Importer entitled to FTA customs duty exemption based on verified Thai Certificates of Origin; no obligation under pre-s.28DA regime

The Tribunal held that the appellant-importer was entitled to exemption from basic customs duty under the relevant FTA notification based on Certificates of Origin issued by the designated Thai authority. It found the certificates to be genuine and duly verified by Indian Customs at the time of import, with no allegation of forgery or concrete evidence to discredit their contents. The later, vague communication from Thai authorities about non-compliance with an unspecified time-frame could not retrospectively negate preferential treatment. As there was no statutory obligation on the importer, prior to s.28DA, to verify value addition or origin beyond producing valid certificates, denial of benefit was unsustainable. The impugned orders were set aside and the appeal allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether exemption under the preferential tariff notification for imports from Thailand could be denied by rejecting Certificates of Origin on the basis of subsequent communications from the exporting country alleging non-fulfilment of origin/value addition criteria.

1.2 Whether Customs authorities in India were competent in law to sit in judgment over the validity of duly issued Certificates of Origin under the India-Thailand Interim Rules of Origin, in the absence of cancellation or revocation of such certificates by the issuing authority.

1.3 Whether, for the period of import in 2011-2012, any legal obligation existed on the importer to verify or prove the correctness of the contents of the Certificates of Origin beyond production of such certificates, and what impact the later insertion of section 28DA of the Customs Act, 1962 had on this question.

1.4 Whether the issuance of an addendum to the show cause notice almost two years after the original notice, introducing new evidentiary material (communications from Thailand) after personal hearing, was procedurally valid and consistent with limitation principles and fair adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Power of Customs to deny exemption by rejecting Certificates of Origin; legal status of Certificates of Origin under the India-Thailand framework

Legal framework

2.1 The Court examined the Thailand - Interim Rules of Origin for Preferential Tariff Concessions notified vide Notification No. 101/2004-Cus (N.T.), including Rules 2, 3, 4, 6, 8, 14 and Annexure A (covering tariff 7113/711319 with condition of "Change at 4-digit H.S. Level ... provided that there is a Local Value Added Content not less than 20%").

2.2 The exemption Notification No. 84/2004-Cus was considered, particularly the requirement that the importer prove to the satisfaction of the proper officer that the goods are of origin of Thailand "in accordance with" the Interim Rules of Origin.

2.3 Annexure B (Operational Certification Procedures) to Notification No. 101/2004-Cus was analysed, including Rules 1-7 and 8-10 (designation of issuing authorities, pre-exportation verification, supporting documents, examination and issuance of Certificates of Origin, Box 8 indication of rule and percentage of local value content), as well as Rules 12-15 (presentation, minor discrepancies, retroactive check) and Rules 20-21 (action against fraudulent acts; consultation between governments in disputes).

Interpretation and reasoning

2.4 The Court found that the imported gold jewellery clearly fell under Sl. No. 7 of Annexure A (HS 711319) and that both sides accepted this classification; the only dispute was whether the required local value addition (not less than 20%) had been achieved.

2.5 The Court noted that the Certificates of Origin submitted at the time of import:

(a) were issued by the designated authority of Thailand,

(b) were signed by authorized officials, whose specimen signatures and seals had been exchanged and verified by Indian Customs,

(c) correctly indicated, in Box 8, the applicable rule and the stated value addition (e.g. "4 digit + 22%"; "6 digit + 91.60%"), and

(d) were accepted by the assessing officers at the time of assessment, leading to release of goods under the preferential notification.

2.6 Based on Annexure B procedures (Rules 4-7), the Court held that issuance of a Certificate of Origin presupposes that the Thai issuing authority has already conducted pre-export verification, checked supporting documents, ensured conformity with the Interim Rules of Origin, and verified description, quantity, etc. The importer and Indian Customs are entitled to proceed on this basis unless the certificate is shown to be forged or cancelled.

