Re-assessment under Section 17(5) requires speaking order when importer disputes country of origin change

CESTAT Mumbai held that re-assessment under Section 17(5) of Customs Act, 1962 requires a speaking order when importer disputes country of origin change. The tribunal found that markings on inner gunny bags from Pakistan-based mills were insufficient evidence to determine country of origin of imported Omani dry dates. Commercial documents including bill of lading, invoice, and sales contract showing Oman origin were deemed sufficient proof. The tribunal emphasized that packaging material origin cannot determine the origin of contents, citing precedents. The Commissioner's order changing country of origin from Oman to Pakistan was set aside, and penalties were quashed due to lack of proper documentary evidence supporting the re-assessment.

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The primary legal issue considered by the Tribunal was whether the re-assessment under Section 17(5) of the Customs Act, 1962, altering the declared country of origin of imported goods and consequent classification, demand of additional customs duty, imposition of redemption fine, and penalties, was legally sustainable.

In addressing this issue, the Tribunal examined the relevant statutory provisions governing assessment and re-assessment of imported goods, particularly Sections 2(2), 17(1) to 17(5) of the Customs Act, 1962, and the determination of country of origin under the Customs Tariff Act, 1975 and associated rules. The legal framework mandates that an importer must self-assess the duty payable on imported goods, including declaring the correct country of origin, and the proper officer has the authority to verify such declarations and re-assess duty if self-assessment is found incorrect. A speaking order on re-assessment is required when the importer does not accept the reassessment.

The Tribunal analyzed the facts surrounding the importation of 'Omani Dry Dates' declared under Customs Tariff Item (CTI) 0804 1030 with Oman as the country of origin. The department suspected the goods to be of Pakistan origin based on intelligence and examination by the Special Intelligence and Investigation Branch (SIIB). The SIIB investigation found that out of 540 jute bags containing the dry dates, 307 bore tags or labels indicating manufacture by 'Thal Limited (Jute Division)', a Pakistani company, while others bore marks indicating origin from Bangladesh or had no labels. The department contended that the presence of Pakistani-origin jute bags indicated the dates themselves were of Pakistan origin, warranting reclassification under CTI 9806 0000 with higher customs duty and penalties.

In opposition, the appellants produced extensive documentary evidence to establish the goods' Oman origin, including the Bill of Lading, sales contract, commercial invoice, packing list, Certificate of Origin issued by the Oman Chamber of Commerce & Industry, and a Phytosanitary certificate from the Plant Protection Organization of Oman. The supplier confirmed that only the jute bags were procured from Pakistan and Bangladesh, supported by supply invoices. The Directorate of Plant Quarantine, Mumbai, also certified the country of origin as Oman after examination of the goods. The appellants argued that the packaging material's origin cannot determine the origin of the goods contained therein.

The Tribunal scrutinized the original authority's reliance on the presence of Pakistani jute bags and press reports about trade shifts following the withdrawal of Most Favoured Nation status to Pakistan. It found that such evidence was insufficient and factually incorrect to establish the entire consignment's origin as Pakistan. The Tribunal emphasized that the packing material's country of origin, especially when only part of the consignment bore such labels, cannot conclusively determine the goods' origin. This principle aligns with prior Tribunal decisions, notably:

- In Doves International, the Tribunal held that "merely markings on packing material cannot be the clinching evidence for determining the country of origin of the goods contained therein," recognizing that old gunny bags may be reused and do not necessarily reflect the goods' origin.

- In Sukumar Mondal, the Tribunal held that country of origin cannot be decided solely on marks found on some imported goods, especially when such marks were not present on all items.

The Tribunal found that the appellants' documentary evidence, including certificates issued by competent authorities and examination reports by the Plant Quarantine Directorate, constituted substantial proof of Oman origin. The absence of any allegation or evidence that the goods violated Food Safety and Standards (Packaging and Labelling) Regulations, 2011, further weakened the department's case for confiscation and penalties.

Applying the law to the facts, the Tribunal concluded that the proper officer's re-assessment under Section 17(5) was not justified, as the department failed to produce conclusive evidence to rebut the declared country of origin. The Tribunal underscored that the statutory provisions require a speaking order based on cogent evidence before altering the country of origin and imposing additional duties and penalties, which was lacking in this case.

The Tribunal also treated the competing arguments by giving due weight to the appellants' documentary evidence and the limitations of relying on packaging material origin. It rejected the department's reliance on press reports and partial labeling as insufficient grounds for reclassification and penalties.

Significant holdings from the judgment include the following verbatim extract from the Doves International precedent, which the Tribunal applied:

"...merely markings on packing material cannot be the clinching evidence for determining the country of origin of the goods contained therein especially when laboratory tests are inconclusive... For packing of the material, old gunny bags can be reused and it is not a ground to deny the benefit of country of origin."

The core principle established is that the country of origin of imported goods must be determined based on substantive evidence relating to the goods themselves and not merely on the origin of packaging materials, especially when such packaging is partial or removable. The Tribunal reaffirmed that self-assessment by importers, supported by valid documents and certification, must be respected unless convincingly disproved by the department.

On the final determination, the Tribunal set aside the impugned order of the Commissioner of Customs (Appeals) dated 10.05.2023, allowing the appeal filed by the appellants. It held that the re-assessment, demand of differential duty, confiscation, redemption fine, and penalties imposed on the appellants were unsustainable in law and fact.

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