The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Eastern Zonal Bench, Kolkata, has set aside an order denying preferential tariff benefits under the ASEAN-India Free Trade Area (AIFTA) to M/s. Balaji Niryaat Private Limited. The Tribunal held that the Revenue's denial of exemption solely on the basis of non-cooperation by the overseas supplier during a verification exercise was legally unsustainable. The Court emphasized that each Certificate of Origin must be examined individually and that blanket denial without formal treaty mechanism proceedings is impermissible under the statutory framework.
Background & Facts
The Dispute
The appellant, M/s. Balaji Niryaat Private Limited, imported six consignments of "Cold Rolled Stainless Steel Coil" from M/s. Bahru Stainless SDN. BHD., Malaysia, under six Bills of Entry between 21.10.2022 and 15.03.2023. The appellant claimed exemption under Sl. No. 967(I) of Notification No. 46/2011-Customs dated 01.06.2011, issued pursuant to the ASEAN-India Free Trade Area Preferential Tariff Agreement (AIFTA), based on Certificates of Origin (COOs) issued by the competent Malaysian authorities. The Revenue denied the exemption, leading to confiscation of goods, demand of differential customs duty of Rs. 1,43,72,465, redemption fine of Rs. 3,00,00,000, and penalties under Sections 114A and 114AA of the Customs Act, 1962.
Key Facts
- The appellant is an importer holding IEC: 0209023601, engaged in the import of stainless steel coils.
- Six Bills of Entry were filed for imports between 21.10.2022 and 15.03.2023:
- 3006408 dated 22.10.2022
- 2995989 dated 21.10.2022
- 3233632 dated 09.11.2022
- 3799724 dated 19.12.2022
- 5049699 dated 15.03.2023
- 5049769 dated 15.03.2023
- Certificates of Origin (Form-AI) were issued by the Government of Malaysia and accepted by the Customs authorities at the time of assessment and clearance.
- The Revenue initiated investigations into alleged misuse of preferential duty benefits by the overseas supplier, M/s. Bahru Stainless SDN BHD, Malaysia, under the AIFTA Rules of Origin.
- A verification visit was conducted by the Directorate of Revenue Intelligence (DRI), Mumbai Zonal Unit, to the premises of the overseas supplier in terms of Para 17 of Annexure-III of the Rules of Origin notified under Notification No. 189/2009-Cus. (N.T.) dated 31.12.2009.
- The overseas supplier declined to furnish documents sought by the DRI team on grounds of confidentiality, leading to a finding of non-cooperation.
- The DRI, vide communication dated 26.03.2018, informed the Central Board of Indirect Taxes and Customs (CBIC) about the non-cooperation.
- The FTA Cell of the CBIC, vide communication dated 14.03.2023, recommended denial of preferential tariff treatment in respect of all Certificates of Origin issued by M/s. Bahru Stainless SDN BHD.
- Show Cause Notice No. KOL/CUS/PCC/PORT/GR-4/25/2024 dated 13.11.2024 was issued proposing denial of exemption, recovery of differential duty, confiscation, and penalties.
- The Principal Commissioner of Customs (Port), Kolkata, vide Order-in-Original No. KOL/CUS/COMMISSIONER/PORT/ADJN/14/2025 dated 30.04.2025, confirmed the demand, confiscated the goods, and imposed penalties.
Procedural History
- 21.10.2022 to 15.03.2023: Six Bills of Entry filed and assessed by Customs authorities, exemption granted under Notification No. 46/2011-Cus.
- 26.03.2018: DRI communication to CBIC regarding non-cooperation by overseas supplier.
- 14.03.2023: CBIC (FTA Cell) communication recommending denial of preferential tariff treatment.
- 13.11.2024: Show Cause Notice issued proposing denial of exemption and consequential demands.
- 30.04.2025: Order-in-Original passed by Principal Commissioner of Customs (Port), Kolkata, confirming differential duty, confiscation, and penalties.
- 15.07.2026: Appeal heard by CESTAT, Kolkata.
- 22.07.2026: Final order pronounced allowing the appeal.
Relief Sought
The appellant sought setting aside of the Order-in-Original dated 30.04.2025, quashing of the demand of differential duty of Rs. 1,43,72,465, redemption fine of Rs. 3,00,00,000, and penalties under Sections 114A and 114AA of the Customs Act, 1962. The appellant also sought restoration of the exemption under Sl. No. 967(I) of Notification No. 46/2011-Cus. dated 01.06.2011.
The Legal Issue
The central question was whether the Revenue could deny the preferential tariff benefit claimed by the appellant under Sl. No. 967(I) of Notification No. 46/2011-Customs dated 01.06.2011, pursuant to the ASEAN-India Free Trade Area (AIFTA), solely on the basis of an investigation into the overseas supplier's non-cooperation during a verification exercise, without any formal determination under the treaty mechanism or individual examination of the Certificates of Origin.
Arguments Presented
For the Appellant
The appellant contended that:
- The Certificates of Origin submitted were genuine and accepted by the Customs authorities at the time of assessment, and the assessments attained finality.
- The Revenue's case rested on internal correspondence and recommendations, which lacked statutory force and could not invalidate the Certificates of Origin.
- The ASEAN-India Free Trade Agreement is a treaty between sovereign contracting parties, and disputes regarding Certificates of Origin must be resolved through the prescribed dispute resolution mechanism, not through departmental communications.
- The alleged verification visit lacked legal authority, and the Show Cause Notice did not disclose the date or authorization of the visit.
- Subsequent departmental correspondence could not retrospectively invalidate benefits already extended.
