SAPTA Preferential Duty Exemption Cannot Be Denied on Unverified Origin Allegations: CESTAT Chennai in Ruby Overseas vs Commissioner of Customs
1. Background and Nature of the Dispute
Four connected customs appeals came before CESTAT Chennai arising from Order-in-Original Nos. 104247 and 104248/2023 dated 29.12.2023, passed by the Commissioner of Customs, Chennai – IV Commissionerate. The appellant, M/s. Ruby Overseas, was engaged in importing betel nuts falling under CTH 080290 through Chennai Port, claiming preferential duty treatment under Notification No. 105/1999 dated 10.08.1999, which pertains to the SAARC Preferential Trading Arrangement (SAPTA).
The Directorate of Revenue Intelligence (DRI), Ahmedabad Zonal Unit, conducted investigations and alleged that the betel nuts were actually of Indonesian origin, routed through Bangladesh-based entities located in the Mongla Export Processing Zone — including Bangladesh Agro Growers and Producers Ltd., Tara Exim, Arecanut Growers and Processors Ltd., and Jahan Processing Export Ltd. — without any meaningful processing being carried out. The Department further alleged that these Bangladesh-based intermediaries obtained Certificates of Origin (COO) from the appropriate Bangladeshi authorities by misrepresenting material facts, enabling the Indian importer to claim SAPTA benefits. It was additionally alleged that the declared transaction value was grossly understated, with the differential amounts being remitted to Indonesian suppliers through illegal channels, while the declared value was routed through normal banking channels to the Bangladesh-based firms.
Show Cause Notices dated 26.08.2016 and 19.08.2016 were issued to the appellant-firm, proposing rejection and redetermination of declared value in respect of betel nuts weighing 2199.923 MTs imported under 26 Bills of Entry and another 10 Bills of Entry respectively. The notices proposed confiscation and penalties both on the firm and on its partner. The adjudicating authority confirmed all proposals in the impugned Order-in-Original, leading to the present appeals.
2. Three Critical Issues Before the Tribunal
The Tribunal identified three pivotal questions that governed the outcome of all four appeals:
- Whether the COO certificates issued by Bangladeshi authorities under SAPTA could be disregarded by Indian Customs without resorting to the prescribed inter-governmental verification mechanism
- Whether electronic records retrieved from the computers and devices of third parties — specifically Narendra Lodaya and Tapan Paul — without compliance with
Section 138Cof the Customs Act, 1962, were admissible in evidence - Whether the statements of Narendra Lodaya and Tapan Paul, who did not appear for cross-examination despite being sought by the appellant, could be relied upon to sustain a demand of duty and penalty
3. Validity of the Certificate of Origin Under SAPTA Rules
(i) How the COO Mechanism Functions
The Tribunal elaborated on the legal framework governing preferential tariff claims. Section 5 of the Customs Tariff Act, 1975 authorises the Central Government to frame rules for determining whether goods are produced or manufactured in a particular foreign country for purposes of trade agreements. Preferential duty rates are then notified under Section 25(1) of the Customs Act, 1962. At the time of import, a COO issued by the competent authority of the exporting country must be submitted to the proper officer of the importing country, who on verification applies the preferential rate.
The COO is not a mere commercial document — it is a legal declaration certifying fulfilment of the Rules of Origin (ROO) prescribed under the applicable Free Trade Agreement. For SAPTA purposes, the applicable framework is the Customs Tariff (Determination of Origin of Goods under the Agreement on SAARC Preferential Trading Arrangement) Rules, 1995. The certificate records the Regional Value Content, the change of tariff sub-heading, the nature of processing, the FOB value, and whether the consignment satisfies the origin criteria. Under the framework, it is the designated government authority of the exporting contracting state that issues and controls these certificates, and the beneficiary country is duty-bound to cooperate with the importing party in verification.
Critically, the mechanism explicitly provides that if the importing Customs authorities have reasonable doubt about the authenticity or accuracy of a COO, they may request the relevant government authorities of the exporting party for additional information. If the information is not provided within the stipulated period or remains insufficient, the importing party may initiate an investigation. This structured procedure is mandatory — it does not vest in Indian Customs the unilateral power to simply discard a COO on suspicion.
(ii) The Adjudicating Authority's Internal Contradiction
A striking feature of the impugned OIO, which the Tribunal highlighted, was the adjudicating authority's own concession at paragraph 67.29:
"The investigation throughout has not raised doubt on the authenticity of the country of origin certificate issued by Bangladesh. The allegation was that the certificates were procured fraudulently by misrepresenting the facts before the authorities of Bangladesh only to route the betel nuts of Indonesia origin via Bangladesh and to import into India, so that to avail the SAPTA notification benefit. Hence there is enough reasoning available as part of the investigation findings to discard the claim of COO on the subject import case. Accordingly, the ratio of the CESTAT, Mumbai, Western Bench vide Common Final Order No. A/86251 to 86265/2023 dated 29.8.2023 is not applicable in the present case. Hence the noticee's contention on verification with respect to the genuineness of the certificates before adjudication is not warranted."
The Tribunal found this reasoning self-contradictory and legally untenable. The OIO simultaneously acknowledged that the authenticity of the Bangladeshi COO was never questioned, yet proceeded on the footing that it was fraudulently obtained — without having it verified through Bangladesh. The allegation of fraud, the Tribunal observed, does not establish itself by assertion. While it is settled that fraud vitiates every solemn act — as recognised in Ram Chandra Singh Vs Savitri Devi & Ors., AIRONLINE 2003 SC 537, and in Sagamma @ Sythoon Beevi Vs Settlement Officer, W.P. No. 7857 of 2010 & M.P. No. 2 of 2010, dated 14.08.2019 (Madras High Court) — a certificate cannot be treated as a nullity unless the fraud is first proved. The antecedent step of proving the fraud was precisely what the Department omitted.