India-ASEAN Trade Agreement's Dispute Resolution Mechanism Can't Bar Customs Action: Delhi High Court

The Delhi High Court has held that the dispute resolution mechanism under the India-ASEAN trade agreement cannot bar Customs authorities from initiating proceedings under the Customs Act 1962, observing that the relevant treaty provision has not been incorporated into Indian domestic law.

The Division Bench of Justices Anil Khetarpal and Shail Jain made the observation while dismissing a petition filed by M.M. Ceramics & Ferro Alloys challenging Customs proceedings relating to its claim of preferential customs duty on Malaysian tin ingots.

Petitioner had imported high-grade tin ingots manufactured in Malaysia by Malaysia Smelting Corporation (MSC), claiming nil Basic Customs Duty on the basis of Certificates of Origin issued by Malaysia's Ministry of International Trade and Industry.

The Directorate of Revenue Intelligence subsequently investigated the imports.

During a verification visit to MSC, the authorities found that the company had relied on a cost sheet from a three-month period in 2013 for obtaining successive Certificates of Origin. Although the Regional Value Content was declared to be above 70%, the authorities found that the actual value addition in Malaysia did not meet the prescribed origin criteria.

Petitioner argued that Customs could not initiate proceedings without first invoking the dispute-resolution mechanism under Article 24 of the ASEAN-India Free Trade Area (AIFTA). It also contended that Customs lacked the necessary statutory power to examine such preferential tariff claims before Section 28DA was introduced in 2020.

Rejecting the first contention, the Court held that Article 24 had not been incorporated into Indian law. The Rules of Origin, 2009, gave effect to the trade agreement only for prescribing origin criteria and did not incorporate its dispute-resolution mechanism.

“Article 24 of AIFTA, not having been transformed into or incorporated as part of domestic law, cannot operate to oust the jurisdiction of the Customs Authorities o proceed against the Petitioner under the substantive provisions of the Act of 1963,” the court held.

The Court also held that Customs already had the power under Section 28, read with Section 46, to recover short-paid duty arising from suppression of facts even before Section 28DA was introduced.

The 2020 amendment merely provided “additional and more elaborate procedural mechanism specifically calibrated to preferential-tariff/COO-verification disputes; it did not create a power that was, until then, altogether absent, nor did it curtail or impliedly repeal the pre-existing general power under Section 28 of the Act of 1962.”

As such, the Court dismissed the petition, with liberty to Petitioner to pursue the appellate remedy against duty calculation, confiscation, and penalties.

For Petitioner: Advocates Prithwiraj Choudhuri, Kausarjahan Sayed and Sujoy Chatterjee

For Respondents: Advocates Anushree Narain, SSC with Apurv Yadav