NIL AIDC on Footwear Imported Under FTAs: Analysis of In re Metro Brands Limited (CAAR Mumbai)

Background and Context

The ruling in In re Metro Brands Limited (CAAR Mumbai) addresses a recurring practical issue for importers of footwear operating under Free Trade Agreements (FTAs): whether a partial or concessional Basic Customs Duty (BCD) availed under FTA notifications is sufficient to trigger NIL Agriculture Infrastructure and Development Cess (AIDC) under Serial No. 19 of Notification No. 11/2021-Customs dated 01.02.2021.

The assessee, M/s Metro Brands Limited, imports footwear classified under CTH 6402, 6403 and 6404 from countries including Vietnam and Bangladesh. For imports from these two countries, it claims preferential BCD under the following FTA notifications:

  • Notification No. 46/2011-Customs (AIFTA – India ASEAN Free Trade Agreement)
  • Notification No. 99/2011-Customs (SAFTA – South Asian Free Trade Agreement)

Both of these notifications are specifically named in the Annexure to Notification No. 11/2021-Customs, which provides a NIL rate of AIDC under Serial No. 19 where “exemption from basic customs duty is claimed and allowed” under listed notifications.

The core dispute:
Does “exemption from basic customs duty” in Serial No. 19 cover only cases where BCD is reduced to NIL, or also situations where BCD is merely reduced/concessional but still positive?

In addition, the Authority first had to decide whether the advance ruling application itself was barred as “pending” under Section 28I of the Customs Act, 1962, given that the Directorate of Revenue Intelligence (DRI) was conducting inquiries in relation to the assessee.

Facts of the Case

Import Profile and Duty Structure

  • The assessee is a large footwear retailer in India.
  • It imports footwear from, inter alia, Vietnam and Bangladesh, under CTH 6402, 6403 and 6404.
  • Imports from these FTA partner countries are supported by:
    • Valid Certificate of Origin (COO), and
    • Compliance with Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR, 2020).

Until 01.02.2025, footwear under CTH 6402–6404 attracted:

  • BCD @ 35%, and
  • Social Welfare Surcharge (SWS) at applicable rates.

With effect from 02.02.2025, the duty structure was modified as follows:

  • BCD reduced from 35% to 20% for footwear (CTH 6401–6405).
  • SWS was fully exempted on such footwear.
  • AIDC @ 18.5% was introduced on CTH 6401–6405 (including the subject footwear) under Serial No. 14A of Notification No. 11/2021-Customs.

Alongside this, Notification No. 11/2021-Customs also introduced Serial No. 19, which prescribed NIL AIDC where exemption from BCD is “claimed and allowed” under specified notifications listed in its Annexure. Notably, this Annexure includes both:

  • Notification No. 46/2011-Customs (AIFTA), and
  • Notification No. 99/2011-Customs (SAFTA).

Operation of FTA Notifications for Footwear

  1. Notification No. 46/2011-Customs (AIFTA)

    • Issued under Section 25(1) of the Customs Act, 1962.
    • Provides concessional as well as NIL BCD rates for various footwear tariff lines under Heading 6402, 6403 and 6404.
    • Certain sub-headings enjoy 0% BCD, others attract reduced rates such as 5%.

  2. Notification No. 99/2011-Customs (SAFTA)

    • Also issued under Section 25(1) of the Customs Act, 1962.
    • Grants full exemption from BCD (i.e., NIL BCD) to most goods (other than specified excluded items) imported from SAFTA countries such as People’s Republic of Bangladesh, subject to prescribed conditions and valid COO.