The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has clarified that where the importer has fulfilled the substantive requirements of Notification No. 50/2017-Customs and establishes that the imported goods were used for the specified intended purpose, the benefit of concessional duty cannot be denied merely for procedural non-compliance with Condition No. 9 requiring adherence to the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017.
The Tribunal further held that once eligibility for exemption is established and the beneficial purpose of the notification is served, procedural lapse cannot defeat the exemption, and consequential confiscation and penalty also cannot survive.
The Division Bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that the only issue for determination was whether the benefit of exemption under Notification No. 50/2017-Cus. could be denied merely for non-following of the procedure set out in Rule 5 of the CIGCRD / IGCR Rules.
The Tribunal observed that under Sl. Nos. 413 and 414, the substantive requirement for availing concessional duty was authorization by the concerned officers under Conditions 53 and 54, while Condition No. 9 requiring compliance with the CIGCRD procedure was intended to prevent misuse and ensure end use of imported goods for the specified purpose.
The Tribunal found that there was no dispute that the imports had been duly authorized in the manner specified in Conditions 53 and 54, and that the imported goods were used only for the specified purposes. In these circumstances, non-compliance with CIGCRD was held to be a procedural requirement which could not stand in the way of the Appellant enjoying the exemption.
The Tribunal noted that the Appellant had, in fact, continued following the earlier procedure by furnishing information and executing end-use bonds before the customs officer at the port of import, and that even the customs officers at the port of import continued to accept that procedure despite the amendment. It therefore held that the procedural change did not affect the Appellant’s substantive right to claim the exemption.
The Tribunal further observed that the adjudicating authority ought to have considered the Chartered Engineer’s Certificates and end-use certificates, or caused verification from the user-end, since the sole objective was to ensure that goods imported at concessional duty were used for the intended purposes. The Tribunal criticized the adjudicating authority for not considering the end-use certificate produced during adjudication and for proceeding in a manner that led to unnecessary litigation.
The Tribunal also found that the impugned order was effectively a non-speaking order insofar as it brushed aside the Appellant’s authorities on retrospective applicability and procedural compliance without reasoned distinction, while relying on unrelated case law.
The Tribunal held that the principles emerging from Mangalore Chemicals & Fertilizers Ltd. applied: some conditions are substantive and policy-based, while others are merely procedural; equal importance cannot be attached to non-observance of all conditions irrespective of the purpose they serve. Since the intended purpose of Notification No. 50/2017-Customs had been fulfilled, non-observance of Condition No. 9 was only a procedural lapse.
The Tribunal finally observed that there was no misdeclaration warranting confiscation under Section 111(m), and Section 111(o) also could not be invoked because the goods were found eligible for the exemption. Consequently, confiscation, redemption fine, and penalty under Section 112(a) were unsustainable.
Briefly, the Appellant had imported various goods under Bill of Entry No. 2295456 dated January 10, 2021 / February 01, 2021 and 29 other bills of entry, classified them under the stated Customs Tariff Headings, and availed the concessional duty benefit under Sl. Nos. 413 and 414 of Notification No. 50/2017-Customs dated June 30, 2017, paying BCD at 5%, SWS at 10%, and IGST at 18% at the time of clearance.
During post-clearance audit, the Department formed the view that the Appellant had failed to satisfy Condition No. 9 of Notification No. 50/2017-Customs, i.e., compliance with the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017, and therefore was not entitled to the exemption. A show cause notice dated January 02, 2023 proposed denial of the exemption, demand of short-levied duty of Rs. 4.56 crores under Section 28(1) of the Customs Act, 1962 with interest under Section 28AA, confiscation under Sections 111(m) and 111(o), and penalty under Section 112(a).
By the impugned order, the adjudicating authority rejected the exemption claim, ordered reassessment, confirmed the duty demand under Section 28(8) with interest, ordered confiscation of goods valued at Rs. 93.75 crores with redemption fine of Rs. 9 crores under Section 125, and imposed penalty of Rs. 25 lakhs under Section 112(a).
Appearances:
Advocate M. Karthikeyan, for the Appellant/ Taxpayer
AR, Sanjay Kakkar, for the Respondent/ Revenue
