Customs Public Notices Cannot Be Issued In A Manner Diluting FTA Benefits Or Overriding Law: Bombay HC

The Bombay High Court recently observed that Commissioner of Customs cannot issue public notices in a manner that dilutes the benefits under free trade agreements or overrides statutory provisions and CBIC circulars, while setting aside an order denying preferential duty to Covestro India Pvt. Ltd.

The dispute arises from a public notice issued in March 2024 by the Commissioner of Customs at Nhava Sheva, which prescribed additional documentation requirements in cases involving third-party invoicing, including submission of the exporter's invoice and value breakup for verification of country-of-origin claims.

The court noted that no specific provision was shown to justify issuance of such a public notice.

It observed that “public notices cannot be issued in some manner which would dilute the effect and benefit which would be derived under the free trade agreements or obliterate the provisions of law or the circulars issued by the CBIC.”

The matter came before a bench of Justices G.S. Kulkarni and Aarti Sathe in a batch of petitions filed by Covestro India Private Limited, challenging an order dated June 12, 2024 passed by the Assistant Commissioner of Customs rejecting its claim for preferential rate of duty under Notification No.46/2011 issued pursuant to the ASEAN-India Free Trade Agreement.

The petitioner, engaged in the import of polymer materials from Thailand, had claimed that it had been availing such preferential duty benefits. The claim, however, was rejected on the ground that the petitioner failed to furnish the manufacturer's invoice and value breakup as required under the said public notice.

The petitioner contended that such requirements were not contemplated under the statutory framework governing preferential tariff claims, including Section 28DA of the Customs Act and the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020, and that the public notice had the effect of altering the conditions for availing benefits under the trade agreement.

The court, while examining the statutory scheme, also took note of subsequent developments, including clarifications issued by the Central Board of Indirect Taxes and Customs on issues relating to third-party invoicing and verification of origin. These were later reflected in subsequent public notices, thereby superseding the earlier position.

The court noted that the impugned order was based on the requirements introduced by the earlier public notice. In view of the subsequent developments, it held that the basis of the impugned order no longer survived.

“We find that the entire basis on which the impugned order was passed denying the Petitioner's preferential rate of duty under Notification No.46/2011, dated 1st June 2011, in respect of the free trade agreement with Thailand claimed by the Petitioner under the Bills of Entry, is now required to be reconsidered.”, it observed. 

The court further observed that when it comes to implementation of trade agreements, instructions are required to be issued strictly in consonance with Section 151A of the Customs Act, which vests such power in the CBIC, and not otherwise. It cautioned that any deviation or clarification not known to law is likely to cause serious prejudicial disturbance to trade.

Holding that the basis of the impugned order had been “extinguished,” the High Court quashed and set aside the order dated June 12, 2024.

The matter has been remanded to the Assistant Commissioner of Customs for fresh assessment of the petitioner's claim for preferential rate of duty under the applicable notification, to be decided expeditiously and in any event within eight weeks, with all contentions kept open.