2025 (6) TMI 691 - AT - Customs

Concessional rate of Customs Duty - Claim for nil rate of basic customs duty against the country of origin certificate - Denial of the benefit of Notification No. 46/2011-Cus - imports of goods and filed forty eight Bills of Entry for clearance of Cocoa Powder Low Fat imported from Malaysia - demand of differential duty in respect of eleven Bills of Entry with interest under section 28AA - extended period of limitation - confiscation of the goods and imposition of penalty - HELD THAT - This precise issue was examined by a Division Bench of the Tribunal in Symphony International 2024 (1) TMI 988 - CESTAT AHMEDABAD . Here also the Bill of Entry was submitted for import of Cocoa powder on 12.02.2018 and the benefit of the nil rate of basic customs duty under the Exemption Notification was availed. Subsequently a show cause notice dated 30.05.2019 was issued to the said appellant challenging the country of origin certificate on the ground that the regional value content in the COCOA Beans from Ghana Origin was between 13-17 percent as against the minimum qualifying value of thirty five percent. The same letter dated 10.01.2014 sent by the department to the Malaysian Government for verification of the country of origin certificate was relied upon as also the reply dated 18.03.2014 submitted by the Malaysian Government. The Tribunal held that the appellant had provided documentary evidence in the form of the country of origin certificate and the onus to prove that it was fake and not correct shifted to the department but no attempt was made by the department to carry out verification with the Government of Malaysia. The facts of the present case are similar to the facts of Symphony International and Kiara Ingredients 2024 (1) TMI 988 - CESTAT AHMEDABAD . The exports were made much later between 17.07.2014 to 03.05.2018. No reliance could have been placed on the report submitted by the authority in Malaysia in respect of exports made by some other entity in 2011-12. This apart even the Malaysian Government confirmed that the regional value content was thirty five percent which was stipulated in the Exemption Notification. In respect of the present exports made between 2014 to 2018 no attempt was made by the department to verify the country of origin certificate issued by the designated authority of the Malaysian Government. In the absence of any verification having been conducted for the country of origin certificate could not have been discarded. The demand of differential duty for the normal period of limitation was therefore not justified. Interest also therefore could not have been charged from the appellant. The impugned order dated 10.01.2020 passed by the Principal Commissioner is accordingly set aside and the appeal is allowed.

The core legal questions considered in this judgment include:

(a) Whether the appellant was rightly denied the benefit of the Exemption Notification No. 46/2011-Cus dated 01.06.2011 on the basis of the "country of origin" certificates issued by the Malaysian authorities for imports of Cocoa Powder Low Fat;

(b) Whether the extended period of limitation under section 28(4) of the Customs Act, 1962 could be invoked for demanding differential customs duty in respect of the appellant's imports;

(c) Whether the department was justified in relying upon verification reports and investigations pertaining to "country of origin" certificates issued to other importers and for earlier periods (2011-12) to deny exemption for imports made during 2014-2018;

(d) The evidentiary burden and due diligence required from the importer and the department regarding verification of "country of origin" certificates issued by foreign authorities under a preferential trade agreement;

(e) Whether the demand of differential duty and interest under section 28AA of the Customs Act was sustainable in the absence of proper verification of the certificates of origin for the relevant imports;

(f) The applicability and distinction of precedents cited by the department in denying exemption and demanding duty.

Issue-wise Detailed Analysis:

1. Denial of Benefit of Exemption Notification Based on "Country of Origin" Certificates

The appellant imported Cocoa Powder Low Fat from Malaysia during 2014-2018 and claimed nil basic customs duty under the Exemption Notification, relying on "country of origin" certificates issued by the Malaysian Ministry of International Trade and Industry (MITI). The Principal Commissioner denied this benefit for eleven Bills of Entry, holding that the regional value content (RVC) declared in the certificates (35%) was not correct, based on an investigation that found the actual RVC to be between 13-17%.

The department's contention was supported by a letter dated 18.03.2014 from Malaysian authorities responding to a verification request regarding imports made by other importers in 2011-12, which stated that the cost structure was not provided due to data privacy, and the department doubted the genuineness of the certificates.

The Court examined the procedural and evidentiary aspects of this denial. It was noted that no verification was sought or conducted by the department with respect to the "country of origin" certificates issued for the appellant's imports during 2014-2018. Instead, the department relied on investigations and correspondence related to imports by other entities in 2011-12. The Court emphasized that such reliance on unrelated verification reports without attempting to verify the certificates for the appellant's imports was improper.

Precedents relied upon by the department (Alfa Traders and Surya Light) were distinguished on facts. In those cases, invoices were faked or the value addition was never in dispute, whereas here, the certificates were issued by the designated competent authority and no attempt was made to verify their authenticity for the relevant imports.

