Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(CESTAT) 1383

Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH-COURT NO. 1

Customs Appeal No. 11604 of 2016- DB

(Arising out of OIA-KDL-CUSTM-000-APP-019-16-17 dated 11.05.2016 passed by the Commissioner of Customs (Appeals), Ahmedabad)

Commissioner of Customs-Kandla ……..Appellant
Custom House,
Near Balaji Temple,
Kandla, Gujarat
VERSUS
Om Siddh Vinayak Impex Pvt Ltd ……Respondent
Shed No.283/293, Sector-III,
Kandla Special Economic Zone,
Gandhidham, Kutch, Gujarat

APPEARANCE:
Shri Girish Nair, Assistant Commissioner (AR) appeared for the Appellant
Shri Paresh M Dave, Advocate with Shri Sudhanshu Bissa, Advocate appeared for the Respondent

CORAM:
HON'BLE MR. SOMESH ARORA, MEMBER (JUDICIAL)
HON'BLE MR. SATENDRA VIKRAM SINGH, MEMBER (TECHNICAL)

Final Order No. 10249/2026
DATE OF HEARING: 07.10.2025
DATE OF DECISION: 07.04.2026

Advocates:
For the Appellants/Petitioners: Girish Nair
For the Respondents: Paresh M Dave, Sudhanshu Bissa

The adjudicating authority cannot travel beyond the scope of the show cause notice to make a new case against the assessee; principles of natural justice and fair notice require that all allegations, including those regarding diversion of goods, must be explicitly raised in the show cause notice.

Headnote:(A) Customs Act, 1962 - Section 128A - SEZ Act, 2005 - Duty-free import under Letter of Permission (LOP) - Classification and valuation dispute - Reliance on test reports - Remand for fresh adjudication.

(B) Appellate Jurisdiction - Duty of the appellate court to ensure fair adjudication - Requirement for the adjudicating authority to follow the scope of the show cause notice - Revenue cannot introduce new arguments or allegations regarding diversion of goods that were not part of the initial proceedings.

Facts of the case:
The importer declared certain goods under a specific tariff heading and claimed duty exemption under a notification for SEZ units. The department contested the classification based on a CRCL test report indicating a different composition. Following a series of assessments, remands, and revised orders, the Commissioner (Appeals) set aside the department's demand. The Revenue appealed this decision to the Tribunal, relying on investigative data regarding the lack of manufacturing facilities and the diversion of goods, which the respondent argued were beyond the scope of the original show cause notice.

Findings of Court:
The Tribunal held that the CRCL test report was sufficient to determine the classification of the goods and that the initial classification by the respondent was incorrect. However, the Tribunal observed that the re-determination of assessable value required adherence to customs valuation rules and further input from the Development Commissioner regarding the permissibility of imports under the LOP.

Issues: Whether the test report was adequate for classification, whether value enhancement was justified, whether the order exceeded the show cause notice, and whether the exemption was applicable.

Ratio Decidendi: An adjudicating authority must strictly adhere to the scope of the show cause notice and cannot introduce new grounds for demand not previously alleged. The matter was remanded to determine the scope of raw material procurement permission as per the LOP.

Result: Appeal allowed by way of remand.

SATENDRA VIKRAM SINGH

1. The respondent M/s. Om Siddh Vinayak Impex Pvt Ltd Gandhidham, Kutch had imported 25603.2 Kgs of Synthetic Fabric Lots vide Bill of Entry No.2376 dated 25.09.2003 by declaring the same as “100% polyester plain dyed fabrics” and classifying under CTH 54075290. They declared assessable value of the goods as Rs.8,45,572/- and claimed duty exemption under Notification No.137/2000-Cus. dated 19.10.2000. Two samples drawn by customs were sent to CRCL Kandla for testing on 13.10.2003 which reported the test results as under:-

Sr. No.	GSM	Wt/Mtr	Texturized Yarn
1.	192.8	287.9 gm	60.0%
2.	193.7	285.6 gm	63.5%

1.1 As per the sample test report(s), texturized yarn percentage was less than 85%, hence, classification declared by the importer was not found to be correct. The Bill of entry was provisionally assessed on 10.02.2004 and goods were allowed to be cleared. Later on, the goods were assessed finally by the assessing officer vide order dated 09.03.2007 wherein, he denied benefit of Notification No.137/2000-Cus dated 19.10.2000 and confirmed differential duty of Rs.71,57,744/-. The respondent approached the Commissioner (Appeals) who vide order dated 20.03.2008 set aside final assessment of goods by observing that copy of test report not supplied to party either before or after the adjudication and that, the order of finalisation does not spell out why benefit of Notification No.137/2000-Cus. dated 19.10.2000 has been denied to appellant. He therefore, remanded the case back for passing a speaking order after following the principles of natural Justice. Accordingly, Deputy Commissioner issued a notice dated 18.12.2008 mentioning the allegations against the respondent and supplied relied upon documents and test reports alongwith the notice.

1.2 In remand proceedings, the Deputy Commissioner, Customs, Kandla SEZ, passed Order-in-Original dated 12.11.2015 wherein, he rejected the declared value and held that the imported goods were to be classified under sub heading 54078290 instead of CTH 54075290 as claimed by the respondent. He finalised provisional assessment of goods imported vide above Bill of Entry by confirming classification under CTH 54078290, enhancing the assessable value of goods to Rs.20,66,877/- and confirmed the duty of Rs.71,57,744/- along with interest. Aggrieved with this order, the respondent filed appeal before the Commissioner (Appeals) who vide order dated 11.05.2016 set aside the order of the Deputy Commissioner and allowed appeal of the respondent. Revenue feeling aggrieved, has filed the present appeal before Tribunal.

2. In appeal, revenue has taken the following grounds: -

• The respondent has violated Notification No.137/2000-Cus dated 19.10.2000 which “exempts all goods…” imported into India… for the purposes of manufacture of goods, services,…. by a unit within a Special Economic Zone. The unit was issued LOP dated 30.01.2002 by the Development Commissioner, Kandla, SEZ, for manufacturing/processing of old, used worn clothing/rags/ wipers for mutilation, for drawing yarn from old and used worn clothes etc. They were not allowed to carry out any manufacturing activity using new fabrics and no special permission was given by the specified officer to import the said goods.

• The unit did not have any manufacturing facility as they had only Rag Cutter machines and Bailing Press machines in their premises which has been duly accepted by the Directors of the respondent company during the course of investigation. The unit has not utilised the imported goods for intended purpose which disentitle them of the benefit of Notification No.137/2000-Cus.

• The imported goods have been diverted in domestic market by fraudulently mentioning CTH of the goods as 6309/ 631090 (as old and used worn cloths) without the knowledge of the department. The respondent unit was not allowed to remove imported goods in DTA even for job work, without the permission of the specifi

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