Writ Petition Challenging Show Cause Notice Regarding Preferential Tariff Under Trade Agreement Held Not Maintainable

The petitioners, importers of copper tubes and pipes from Vietnam, challenged Show Cause Notices (SCNs) issued by Customs authorities.

The SCNs proposed to reject preferential duty rates under the ASEAN-India Free Trade Agreement (AIFTA) on the grounds that the goods failed to meet the 35% Regional Value Content (RVC) requirement.

The Customs based this on investigations suggesting third-country routing (China/Hong Kong) and a lack of verifiable inventory segregation by Vietnamese exporters.

Petitioners also challenged a letter dated 05.07.2023 requiring bank guarantees for provisional clearance.

The petitioners argued the SCNs were issued without following the treaty-mandated verification process (retroactive checks) under AIFTA.

A writ petition against a mere Show Cause Notice is generally not maintainable unless it is wholly without jurisdiction or violates natural justice, as established in Commissioner of Central Excise, Haldia v. M/s. Krishna Wax (P) Ltd. and M/s Trillion Lead Factory Private Ltd. v. Superintendent of Central Tax.

Section 28DA of the Customs Act, 1962, and the CAROTAR 2020 Rules, which govern the procedure for claiming preferential rates under trade agreements.

The "dualist" doctrine as clarified in Assessing Officer Circle (International Taxation) v. M/s Nestlé SA, holding that international treaties are enforceable in India only to the extent they are incorporated into municipal law.

The Court rejected the petitioners' contention that the treaty's verification procedure (Article 16/17) is a mandatory prerequisite that ousts the jurisdiction of Customs to issue an SCN under Section 28 of the Act.

The Court agreed with the Respondents that the language of the AITIGA/AIFTA—specifically the use of the word "may"—indicates that the retroactive verification mechanism is facilitative and not an obligatory bar to domestic investigation.

Citing Trafigura India Pvt. Ltd. v. Union of India and Purple Products Private Limited v. UOI, the Court reasoned that the power to investigate fraud or misrepresentation regarding RVC content remains within the statutory competence of Customs authorities under Section 28 and 28DA of the Customs Act.

Since the allegations involved complex factual determinations regarding value addition and inventory management, the Court held that these must be resolved through the departmental adjudication process rather than writ proceedings.

The petitions were dismissed, and petitioners were relegated to the adjudicating authorities to raise all legal and factual pleas, with a direction to the authorities to pass reasoned orders.