The Court referred to a Division Bench decision in Symphony International, which held that when a certificate of origin is issued by the designated authority under an ASEAN Free Trade Agreement and produced by the importer, the onus shifts to the department to prove its falsity or inaccuracy. Without verification or rebuttal, denial of exemption is unsustainable. This principle was further reinforced by the Tribunal's decision in Kiara Ingredients INC, which held that failure of the department to obtain cost data or conduct verification with the foreign government cannot be held against the importer who has produced the prescribed documentary evidence.

The Court applied these principles to the facts, concluding that the department's denial of exemption without verification of the appellant's certificates was unjustified.

2. Invocation of Extended Period of Limitation under Section 28(4) of the Customs Act

The Principal Commissioner invoked the extended period of limitation for thirty-seven Bills of Entry alleging that the appellant had willfully procured fraudulent "country of origin" certificates by misstatement and suppression of facts, based on the lower regional value content found during investigation of other importers' imports from 2011-12.

However, the Principal Commissioner ultimately held that the extended period could not be invoked for these thirty-seven Bills of Entry, as the extended limitation period requires specific conditions to be met, including proof of fraud or willful misstatement in relation to the particular imports under scrutiny.

The Court concurred with this view, noting that the department failed to establish any fraudulent conduct or misstatement by the appellant in relation to the certificates for the imports made between 2014 and 2018. The reliance on investigations pertaining to other importers and earlier periods was insufficient to invoke the extended limitation period against the appellant's imports.

3. Burden of Proof and Due Diligence in Verification of "Country of Origin" Certificates

The Court emphasized the evidentiary burden on the department once the importer produces a certificate of origin issued by the designated authority under the preferential trade agreement. The department must then discharge the burden of disproving the genuineness or correctness of such certificate through proper verification procedures.

In this case, the department did not attempt to verify the certificates for the appellant's imports with the Malaysian government or the designated authority. The department's reliance on a letter from 2014 relating to other importers was held to be insufficient and procedurally improper.

The Court noted that cost data confidentiality is a legitimate concern and that the absence of cost data cannot be held against the importer, especially where the certificate is issued by the competent authority and no further verification is sought.

This approach aligns with the principle that the importer who produces valid documentary evidence under the relevant Customs notification and trade agreement is entitled to the benefit unless the department can prove otherwise through due process.

4. Application of Precedents and Distinction of Cases

The department relied on decisions in Alfa Traders and Surya Light to support denial of exemption and demand of duty. However, these cases were distinguished based on facts: in Alfa Traders, judicial notice was taken of non-production of goods in the country of origin and in Surya Light, the invoice was faked.

The Court relied on more recent Tribunal decisions (Symphony International and Kiara Ingredients) which clarified the procedural requirements and burden of proof in cases involving preferential trade agreement certificates of origin.

5. Demand of Differential Duty and Interest under Section 28AA

The Principal Commissioner confirmed demand of differential duty along with interest for eleven Bills of Entry falling within the normal limitation period. The Court held that since the denial of exemption itself was unjustified due to lack of verification and improper reliance on unrelated investigations, the demand of differential duty and interest was also unsustainable.

Conclusions:

The Court set aside the impugned order of the Principal Commissioner dated 10.01.2020 and allowed the appeal. The denial of benefit of the Exemption Notification and the consequent demand of differential duty and interest were quashed for all the Bills of Entry, including those falling within the normal limitation period.

Significant Holdings:

"The department has been provided a documentary evidence by way of a stipulated certificate from the designated authority under the agreement. On production of such agreement which is in the nature of the documentary evidence, the onus to prove fakeness of its content or otherwise clearly shifts on the department. Unlike, the course of action adopted in respect of other importers who made imports in the Year-2014, the department has not even attempted to do verification with Government of Malaysia and has proceeded in the instant case, on the basis of following assumptions and presumptions even without as much as verification having been attempted to be made by the authorities. The same is therefore, not maintainable."

"In absence of such burden having been discharged or even having been attempted till such belated stage, the show cause notice cannot be sustained."

"Failure of Indian authorities to get more detailed verification or underlying cost data from the Malaysian Government authorities cannot be held against the appellant, who discharged their burden to claim benefit by producing the relevant prescribed document under the agreement and the Customs notification."

Core principles established include:

- The importer producing a certificate of origin issued by the designated authority under a preferential trade agreement is prima facie entitled to claim exemption under the relevant notification.

- The burden shifts to the department to disprove the genuineness of such certificate by conducting proper verification with the foreign government or competent authority.

- Reliance on investigations or verification reports relating to other importers or earlier periods without verifying the certificates relevant to the appellant's imports is improper.

- The extended period of limitation under section 28(4) can only be invoked upon specific proof of fraud or willful misstatement relating to the particular imports.

- Absence of cost data due to confidentiality cannot be held against the importer in the absence of any adverse verification.

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