Incorrect Classification Is Not By Itself Collusion/ Wilful Misstatement U/S 28AAA Customs Act; Prior Determination By DGFT Must: Delhi HC

The Delhi High Court has held that a misclassification or an incorrect classification of goods to be imported or exported would not ipso facto amount to collusion, wilful misstatement, or suppression of facts under Section 28AAA Customs Act, 1962. The provision provides for recovery of duties in cases where an instrument issued to a person has been obtained by him by means of collusion; or (b) wilful mis-statement; or (c) suppression of facts. The division bench of Justices Yashwant Varma and Ravinder Dudeja was dealing with three petitions challenging the action initiated under Section 108 of the Customs Act by the Centre, against the Petitioners, exporters of 'handcrafted articles of stone'. The goods were classified by the Petitioners under Customs Tariff Heading (CTH) 6815 which pertains to 'articles of stone or of other mineral substances not elsewhere specified or included', particularly Tariff item 68159990 (residual clause), which was entitled to rewards @ 7% under the Merchandise Exports from India Scheme (MEIS). MEIS provides incentives for the export of notified goods and products to eligible countries. Petitioners were also aggrieved by the audit objection issued by the Customs. The case against Petitioners was that since their exported goods were made of natural stone, the same are covered by CTH 6802, which pertains to 'worked monumental or building stone'. The Department contended that Petitioners had deliberately run afoul of the requirement under Section 17 to correctly self-assess their exported goods in order to obtain MEIS benefits. It was further argued that the final authority to adjudge the correct classification of goods exported under the Customs Tariff Act, 1975 vests with the customs officer and thus, the action was justified. Petitioners on the other hand contended that no question was ever raised with respect to classification of their goods from 1991 up to October 2018 and if the Department's stand is now accepted, it would cause grave hardship and financial loss to them. It was submitted that CTH 6802 is confined to stone which is used for purposes of construction and erection of monuments and buildings however, handicraft articles sculpted out of stone and of the kind exported by the petitioner cannot possibly be countenanced as answering to the description of articles which are spoken of in CTH 6802. It was also pointed out that the first Explanatory Note to CTH 6815 itself prescribes that the said heading would not cover articles of stone or of other mineral substances which may be covered by the earlier headings of that Chapter. This itself is indicative of articles of stone falling within the ambit of CTH 6815 being those which are not used in monuments or buildings, it was argued. Findings At the outset, the High Court agreed that it is decades after the exports had been affected and assessments completed that the Department now sought to reopen those transactions and seek to question the benefits claimed by the petitioners. “Undisputedly, consequent to the self-assessed Bills of Entry having been accepted and thus liable to be viewed as assessed, the stage of enquiry contemplated in terms of Section 17 of the Customs Act has clearly passed.” Misclassification and Section 28AAA Coming to Section 28AAA, the High Court said the provision would have to be interpreted as contemplating a prior determination on the issue of collusion, wilful misstatement or suppression of facts tainting an instrument (MEIS certificate of Petitioners in this case), before action relating to recovery of duty could be possibly initiated. “The sine qua non for Section 28AAA getting attracted is the triumvirate of collusion, suppression and wilful misstatement which are spoken of in sub-section (1) being attracted,” Court said. However, in the same breath, it added, “Even if it were assumed for the sake of argument that the writ petitioners had wrongly classified or placed articles in question under ITC(HS) 68159990, the same would clearly not amount to it being ipso facto assumed that the same amounted to an act of suppression or wilful misstatement.” Customs can't doubt instrument issued under FTDR Act In its 91-page judgment, the Court also pointed out that the MEIS certificate is issued under the provisions of the Foreign Trade (Development and Regulation) Act, 1992 and held that the power to cancel or suspend it vests in the Director General of the licensing authority alone. “As we read the various provisions enshrined in the FTDR Act alongside the FTP (Foreign Trade Policy) as well as the FTDR Rules, we find ourselves unable to recognize a right that may be said to inhere in the customs authorities to doubt the issuance of an instrument,” High Court said. It added, “It would thus be wholly impermissible for the customs authorities to either ignore the MEIS certificate or...

Incorrect Classification Is Not By Itself Collusion/ Wilful Misstatement U/S 28AAA Customs Act; Prior Determination By DGFT Must: Delhi HC

Kapil Dhyani

Tags