The Delhi High Court has held that the customs department possessed sufficient statutory power under the Customs Act, 1962, even before the introduction of Section 28DA in 2020, to investigate allegedly incorrect claims for preferential tariff treatment and recover customs duty that had been short-paid because of suppression or misrepresentation.
The Bench of Justice Anil Kshetrapal and Justice Shail Jain rejected a challenge to show cause notices and adjudication orders concerning imports of high-grade tin ingots from Malaysia. The proceedings had resulted in the confirmation of differential customs duty totalling approximately ₹1.39 crore.
The Court ruled that the subsequent insertion of Chapter V-AA and Section 28DA merely introduced a more elaborate procedure for verifying certificates of origin. It did not create, for the first time, the authority to investigate incorrect origin declarations or recover short-paid customs duty.
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“The later insertion of Chapter V-AA and Section 28DA cannot by itself be construed as having created, for the first time, the power of the Customs Authorities to act upon an incorrect or suppressed declaration made in a Bill of Entry,” the Court observed.
The petitioner/assessee had imported high-grade tin ingots manufactured by Malaysia Smelting Corporation in Malaysia. It claimed a nil rate of Basic Customs Duty under Customs Notification No. 46/2011 dated June 1, 2011.
The preferential treatment was claimed under the ASEAN-India Free Trade Area framework on the strength of Certificates of Origin issued by Malaysia’s Ministry of International Trade and Industry.
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, goods not wholly obtained or produced in the exporting country were required to meet specified origin conditions.
These conditions included a minimum Regional Value Content of 35% of the free-on-board value, along with the prescribed change in tariff classification for non-originating materials.
The Directorate of Revenue Intelligence, Mumbai, subsequently initiated an investigation into the preferential duty benefit claimed by the importer.
In April 2018, the DRI requested the Central Board of Indirect Taxes and Customs to send the Certificates of Origin to the competent Malaysian authorities for a retroactive verification under Article 16 of the operational certification procedures forming part of the Rules of Origin.
When no response was received from the Malaysian authorities, a team of DRI officers visited the premises of Malaysia Smelting Corporation under Article 17. The visit was intended to examine the manufacturing process, the extent of value addition undertaken in Malaysia and the method used for calculating the Regional Value Content.
During the verification, the manufacturer produced a cost sheet covering only the period from July to September 2013. According to the investigation, the same cost sheet had continued to be used for obtaining successive Certificates of Origin over a substantially longer period.
On the basis of that cost sheet, the Regional Value Content disclosed in the relevant forms was stated to exceed 70%, substantially higher than the prescribed minimum of 35%.
The authorities also found that Malaysia Smelting Corporation manufactured tin ingots on a job-work basis for different traders and suppliers. The principal raw material—tin ore originating from countries outside ASEAN—was allegedly supplied to the manufacturer free of cost.
Malaysia Smelting Corporation merely converted the supplied tin ore into tin ingots against payment of smelting or job-work charges. The investigating authorities consequently treated the smelting charges, rather than the total value of the finished ingots, as representing the actual regional value added in Malaysia.
On that basis, they concluded that the prescribed origin requirement had not been satisfied and that the imported tin ingots were ineligible for the nil rate of Basic Customs Duty.
Customs authorities issued two show cause notices in December 2018, proposing recovery of differential duty under Section 28(4) of the Customs Act. The notices also proposed confiscation of the imported goods and penalties under Sections 112(a), 114A and 114AA.
The petitioner approached the Delhi High Court against the notices. During the pendency of the writ petition, however, the adjudicating authority passed two Orders-in-Original.
An Order-in-Original dated July 5, 2019 denied the concessional duty benefit in respect of imports covered by five Bills of Entry. It confirmed differential customs duty of ₹99.84 lakh with interest.
The order also directed confiscation of imported goods valued at approximately ₹16.78 crore and imposed a penalty of ₹99.84 lakh under Section 114AA of the Customs Act.
A second Order-in-Original dated September 27, 2019 confirmed differential duty of ₹39.69 lakh with applicable interest in relation to two Bills of Entry. The proposed confiscation and penalties under Sections 112(a), 114A and 114AA were, however, dropped in that proceeding.
The challenge before the High Court was consequently expanded to cover the two adjudication orders.
The petitioner raised two principal jurisdictional objections.
