CESTAT Delhi Holds Importer Entitled To PCBA Exemption Under 2005 Customs Notification, Sets Aside Duty Demand

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has recently set aside a customs duty demand of ₹1.14 crore against Magic Mike Enterprises Pvt. Ltd.

A Bench of President Justice Dilip Gupta and Technical Member P.V. Subba Rao held that the company was entitled to an exemption under a 2005 customs notification for certain printed circuit board assemblies (PCBAs), as the imported goods were not used to manufacture the categories of telecom and networking products excluded from the exemption.

“These Rules are intended to ensure that an exemption given to the imported goods for use in a particular manner are used so and not otherwise,” the tribunal observed.

The appellant imported printed circuit board assemblies (PCBAs) for routers through the Air Cargo Complex, New Delhi. It classified the goods under Customs Tariff Item 8517 79 10 and claimed the benefit of an exemption available to certain PCBAs under the 2005 notification.

The goods were cleared on self-assessment. Subsequently, the department alleged that the imported goods were among the PCBAs excluded from the exemption entry and were instead liable to customs duty. It therefore sought recovery of differential duty along with interest and penalties.

The appellant contested the demand and argued that the imported goods did not fall within the excluded categories specified in the exemption entry.

The Commissioner accepted that contention and concluded that the goods were covered by the exemption entry. However, he denied the benefit of the exemption on the ground that the appellant had not complied with the prescribed conditions. He found that the appellant had not followed the Customs (Imports of Goods at Concessional Rate of Duty) Rules, 2017 and had not furnished the required undertaking at the time of import.

Before the tribunal, the appellant argued that the Commissioner had travelled beyond the show cause notice. According to the appellant, the notice proposed to deny the exemption on the ground that the goods were not covered by the exemption entry. The Commissioner, however, denied the benefit on the ground that the conditions attached to the exemption had not been fulfilled.

The appellant also contended that it had failed to comply with the conditions because a publication relied upon by it had incorrectly omitted them.

The tribunal rejected both submissions. It held that once the appellant asserted that the imported goods fell within the exemption entry, it became necessary to examine whether the conditions attached to that entry had also been fulfilled.

The tribunal also held that a mistake by a private publisher could not alter the scope of a statutory notification. It noted that exemption notifications are published in the Official Gazette and are available on official government platforms.

The tribunal then examined the purpose of the conditions attached to the exemption. It noted that the exemption was available on the condition that the imported goods would not be used to manufacture specified categories of telecom and networking products. The IGCR Rules and the undertaking requirement were intended to ensure compliance with that condition.

The Bench found that the appellant was only a trader and not a manufacturer. It had imported and sold the goods. It had not used them to manufacture any of the products specified in clauses (b) to (i) of the exemption entry.

“It is therefore, clear to us that the appellant had not used the imported goods to manufacture goods indicated in (b) to (i) of entry 13S,” the tribunal held.

The tribunal observed that although the appellant had not followed the IGCR Rules and had not furnished the required undertaking, the imported goods were not used in the manner prohibited by the exemption entry.

“In the peculiar facts of this case, the purpose of the condition was fully met but the procedure needed to ensure that the condition is met was not followed,” the tribunal observed.

Holding that the demand denying the benefit of the exemption could not be sustained, the tribunal set aside the demand of customs duty, interest and penalty. It allowed the appeal with consequential relief.