Customs Can’t Reject Thailand Certificate of Origin or Recalculate Value Addition Without Following FTA Verification Procedure: CESTAT

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Customs Department cannot unilaterally reject a Certificate of Origin issued by the Government of Thailand or recompute the Local Value Added Content (LVAC) by adopting a methodology contrary to the statutory rules prescribed under the Indo–Thailand Free Trade Agreement (FTA). The bench of P. Dinesha (Judicial Member) and Vasa Seshagiri Rao, Member (Technical) has observed that the denial of exemption itself was unsustainable and, therefore, the consequential demand of duty and penalties under Sections 114A and 114AA also could not survive. Setting aside the impugned order, CESTAT allowed the appeal filed by Veekay Diamants with consequential relief in accordance with law. According to the records, Veekay Diamants had imported two consignments of gold jewellery studded with diamonds and rubies from Thailand in 2010 and 2011 and claimed preferential tariff benefits under Notification No. 85/2004-Cus based on Certificates of Origin issued by the Thai authorities. The consignments were assessed and cleared after acceptance of those certificates by Customs. However, in 2015, the Special Intelligence and Investigation Branch (SIIB) initiated an investigation alleging that the Local Value Added Content declared at 22 per cent in the Certificates of Origin was incorrect and that the actual value addition was only around 6.5 per cent. Based on this computation, the department denied the exemption, demanded differential duty of ₹5,68,802 and imposed penalties under Sections 114A and 114AA of the Customs Act, 1962. Before the Tribunal, the appellant argued that the Department had incorrectly substituted the formula prescribed under Rule 6(d) of the Interim Rules of Origin with an artificial computation based merely on labour and handling charges. It was contended that the Rules require value addition to be calculated with reference to the Free on Board (FOB) value of the export product and the Cost, Insurance and Freight (CIF) value of non-originating materials. The importer further submitted that it had no access to the overseas supplier's cost structure and that verification of value addition was the responsibility of the issuing authority in Thailand. The Revenue, on the other hand, argued that the importer was responsible for ensuring the correctness of the exemption claim and could not blindly rely upon the Certificates of Origin. It maintained that the declared value addition was unsupported by underlying documents and justified invocation of the extended limitation period and penalties. After examining the statutory framework and precedents, the Tribunal observed that Rule 6(d) specifically prescribes the method for calculating Local Value Added Content and that the Department had impermissibly substituted the statutory formula with its own truncated methodology based solely on labour and handling charges. The Bench emphasized that when a statute prescribes a specific formula, it must be applied as it stands and cannot be altered through administrative interpretation. The Tribunal further noted that the Department had failed to determine the value of non-originating materials as required under Rule 6(e) and had relied upon assumptions and partial data. It held that Certificates of Origin issued by the designated authority of Thailand formed an integral part of the statutory scheme and could not be brushed aside without following the verification mechanism contemplated under Rule 15 of the Interim Rules of Origin. The Bench observed that the Department had relied upon documents relating to the foreign supplier, M/s Tanya Collections, Bangkok, but had admittedly not initiated the inter-governmental verification procedure envisaged under the Rules. In the absence of such verification, unilateral rejection of the certificates and recomputation of value addition was held to be legally unsustainable. The Tribunal also emphasized that an importer cannot be expected to have access to the internal cost structure of a foreign manufacturer and that production of a valid Certificate of Origin satisfies the importer's obligations. Relying on earlier decisions in Romil Jewellery v. Commissioner of Customs and Keyur Shah & Others v. Commissioner of Customs, the Bench reiterated that Customs authorities cannot assume the role of the issuing authority or devise alternate methods for determining origin under the Indo–Thailand FTA. On the issue of limitation and penalties, the Tribunal held that all documents, including the Certificates of Origin, had been disclosed at the time of import and accepted by the Customs authorities. There was no evidence of forgery, manipulation, suppression or collusion. Referring to the Supreme Court judgments in Uniworth Textiles Ltd. and Aban Loyd Chiles Offshore Ltd., the Bench held that the extended period under Section 28 could be invoked only where there was wilful misstatement or suppression with intent to evade duty. Such ingredients were absent in the present case. Consequently, the Tribunal held that the denial of exemption itself was unsustainable and, therefore, the consequential demand of duty and penalties under Sections 114A and 114AA also could not survive. Setting aside the impugned order, CESTAT allowed the appeal filed by Veekay Diamants with consequential relief in accordance with law. Case Details Case Title: M/s. Veekay Diamants Versus Commissioner of Customs Citation: JURISHOUR-1525-CES-2026(CHEN) Case No.: Customs Appeal No. 41873 of 2016 Date: 02.06.2026 Counsel For Appellant: Mr. Ranjeet Singh, Consultant Counsel For Respondent: Rajini Menon, Authorised Representative Click Here To Read Order Read More: Customs Broker Licence Can’t Be Revoked Without Proof of Deliberate Collusion in Drawback Fraud: CESTAT

Customs Can’t Reject Thailand Certificate of Origin or Recalculate Value Addition Without Following FTA Verification Procedure: CESTAT

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