First, it argued that the goods had been imported on the strength of Certificates of Origin issued by the designated Malaysian authority. According to the petitioner, the dispute should have been dealt with through the consultation and dispute-resolution mechanism contemplated under Article 24 of the ASEAN-India Free Trade Area agreement.
It contended that customs authorities could not independently initiate proceedings under the Customs Act without first resorting to that mechanism.
The High Court rejected the contention, holding that Article 24 of AIFTA had not been incorporated into Indian municipal law.
The Court explained that an international treaty, unless transformed into domestic law through legislation, does not independently confer enforceable rights upon private parties or restrict powers validly granted to authorities under domestic legislation.
Although the Rules of Origin, 2009 gave effect to parts of AIFTA for determining the origin of goods, they did not incorporate the treaty’s dispute-resolution mechanism into Indian law.
Accordingly, the failure to separately invoke the Article 24 consultation mechanism did not oust the jurisdiction of customs authorities under Section 28 of the Customs Act.
The Bench agreed with the view previously taken by the Gujarat High Court in Trafigura India Private Limited v. Union of India, which was subsequently followed by the Bombay High Court in Purple Products Private Limited v. Union of India.
The petitioner’s second contention was that, before Section 28DA came into force on March 27, 2020, customs authorities lacked the statutory power to investigate preferential tariff claims based on Certificates of Origin.
Rejecting this argument, the High Court held that Sections 28 and 46 of the unamended Customs Act already provided sufficient authority to examine such claims.
Section 46(4) requires an importer presenting a Bill of Entry to declare the truth of its contents and produce the supporting documents prescribed under the law. The Court held that the particulars supporting a preferential tariff claim—including the Regional Value Content mentioned in a Certificate of Origin—formed part of this statutory declaration.
Section 28, meanwhile, authorised the proper officer to recover customs duty that had not been paid or had been short-paid. Section 28(4) permitted the extended limitation period to be invoked where the short-payment resulted from collusion, wilful misstatement or suppression of facts.
The Court said that the power to recover duty short-paid because of suppression existed independently of any Certificate of Origin-specific verification procedure.
Chapter V-AA and Section 28DA introduced a more detailed mechanism specifically tailored to preferential tariff and origin-verification disputes. The provisions conferred additional procedural powers but did not mean that customs authorities previously lacked jurisdiction to investigate fraud, suppression or misrepresentation.
The High Court emphasised the substantive obligation imposed upon importers by Section 46(4).
Where an experienced importer furnishes particulars that it knows—or could not reasonably have been unaware—were incorrect, and nevertheless claims preferential duty treatment, such incorrect disclosure may constitute suppression of facts for the purpose of Section 28(4), the Court said.
Referring to the Gujarat High Court’s ruling in Trafigura India, the Bench noted that the Regional Value Content particulars contained in the Certificates of Origin formed part of the documentation submitted to support the declarations in the Bills of Entry.
The Court, however, clarified that the Gujarat High Court’s finding that suppression simpliciter was sufficient under the applicable version of Section 28(4) had to be understood in the context of the statutory language then in force. That proposition could not be mechanically applied to a differently worded post-amendment provision without further examination.
The Bench found that the controversy before it was materially indistinguishable from the disputes decided by the Gujarat High Court in Trafigura India and by the Bombay High Court in Purple Products.
Those matters also concerned tin ingots manufactured by Malaysia Smelting Corporation, Certificates of Origin issued by the Malaysian authority and proceedings initiated under Section 28 after verification of the origin claims.
The petitioner did not demonstrate any material factual or legal distinction that would justify taking a different view, the Delhi High Court said.
After rejecting the jurisdictional objections, the High Court declined to examine the correctness of the duty calculations, confiscation order and penalties in its writ jurisdiction.
It held that factual and valuation-related objections should be considered by the statutory appellate authority under Section 128 of the Customs Act.
The writ petition and pending application were consequently dismissed. However, the petitioner was granted liberty to challenge the Orders-in-Original dated July 5, 2019 and September 27, 2019 through the statutory appellate mechanism.
The Court directed that if an appeal was filed within four weeks from the date of its judgment, the appellate authority should not reject it on the ground of limitation, provided it was otherwise maintainable. The appeal must be decided on merits in accordance with law.
The Bench expressly clarified that it had not expressed any opinion on the merits of the quantification of duty, confiscation of the goods or imposition of penalties. All contentions concerning those issues were left open.
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