Isabella Mariam

The High Court of Judicature at Bombay Division Bench of Justice M.S. Sonak and Justice Jitendra Jain dismissed writ petitions challenging show cause-cum-demand notices issued under Section 28 of the Customs Act, 1962. The petitioners had sought to quash the proceedings on the ground that the Indian authorities were barred from acting against them without first invoking a dispute resolution mechanism under Article 24 of the ASEAN-India Free Trade Agreement (AIFTA). The Court rejected this contention and upheld the jurisdiction of the Customs authorities to issue show cause notices for alleged misrepresentation and fraud regarding Regional Value Content (RVC) in the import of Tin Ingots from Malaysia. The Division Bench held that "petitioners cannot seek enforcement of Article 24 of AIFTA before a municipal or national Court" and stated that "the impugned show cause notices are legal and valid."

The petitioners in the writ petitions—Purple Products Private Limited and Kothari Metals Limited—challenged show cause-cum-demand notices issued by Customs authorities under Section 28 of the Customs Act, 1962. The notices pertained to alleged misuse of Customs Notification No. 46/11 dated 1 June 2011, which granted benefits under the ASEAN-India Free Trade Agreement (AIFTA) for imports of Tin Ingots from Malaysia. The Customs authorities alleged that the petitioners had misrepresented that the RVC (Regional Value Content) of the imported goods exceeded 35% to avail the preferential tariff benefit under the notification.

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The petitioners argued that Article 24 of the AIFTA provides a specialised dispute resolution mechanism in cases concerning origin determination and classification of products. They claimed that no adjudication under the Customs Act could be undertaken without first exhausting the procedures outlined in Article 24 and invoking the ASEAN-India Dispute Settlement Mechanism (DSM) Agreement. The petitioners asserted that the Customs authorities lacked jurisdiction and the show cause notices were void ab initio.

Initially, the High Court had dismissed the petitions on 9 July 2019, holding that the petitioners could respond to the show cause notices through the usual adjudication procedure. However, the Supreme Court, in its order dated 25 November 2019, set aside the High Court's order and restored the writ petitions for adjudication on merits. The Apex Court stated that "the issue raised by the appellant(s) regarding the efficacy of Article 24 of the Appendix 'D' to the Treaty cannot be adjudicated by the competent authority" and remitted the matter to the High Court.

The petitioners relied heavily on the Supreme Court’s directions and contended that since Article 24 had not been invoked between India and Malaysia, any domestic adjudication lacked legal foundation. They further contended that no Indian statute or rule had superseded or displaced the treaty mechanism and therefore the Customs authorities had no power to adjudicate matters concerning origin and RVC.

The respondents, represented by counsel for the Union of India and various Customs officers, submitted that the provisions of AIFTA were not self-executing in India and required transformation into municipal law. They pointed out that while the Customs Tariff (Determination of Origin of Goods under the Preferential Trade Agreement) Rules, 2009 had been enacted to implement AIFTA, these rules did not incorporate Article 24.

The Customs authorities relied on complaints and representations made by domestic traders alleging misuse of the Notification. Investigations were conducted by the Directorate of Revenue Intelligence (DRI), which concluded that the RVC of the imported Tin Ingots was below the 35% threshold required for exemption. The DRI found that importers had availed of benefits based on Certificates of Origin (COO) allegedly issued by Malaysian authorities despite insufficient domestic value addition.

The petitioners argued that the COOs issued by the Malaysian Ministry of International Trade and Industry (MITI) had not been withdrawn or nullified, and hence were valid. They submitted that unilateral investigations by Indian authorities could not override treaty obligations and that the Customs authorities had to approach the ASEAN dispute resolution mechanism if they wished to challenge the COOs.

To support their arguments, the petitioners cited various Supreme Court decisions including G.M. Exports, Gramophone Company of India Ltd., East India Commercial Co., and Bombay Chemicals Pvt. Ltd. They argued that treaty provisions take precedence over delegated legislation and that Parliament alone could legislate to override treaty mechanisms.

