Customs duty demands quashed for denying Notification 46/2011-Cus benefit based on hearsay, unverified Certificates of Origin

CESTAT Kolkata set aside the confirmed customs duty demands arising from denial of preferential rate under N/N. 46/2011-Cus. The Tribunal held that the Department, having relied on a verification report to brand a specific Certificate of Origin as "inauthentic," was required to provide that report during finalization of provisional assessments. In its absence, reliance solely on an FTA Cell letter amounted to hearsay and could not justify denying exemption. Further, authenticity of six earlier Certificates of Origin could not be doubted merely by assumption without separate verification. As assessments on those Bills of Entry were not re-opened lawfully, the demands were quashed and the appeal allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1. Whether the denial of preferential rate of customs duty under Notification No. 46/2011-Cus. in respect of a provisionally assessed Bill of Entry could be sustained solely on the basis of a letter from the FTA Cell without supplying the underlying verification report to the importer.

1.2. Whether, for six earlier consignments finally assessed on self-assessment basis with separate Certificates of Origin, the exemption under Notification No. 46/2011-Cus. could be retrospectively denied merely by extrapolating alleged defects in a later Certificate of Origin without specific verification of each such certificate and without first challenging the original assessments.

1.3. Whether confiscation and imposition of redemption fine were legally sustainable when the imported goods under the six earlier Bills of Entry were no longer available with the Department and had been cleared on final assessment without provisional assessment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Denial of preferential rate based only on FTA Cell letter without providing verification report (provisional assessment consignment)

Legal framework (as discussed):

2.1. The Court proceeded on the principles of natural justice, particularly the requirement that documents relied upon by the Department, and forming the basis of an adverse finding (here, the alleged inauthenticity of the Certificate of Origin), must be made available to the affected party for effective defence.

Interpretation and reasoning:

2.2. The central allegation was that the Certificate of Origin (COO) No. PP-2022-AI-21-002850 dated 07.09.2022 was "inauthentic", based on a letter dated 27.01.2023 issued by the FTA Cell, Directorate of International Customs.

2.3. The Court noted that the FTA Cell letter itself rested on a verification report said to have been received by e-mail dated 24.01.2023 and stated "copy enclosed". The Department, however, had never supplied this verification report to the appellant despite the appellant's repeated written requests for a copy.

2.4. The Court held that, without examining the actual verification report, it was impossible to ascertain on what basis the issuing authority in Malaysia allegedly treated the COO as "inauthentic".

2.5. Since the Department relied on that verification report to deny exemption and finalize the provisional assessment adversely, it was incumbent on the Department to provide a copy of the same to the appellant. Non-supply of the verification report constituted a failure of natural justice.

2.6. The Court held that to treat the COO as inauthentic solely on the basis of the FTA Cell's letter, without producing and supplying the underlying verification report, would amount to basing the conclusion on hearsay evidence.

2.7. On this reasoning, the Court declined to accept the Department's reliance on the FTA Cell letter dated 27.01.2023 as a valid and sufficient basis to deny the benefit of Notification No. 46/2011-Cus. in the absence of the underlying verification report.

Conclusions:

2.8. The finding that the COO No. PP-2022-AI-21-002850 dated 07.09.2022 was "inauthentic" was held to be unsustainable in law in the absence of the relied-upon verification report and due observance of principles of natural justice.

2.9. The consequential denial of preferential duty under Notification No. 46/2011-Cus. and confirmation of the differential customs duty demand of Rs. 33,17,607/-, along with interest, in respect of the provisionally assessed Bill of Entry was set aside, and the appeal in that respect was allowed.

Issue 2 - Retrospective denial of exemption for six earlier, finally assessed consignments based on extrapolation from a later COO and without contesting the original assessments

Legal framework (as discussed):

2.10. The Court relied on the law declared by the Supreme Court in ITC Ltd. v. Commissioner of Central Excise, Kolkata-IV, that:

- Self-assessment or assessment orders attain finality and cannot be modified indirectly through collateral proceedings (e.g., refund or subsequent demand) without being properly challenged and modified under the provisions of the Act, particularly Section 128.

2.11. The Court also referred to its own earlier decision in Rajib Saha v. Commissioner of Customs (Preventive), Shillong, where it was held that a demand of differential duty without challenging the original assessments of the Bills of Entry is not sustainable, applying the ratio of ITC Ltd.

Interpretation and reasoning:

2.12. The six consignments in question (imported between 10.08.2021 and 24.05.2022) were assessed and cleared on self-assessment basis under six separate Bills of Entry, each supported by a distinct Certificate of Origin, with the benefit of Notification No. 46/2011-Cus. granted at the time of import.

2.13. The Court observed that the subsequent doubts raised regarding the authenticity of one particular COO (No. PP-2022-AI-21-002850 dated 07.09.2022) for a later consignment were used, on the strength of the FTA Cell letter dated 27.01.2023, to reopen and question the exemption already granted for the six earlier consignments.

2.14. The Court held that, if the Department intended to challenge the exemption availed in those six earlier consignments, it was necessary to conduct specific verification in respect of each of the six Certificates of Origin. No such verification or independent adverse report for each of those six COOs was shown.

2.15. The Court further reasoned that the authenticity of six distinct COOs could not be doubted merely by extrapolating from the alleged inauthenticity of a single later COO, particularly when even for that later COO the underlying verification report had not been provided or produced.

2.16. The Court emphasised that all six Bills of Entry had already reached finality on self-assessment; the Department had not taken recourse to the statutory mechanism to challenge or modify those assessments, as required by the law laid down in ITC Ltd. Thus, raising fresh demands without first challenging the original assessments was contrary to the governing legal framework.

2.17. Applying the ratio of ITC Ltd. and Rajib Saha, the Court held that the Department could not, through the impugned order, effectively re-assess those earlier Bills of Entry and withdraw the exemption, without following the statutory route of appeal or other appropriate proceedings against the original assessments.

Conclusions:

2.18. The Court held that the demand of Rs. 1,02,94,248/- of differential customs duty, along with interest and penalty, in respect of the six earlier consignments was not legally sustainable on two distinct but concurrent grounds:

(i) Lack of specific verification and adverse findings regarding each of the six separate Certificates of Origin, and impermissible reliance on assumptions and presumptions drawn from a different COO for a later consignment; and

(ii) Failure to challenge and modify the original self-assessments of the six Bills of Entry in accordance with law, contrary to the ratio of ITC Ltd. and the Tribunal's own decision in Rajib Saha.

2.19. The impugned order relating to the six consignments was set aside in toto and the appeal on this issue was allowed.

Issue 3 - Legality of confiscation and redemption fine when goods were not physically available and had been finally cleared

Interpretation and reasoning:

2.20. In relation to the six earlier consignments, the Court noted that the goods had already been cleared upon final assessment of the respective Bills of Entry, without any provisional assessment.

2.21. It was also noted that at the time of adjudication, the goods were no longer physically available with the Department.

2.22. Despite this, the adjudicating authority had ordered confiscation and imposed a redemption fine of Rs. 25,00,000/- in respect of those consignments.

2.23. The Court held that, in the absence of physical availability of the imported goods and considering that they had been cleared on final assessments (and not under any subsisting provisional assessment), the order of confiscation and the consequential imposition of redemption fine were not legally sustainable.

Conclusions:

2.24. The orders of confiscation and imposition of redemption fine of Rs. 25,00,000/- in respect of the six earlier consignments were set aside.

2.25. Both appeals were allowed and the appellant was held entitled to consequential relief, if any, in accordance with law.

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