2.7 The Court took note of the two later communications from the Government of Thailand (covering large numbers of consignments and exporters), which:

(i) expressly confirmed that the Certificates of Origin were "truly issued" by the Department of Foreign Trade and were authentic;

(ii) did not allege forgery or fabrication;

(iii) stated that exporters had "failed to prove within stipulated time frame" that the consignments were originating in Thailand according to the conditions for preferential duty treatment; and

(iv) on that basis, stated that Thailand was "not in a position to recognize" the goods as qualifying for the origin claim.

2.8 The Court observed that these communications did not explain:

- what "time frame" was applied,

- what additional documents were sought from exporters,

- what precise contravention occurred in the earlier process leading to issuance of the certificates, or

- what action, if any, had been taken by Thai authorities against their own issuing officials or exporters.

2.9 The Court emphasised that Annexure B requires a detailed procedure prior to issuance and that, once the issuing authority has issued and authenticated a certificate, the responsibility for verifying origin lies primarily with that authority. A vague, post facto communication based on a non-explained "time frame" could not, without more, displace certificates that were genuine and valid at the time of import.

2.10 It was noted that none of the Certificates of Origin in question had been cancelled or revoked by the Thai Government, and there was no allegation or evidence that they were forged or fraudulently procured, or that the importer had colluded in any irregularity.

2.11 Referring to Rule 15 (retroactive check), the Court highlighted that retroactive verification requires:

- a request from the importing Party accompanied by the relevant Certificate of Origin,

- specification of reasons and any additional information suggesting inaccuracy, and

- a response from the issuing authority within three months.

The record did not clearly establish that specific retroactive verification requests, identifying certificate numbers and stated doubts, had been sent in compliance with Rule 15 in relation to the appellant's consignments.

2.12 The Court further noted that the Thai replies were received after 7-11 months, contrary to the three-month response period in Rule 15, and they were generic, covering many consignments and exporters, without specific particulars of origin failure for the appellant's goods or any certificate cancellation.

2.13 The Court relied on prior tribunal and High Court decisions (including BDB Exports, So-Hum Trading Company, RS Industries (Rolling Mills) Ltd., and other cases cited) which held that:

- Certificates of Origin issued by a designated authority under an international preferential arrangement are conclusive for Customs purposes unless cancelled/withdrawn by that authority;

- customs authorities in the importing country cannot unilaterally discard valid Certificates of Origin or reassess underlying foreign value additions; and

- absence of cancellation or recall, and absence of overseas enquiry or concrete evidence of forgery, bars unilateral denial of the notification benefit.

2.14 Applying these principles, the Court held that Indian Customs cannot "sit in adjudication" over duly issued Certificates of Origin under such treaty-based schemes, especially in the absence of cancellation or clear evidence of fraud or fabrication, and particularly when the foreign government itself has confirmed that the certificates were "truly issued".

Conclusions on Issues 1 & 2

2.15 The Court concluded that:

(a) The Certificates of Origin were genuine, duly issued, and accepted at the time of import; their authenticity was not in dispute.

(b) No certificate was cancelled or revoked by the issuing authority; no allegation of forgery or importer collusion was established.

(c) Vague, belated communications from Thailand, which did not cancel the certificates or explain the basis of origin failure in accordance with Annexure B procedures, could not lawfully justify denial of preferential exemption to the importer.

(d) Customs authorities in India lacked authority, in these circumstances, to reject or "override" the Certificates of Origin and deny the benefit of the exemption notification.

(e) Consequently, the demand of customs duty, confiscation of seized jewellery, and imposition of penalties premised on such rejection of Certificates of Origin were not legally sustainable.

Issue 3: Importer's responsibility and effect of insertion of section 28DA of the Customs Act, 1962

Legal framework

3.1 The Court considered the insertion of Chapter VAA and section 28DA in the Customs Act, 1962 (effective 21 September 2020) and the related CAROTAR, 2020 and Board's Circular/Public Notice explaining:

- that importers claiming preferential rate of duty must declare that goods qualify as originating, possess sufficient information about satisfaction of rules of origin (including regional value content and product-specific rules), furnish such information, and exercise reasonable care; and

- that submission of a Certificate of Origin does not absolve the importer from responsibility to exercise reasonable care.

