Has the Madras High Court Drawn the Final Line?

Has the Madras High Court Drawn the Final Line?

India’s Quest for Trade Certainty in a Global Arena [Section 28KA vs Section 130E(b)]

Imagine you’re an importer shipping high-tech gadgets from China to India. Before investing millions, you want to know exactly how much customs duty you’ll pay, will it be classified as a ‘speaker’ at 7.5% duty or a ‘smart device’ at 10%? That’s where advance rulings come in: a pre-shipment promise from customs authorities on how your goods will be treated. It’s like getting a weather forecast before sailing, essential for smooth trade. But in India, this system is caught in a legal tangle, highlighted by recent court battles. This article dives into the conflict between two key sections of the Customs Act, 1962, explores global benchmarks like the EU’s successful models, and spotlights how India can bridge gaps to slash trade costs and boost competitiveness. We’ll break it down simply, with real-world examples, so even non-experts can grasp why these matters for businesses, policymakers, and the economy.

The Indian Backbone: Advance Rulings Under the Customs Act

India’s advance ruling system, introduced in 1999 via Chapter V-B of the Customs Act, 1962, aims to give importers and exporters upfront clarity on tricky issues like tariff classification (what category your product falls into), valuation (how its worth is calculated for duties), and origin (where it’s from, affecting preferential duties). Think of it as a ‘pre-approval’ to avoid surprises at the border.

Chapter V-B include:

1. Section 28E (Definitions): Defines ‘advance ruling’ as a written decision on classification, valuation, origin, or applicability of notifications, provided before importation. It also covers ‘applicant’ (importers, exporters, or producers) and the ‘Authority for Advance Rulings’ (now the Customs Authority for Advance Rulings, or CAAR, with benches in Delhi and Mumbai).
2. Section 28H (Application for Advance Ruling): Anyone can apply with details of the goods, paying a fee (Rs.10,000 for most cases). The authority must respond within 90 days.
3. Section 28J (Applicability of Advance Ruling): The ruling binds customs authorities and the applicant for the specific transaction, valid for three years unless facts change.
4. Section 28KA (Appeal): Added in 2017, this allows appeals against CAAR rulings to the High Court within 60 days (extendable by 30 days) if there’s a substantial question of law. It’s meant as a safety net for challenging errors.
5. Section 28M (Advance Ruling to be Void in Certain Circumstances): If obtained by fraud or misrepresentation, it’s void.

But here’s the rub: Section 130E(b) from Chapter XIV (Appeals) states that appeals on duty rates or valuation go directly to the Supreme Court from the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT). It reads: ‘An appeal shall lie to the Supreme Court from... any order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of customs or to the value of goods for purposes of assessment.’ This creates confusion—does it override High Court appeals for advance rulings on classification?

The system’s goal? Reduce litigation, provide certainty, and align with India’s trade facilitation commitments. Yet, recent court rulings show it’s not working seamlessly.

The Judicial Tug-of-War: Delhi vs. Madras High Courts

In an earlier piece, we explored the Delhi High Court’s 2023 ruling in Amazon Wholesale India Private Limited Versus Customs Authority Of Advance Ruling, New Delhi & Anr. - 2023 (12) TMI 757 - DELHI HIGH COURT. Amazon sought clarity on classifying Echo devices (smart speakers with AI). The CAAR classified them under a higher duty heading, but the Delhi High Court, using Section 28KA, overturned it, reclassifying them favorably. The court viewed 28KA as a broad appellate tool, allowing full review—even on classification—without invoking Section 130E(b).

Fast-forward to 2025: The Madras High Court took the opposite stance in a case where an importer asked for a ruling between two tariff options, but CAAR picked a third. The importer appealed under 28KA, claiming procedural unfairness. The court dismissed it, saying:

1. Appeals under 28KA are limited to ‘patent illegality, irrationality, or violation of natural justice’—not a redo of the decision just because it’s unfavorable.
2. Advance rulings exist to cut disputes, not fuel them.
3. Crucially, classification issues fall under Section 130E(b), reserving them for the Supreme Court, not High Courts.

This is groundbreaking—the first time a High Court used 130E(b) to curb its own powers under 28KA. For laymen: It’s like two umpires in a cricket match disagreeing on whether a decision can be reviewed by the third umpire or skipped straight to the ICC.

This split leaves businesses in limbo: Appeal to High Court or leap to Supreme Court? It undermines the ‘certainty’ promise.

The Statutory Knot and Its Real-World Snags

On paper, 28KA empowers High Courts for advance ruling appeals, while 130E(b) handles tribunal appeals on duties/valuation. No direct link, yet Madras superimposed 130E(b) onto 28KA. Questions arise:

1. Can tribunal rules oust High Court jurisdiction?
2. What’s the remedy for a wrong ruling? Supreme Court appeals cost lakhs and take years—impractical for small traders.

Eg: A spice exporter from Kerala applies for an origin ruling to claim duty-free access under a free trade agreement. If CAAR errs, and appeals are restricted, they might skip the system altogether, facing disputes post-import. This defeats Chapter V-B’s aim: voluntary disclosure for pre-clearance.

