Detention Under Customs Act – Authority Must Specify Nature Of Infraction/ Violation, For Tentative Denial Of Preferential Duty Treatment: Delhi HC

The High Court clarified that the proper officer does not have any unfettered power to initiate a verification process, and it is incumbent upon him to form a requisite opinion in support of a suspicion that he had regarding the issue of Country-Of-Origin (COO) certificate or the origin of the imported articles.

The Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed that “the Customs Administration of the importing Party while initiating a procedure for verification must also specify whether it is required to undertake a verification to rule out forgery, seek minimum required information or verify the determination of origin. None of these circumstances is even remotely alluded to by the respondents while passing the impugned order”. (Para 28)

The Bench stated that such fact is totally silent with respect to the requisite formation of opinion and which is a sine qua non for the detention of goods or imports under the CAROTAR and CEPA Rules.

Referring to the Customs Act 1962 read along with the Comprehensive Economic Partnership Agreement between India and the United Arab Emirates Rules, 2022 (CEPA Rules) and Customs (Administration of Rules of Origin under Trade Agreements Rules, 2020 (CAROTAR) the Bench stated that the importer must be informed in case of any interruption in import process.

It was incumbent upon the Department/Respondent to specify the nature of the infraction alleged, the statutory prescription which stood violated and the reasons which informed the tentative denial of preferential duty treatment, added the Bench.

Facts of the case

The petitioner/ taxpayer had imported platinum alloy sheets classifiable under Customs Tariff Heading 7110 1900, under 4 Bill of Entries generated between 13 to 16 July 2024. The said import was sought to be effected on payment of a preferential rate of duty of 5%. A similar importation was made by the petitioner under 10 Bill of Entries submitted between 14 to 19 July 2024 for identical consignments of platinum alloy sheets.

The respondents however held that consequent to the conclusion of the investigation by the Special Investigation and Intelligence Branch, the competent authority had been advised to assess the Bill of Entries subject to the submission of a PD Bond of 100% of the assessable value along with a Bank Guarantee of differential duty pending verification of the COO certificate regarding origin and value addition as also verification of the percentage of platinum in the imported platinum alloy sheets.

The petitioners are therefore aggrieved by the detention of a consignment of goods comprising of platinum alloy sheets and the release thereof being made subject to the submission of a PD Bond equivalent to 100% of the assessable value along with a Bank Guarantee of differential duty @ 10.712% thereof pending verification of the Country-Of-Origin (COO) certificate accompanying those goods.

The petitioners contend that the action of the respondents is wholly arbitrary since no reasons have been assigned in the impugned orders which may be viewed as being even suggestive of the formation of a reasonable belief or opinion that the COO certificate or the imported articles were non-compliant with the statutory prescriptions which apply. The petitioners refer to the detailed statutory mechanism prescribed by Section 28DA of the Customs Act, 1962 read along with CEPA Rules, 2022 together with the CAROTAR and which compendiously create a minimum threshold which may warrant the detention of goods covered by a Trade Agreement pending verification or enquiry.

Observation of the High Court

The Bench accepted that platinum alloy sheets are goods which are otherwise entitled to preferential tariff treatment under the CEPA Rules.

The Bench noted that the detention of the goods is not prefaced by the recording of any reasons by the proper officer of circumstances based on which it came to the form the opinion or had reason to believe that the goods sought to be imported did not conform to the COO criteria, when the proper officer had not doubted the genuineness of the COO certificate.

Under the CAROTAR, the proper officer would be justified in holding back a clearance of goods provided it has reason to believe that the origin criteria has not been met, and if that be the ground for detention, Rule 5 enables that officer to call for further information from the importer, which is absent in present case, added the Bench.

The detention would also not sustain when tested on the anvil of the CEPA Rules, clarified the Bench while pointing that a COO certificate can be duly verified online and consequently, there was no justification for the respondents having failed to undertake such an exercise.

Notwithstanding, from a reading of the CEPA Rules, the Bench found that validity of a COO certificate may be doubted if it is either incomplete, not in accordance with the format prescribed, has been altered, the certificate not authenticated or where its validity itself may have expired, but none of those contingencies are present.

By virtue of Rule 23(2) of CEPA Rules, the Bench stated that while initiating verification, the Customs Administration of the importing Party is obliged to specify the reasons for initiation of that verification process and whether it is directed to rule out forgery, elicit minimum required information or determine the point of origin.

The Bench therefore emphasized that formation of the requisite opinion cannot be left to surmise and conjecture, and the order which the proper officer chooses to frame must itself be reflective of the reasons which weighed upon that authority to block or pause the importation.

The Bench found that the respondents had simply asserted that although the SIB has concluded its investigation, they have been advised to assess the Bill of Entry under a PD Bond and the furnishing of a Bank Guarantee.

Such orders woefully fail to record any reason which may be reflective of consideration having been accorded to the various factors which would be relevant to an exercise of verification being initiated, for a COO certificate being doubted or the action being necessitated under any provision of the Act, CEPA Rules or CAROTAR, added the Bench.

The Bench also pointed that the COO certificate when found to have been issued by the competent authority of the reciprocal State, cannot be lightly ignored or questioned except on the basis of well-substantiated grounds resting on valid, credible and reasonable belief which constrains the authority to initiate a verification exercise.

Insofar as the condition of requiring a Bank Guarantee or differential duty is concerned, the respondents appear to have mechanically proceeded upon a purported understanding of the Guidelines regarding Provisional Assessment under section 18 of the Customs Act, 1962, which have been framed by the CBEC, added the Bench.

Hence, the High Court allowed the Assessee's petitions and directed the respondents to reconsider the release of the imported articles with due expedition, while bearing in mind the onerous conditions explained in case of Bullion and Jewellers Association (Regd.) vs. Union of India [2016 SCC OnLine Del 2437].

Counsel for Petitioner/ Assessee: Kishore Kunal, Runjhun Pare, Mahesh Singh

Counsel for Respondent/ Revenue: Asheesh Jain, Amit Acharya, Aditya Singla, Ritwik, Sahil P., Vaibhav, Medha Navami, Gaurav Kumar, Pooja Bhardwaj

Case Title: M/S Ausil Corporation Pvt. Ltd versus Union Of India & Ors.

Case Number: W.P.(C) 10943/2024 & CM APPL. 45063/2024

Click Here To Read/ Download The Order