2025 (12) TMI 252 - AT - Customs

Uniform classification of knitted garments under CTH 6102 with 6% interest on delayed drawback, Sl. No. 2704 upheld

M/s. Terai Overseas Private Limited Versus Commissioner of Customs (Port), Kolkata

The Tribunal held that the exported goods, described in the shipping bills as knitted readymade garments such as gents shirts, ladies dresses, long coats ... Classification of export goods - knitted readymade garments - Conversion of shipping bills from Duty Exemption Entitlement Certificate (DEEC) Scheme to Drawback Scheme - determination of admissible Drawback claim on the basis of classification of the goods determined - claim for interest - HELD THAT:- It is observed that the ld. adjudicating authority has already granted drawback to the Appellant as per the M/S. TERAI OVERSEAS PVT. LTD. [2025 (3) TMI 18 - CESTAT KOLKATA]. The appellant has challenged the rate of drawback determined by the Ld. adjudicating authority. It is the appellant’s claim that all the goods exported by them were readymade garments and thus, are all eligible for classification under a single Tariff Heading and the drawback claim is to be fixed accordingly. However, in the impugned order, the ld. adjudicating authority has classified the goods under various subheadings such as CTHs 6102, 6103, 6104, 6105 and 6106, without giving any proper reason for such classification and determined different rates of drawback. It is found that the Department has not conducted any Test on the goods exported by them to ascertain the constituent materials, as the goods were not originally not exported under the claim of drawback. Thus, the classification of the goods exported have to be decided on the basis of the description of the goods mentioned by them in the shipping bills. From the descriptions of the goods as contained in the concerned shipping bills, it can be observed that the said goods, mostly including ‘Gents shirts’, ‘Ladies dress’, ‘Ladies long coat’, ‘Ladies blouse’, etc., are in the nature of knitted readymade garments, which squarely fall under the CTH 6102 [corresponding to Drawback Sl. No. 2704] as mentioned in the Public Notice No. 5/1995, which deals with ‘ready-made garments’. Under the said entry pertaining to CTH 6102, the drawback rate would be 10% of FOB value subject to a maximum of Rs. 45/- per piece. In fact, we find that the ld. adjudicating authority, with respect to some of these goods under the shipping bills in question, has adopted the classification under CTH 6102. Having considered the documentary evidence available on record, all the knitted readymade garments exported by the appellant under the shipping bills in question are classifiable under the CTH 6102 and the drawback rate for the said goods are to be fixed as per the entry corresponding to the CTH 6102 [pertaining to Drawback Sl. No. 2704]. Claim for interest - HELD THAT:- Reference made to the decision of this Tribunal in the case of Vedanta Ltd. v. Commissioner of Customs (Ports), Kolkata [2025 (1) TMI 1219 - CESTAT KOLKATA], wherein interest has been granted for delay in finalization of provisional assessment by the department. It is observed that the said decision to grant interest for the delay in finalization of provisional assessment has been upheld by the Hon'ble Orissa High Court in [2025 (11) TMI 317 - ORISSA HIGH COURT] - It is observed that the same ratio would be applicable to this case, as the delay in conversion of the shipping bills, to the extent as observed was not on the part of the appellant - the appellant would be eligible for the drawback along with the applicable rate of interest @6%, in respect of the goods exported vide all the 34 shipping bills. Appeal disposed off. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether the exported goods described in the 34 shipping bills, being knitted readymade garments, were correctly classified by the adjudicating authority under various sub-headings of Chapter 61 (including CTH 6103, 6104, 6105, 6106, 6110) for the purpose of fixation of drawback, or were required to be classified uniformly under CTH 6102 except for 'wind cheaters'. (2) Consequent to the correct classification, what is the applicable rate and mode of computation of drawback on the said exports, having regard to Public Notice No. 5/1995 and the Drawback Schedule. (3) Whether the appellant is entitled to interest on delayed sanction of drawback, and if so, from what dates and for which groups of shipping bills, keeping in view prior appellate orders, the intervening writ proceedings before the High Court, and departmental delay. