Exempt Basic Customs Duty Cannot Be Added To Import Value For IGST Calculation: CESTAT Mumbai

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, has ruled that customs duty exempted under an applicable notification cannot be added at the normal tariff rate to the value of imported goods for calculating Integrated Goods and Services Tax (IGST), where the importer has satisfied the conditions for the exemption.

The tribunal found that TGI International was entitled to exemption from Basic Customs Duty (BCD) under Notification No. 19/2015-Customs dated April 1, 2015, after complying with the applicable requirements of the Duty Free Import Authorisation (DFIA) scheme. Although the importer claimed zero BCD, the customs electronic system added BCD at the normal tariff rate of 20% when calculating IGST at 5% on the transaction value. The tribunal held that the BCD claimed as zero had to be considered while calculating IGST, rather than adding duty at the normal tariff rate.

It observed, “Since the appellant had complied with the requirements contained in the FTP read with the notification dated 01.04.2015, the exemption claimed towards payment of BCD is in consonance with such statutory provisions. In view of the fact that the BCD amount claimed as 'zero' in the B/Es filed for assessment, such rate of duty claimed should alone be considered for calculation of the IGST amount payable into the Government exchequer.”

A Bench of Judicial Member S.K. Mohanty and Technical Member M.M. Parthiban heard 105 appeals filed by TGI International against the Commissioner of Customs, Nhava Sheva-III.

The dispute arose after TGI imported polyester viscose fabrics under the DFIA scheme and claimed exemption from BCD under the notification. The importer challenged the assessment, arguing that since the duty was exempt, it could not be added notionally to the value used for calculating IGST.

The tribunal also rejected the finding of the Commissioner of Customs (Appeals) that the customs duty had been debited against the DFIA authorisation instead of being paid in cash. The Bills of Entry recorded zero duty debit. It held that debiting duty against the authorisation was not a condition for claiming the exemption.

Referring to Section 3(8) of the Customs Tariff Act, 1975, the tribunal explained that the value for calculating IGST includes the value of imported goods and any customs duty chargeable on them. It held that the normal tariff rate could not be applied while ignoring the exemption available to the importer.

The tribunal also relied on earlier decisions holding that the effective rate of customs duty, after applying an exemption, must be considered instead of the normal tariff rate when calculating additional customs duty.

It distinguished a decision cited by the department because that case concerned interest on delayed payment of IGST, whereas the present dispute concerned the correct BCD amount to be included in the IGST calculation.

Setting aside the order of the Commissioner of Customs (Appeals), Mumbai-II, the tribunal allowed all 105 appeals filed by TGI International.

For the importer: Advocates Stebin Mathew and Dishya Pandey

For Revenue: Mahesh Patil, Authorised Representative, appeared for the Revenue.