Natural justice in sample testing can defeat a demand for one lot, while proved misdeclaration may still sustain extended limitation and penalty.

Denial of a requested retest of a contested sample, without recorded reasons, was treated as a breach of natural justice and justified giving the assessee the benefit of doubt for the lot linked to that sample, with fresh examination directed for the disputed lot. At the same time, accepted test results for other lots showed that the clearance declarations on composition were incorrect, which supported invocation of the extended limitation period and sustained the penalty on merits. The commentary therefore distinguishes incomplete departmental testing, which can weaken the demand for a particular lot, from proved misdeclaration in other lots, which can still attract extended limitation and penal consequences.

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Issues: (i) Whether denial of retest of one sample and the limited test results justified giving the assessee the benefit of doubt and setting aside the demand in respect of the concerned lot; (ii) Whether the extended period of limitation and penalty were sustainable on the ground of suppression of the correct composition of the goods.

Issue (i): Whether denial of retest of one sample and the limited test results justified giving the assessee the benefit of doubt and setting aside the demand in respect of the concerned lot.

Analysis: From the total samples drawn, only a small number were ultimately found inconsistent with the assessee's declarations, and one requested retest was not carried out without recorded reasons. The absence of retest for the tenth sample was treated as a denial of natural justice. In these circumstances, the assessee was held entitled to the benefit of doubt for the lot linked to the sample not retested, and the specific lot where the test showed polyester content below the disputed threshold was also required to be reconsidered.

Conclusion: The demand could not be sustained as to the lot connected with the unretested sample, and that aspect was remitted for fresh examination in favour of the assessee.

Issue (ii): Whether the extended period of limitation and penalty were sustainable on the ground of suppression of the correct composition of the goods.

Analysis: The accepted test results in respect of several lots showed that the declarations made at the time of clearance were not correct, and that justified invocation of the extended limitation period under the statutory demand provision. On the same reasoning, the penal provision was considered attracted.

Conclusion: The extended period was upheld and the challenge to penalty was rejected on merits.

Final Conclusion: The matter was sent back for fresh adjudication, with limited relief to the assessee on the unretested sample and reconsideration of the disputed lot, while the invocation of extended limitation and the applicability of penalty were not disturbed.

Ratio Decidendi: Where departmental testing is incomplete in respect of a contested sample, denial of retest without reasons may amount to a breach of natural justice, but established misdeclaration in other lots can still justify extended limitation and penalty.

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