The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Allahabad Regional Bench, has set aside a substantial customs duty demand after finding that the Revenue could not establish that the Country of Origin Certificates (COOs) submitted for Malaysian imports were inauthentic. 

The bench of P. K. Choudhary (Judicial Member) and K. Anpazhakan (Technical Member) rejected the department’s attempt to reclassify decorative stainless-steel products under a different tariff heading and held that the declared transaction value could not be rejected in the absence of evidence of additional payment to foreign suppliers.

The dispute involved imports of stainless-steel products, including decorative and design stainless-steel sheets, wall-panel articles, profiles and cold-rolled coated stainless-steel sheets. The Revenue alleged that the goods had Chinese origin and had been routed through Malaysia to improperly claim the preferential customs duty benefit available under Notification No. 46/2011-Cus dated June 1, 2011.

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The Principal Commissioner of Customs had rejected the importer’s declared classification, ordered re-determination of the value of the imported goods and denied the benefit of Notification No. 46/2011-Cus.

The adjudicating authority re-determined the value of several consignments at approximately ₹27.23 crore, besides separately determining the value of another consignment at about ₹36.67 lakh. A differential customs duty demand of ₹9.55 crore was confirmed under Section 28(4) of the Customs Act, 1962, along with interest under Section 28AA.

The order also held the imported goods liable to confiscation, imposed a redemption fine of approximately ₹6.90 crore, appropriated amounts deposited during investigation, and imposed a penalty of ₹9.55 crore under Section 114A and another ₹10 crore penalty under Section 114AA of the Customs Act. Prosecution proceedings under Section 135 were also ordered to be initiated.

The importer challenged the entire order before CESTAT.

One of the principal issues before the Tribunal concerned the legality of the supplementary show cause notice.

The importer pointed out that the original show cause notice did not propose rejection of the declared transaction value or denial of the benefit under Notification No. 46/2011-Cus. It had initially proposed a substantially smaller duty demand of about ₹2.86 lakh, whereas the supplementary notice introduced fresh allegations and enhanced the demand to approximately ₹10.22 lakh in relation to the relevant proceedings.

The Tribunal accepted the core objection.

CESTAT noted that the Customs (Supplementary Notice) Regulations, 2019 permit supplementary show cause notices in specified circumstances, including invocation of additional statutory provisions or consideration of additional evidence. However, the Tribunal emphasized that a supplementary notice must remain within the permissible scope of the original notice and must also comply with the applicable limitation provisions.

In the present case, the original notice contained no proposal to deny the preferential exemption under Notification No. 46/2011-Cus and lacked the factual foundation necessary for such denial.

According to the Tribunal, introducing the denial of the preferential exemption and enhancing the duty demand through the supplementary notice amounted to introducing a fresh and substantive ground. CESTAT held that this went beyond the limited purpose of a supplementary notice and effectively amounted to issuing a fresh show cause notice under the guise of a supplementary notice.

The Tribunal further noted that the supplementary notice was issued more than one year after the original notice, while the relevant corrigenda were issued substantially later. The importer also claimed that the corrigenda had not been received despite replies and additional submissions.

Finding merit in the natural justice objection, CESTAT held that the supplementary show cause notice was void ab initioand that the demands, interest and penalties founded on the fresh proposals were liable to be set aside on grounds of limitation and violation of natural justice.

The Tribunal thereafter considered the case on merits.

A central allegation of the department was that the importer had submitted fake Country of Origin Certificates from Malaysia in order to obtain preferential customs duty treatment under Notification No. 46/2011-Cus, which implements India’s preferential trading arrangements with ASEAN countries.

The investigation involved verification of 143 COOs by the Malaysian Ministry of International Trade and Industry (MITI). According to the communication received by the Indian authorities, 87 of the 143 certificates were not found authentic.

However, CESTAT found a crucial distinction when it examined the list of 87 certificates.

The Tribunal observed that only one COO associated with the importer appeared in the list of 87 certificates described as unauthentic. Even in that case, the importer argued that there had been an error in recording the certificate number.

The Tribunal examined the relevant Bill of Entry, Panchnama and supporting documents.

It found that the COO number mentioned by the department was different from the certificate number actually seized along with the Bill of Entry. The correct COO number was not included in MITI’s list of 87 unauthenticated certificates.

After examining the documents, CESTAT concluded that there had been an error in mentioning the COO number. The certificate actually submitted with the relevant Bill of Entry did not appear in MITI’s list of unauthenticated certificates.

The Tribunal therefore held that the department had proceeded on an erroneous factual premise arising from a typographical or recording error.

Importantly, CESTAT found that there had been no independent verification establishing that the other COOs submitted by the importer were fake. On the evidence available, the Tribunal concluded that none of the COOs submitted by the importer could be treated as fake merely on the basis of the department’s interpretation of the MITI communication.

The Tribunal went further and addressed the broader legal principle concerning certificates of origin.

CESTAT noted that the COOs had been produced before Indian Customs at the time of import. The goods had been examined and assessed by the proper officer, and the consignments were released after verification of the relevant import documents and certificates.

The Tribunal emphasized that the certificates had been issued by the competent Malaysian authorities and had not been cancelled or revoked by the Malaysian Government.