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2 - Correct classification of exported knitted readymade garments and corresponding drawback rate Legal framework (as discussed) (a) Public Notice No. 5/1995 dated 15.06.1995 prescribing drawback rates for Chapter 61, inter alia: - CTH 6102 / Drawback Sl. No. 2704: 'Knitwear and articles of hosiery including ready-made garments made wholly or mainly from knitted/hosiery fabrics of cotton and/or cellulosic yarn' - 10% of FOB value subject to a maximum of Rs. 45/- per piece. - CTH 6103 / Sl. No. 2705: Knitwear/articles from acrylic fibres/yarn - Rs. 14.80 per kg. - CTH 6104 / Sl. No. 2706: All wool knitwear and hosiery - Rs. 22.20 per kg. - CTH 6105 / Sl. No. 2707(B): Hand knitted cotton crocheted blouses, pullovers, cardigans, if dyed - 2% of FOB (max. Rs. 8/- per piece). (b) Earlier CESTAT Final Order dated 28.02.2025 directing the adjudicating authority 'to decide under which chapter heading the case of the assessee falls for claim of drawback and same is to be finalized accordingly'. Interpretation and reasoning (c) The adjudicating authority, while allowing conversion of DEEC shipping bills to drawback shipping bills, classified the exported goods under a variety of sub-headings (CTH 6102, 6103, 6104, 6105, 6106 and 6110) and fixed different drawback rates, primarily on a weight basis for several entries. (d) The Tribunal noted that no test or verification of the constituent material of the exported garments was conducted since the exports were not originally under a drawback claim. In such circumstances, classification had to be based on the description of goods as recorded in the shipping bills and other contemporaneous documents. (e) The adjudicating authority did not record any specific reasoning or evidentiary basis for classifying most garments under CTH 6103, 6104, 6105 and 6106. No material was produced to show that the garments were made of acrylic fibres, wool/worsted yarn, or hand-knitted/crocheted cotton as required by those headings. (f) From the descriptions in the shipping bills (e.g., 'Gents shirts', 'Ladies dress', 'Ladies long coat', 'Ladies blouse', etc.), the Tribunal found that the goods were in the nature of 'knitted readymade garments' falling squarely under CTH 6102 corresponding to Drawback Sl. No. 2704 in the Public Notice. (g) The Tribunal observed that, in some instances, the adjudicating authority himself had classified similar goods under CTH 6102 and applied the CTH 6102 drawback entry, indicating internal inconsistency and lack of justification for differing classifications for similar descriptions. (h) In the absence of any tests, verification, or cogent reasoning to support classification under CTH 6103, 6104, 6105 or 6106, the Tribunal held such classifications to be factually unsupported and erroneous. (i) With regard to garments described as 'wind cheaters', the Tribunal accepted the adjudicating authority's classification under CTH 6110 (for which no All Industry Rate drawback was admissible under the relevant Public Notice) and found no infirmity in that part of the classification or the resultant drawback computation. Conclusions (j) For the purpose of computation of drawback on the 34 shipping bills in question, the goods are to be classified as follows: - Shipping bill Sl. Nos. 1 to 32: CTH 6102. - Shipping bill Sl. Nos. 33 and 34 (wind cheaters): CTH 6110. (k) Goods classified under CTH 6102 (Sl. Nos. 1-32) are eligible for drawback at the rate corresponding to Drawback Sl. No. 2704, namely, 10% of FOB value subject to a maximum of Rs. 45/- per piece, as per Public Notice No. 5/1995. (l) For goods under CTH 6110 (Sl. Nos. 33 and 34), the classification and drawback computation as made in the impugned order are upheld; no higher or additional drawback is admissible. Issue 3 - Entitlement to interest on delayed sanction of drawback and determination of relevant periods Legal framework and precedents (as discussed) (a) Drawback is admissible in respect of goods actually exported. Where goods are not originally exported under drawback, entitlement arises upon lawful conversion of shipping bills into drawback shipping bills. (b) Circular No. 36/2010-Cus. dated 23.09.2010 (though of later date) stipulates that requests for conversion of shipping bills are ordinarily to be made within three months from the date of Let Export Order, reflecting a three-month benchmark in departmental practice. (c) Earlier CEGAT Order dated 16.10.2001: conversion