Tying It to Global Commitments: WTO’s Trade Facilitation Agreement (TFA) Articles 3 & 4

India ratified the WTO’s TFA in 2016 to simplify trade. Article 3 mandates advance rulings for classification, valuation, origin, etc., issued timely, binding, and valid for a ‘reasonable period’ (like three years in India). It requires publication of procedures, reviews of rulings, and no retroactive changes unless based on false info. Simply: Give traders a reliable preview to plan shipments without fear.

Article 4 ensures appeal rights: Administrative or judicial review of customs decisions, non-discriminatory, with reasons provided. It encourages exhausting admin appeals before courts but guarantees access.

India’s system aligns partially—CAAR handles rulings, 28KA offers appeals—but judicial inconsistencies violate TFA’s spirit of predictability. Per OECD reports, full TFA implementation could cut global trade costs by 14-16%, adding $1 trillion to global trade cost saving (1% is equal to 40 billion US$) . In India, delays and disputes inflate costs by 10-15% for importers, per studies.

Global Perspectives: How the EU Nails It, Reducing Trade Costs

Contrast India’s hiccups with the EU’s polished systems: Binding Tariff Information (BTI), Binding Origin Information (BOI), and the new Binding Valuation Information (BVI). These provide EU-wide binding decisions, valid 3 years, enforceable across 27 countries.

1. BTI: For classification. Apply online via the EU’s Trader Portal; get a decision in 120 days. Binding on all EU customs, it cuts disputes. Success: A 2021 Copenhagen Economics study found BTI provides ‘legal certainty,’ reducing appeals by 30% and trade costs by 1-2%. Example: A German car parts importer gets BTI classifying electric vehicle batteries—avoids €500,000 in overpaid duties annually.
2. BOI: For origin, helping claim preferences under FTAs. Valid 3 years, it streamlines proofs. Example: A Spanish olive oil exporter uses BOI to prove EU origin, slashing duties to the US from 10% to zero under agreements.
3. BVI: Launched in 2024, for valuation. Aligns with BTI/BOI, ensuring uniform methods (e.g., transaction value). Per EU Commission, it harmonizes decisions, cutting valuation disputes by 20%.

EU’s edge? Centralized database (EBTI system) shares rulings, appeals go to national courts then EU Court of Justice if needed. No jurisdictional muddles. Impact: WTO estimates advance rulings shave 1-2 days off border times, cutting costs 5-10%. Globally, countries like the US (via CBP rulings) and Australia see 20-30% litigation drops, per WCO. In the EU, this contributes to €2.8 trillion in trade with minimal friction—traders plan confidently, investors flock.

India’s Limping Gaps: Why We’re Behind and the Cost

India’s system lags despite TFA ratification. Challenges:

1. Inconsistent Rulings: Delhi vs. Madras shows judicial divergence; no national uniformity like EU’s database.
2. Limited Appeals: If 130E(b) blocks High Courts, Supreme Court overloads (backlog: 80,000+ cases). EU allows multi-level reviews without skipping.
3. Low Usage and Delays: Only 500-600 applications yearly vs. EU’s 20,000+ BTIs. Delays beyond 90 days common, per 2024 Trust bridge report. Dependency on port officers for info slows things.
4. Narrow Scope: Unlike EU’s BVI, India’s valuation rulings are ad-hoc, not fully binding EU-style.

Impact: Higher trade costs—India’s logistics cost 13-14% of GDP vs. EU’s 8-9%. Example: Samsung faced Rs.1,000 crore demands in 2024 over TV classifications; Volkswagen similar disputes. Globally, poor advance rulings add 5-10% to import costs via delays/litigation, per WTO. India ranks 38th in World Bank’s Logistics Performance Index—better rulings could jump us 10 spots, attracting FDI.

Recommendations: Bridging the Gap for a World-Class System

To match EU success and honor TFA, India needs reforms:

1. Legislative Clarity: Amend 28KA to explicitly allow High Court appeals on classification/valuation, overriding 130E(b) for advance rulings. Add a clause for EU-like validity extensions.
2. Specialized Appellate Body: Create a national Advance Rulings Appellate Tribunal under CBIC, like CESTAT but faster. Appeals then to High Court/Supreme Court.
3. Digital Overhaul: Build a public database of anonymized rulings (protecting secrets), integrated with ICEGATE. Use AI for quicker processing, cutting delays 50%.
4. Expand Scope: Mandate BVI-like valuation rulings; extend to SMEs with fee waivers.
5. Capacity Building: Train CAAR officials; collaborate with WTO for best practices. Pilot in SEZs.
6. Stakeholder Engagement: Regular consultations per TFA Article 2, involving trade bodies.

These could reduce India’s trade costs by 5-7%, per estimates, boosting exports by $50-100 billion annually.

Conclusion: Time for India to Sprint Ahead

The Madras High Court’s ruling sharpens the 28KA-130E(b) divide, risking the advance ruling system’s credibility. While the EU’s BTI/BOI/BVI deliver certainty, slashing costs and disputes, India’s gaps—judicial inconsistency, limited appeals—hinder progress. By embracing TFA fully and reforming smartly, India can transform advance rulings into a trade superpower tool. Policymakers, act now: Clarity isn’t just legal—it’s economic rocket fuel. For businesses, it’s the difference between thriving and surviving in global trade. Let’s draw that final line, together.

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by Dr. Joshua Ebenezer, Principal Consultant of NuCov FaciliTrade.