Interpretation and reasoning

3.2 The Court observed that these amendments post-date the imports (2011-2012) and were introduced to make importers responsible for verifying and being able to substantiate how origin criteria are fulfilled, supplementing the operational procedures under trade agreements.

3.3 The Court found that, prior to section 28DA and CAROTAR, there was no statutory provision or circular imposing on importers the obligation to obtain and maintain detailed proof of value addition or to verify the substantive correctness of the issuing authority's origin determination, beyond production of a valid Certificate of Origin in conformity with the notified rules.

3.4 It held that the new regime cannot be applied retrospectively to consignments imported in 2011-2012; the very fact of introducing a new, express responsibility on importers indicates that no such statutory responsibility existed earlier in the same form.

3.5 The Court also noted that the show cause notice itself did not rely on any pre-existing circular or rule imposing such due diligence obligations on the importer.

Conclusions on Issue 3

3.6 For the period of import in question, the importer's statutory obligation was limited to producing valid Certificates of Origin issued by the designated authority, in accordance with the notified Interim Rules of Origin.

3.7 There was no legal basis to fasten on the importer, retrospectively, the enhanced responsibilities introduced by section 28DA and CAROTAR, 2020, nor to deny exemption on the ground that the importer did not independently substantiate value addition in Thailand.

Issue 4: Validity of addendum to show cause notice and procedural fairness/limitation

Legal framework

4.1 The Court considered principles laid down in earlier decisions (including Kesar Marble & Granites Ltd. and S.T.L. Exports Ltd.) that:

- a corrigendum or addendum cannot, after a long delay, change the nature or foundation of the original demand or introduce a new case, particularly where limitation rights would be prejudiced; and

- issuing a fresh/additional basis of demand after personal hearing and after the department has had full opportunity to correct its position is impermissible.

Interpretation and reasoning

4.2 The Court traced the factual sequence:

- Show cause notice issued on 12.04.2013, without any documentary evidence from Thailand questioning the contents of the Certificates of Origin; no mention of retroactive verification.

- First personal hearing on 18.07.2014 attended by the appellant; no evidence from DRI at that time.

- Second hearing on 04.08.2014, attended by the appellant; DRI officers did not appear; appellant's written submissions were forwarded to DRI by the adjudicating authority.

- Only thereafter, nearly two years after the SCN, an addendum dated 19.03.2015 was issued, enclosing and relying upon letters from the Thai Government as fresh evidence against the importer.

4.3 The Court held that at the time of issuing the original SCN, and even at the first personal hearing, the Revenue had no documentary basis to doubt the veracity of the Certificates of Origin, and no specific retroactive verification result under Rule 15 was available.

4.4 Relying on precedents (including those where belated corrigenda/addenda introducing new statutory basis or new grounds were treated as fresh notices and held barred by limitation), the Court observed that introducing new foreign communications and thereby materially changing the evidentiary foundation of the case after substantial lapse of time and after hearing the assessee causes serious prejudice and is legally infirm.

4.5 The Court also noted that the Thai communications themselves were vague and non-specific, did not cancel the certificates, and took longer than the three months prescribed under Rule 15, further weakening their utility as a lawful basis for action.

Conclusions on Issue 4

4.6 The addendum issued nearly two years after the original show cause notice, after the appellant had already replied and appeared in personal hearing, introduced a new evidentiary basis and thus prejudiced the appellant's rights.

4.7 Such belated expansion of the case, in the absence of clear proof of fraud or suppression and with no valid retroactive verification record at the SCN stage, was held not to be a legally sustainable manner of proceeding.

Overall Conclusion

5.1 In light of the legal position on Certificates of Origin under the India-Thailand Interim Rules of Origin, the absence of cancellation/revocation of the certificates, the lack of importer collusion, the non-retrospective application of section 28DA, and the procedural infirmities in issuing a belated addendum, the Court held that no sustainable case had been made out against the importer.

5.2 The impugned order rejecting Certificates of Origin, denying preferential exemption, confirming duty demands, confiscating the seized jewellery, and imposing penalties was set aside in toto, and the appeals were allowed with consequential relief as per law.

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