of 8 specified DEEC shipping bills to drawback shipping bills was allowed, with a direction to determine drawback after giving opportunity to furnish collateral evidence. (d) High Court Order dated 16.07.2018 in a writ petition directed the authorities to decide the application for drawback in accordance with law and to pass a reasoned order within three months. (e) CESTAT Final Order dated 28.02.2025 set aside the Order dated 17.10.2018 rejecting conversion of all 34 shipping bills and held that the appellant is entitled to conversion of all 34 shipping bills from DEEC to drawback, with a direction to finalize drawback. (f) Tribunal's own earlier decision in Vedanta Ltd. v. Commissioner of Customs (Ports), Kolkata (Final Order dated 07.01.2025), as upheld by the High Court, granting interest for inordinate delay in finalization of provisional assessment, and relying on: - Supreme Court judgment in Ranbaxy Laboratories (interest on delayed refunds under the Customs/Excise/Income-tax framework). - Supreme Court judgment in Sandvik Asia Ltd. (compensation/interest for inordinately delayed refund of amounts lawfully due). Interpretation and reasoning (g) The Tribunal found that exports had taken place in 1995-1997, but the goods were not originally exported under a drawback claim. Hence, entitlement to drawback could not be reckoned from the dates of export or Let Export Orders, but only from the dates on which valid conversion into drawback shipping bills was (or must be deemed to have been) allowed. (h) In relation to the 8 shipping bills covered by the CEGAT Order dated 16.10.2001, the Tribunal held that conversion stood allowed as of that date. The Department's subsequent failure to give effect to this order and formally convert those shipping bills until 17.09.2025 was unjustified, and the shipping bills must be deemed to have been converted with effect from 16.10.2001. (i) For the remaining 26 shipping bills, there was no prior formal order of conversion until the CESTAT Final Order dated 28.02.2025 and the consequential Order-in-Original dated 17.09.2025. However, the rejection order dated 17.10.2018 was eventually set aside on the same set of facts and documents as existed on 17.10.2018, showing that the earlier rejection was not attributable to any default or deficiency on the part of the appellant. (j) The Tribunal held that during the pendency of the writ petition before the High Court up to 16.07.2018, the Department could not reasonably be faulted for not taking action. Departmental lapse could only be reckoned after the High Court's disposal and the subsequent rejection order dated 17.10.2018, and more particularly, after the reasonable three-month period following that order. (k) The Tribunal rejected the Revenue's contention that interest could run only from 17.09.2025 (the date of final conversion of all 34 shipping bills), holding instead that: - For the 8 shipping bills allowed conversion by CEGAT on 16.10.2001, that date is the 'relevant date' for interest, since the Department ultimately granted drawback on the same set of documents, and the delay thereafter is attributable to administrative inaction. - For the remaining shipping bills, the relevant starting point for departmental delay is three months after the rejection order dated 17.10.2018, which was later set aside without any change in the factual matrix. (l) Applying the principles from Vedanta, Ranbaxy and Sandvik Asia, the Tribunal held that where the Department unjustifiably retains monies lawfully due for an inordinate period, interest/compensation must follow, and an erroneous departmental view of law cannot justify withholding or negate liability for interest. Conclusions (m) The appellant is entitled to interest on drawback at 6% per annum, as follows: - For the 8 shipping bills covered by the CEGAT Order dated 16.10.2001: interest is payable from three months after 16.10.2001 until the actual date of sanction of drawback, these shipping bills being deemed converted with effect from 16.10.2001. - For the remaining shipping bills (other than the said 8): interest is payable from three months after 17.10.2018 (the date of the order rejecting conversion, later set aside) until the actual date of sanction of drawback. (n) No interest is admissible for periods prior to the deemed/actual dates of conversion, and no delay can be attributed to the Department for the period during which the writ petition was pending before the High Court, but the post-2001 and post-2018 delays, as specified, are compensable.