2019 (7) TMI 515 - HC - Customs

Free Trade Agreements - SAFTA/ISFTA Rules - Concessional rate of duty - import of consignment of Aracknut and Black pepper from Sri Lanka - whether CMA agreement dated 13.3.2015 will substitute SAFTA and ISFTA rules qua verification of COO? - HELD THAT - Though SAFTA and ISFTA agreements go by the nomenclature of 'Free Trade Agreement' ('FTA' for brevity), for all practical purposes, they are treaties within the meaning of Article 73(1)(b) of the Constitution of India and they are traceable to Entry 14 of List I of Seventh Schedule to the Constitution of India. In this regard, Article 51(c) of the Constitution of India is also of relevance. SAFTA rules and ISFTA rules in contradistinction are municipal laws in international law parlance. Be that as it may, the same cannot be said of CMA agreement dated 13.3.2015 between Governments of India and Sri Lanka. Being an agreement made between two sovereign States, this CMA agreement also certainly qualifies as part of treaties (if not a treaty by itself) for the purpose of mode of implementation of treaties. In the light of section 151B(5) of Customs Act, this Court has no hesitation in coming to the conclusion that CMA agreement dated 13.3.2015 will prevail over the procedure for verification of COO adumbrated in SAFTA Rules and ISFTA Rules as this CMA agreement also has been signed by two sovereign States. This court deems it appropriate to not to interfere with the impugned SCN by holding that it is open to respondents 1 and 2 to issue an addendum or corrigendum to impugned SCN adverting to CMA agreement and mentioning as to how COOs were verified and as to why they are unacceptable, in an appropriate manner without disclosing the contents of aforesaid communications dated 23.4.2018 and 15.5.2018 (immunity / privilege for which has been sustained) - The reason why this court refrains from interfering with the impugned SCN is owing to the principle that writ jurisdiction being a discretionary jurisdiction will ordinarily not be exercised for quashing a SCN and that it will be done only in rare and exceptional cases, if a SCN is found to be wholly without jurisdiction or wholly illegal for one reason or the other. This Court is of the considered view that this is not a rare and exceptional case where impugned SCN is wholly illegal, warranting interference of this court in the discretionary writ jurisdiction under Article 226 of Constitution of India - Petition dismissed.

Summary

Issues Involved:
1. Jurisdiction of the Customs Department to issue the Show Cause Notice (SCN).
2. Validity and verification of Certificates of Origin (COO) under the Indo-Sri Lanka Free Trade Agreement (ISFTA) and South Asian Free Trade Agreement (SAFTA).
3. Applicability of the Agreement on Co-operation and Mutual Assistance in Customs Matters (CMA Agreement) between India and Sri Lanka.
4. Claim of privilege over certain communications by the Customs Department.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Customs Department to issue the Show Cause Notice (SCN):
The petitioner contended that the SCN issued by the Customs Department was without jurisdiction, arguing that only the Director (International Customs Division) had the authority to verify the COO under preferential trade agreements, as per Instruction No.31/2016 and an Office Memorandum dated 11.07.2017. The petitioner argued that the SCN was issued under Section 124 of the Customs Act, which requires goods to be prima facie confiscatable under Section 111, and that the only ground for confiscation was the disputation of the COO, which should be determined by the Principal Commissioner.

2. Validity and verification of Certificates of Origin (COO) under ISFTA and SAFTA:
The petitioner claimed concessional duty rates under ISFTA and SAFTA, asserting that the consignments originated from Sri Lanka. The Customs Department raised doubts about the COOs and seized the consignments. The petitioner argued that the verification process outlined in ISFTA and SAFTA rules should be followed, emphasizing the sanctity of these treaties between sovereign states.

3. Applicability of the CMA Agreement between India and Sri Lanka:
The Customs Department relied on the CMA Agreement dated 13.03.2015, which allows for mutual assistance in customs matters, including verification of COOs. The court held that the CMA Agreement, being a treaty between two sovereign states, would prevail over the procedures for COO verification outlined in ISFTA and SAFTA rules, as per Section 151B of the Customs Act. The court concluded that the CMA Agreement substitutes the ISFTA and SAFTA rules for COO verification.

4. Claim of privilege over certain communications by the Customs Department:
The Customs Department claimed privilege over communications dated 23.04.2018 and 15.05.2018 under the CMA Agreement, arguing that disclosing the names of officers and modes of verification would harm public interest. The court sustained the privilege claim for these communications but rejected the privilege claim for the CMA Agreement itself, as it was available in the public domain. The court directed the Customs Department to issue an addendum or corrigendum to the SCN, mentioning the CMA Agreement and the verification process, without disclosing privileged information.

Conclusion:
The court dismissed the writ petition, holding that the SCN was not wholly without jurisdiction or illegal, and thus did not warrant interference under writ jurisdiction. The court allowed the Customs Department to issue an addendum or corrigendum to the SCN, providing the petitioner with an opportunity to respond more specifically on merits. The court emphasized that writ jurisdiction should be exercised sparingly, particularly in cases involving SCNs, unless they are found to be wholly without jurisdiction or illegal.