The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that Customs authorities cannot deny preferential duty benefits under the India-Thailand Free Trade Agreement (FTA) merely on the basis of investigations and third-party statements without first following the statutory verification procedure prescribed for Country of Origin (COO) certificates.
Setting aside the impugned order, the Tribunal quashed the customs duty demand, interest, and penalties after finding that the Directorate of Revenue Intelligence (DRI) had bypassed the mandatory verification mechanism under the Interim Rules of Origin.
The dispute arose from imports of diamond-studded gold jewellery from Thailand during 2010-11 and 2011-12. The importer had filed 24 Bills of Entry under the relevant Customs Tariff Heading while claiming concessional customs duty under Notification No. 85/2004-Customs read with Notification No. 101/2004-Customs (NT). Each import was accompanied by a Country of Origin certificate issued by the competent authority in Thailand, and the consignments were assessed and cleared by Customs without objection regarding description, value, quantity, or origin.
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Subsequently, the DRI initiated investigations alleging that the imported jewellery did not satisfy the prescribed regional value content required for preferential tariff treatment under the India-Thailand FTA. According to the department, the local value addition declared in the COO certificates had been inflated, making the importer ineligible for the concessional customs duty benefit. Based on these allegations, a show cause notice was issued proposing recovery of customs duty along with interest and penalties on the company and its officials. The adjudicating authority confirmed the demand, leading to the appeals before the Tribunal.
The appellants argued that the Country of Origin certificates had been issued by the designated authority in Thailand and were accepted by Customs at the time of import. They contended that the department never sought verification of the certificates from the issuing authority in Thailand as required under the Interim Rules of Origin. The allegations were based solely on statements recorded during investigation and other domestic evidence, which could not substitute the treaty-prescribed verification process. The appellants relied upon the Tribunal’s earlier decision in Hazoorilal & Sons Jewellers Pvt. Ltd., where identical proceedings had been set aside.
The department defended the adjudication order by arguing that investigations had revealed uniform declarations of value addition irrespective of the type of jewellery, supplier, or quality of stones used. According to the department, these circumstances demonstrated that the mandatory regional value content requirement had not been fulfilled and justified denial of the FTA benefit.
The Tribunal rejected the department’s approach, observing that the authenticity and correctness of Country of Origin certificates issued by the competent authority in the exporting country could not be questioned without following the mechanism specifically prescribed under Rules 14 and 15 of the Interim Rules of Origin.
It noted that Rule 15 expressly permits the importing country’s customs authorities to seek a retroactive verification from the issuing authority whenever there is reasonable doubt regarding the authenticity or correctness of a COO certificate. However, in the present case, no such verification request was ever made to the Thai authorities.
The DRI proceeded on the basis of statements recorded from various persons and other domestic evidence without invoking the treaty mechanism for verification. The Tribunal held that such an approach was contrary to the statutory framework governing preferential trade agreements.
The Bench placed significant reliance on its earlier ruling in Hazoorilal & Sons Jewellers Pvt. Ltd., where it had held that once a Country of Origin certificate is issued by the competent authority of the exporting country, Customs authorities must follow the prescribed verification procedure before rejecting its validity.
The earlier decision had categorically held that bypassing the verification mechanism under Rule 15 and relying solely on investigative material rendered the proceedings legally unsustainable. Finding the facts of the present case to be identical, the Tribunal applied the same principle.
Concluding that the show cause notice itself was founded on a procedure contrary to the Rules governing verification and rejection of Country of Origin certificates, the Tribunal held that the denial of the exemption notification was legally unsustainable.
Accordingly, it set aside the adjudication order, dropped the customs duty demand, and held that no penalties could survive against either the importing company or its officials. All the appeals were allowed with consequential relief.
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