It held that where the certificates satisfied the requirements at the time of import, their validity could not subsequently be negated merely through a later communication received more than two years after their issuance, particularly where the foreign authorities had not cancelled or revoked the certificates or provided details demonstrating the importer’s involvement in any irregularity.

The Tribunal also observed that there was nothing on record indicating that the importer had colluded in the alleged irregularities.

Having found that the COOs relied upon by the importer were authentic and acceptable, CESTAT held that the importer was entitled to the preferential customs duty benefit under Notification No. 46/2011-Cus dated June 1, 2011.

The Tribunal specifically noted that the requirements of the notification had been fulfilled on the date of import. The COOs carried the exporter’s declaration and authentication by Malaysian officials, and their signatures had been verified by Indian Customs before the consignments were cleared at the concessional rate.

The Tribunal accordingly held that the preferential benefit could not be withdrawn merely because of a subsequent communication concerning other certificates.

The second major issue concerned classification.

The importer had classified the products under CTH 7326, specifically tariff item 73269060. The department sought to classify them under CTH 7219, treating them essentially as stainless-steel sheets or flat-rolled products.

CESTAT held that classification must be determined on the basis of the actual nature, composition, form, dimensions, degree of processing and relevant tariff notes.

The Tribunal found that the proper officer had originally examined the goods and accepted the classification declared in the Bills of Entry. If the Revenue subsequently sought to change that classification, it was required to support the proposed reclassification with cogent evidence.

That evidence was missing.

A significant factor in the Tribunal’s decision was the department’s failure to draw representative samples for testing or chemical analysis.

CESTAT recorded that no representative samples of the seized consignments had been drawn at the time of examination or seizure for testing by a recognized laboratory or technical agency. There was also no technical expert opinion supporting the department’s proposed classification.

The Tribunal therefore concluded that the department’s classification under CTH 7219/7220 was based essentially on assumptions and presumptions.

The Tribunal relied on the established principle that where the Revenue seeks to classify goods differently from the classification claimed by the importer, the burden lies on the Revenue to produce proper evidence.

CESTAT referred to the Supreme Court decisions in H.P.L. Chemicals Ltd. v. CCE, Chandigarh and Hindustan Ferodo Ltd. v. Collector of Central Excise for this proposition.

The Tribunal also examined the actual nature of the imported products.

It noted that the goods had undergone Physical Vapour Deposition (PVD) coating to impart colours such as gold and silver. According to CESTAT, the products had therefore been further worked beyond merely cold-rolled sheets.

The Tribunal found that the goods had acquired the character of decorative wall-panel articles, profiles and stainless-steel manufactures rather than remaining mere flat-rolled stainless-steel products.

CESTAT also considered the applicable BIS specification and the characteristics of the imported products, including their Grade 202J-3 specification and thickness ranging from 0.56 mm to 1.2 mm, intended for use in the front glazing of buildings.

On this factual and technical assessment, the Tribunal held that the products were correctly classifiable under CTH 7326 90 60 and could not be treated merely as plates, sheets or strips under CTH 7219.

The department had also relied substantially on statements recorded from the proprietor during the investigation.

However, CESTAT noted that the proprietor had retracted his statements. The Tribunal further found that the adjudicating authority had not complied with the requirements of Section 138B of the Customs Act, 1962 for relying upon the statements.

Since there was no independent technical evidence supporting the proposed reclassification and the statements could not be relied upon in the manner adopted by the adjudicating authority, CESTAT held that the reclassification was legally unsustainable.

The Tribunal separately examined the rejection of the declared transaction value.

The adjudicating authority had rejected the declared value and enhanced it by relying on contemporary imports. CESTAT, however, found that the adjudicating authority had not followed the prescribed requirements under Rule 9 of the Customs Valuation Rules, 2007.

More importantly, there was no documentary evidence showing that the importer had paid any amount over and above the invoice price declared to Customs.

Relying on the Supreme Court’s decisions in Eicher Tractor Ltd. v. Commissioner of Customs, Mumbai and Commissioner of Customs, Calcutta v. South India Television P. Ltd., the Tribunal held that the declared transaction value could not be rejected in the circumstances.

The enhanced value determined by the Revenue was consequently set aside.

Once the Tribunal rejected the allegations of misdeclaration and undervaluation, the foundation for the penalties also disappeared.

CESTAT held that suppression of facts with an intention to evade customs duty had not been established. It therefore concluded that no penalty was imposable and set aside the penalties imposed on the importer.

This effectively removed the financial consequences flowing from the adjudication order, including the penalties imposed under Sections 114A and 114AA.

The Allahabad Bench of CESTAT held that the COOs furnished by the importer were authentic and acceptable and that the importer was entitled to the benefit of Notification No. 46/2011-Cus for the consignments covered by those certificates.

The Tribunal further held that the goods were appropriately classifiable under CTH 7326, rejecting the Revenue’s proposed reclassification under CTH 7219. It also accepted the declared values in the Bills of Entry and rejected the enhanced values determined by the adjudicating authority.

Since the allegations of misdeclaration and undervaluation were not sustained, the Tribunal held that no penalty was impossible. The appeal was consequently disposed of in the importer’s favour on the above terms.

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