The respondents contended that Article 24 was not invocable in a municipal court as it had not been transformed into domestic law. They referred to the Gujarat High Court’s judgement in Trafigura India Pvt Ltd v. Union of India, where a similar challenge was rejected.

The petitioners distinguished the Trafigura judgement on the ground that it failed to consider the supremacy of parliamentary legislation and relied only on subordinate rules. They also pointed out that the Customs Act was amended in 2020 by inserting Chapter VAA, including Section 28DA, to deal specifically with issues of Country-of-Origin criteria. They contended that the amendment indicated that previously Customs authorities lacked jurisdiction in such matters.

The respondents responded that the amendment did not nullify the existing powers of Customs under Section 28 of the Act and only provided additional tools for enforcement. They argued that the adjudication proceedings had to proceed and the petitioners could contest the factual allegations during adjudication.

The Division Bench examined the primary issue—whether Article 24 of the AIFTA could be enforced in Indian courts in the absence of transformation into domestic law. The Court observed that "the Petitioners’ contention about the enforceability of Article 24 of AIFTA... is untenable. If accepted, this contention would run counter to several decisions of the Hon’ble Supreme Court."

It recorded that "petitioners, in fact, seek to suspend the provisions of the national law i.e. the Customs Act and denude the customs authorities of their statutory powers. This is impermissible."

Referring to Supreme Court precedent in Union of India v. Agricas LLP, the Court observed that "treaties, unless incorporated or transformed into municipal law, cannot be enforced by the beneficiaries in municipal or State Courts." It continued: "The binding force of a treaty concerns, in principle, the contracting States only, and not their subjects."

The Court noted: "The circumstance that the provisions of AIFTA were sought to be given effect to by the 2009 Rules and the customs exemption notification is relevant. These Rules or Notifications are conspicuous by their non-reference to Article 24 of AIFTA."

Regarding the COO, the Court held: "As long as the COOs were not rescinded or withdrawn... such benefits could not be denied or recovered based on some unilateral investigations..." However, it clarified that this argument did not negate the jurisdiction of Customs under domestic law to investigate fraud.

On the petitioners’ reliance on G.M. Exports, the Court remarked: "This decision does not establish authority to suggest that a treaty provision can be directly enforced before a Municipal Court in India..."

Regarding the 2020 amendment, the Court stated: "Based on the provisions of Section 28DA, we cannot infer that the pre-amended provisions of the Customs Act prevented the Customs Authorities from exercising powers under Section 28."

Ultimately, the Court found no merit in the argument that Article 24 barred adjudication: "The Petitioners virtually insist that the treaty provisions prevail over national laws, even though the treaty provisions... have not been incorporated into any national law. This is clearly impermissible."

The Court issued the following final orders:

"For all these reasons, we see no merit in these Petitions, or the contentions raised in support of these Petitions. Accordingly, we discharge the Rule and dismiss these Petitions. Interim Orders, if any, are vacated."

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"Interim Application (L) No.6631 of 2020 is disposed of."

The Division Bench clarified that the Customs Authorities were at liberty to proceed with the adjudication under Section 28 of the Customs Act and the petitioners could raise their factual and legal defences in those proceedings. It was held that "there is no legal or jurisdictional infirmity in the issue of such show cause notices."

The Court concluded: "The primary argument that the impugned show cause notices are ultra vires for failing to comply with the provisions of Article 24 of AIFTA lacks merit."

It further observed that the High Court of Gujarat in Trafigura had already considered similar issues and: "We see no reason to adopt a view different from that taken by the Gujarat High Court."

Advocates Representing the Parties:

For the Petitioners: Mr Vikram Nankani, Senior Advocate, with Mr Prithwiraj Choudhari and Mr Aansh Desai, i/b Aansh Desai

For the Respondents: Mr Jitendra B Mishra, with Ms Sangeeta Yadav and Mr Rupesh Dubey

Case Title: Purple Products Pvt Ltd & Anr. v. Union of India & Ors.

Neutral Citation: 2025: BHC-OS:8683-DB

Case Numbers: Writ Petition No. 2831 of 2018 and Writ Petition No. 2491 of 2018

Bench: Justice M.S. Sonak and Justice Jitendra Jain

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