BRIEF FACTS OF THE CASE
- The Petitioner was engaged in importing tin and lead ingots from Malaysia and claimed preferential customs duty benefits under Customs Notification No. 46/2011, based on Certificates of Origin (COO) issued by the Malaysian Authorities, which in turn certified the Regional Value Content (RVC) exceeding the required threshold of 35% under the ASEANIndia Free Trade Agreement (AIFTA).
- Pursuant to an investigation conducted by the Directorate of Revenue Intelligence (DRI) by visiting Malaysia and verification thereof, it was alleged that the Petitioner had wrongfully availed exemption benefits by misrepresenting the RVC of the imported tin ingots as exceeding 35%, whereas the actual RVC was found to be below the prescribed threshold.
- Following the investigation, the Customs authorities issued a Show Cause Notice (SCN) under Section 28 of the Customs Act, 1962, proposing to deny the preferential duty benefit on the grounds of non-fulfilment of the RVC requirement. The Petitioner, instead of responding to the SCN, filed a writ petition filed before the Hon'ble Bombay High Court, challenging the jurisdiction of the Customs authorities to issue such notices. In challenging the jurisdiction, the Petitioner argued that any dispute on origin or RVC requirement must be resolved through the dispute resolution mechanism under Article 24 of AIFTA, which mandates inter-governmental consultation and, if unresolved, arbitration under the ASEANIndia DSM Agreementis to be resorted.Hence the action of the Customs Authorities in issuing the SCN was contended to be sans jurisdiction.
- However, the Hon'ble Bombay High Court dismissed the said petition on 9 July 2019, holding that the issue of jurisdiction is a matter fit for adjudication and, therefore, not appropriate for interference under writ jurisdiction. The Court directed the Petitioner to furnish the response to the SCN and participate in the proceedings initiated.
- The Petitioner further filed an appeal before the Hon'ble Supreme Court against the order of the Bombay High Court. The Hon'ble Supreme Court set aside the High Court's Order dismissing the writ petition(s) and reinstated them. The Supreme Court also directed the High Court to decide the petition on their merits in accordance with law, keeping all questions open.
- Following the Order of the Hon'ble Supreme Court, the core issue raised once again before the Hon'ble Bombay High Court was whether the Customs authorities had jurisdiction to issue Show Cause Notices under Section 28 of the Customs Act on the question of origin criteria, without referring the dispute to the Dispute Settlement mechanism under Article 24 of the AIFTA.
KEY OBSERVATIONS OF THE HON'BLE BOMBAY HIGH COURT
- The Hon'ble Bombay High Court while examining the legal framework on international treaty provisions, such as Article 24 of AIFTA, held that, such Article cannot be enforced in domestic courts unless they are expressly transformed into municipal law through legislation. The Court emphasized that while treaties may bind contracting states at the international level, their provisions do not automatically confer enforceable rights upon individuals within the domestic legal system unless incorporated by statute. Since Article 24 of AIFTA had not been codified into Indian law, it could not be invoked to challenge the jurisdiction of customs authorities under Section 28 of the Customs Act, 1962. The Court also relied on the Supreme Court's decision inUnion of India vs. Agricas LLP1 and reiterated India's dualist position in international law, where treaties are to be respected and implemented, but must be enacted into municipal law to be enforceable in Indian Courts.
- The Court further clarified that the Customs authorities retain full jurisdiction to investigate and adjudicate cases involving alleged misrepresentation or fraud in availing customs exemptions, regardless of any dispute resolution mechanism outlined in the treaty. The petitioners' attempt to rely on Article 24 to preclude adjudication under domestic law was rejected as untenable, vindicating the principle that national law prevails in the absence of legislative transformation of treaty provisions.
- Further, the Hon'ble High Court also referred to the Gujarat High Court's decision in Trafigura India Private Limited vs. Union of India2, which upheld the jurisdiction of Customs Authorities in cases involving alleged misuse of tariff exemptions under AIFTA, which otherwise was argued by the Petitioner as not-applicable in their case.
AURTUS COMMENTS
- The observation of the Bombay High Court affirms the well settled principle that international treaty provisions are not enforceable in India unless specifically incorporated into domestic legislation. Accordingly, the primacy of domestic/ municipal laws over unincorporated treaty provisions cannot be denied. Be that as it may, it buttress India's dualistic legal approach, where international obligations require statutory incorporation to be justiciable. This principle is also enshrined in the judgment of the Supreme Court in AO vs. Nestle SA3 , wherein it was held that the Most Favored Nation (MFN) clause benefits in Double Tax Avoidance Agreements are not automatic. Applying this principle, the Court held that Article 24 of the AIFTA which confers the specialized dispute resolution mechanism, cannot be invoked to oust the jurisdiction of customs authorities under section 28 of the Customs Act, 1962 unless legislatively transformed into Indian law.
- The judgment marks a critical inflection point when viewed against the evolving regulatory landscape. In Bullion and Jewellers Association v. UOI4, the Delhi High Court had held that in the absence of a formal verification request to the exporting country, Customs could not deny FTA benefits. However, the post-2020 regime, anchored in Section 28DA and CAROTAR, 2020, has fundamentally altered this position.
- This judgment assumes significance in establishing that, Customs authorities were empowered to issue SCN even prior to insertion of Section 28DA5 in the Customs Act and promulgation of the CAROTAR 2020. Specifically, where cases involve fraud, suppression of material facts, or willful misstatement relating to the origin/ RVC of imported goods under FTAs, the enforcement jurisdiction of Customs remains intact, and dispute resolution mechanism cannot be resorted to. While these provisions were introduced post-facto, the Court clarified that even prior to their enactment, customs authorities had sufficient jurisdiction to investigate fraud or misrepresentation. The ruling thus braces the importance of compliance with both treaty conditions and domestic enforcement mechanisms and cautions against relying solely on treaty-based protection absent statutory backing.
- Accordingly, the legal position stands settled that Customs authorities are well within their rights to invoke Section 28 of the Customs Act [including the extended limitation period of five years] to initiate proceedings against wrongful claims of preferential duty benefits, even for imports made prior to the enactment of Section 28DA.
- In light of the above legal position, it is imperative for importers availing preferential duty benefits under FTAs to ensure robust internal controls and documentation frameworks that go beyond mere reliance on Certificates of Origin. Such documentation should be retained in a manner consistent with Form I under CAROTAR, 2020. It is vital for the importers to engage proactively with their suppliers to obtain origin-related data. This will provide them with a defensible position in the event of scrutiny by Customs authorities and minimize the risk of denial of benefits, interest, or penalty proceedings under Section 28.
Footnotes
1 2020 (373) E.L.T. 752 (SC)
2 2023 (13) Centax 9 (Guj.)
3 (2023) 155 Taxmann.com 384 (SC)
4 2016 (335) E.L.T. 639 (Del.)]
5 Inserted vide the Finance Act, 2020 dated 27 March 2020
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