CESTAT Chandigarh Quashes Customs Proceedings Against Rice Exporters: Provisional Assessment Must Be Finalized Before Section 28 Demand

Background and Context

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh Bench, pronounced a significant order on 18 August 2026, disposing of five connected appeals filed by S.K. Brothers, Sanjeevani Foods Pvt. Ltd., and TLG Overseas. All five appeals challenged orders passed by the Commissioner (Appeals), CGST, Ludhiana, and the Principal Commissioner of Customs, Ludhiana, which had confirmed customs duty demands, interest, penalties, and redemption fines arising from the export of rice declared as parboiled rice under CTH 10063010.

The appeals bore the following particulars:

Since the factual matrix and the legal questions were identical across all five appeals, and the impugned orders rested on a common test report, the Tribunal took up all five matters together for a consolidated hearing and disposal.

Facts of the Lead Case: S.K. Brothers (Appeal No. C/60035/2026)

S.K. Brothers, holding Import Export Code (IEC) No. 3008006400, is engaged in the export of rice. In the ordinary course of business, the firm filed shipping bills at the Ludhiana port for the export of "Parboiled Rice/Indian Parboiled Rice" declaring classification under CTH 10063010.

Sampling and Provisional Clearance

In accordance with the procedure prescribed under Instruction No. 29/2022-Customs dated 29.10.2022, the department conducted an examination of the export consignments and drew representative samples, which were dispatched to the Central Revenues Control Laboratory (CRCL), New Delhi, for chemical analysis. Pending receipt of the test reports, the goods were permitted to be exported on a provisional basis upon the execution of bonds by the exporters. The bonds contained an explicit undertaking in the following terms:

"In the event of failure of cargo in the test report the exporter pays to the president the duty finally assessed in respect of the goods mentioned in the shipping bill below along with interest fine and/or penalty if any imposed for violation of Customs Act, 1962 and other allied acts."

CRCL Test Reports and Departmental Action

When the CRCL test reports were received, they indicated that the samples exhibited characteristics of non-parboiled rice, making the goods potentially classifiable under CTH 10063090. On this basis, the department formed the view that export duty at the rate of 20% was leviable and that the exporters had deliberately mis-declared the goods to avail the benefit of the relevant exemption notification.

Proceeding on the footing that the duty was recoverable under Section 28(4) of the Customs Act, 1962, the department issued Show Cause Notices to the appellants demanding duty, interest, redemption fine, and penalties. The adjudicating authority confirmed these demands through Orders-in-Original dated 30.06.2025 and 06.01.2026. The Commissioner (Appeals) dismissed the appeals filed against those orders vide orders dated 28.11.2025 and 12.12.2025 respectively. All five appellants then approached CESTAT Chandigarh.

Arguments Raised by the Appellants

On Prematurity of Section 28 Proceedings

The primary contention advanced on behalf of all five appellants was that the Show Cause Notices issued under Section 28 of the Customs Act, 1962 were legally premature because the provisional assessments had never been finalized.