While dismissing the petition against Orders-in-Original arising out of Tin Ingot imports from Malaysia, the Delhi High Court has asserted that Article 24 of ASEAN-India Free Trade Area framework (AIFTA), being an unincorporated treaty obligation, has not been transformed into Indian municipal law by any statute or subordinate legislation, including the Rules of Origin, 2009, which gives only partial effect to AIFTA for the limited purpose of prescribing origin criteria.
The Court clarified that an international treaty, until transformed into domestic law by legislation, does not by itself confer rights enforceable in a municipal court and cannot operate to curtail or condition powers otherwise validly conferred on a domestic authority by a domestic statute. Accordingly, the exercise of power under Section 28 of the Customs Act, 1962 could not be said to be without jurisdiction merely because the Article 24 consultation mechanism had not been separately invoked.
On the second submission, the Court held that Section 28 read with Section 46 of the unamended Customs Act, 1962 already conferred sufficient power to recover duties short-levied or short-paid by reason of suppression of facts, and to invoke the extended period of five years, independent of any COO-specific verification mechanism. The introduction of Chapter V-AA and Section 28DA was in the nature of an additional and more elaborate procedural mechanism specifically calibrated to preferential-tariff disputes, but it did not create a power that was, until then, altogether absent, nor did it impliedly repeal the pre-existing general power under Section 28.
The Court further observed that under Section 28(4), the requirement of wilfulness qualifies ‘misstatement’ and not ‘suppression of facts’, and consequently, suppression simpliciter is sufficient to invoke the extended period. Section 46(4) casts a substantive obligation upon the importer to truthfully declare the contents of the Bill of Entry, including the RVC particulars reflected in the COO, and where an experienced importer furnishes particulars which it knew, or could not reasonably have been unaware, were incorrect, such non-disclosure or incorrect disclosure may constitute suppression of facts for the purposes of Section 28(4).
The Division Bench comprising Justice Anil Kshetarpal and Justice Shail Jain noted that the present controversy was not an isolated one, and similar disputes concerning MSC-manufactured Tin Ingots and MITI-issued COOs had earlier arisen before the Gujarat High Court in Trafigura India Pvt Ltd. v. Union of India [1(2023) 13 Centax 9 (Guj.)], and before the Bombay High Court in Purple Products Pvt Ltd. v. Union of India [W.P. No.2831/2018], both of which had dismissed the petitions on materially identical facts.
The petitioner advanced two principal submissions: first, that the proceedings under the Customs Act, 1962 were without jurisdiction in view of Article 24 of AIFTA, which prescribes a separate dispute-resolution mechanism; and second, that prior to the introduction of Chapter V-AA and Section 28DA by the Finance Act, 2020 with effect from March 27, 2020, the Customs Authorities lacked the requisite statutory power to initiate proceedings in respect of preferential tariff claims. The respondents, on the other hand, contended that the Customs Authorities were vested with adequate statutory powers under Section 28 of the Customs Act, 1962 even prior to the 2020 amendment, and that the subsequent amendment was merely clarificatory and introduced by way of abundant caution.
The Court observed that where an importer claims concessional customs duty under a preferential trade agreement on the strength of a Certificate of Origin issued by the exporting country’s designated authority, the unincorporated dispute-resolution clause of the treaty cannot oust the jurisdiction of domestic Customs Authorities under Section 28 of the Customs Act, 1962. The Court further added that the pre-amended statutory scheme of Sections 28 and 46 already empowered the authorities to recover short-paid duty by reason of suppression of facts simpliciter, with the subsequent introduction of Chapter V-AA being merely an additional procedural mechanism and not a conferment of fresh jurisdiction.
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Briefly, the petitioner, M.M. Ceramics & Ferro Alloys, imported High Grade Tin Ingots manufactured in Malaysia-by-Malaysia Smelting Corporation (MSC) and claimed concessional Basic Customs Duty at NIL under Notification No.46/2011-Cus. dated June 01, 2011, read with the ASEAN-India Free Trade Area (AIFTA) framework. The claim was supported by Certificates of Origin (COOs) issued by the Ministry of International Trade and Industry, Malaysia (MITI), declaring a Regional Value Content (RVC) in excess of 70%, against the prescribed minimum threshold of 35%.
The Directorate of Revenue Intelligence (DRI), Mumbai, initiated an investigation and, after a verification visit to MSC’s premises under Article 17 of Annexure-III to the Rules of Origin, 2009, found that MSC was undertaking manufacture on a job-work basis, with tin ore being supplied free of cost by traders/suppliers. The actual regional value addition, when assessed with reference to the real economic activity undertaken by MSC, was found to fall short of the prescribed originating criteria. Consequently, two Show Cause Notices were issued, culminating in two Orders-in-Original, confirming differential customs duty of Rs. 39.69 lakhs and Rs. 99.84 lakhs, respectively, along with interest, penalty, and confiscation of goods valued at over Rs. 16.77 crores in one of the matters.
