The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) bench in Ahmedabad recently dismissed an appeal concerning the applicable customs duty on imported aluminium foils. The case centred on the date that determines the duty liability and whether the increase in duty rate, from 5 per cent to 7.5 per cent, should apply based on the vessel's earlier arrival or the actual date of unloading at the port.
Background of the case
The appellant, Jil Pack, based in Ahmedabad, had imported aluminium foils from China. The goods were shipped on a vessel carrying cargo for two different importers, one in Thane and the other, Jil Pack. The vessel first arrived at Bombay Port on 27 February 2016, where the goods destined for the Thane importer were offloaded. However, Jil Pack's consignment was unloaded later at Pipavav Port on 1 March 2016.
The Union Budget of 2016 had increased the customs duty on aluminium foils from 5 per cent to 7.5 per cent, effective from 1 March 2016. When the goods arrived, the appellant paid the duty at the previous rate of 5 per cent, arguing that the vessel had already entered Indian territorial waters on 27 February 2016. However, customs officials maintained that the higher 7.5 per cent rate applied because the goods were unloaded at Pipavav Port on 1 March 2016.
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After paying the differential duty of INR 4,01,286 (USD 4,541.43) under protest, Jil Pack sought a refund of INR 3,44,229 (USD 3,889.79), which was initially rejected by the adjudicating authority. The decision was confirmed on appeal before the Commissioner (Appeals).
Arguments and tribunal ruling
Jil Pack, represented by Devashish K. Trivedi, argued that according to Section 2(27) of the Customs Act, 1962, the territory of India includes territorial waters, and import occurs when goods enter these waters. As the vessel had entered Bombay Port on 27 February 2016, the duty liability should have been determined on that date, and the duty at 5 per cent should apply.
The appellant also cited previous judicial precedents, such as the Pride Foramer v. Union of India (2002) case, which confirmed that when advance bills of entry are filed, the relevant date is the vessel's arrival in Indian waters, not the later unloading at another port. Therefore, Jil Pack contended that the duty rate of 5 per cent should apply, and they should be granted a refund.
On the other hand, the Customs Department, represented by N.G. Makwana, argued that under the provision of Section 15(1) of the Customs Act, if a bill of entry is filed before the "entry inwards" of the vessel, it is considered to have been presented on the date of the "entry inwards." In this case, the bill of entry for the goods to be unloaded at Pipavav Port was filed on 25 February 2016, but it was deemed filed on 1 March 2016, when the entry inwards was granted at Pipavav. Since entry inward is port-specific, the earlier inwarding at Bombay could not govern the consignment meant for Pipavav.
The Customs Department also highlighted that Jil Pack had not challenged the assessment order, which had attained finality, making the refund claim unsustainable. After reviewing the case, the bench of Judicial Member Somesh Arora upheld the decision of the Commissioner (Appeals), reiterating that Section 15 of the Customs Act prescribes the relevant date for determining the rate of duty. While goods do assume the character of imported goods upon entering territorial waters, the assessment must follow the statutory scheme, which links the duty rate to the date of entry inwards at the specific port.
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Since the entry inwards at Pipavav was granted on 1 March 2016, the higher 7.5 per cent duty rate applied, and the tribunal rejected the refund claim. Consequently, the appellant's appeal was dismissed.
Why this matters for aluminium importers
For aluminium importers, the date of entry inwards at the unloading port is crucial for determining the applicable customs duty rate, especially when there are changes in rates, such as those introduced in the 2016 Union Budget. Even if a vessel has already entered Indian territorial waters, the customs duty rate is governed by the entry inwards at the specific port where the goods are unloaded.
This ruling underscores the importance of port-specific regulations when calculating customs duties. Importers should ensure that they are aware of the timing of entry inwards at their specific unloading port, especially when changes to customs duties or tariffs are imminent. The advance filing of a bill of entry does not lock the rate based on the vessel's earlier arrival if the goods are offloaded at a later date, and customs authorities will follow the relevant port entry date.
Moreover, this case highlights the significance of challenging assessment orders at the earliest opportunity, as failure to do so can make refund claims unsustainable, especially once an assessment has been finalised. Therefore, importers need to be vigilant about customs procedures and ensure they understand the rules governing the determination of duty rates to avoid unnecessary disputes and financial loss.
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