanding, his responsibility under the Customs Act stands discharged.

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The Bench, comprising Justice Dilip Gupta (President) and Technical Member P.V. Subba Rao, was deciding an appeal filed by M/s Pelican Quartz Stone challenging the re-classification of goods already exported and the consequential demand and penalties imposed. The Tribunal simultaneously dealt with the cross-appeal filed by the revenue and the connected applications.

The dispute stemmed from a Show Cause Notice issued by the Principal Additional Director General of DRI, seeking to reject the declared classification of Engineered Quartz Stone exported under Customs Tariff Item (CTI) 68159990 and instead classify it under CTI 68101990. Based on this reclassification, it was proposed to recover ₹69.32 lakhs availed by the assessee through MEIS scrips, impose penalties under Sections 114(iii) and 114AA of the Customs Act, and confiscate goods with an FOB value of ₹11.63 crores under Section 113(i) of the Act.

The Commissioner of Customs (Preventive), Jaipur, while adjudicating the Show Cause Notice, accepted the reclassification and confirmed the proposals of confiscation and penalty under Section 114(iii), but dropped the demands under Section 28AAA and the proposal for penalty under Section 114AA. Aggrieved by this, both the department and the assessee approached the Tribunal.

On behalf of the department, it was argued that MEIS scrips were wrongly availed based on incorrect classification and should be recovered under Section 28AAA. It was contended that the classification ought to be decided by DGFT as per the Foreign Trade Policy, and that the Commissioner erred in dropping the demand and failing to impose penalty under Section 114AA.

The assessee, on the other hand, argued that the Shipping Bills had been filed and the goods exported after final assessment. It was submitted that classification was consistently accepted by various authorities—the Development Commissioner of NOIDA SEZ, the Assistant Commissioner who sanctioned the EOU, and Central Excise officers who processed the ARE-1 and ER-2 forms. The assessee further contended that there was no misrepresentation or suppression of facts and that the classification was based on genuine understanding.

The Tribunal observed that assessment, including classification, is a quasi-judicial function. Once the goods have been exported and the Shipping Bills assessed, no re-assessment can be undertaken by DRI or any other officer without lawful authority. The Tribunal noted that the Show Cause Notice failed to invoke any provision under which the re-assessment was being proposed. The Commissioner, too, did not cite any authority of law to support the reclassification.

The Tribunal held that: “No exporter has any obligation to anticipate any views of DRI, audit or preventive officers regarding the classification of the goods or to conform to them. The exporter fulfils his obligation once he files the Shipping Bills classifying goods as per his understanding.”

The Bench further clarified that divergent views on classification do not render a Shipping Bill declaration false or incorrect. It noted that if DRI or other authorities take a different view on classification, such views do not make the goods liable for confiscation under Section 113(i), as classification is a matter of interpretation.

The Tribunal strongly rebuked the basis of the proposed confiscation, stating: “If the goods are exported, and DRI or Audit or Preventive or some other officer takes a different view of the classification, such views do not make the goods liable to confiscation. Otherwise, it would lead to complete anarchy.”

On the issue of demand under Section 28AAA, the Tribunal found no evidence or allegation that the MEIS scrips were obtained by fraud, wilful misstatement, or suppression of facts. Nor was there proof that the scrips were actually utilised. Accordingly, it upheld the Commissioner’s decision to drop the demand under Section 28AAA.

With respect to the penalty imposed under Section 114 and proposed under Section 114AA, the Tribunal ruled that differing views on classification do not constitute grounds for penalty, especially when the declaration was in line with official authorisations and there was no falsehood in the documentation.

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In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the reclassification, the confiscation order, and the penalty under Section 114. It also dismissed the Revenue’s appeal and held that no penalties could be sustained under Section 114AA. The impugned order was accordingly set aside, and the assessee was held entitled to consequential relief.

Appearance

Shri C.M. Sharma Consultant for the appellant

Shri Rakesh Kumar, Authorised Representative for the Revenue

Cause Title: Commissioner, Customs (Preventive)-Jaipur V. M/S Pelican Quartz Stone

Case No: Customs Appeal No 50324 OF 2025

Coram: Hon'ble Mr. Justice Dilip Gupta [President], Hon'ble Mr. P. V. Subba Rao [Member (Technical)]

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