2026 (1) TMI 404 - AT - Customs

Gold dore bar imports under 'subject to' licence clause: earlier customs duty exemption allowed; duty demand set aside

The dominant issue was whether an import licence condition stating that import of gold dore bars is 'subject to' a later exemption notification barred the ... Availing exemption of customs duty under N/N. 96/2008-Cus dated 13.08.2008 on import of gold dore bars from Tanzania in terms of the Import License dated 16.09.2021 issued by the Directorate General of Foreign Trade permitting imports subject to N/N. 12/2012-Cus dated 17.03.2012 - whether the appellant could have taken benefit of the 2008 Exemption Notification when the Condition of the License issued to the appellant provided that the import of gold dore bars is subject to the 2012 Notification? - HELD THAT:- A perusal of the Condition shows that the import has been made subject to the 2012 Notification. It does not provide that the benefit of any other Notification, which otherwise would be available to the appellant, cannot be availed of by the appellant. The appellant may have had to discharge customs duty provided under the 2012 Notification, but if there is a Notification which exempts payment of customs duty than there is no bar in the appellant availing the benefit of the said Notification. The finding recorded by the Principal Commissioner that the Conditions of License can be fulfilled “if and only if” customs duty is paid in terms of the 2012 Notification is, therefore, not borne out from the Conditions of License. In M/s. Designco and others vs. Union of India [2024 (11) TMI 1150 - DELHI HIGH COURT], the Delhi High Court examined the provisions of the FTDR Act alongside the Foreign Trade Policy as well as the Foreign Trade (Regulation) Rules, 1993 and held that 'A harmonious interpretation of the two statutes, namely, the Customs and the FTDR Acts leads us to the inescapable conclusion that the law neither envisages nor sanctions a duality of authority inhering in a separate set of officers and agents simultaneously evaluating and adjudging the validity of an instrument which owes its origin to the FTDR Act alone.' Thus, it is only if the Import License issued by the DGFT was cancelled by the DGFT that the customs could have decided to recover the duty under section 28(1) of the Customs Act. The demand of customs duty from the appellant cannot be sustained nor can the imposition of penalty under section 112(a)(ii) of the Customs Act or imposition of redemption fine in lieu of confiscation be maintained - The impugned order is, accordingly, set aside and the appeal is allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether import of restricted gold dore bars under an import licence stating that the import is 'subject to' a specified customs exemption notification conclusively bars the importer from claiming another, otherwise applicable, exemption notification providing a NIL rate of duty. (ii) Whether customs authorities can sustain a demand for duty on the premise of violation/misuse of import licence conditions where the import licence remains valid and has not been cancelled or invalidated by the competent authority under the foreign trade law framework. (iii) Whether, upon failure of the duty demand, consequential confiscation-based action (confiscation liability, redemption fine, and penalty) can be maintained. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Effect of licence condition 'subject to' a specified notification on availability of another exemption (NIL duty) notification Legal framework (as discussed by the Court): The Court examined the 2008 exemption notification granting exemption (including NIL basic customs duty and AIDC) to specified goods originating from listed least developed countries, and the notification referenced in the licence (issued in 2012 and later superseded in 2017) prescribing concessional duty for gold dore bars subject to stated conditions. Interpretation and reasoning: The Court held that the licence condition stating that the import is 'subject to' the specified notification does not, by itself, impose a bar on availing another exemption which otherwise applies to the imported goods. The Court found that the licence condition did not expressly stipulate that no other exemption could be claimed, nor did it mandate that duty must be paid at the rate indicated in the referenced notification 'if and only if' the importer complied with that payment. The Court rejected the adjudicating authority's construction that the licence conditions were satisfied only upon payment of duty under the referenced notification. Conclusion: The Court concluded that, on the terms of the licence as issued, the importer was not prohibited from claiming the 2008 exemption notification merely because the licence referenced the 2012 notification; therefore, denial of the 2008 exemption solely on that basis was unsustainable. Issue (ii): Jurisdiction of customs authorities to raise duty demand premised on licence-condition violation when the licence remains valid Legal framework (as discussed by the Court): The Court considered the institutional allocation of authority between the foreign trade administration (licensing authority) and customs, and applied the principle that the validity and continuation of a licence/instrument issued under the foreign trade law framework is for the competent licensing authority to examine and determine. Interpretation and reasoning: The Court held that customs could proceed to recover duty on the footing of licence-condition breach only if the licence had been cancelled/invalidated by the licensing authority. Since the import licence was valid and subsisting, and there was no determination by the licensing authority cancelling it, customs could not sustain a duty demand by effectively treating the licence as unusable or violated in a manner that defeats the benefit flowing from it. Conclusion: The Court concluded that, absent cancellation/invalidity of the licence by the competent authority, the duty demand under the customs law provisions on the asserted licence-condition violation could not be sustained. Issue (iii): Sustainability of confiscation liability, redemption fine, and penalty once duty demand fails Interpretation and reasoning: The confiscation liability, redemption fine in lieu of confiscation, and penalty had been founded on the premise that the importer wrongly claimed the 2008 exemption and thereby violated licence conditions rendering the goods liable to confiscation. Since the Court held that the duty demand itself could not stand (both because the 2008 exemption was not barred by the licence terms as construed, and because customs could not sustain the demand without licence cancellation), the confiscation-based consequences could not survive. Conclusion: The Court set aside the duty demand and, consequentially, also set aside the penalty and redemption fine; the impugned order was therefore entirely set aside and the appeal was allowed.