- There was no material demonstrating that the Government of India or Malaysia had suspended or withdrawn the preferential treatment.
- The invocation of the extended period under Section 28(4) of the Customs Act, 1962 was unsustainable as there was no evidence of wilful suppression or fraudulent conduct.
For the Respondent
The Revenue reiterated the findings of the Order-in-Original and submitted that:
- The overseas supplier's non-cooperation during the verification exercise rendered it impossible to verify the correctness of the Regional Value Content and origin criteria reflected in the Certificates of Origin.
- The CBIC, based on the verification report, recommended denial of preferential tariff treatment, which was a valid administrative action.
- The denial of exemption was justified as the appellant had wrongly claimed exemption under the notification.
- The extended period under Section 28(4) was validly invoked as the appellant had suppressed material facts.
The Court's Analysis
The CESTAT, Kolkata, examined the statutory framework governing the Rules of Origin under the ASEAN-India Free Trade Area (AIFTA) and the India-Malaysia Preferential Trade Agreement Rules, 2011. The Court held that the Revenue's approach of mechanically denying the benefit of every Certificate of Origin issued by a particular overseas supplier merely because of non-cooperation during a verification exercise was legally untenable.
The Court observed that:
- The Rules of Origin provide a mechanism for seeking verification of Certificates of Origin where doubt arises regarding the origin criteria, but do not authorize the Customs authorities to invalidate every Certificate of Origin issued by a supplier solely due to non-cooperation during a verification exercise.
- Each Certificate of Origin represents an independent statutory document issued in relation to a distinct import transaction and carries a separate legal presumption until lawfully displaced in accordance with the prescribed procedure.
- The communication dated 14.03.2023 issued by the FTA Cell, CBIC, was merely an administrative correspondence recording recommendations and could not substitute the statutory procedure or assume the character of a formal adjudicatory determination.
- The Revenue's attempt to reject all Certificates of Origin issued by M/s. Bahru Stainless SDN BHD through one omnibus communication was legally untenable and alien to the statutory scheme governing preferential trade agreements.
- The Revenue's own records acknowledged that no verification request from any field formation in respect of the Certificates of Origin issued by M/s. Bahru Stainless SDN BHD had been received after the introduction of CAROTAR, 2020, yet proceeded to deny the benefit.
- The Certificates of Origin produced by the appellant were issued by the designated issuing authority of the Government of Malaysia and accepted by the Customs authorities at the time of importation. There was no finding that the Certificates of Origin were forged, fabricated, cancelled, or otherwise declared invalid.
- The imports were effected during 2022, and the benefit was extended after due assessment. Subsequent departmental correspondence could not retrospectively deprive the appellant of the benefit already extended.
- The Revenue failed to discharge the burden of proving wilful suppression or fraudulent conduct on the part of the appellant to justify the invocation of the extended period under Section 28(4) of the Customs Act, 1962.
The Court held:
"The Revenue's attempt to reject, through one omnibus communication, all Certificates of Origin issued by a particular overseas supplier, irrespective of the importer, the consignment, the issuing authority or the attendant facts, is legally untenable. Such a blanket approach is wholly alien to the statutory scheme governing preferential trade agreements, which envisages examination of each Certificate of Origin on its own facts and in accordance with the prescribed verification mechanism."
The Verdict
The CESTAT, Kolkata, allowed the appeal and set aside the Order-in-Original dated 30.04.2025. The Court held that the appellant is entitled to the benefit of the preferential rate of Basic Customs Duty under Sl. No. 967(I) of Notification No. 46/2011-Customs dated 01.06.2011, in respect of the imports covered by the six Bills of Entry. The Court set aside the denial of the exemption benefit, the confirmation of differential duty of Rs. 1,43,72,465, the order of confiscation of the imported goods with redemption fine of Rs. 3,00,00,000, and the penalties imposed under Sections 114A and 114AA of the Customs Act, 1962. The Court also held that the demand was barred by limitation as the Revenue failed to establish wilful suppression or fraudulent conduct on the part of the appellant.
What This Means For Similar Cases
Each Certificate of Origin Must Be Examined Individually
- The judgment clarifies that each Certificate of Origin is an independent statutory document and must be examined on its own facts.
- Blanket denial of benefits to all importers based on the conduct of the overseas supplier is impermissible.
- The statutory scheme under the Rules of Origin and the treaty framework requires individual examination and does not permit omnibus denials.
Formal Treaty Mechanism Proceedings Are Mandatory
- The Court emphasized that disputes regarding the validity of Certificates of Origin must be resolved through the prescribed dispute resolution mechanism under the treaty framework.
- Departmental communications or recommendations, even from the CBIC, cannot substitute the formal procedure.
- Importers cannot be penalized for the conduct of overseas suppliers beyond their control.
Extended Period Under Section 28(4) Cannot Be Invoked Mechanically
- The Revenue must establish, by cogent and convincing evidence, the existence of fraud, collusion, wilful misstatement, or suppression of material facts to invoke the extended period.
- Mere allegations of suppression in the Show Cause Notice are insufficient.
- Subsequent developments beyond the control of the importer cannot be construed as evidence of suppression or wilful misstatement.
Preferential Tariff Benefits Accrued at the Time of Import Cannot Be Retrospectively Denied
- Benefits extended after due assessment and clearance cannot be retrospectively withdrawn based on subsequent departmental correspondence.
- Importers must rely on the acceptance of their documents by the Customs authorities at the time of importation.
- The Court's reasoning reinforces the principle of finality of assessments and the protection of legitimate expectations of importers.
