The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Hyundai is eligible for benefit of concessional rate of Basic Customs Duty (BCD), based on the Country of Origin (COO) Certificate as per a Bilateral Free-Trade Agreements (FTA), even after re-classification and hence no demand of duty is sustainable.
The Bench of P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) has observed that international treaties are entered into between Sovereign contracting States for providing “preferential tariff treatment” to goods imported by participating countries, from each other, in accordance with a trade agreement. There is a prima facie presumption that Parliament does not intend to act in breach of international law, including therein a specific treaty obligation. This is because the Directive Principles of State Policy as enshrined in Article 51 of the Indian Constitution enjoin the State to endeavor, inter alia, to foster respect for international law and treaty obligations.
Table of Contents
Background – Hyundai Eligible For Concessional Rate
The appellant/assessee, M/s. Hyundai Motor India Limited, Kanchipuram (HMIL) is engaged in the manufacture of passenger motor cars, under the brand name of “Hyundai”.
They import various parts and accessories of passenger motor cars through Chennai ports.
Intelligence developed by the Directorate of Revenue Intelligence (DRI), allegedly indicated that HMIL was resorting to misclassification of various goods imported for manufacture of automobiles, in order to avail undue benefit of BCD exemption vide Notification No. 152/2009- Customs dated 31/12/2009 as amended.
They visited HMIL’s premises and made enquiries.
The assessee informed DRI that they have reviewed the classification adopted in respect of certain Bills of Entry (BE), details of which were also given, and had found that the classification assigned by them was not consistent in some of the cases with the nature of the products and as the Country of Origin (COO) Certificates with the inconsistent codes had already been filed, they intend approaching the suppliers to revise the HS codes and issue the COO for the respective Bills of Entry retroactively as provided under the India-Korea CEPA.
The importer also informed the voluntary payment of differential duty and interest, in respect of some products and attached a copy of TR-6 challan paid at Chennai Customs.
Two Show Cause Notices were issued to HMIL. SCN mainly for ECU’s, for a differential duty of Rs 59.93 Crores was confirmed by Order-in-Original. A second SCN was issued for a differential duty of Rs 38.62 Crores, which pertained to 15 items imported and cleared through 195 No.’s of finally assessed Bills of Entry and was confirmed.
Issue Raised
The assessee raised the issued was whether the goods are eligible for benefit of concessional rate of BCD, based on the COO Certificate as per a Bilateral Free-Trade Agreements (FTA), even after re-classification and hence no demand of duty is sustainable.
Hyundai’s Arguments – Hyundai Eligible For Concessional Rate
The assessee contended that to avail the preferential tariff benefit based on the Country of Origin, three substantive conditions, such as, minimum regional value addition, substantial manufacturing process and change of nomenclature of the product and change of sub tariff heading of the resultant product other than that of the inputs, have to be met along with various procedural criteria such as, submission of original COO Certificate document issued by the Competent Authority, disclosure of fact in the said certificate, etc.
The assessee argued that both substantive criteria and procedural criteria are met by them to the satisfaction the Proper Officer at the Country of Import with respect to the impugned goods and thus the benefit of concessional rate of BCD granted at the time of import was just, proper, legal and correct and cannot be denied.
The assessee submitted that for example, in the Impugned Order the validity, or the genuineness of the Certificate submitted by HMIL at the time of import of PIO AVN Audio is not quashed or denied. In the Impugned Order, the only observation is that at the time of import, in the Country-of-Origin Certificate, the CTH was mentioned as 852712/ 852721, whereas as per the Order the appropriate classification is 8526 9190 and the CTH is not mentioned in the certificate, and because of this, the Order seeks to deny the benefit of exemption. They hold that the substantial conditions required to be satisfied to avail the benefit of Country of Origin has been complied with.
Dept’s Arguments
The department contended that once there is a discrepancy between the classification of the goods as in the COO certificate and that assessed, benefit under 46/2011-Cus and under 152/2009-Cus is correctly denied for the goods by rejecting the Country-of-Origin Certificate.
Relevant Provision – Hyundai Eligible For Concessional Rate
Section 5(1) of the Customs Tariff Act, 1975, empowers the Central Government to issue a Notification so as to make Rules for determining if any article is a produce or manufacture of such foreign country.
This benefit is extended through a Notification issued in accordance with the powers conferred by sub-section 1 of Section 25 of the CA 1962, which provides a preferential rate for payment of BCD for the goods concerned. In accordance with the framework of the Notification, COO Certificate issued by the Competent Authority at the country of export, contains the classification of the goods as per the Harmonized System number of the importing Party.
The COO Certificate is to be submitted to the Proper Officer of the importing country and upon verification and satisfaction of the contents contained therein, the Proper Officer of Customs extends the benefit of preferential rate for payment of BCD. The Rules of Origin are comprehensive in nature which contains the complete operative mechanism on various substantive and procedural aspects for determination of the origin criteria of the imported product.
Rule 13 of the Customs Tariff (Determination of Origin of Goods) under the Preferential Trade Agreement between the Governments of Member States of the Association of South East ASEAN Nations (ASEAN) and the Republic of India, Rules, 2009 deals with issuance of AIFTA Certificate of Origin.
Conclusion – Hyundai Eligible For Concessional Rate
The tribunal held that while the Customs department can after following the due process change the classification of the imported goods as per the domestic laws, it cannot deny “preferential rate of duty” (which has been defined under CAROTAR to mean rate at which customs duty is charged in accordance with a trade agreement), to the goods covered by a valid COO Certificate issued as per an international treaty obligation, that satisfies the conditions of a notification issued under Section 25 of the CA 1962, unless the classification had been challenged successfully as provided for in the Rules of 2009.
The tribunal held that the action taken by the AA in denying concessional rate of duty for the goods by rejecting the Country-of-Origin Certificate is untenable and merits to be set aside.
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Case Details
Case Title: Hyundai Motors India Ltd. Versus Commissioner of Customs
Case No.: Customs Appeal No.40029 of 2024
Date: 21.10.2024
Counsel For Appellant: M. Manickam
Counsel For Respondent: P. Narasimha Rao
