Wording is ambiguous. "If no more than 2 towels fails the test, the batch is accepted" so if exactly two of the first test sample fail the batch is accepted. Then we read:"If 2 or 3 towels fail the test, an additional 20 towels are tested. The batch is then accepted if 3 or less (out of 40) fail the test. Otherwise, the batch is rejected", so if exactly two of the first sample fail we go on to the second sample.

Go back and check the exact wording.

CB