Veekay Diamants Vs Commissioner of Customs (CESTAT Chennai)
The Chennai Bench of the CESTAT allowed an appeal challenging the denial of preferential duty benefits under the Indo–Thailand Free Trade Agreement, holding that rejection of a Certificate of Origin without following the prescribed verification mechanism under the Interim Rules of Origin was legally unsustainable.
The appellant had imported two consignments of gold jewellery studded with diamonds and ruby from Thailand and claimed exemption under relevant customs notifications based on Certificates of Origin issued by the Government of Thailand. The goods were initially assessed and cleared after acceptance of those certificates by Customs authorities. Subsequently, the Department initiated investigations alleging that the Local Value-Added Content (LVAC) declared at 22% in the Certificates of Origin was incorrect and that actual value addition was only around 6.5%. Based on this computation, a show cause notice proposed denial of exemption, recovery of differential duty, confiscation, and imposition of penalties. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld the order.
The Tribunal observed that Rule 6(d) of the Interim Rules of Origin prescribed a specific statutory formula for computing LVAC based on the FOB value of the export product and the CIF value of non-originating materials. It held that the Department had incorrectly substituted this formula by restricting value addition to labour and handling charges alone. Such substitution of a statutory formula through administrative interpretation was impermissible. The Tribunal further noted that the Department had failed to determine the value of non-originating materials in terms of Rule 6(e), rendering its LVAC computation legally untenable.
