No Countervailing Duty On Silk Fabrics Imported In 2012–13: CESTAT Chennai

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) clarified that countervailing duty (CVD) cannot be levied on imported silk fabrics during 2012–2013, when excise duty on such fabrics was fully exempt under the relevant notification. Further that customs proceedings are deemed concluded once duty and interest are paid before a show-cause notice is issued.

A Bench comprising Judicial Member P. Dinesha and Technical Member Vasa Seshagiri Rao set aside the demand for CVD, confiscation, redemption fines, and penalties imposed on the taxpayer. They disagreed with the revenue that the condition of non-availment of CENVAT credit disentitled imported silk fabrics from exemption of CVD.

In the case at hand, the appellant had imported silk fabrics under the Advance Authorisation Scheme during 2012–2013. Under Notification No. 96/2009, it was eligible for duty exemption, subject to post-import fulfilment of export obligations.

Due to adverse overseas market conditions, the taxpayer could not fully meet the export obligations. It voluntarily informed the department and paid basic customs duty and interest of approximately Rs. 1.75 crore before any show-cause notice was issued.

Despite this, the Directorate of Revenue Intelligence (DRI) issued a Show Cause Notice alleging misuse of the Advance Authorisation Scheme and diversion of duty-free imported goods into the domestic market.

The Adjudicating Authority denied the exemption, confirmed a demand of over Rs. 4.14 crore, and ordered confiscation of goods along with penalties under Sections 112 (confiscation of goods and levy of penalty), 114A (penalty for failure to pay duty, short-levied duty, or erroneous refunds), and 114AA (additional penalty for fraud, willful misstatement, or suppression of facts) of the Customs Act.

The Revenue contended that voluntary payment after detection does not bar proceedings under Section 28(4) of the Customs Act. This provision allows customs to recover duties, interest, and penalties within five years if fraud, willful misstatement, or suppression of facts is involved. Further, the Revenue argued that the payment was made after detection by the DRI and, therefore, was not “voluntary.”

The appellant argued that silk fabric was freely importable under the Foreign Trade Policy during 2012–2013. Further, there were no pre-import conditions and no misdeclaration or suppression at the time of clearance.

The Tribunal emphasised that failing to fulfill export obligations does not constitute suppression or wilful misstatement at the time of import.

On the issue of countervailing duty, the Tribunal relied on the Supreme Court decision in SRF Ltd. v. Commissioner of Customs (2015, 318 ELT 607), holding that since excise duty on silk fabrics was fully exempt under Notification No. 30/2004-CE during the relevant period, CVD could not be levied.

The Tribunal noted that the penalty under Section 114A is barred once customs proceedings are concluded under Section 28(2). Only a limited verification of the duty and interest already paid was required, and no fresh adjudication on the merits of the exemption or CVD demand is to be undertaken.

Accordingly, the Bench set aside the order and remanded the matter only for limited verification of arithmetical correctness of basic customs duty and interest already paid. It clarified that no fresh adjudication on merits shall be undertaken.

Citation: 2026 LLBiz CESTAT(CHE) 26

Case Title: M/s. M.K.P. Fashions v. Commissioner of Customs

Case Number: Customs Appeal No. 40319 of 2015

Counsel for Appellant/ Assessee: Sudhir Mehta

Counsel for Respondent/ Department: Sanjay Kakkar