The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a customs duty demand of over ₹2.29 crore against an importer accused of misdeclaring Chinese-origin polyester knitted fabrics as goods originating in Malaysia to claim preferential tariff benefits.
The bench of Somesh Arora (Judicial Member) and A.K. Jyotishi (Technical Member) observed that fraud could not be established merely on the basis of a delayed and incomplete verification report concerning only 15 out of 29 Certificates of Origin.
The appellant/assessee was engaged in importing and trading polyester knitted fabrics classified under Customs Tariff Heading 60053200. The company imported the goods from China and Malaysia. The dispute arose after the Directorate of Revenue Intelligence received information alleging that goods originating in China were being imported by the company under documents showing Malaysia as the country of origin.
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According to the Revenue, the alleged misdeclaration enabled the importer to wrongfully obtain the preferential rate of customs duty available under Notification No. 46/2011-Cus dated June 1, 2011.
Acting on the information, the authorities examined goods imported under a Bill of Entry dated March 16, 2015, at Mundra Port. Samples were drawn during a panchnama conducted on March 17, 2015. Searches were subsequently carried out at the importer’s premises in Delhi.
The DRI requested the Director (International Customs), Central Board of Excise and Customs, on April 8, 2015, to verify the Certificates of Origin with the Malaysian authorities. A verification report was ultimately forwarded in October 2016, substantially beyond the prescribed period.
The Ministry of International Trade and Industry, Malaysia, reportedly stated that the 15 Certificates of Origin referred for verification were “not authentic” and that the actual certificates bearing the corresponding numbers belonged to another company.
On the basis of the verification report and other material collected during the investigation, the Commissioner of Customs concluded that the importer had used fabricated Certificates of Origin. A differential duty demand of ₹2,29,01,929 was confirmed under Section 28(4) of the Customs Act, together with applicable interest under Section 28AA.
Penalties were also imposed upon the company under Sections 114A and 114AA of the Act. The director was held liable for penalties on the allegation that he had actively participated in arranging and presenting the disputed documents.
The Department relied upon an alleged mismatch between the signatures appearing on the Certificates of Origin and the specimen signature of the authorised Malaysian officer. It also pointed to similarities between an invoice issued by the Malaysian supplier and an earlier invoice issued by a Chinese supplier.
The Revenue further claimed that the company’s director, in his statement dated April 3, 2017, had admitted being aware that Chinese-origin goods were being supplied under fabricated Malaysian Certificates of Origin. According to the Department, he had also agreed that the signatures did not match and had expressed willingness to pay the differential duty and interest.
The appellants denied any involvement in the alleged fabrication. They argued that the Certificates of Origin had been received from the foreign supplier and that there was no reason for them to doubt their authenticity when the imports were made.
A central argument raised by the appellants was that only 15 of the 29 Certificates of Origin had been verified by the Malaysian authorities. Nevertheless, the Department confirmed the demand in relation to all 29 certificates.
They further pointed out that the samples drawn from the imported goods had been sent for testing, but the test reports were neither supplied to them nor produced before the Tribunal. Consequently, there was no scientific or technical evidence demonstrating that the fabrics were actually of Chinese origin.
The appellants also challenged the invocation of the extended limitation period. The disputed imports related to 2014-15, whereas the show cause notice was issued on January 15, 2018. They contended that the Department had failed to prove fraud, collusion, wilful misstatement or suppression of facts on their part, as required for invoking Section 28(4).
Examining the verification process, the Tribunal observed that the prescribed procedure under the Customs Tariff (Determination of Origin of Goods under the Preferential Trade Agreement between the Governments of Member States of ASEAN and the Republic of India) Rules, 2009, had not been properly followed.
Under the relevant rules, where a Certificate of Origin is not accepted, it must be returned to the issuing authority within a reasonable period not exceeding two months. The issuing authority is also expected to provide a detailed and exhaustive clarification addressing the grounds raised by the importing authority.
The Tribunal found that the verification report was received considerably after the prescribed period and merely stated that the certificates were not authentic and belonged to another company. It did not explain the verification process, address the alleged signature mismatch or provide details of the companies to which the original certificates had purportedly been issued.
The Bench noted that no evidence had been placed on record to show that the Malaysian government had taken action against the persons allegedly involved in producing fraudulent documents. There was also no material demonstrating that the Indian authorities had requested such action in accordance with Rule 23 of the 2009 Rules.
Referring to the failure to verify the remaining documents, the Tribunal observed that 14 Certificates of Origin were never sent to the issuing authority.
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