CESTAT Grants Relief on BCD and IGST, Citing Revenue Neutrality

The assessee, M/s. Imperial Fragrance & Flavours Pvt. Ltd., imported “Gurjon Oil” and “Patchouli Oil” from Indonesia and filed the Bill of Entry claiming exemption from Basic Customs Duty (BCD) under the applicable notification. The goods were assessed, examined, and cleared by Customs in July 2019 after considering all supporting documents, including certificate of origin and invoices.

Subsequently, during audit proceedings, the department raised objections alleging incorrect classification and short payment of IGST (12% instead of 18%). A Show Cause Notice was issued proposing denial of BCD exemption and recovery of differential IGST. While the assessee defended the classification and exemption claim, it also accepted the IGST differential liability but requested permission to file a supplementary Bill of Entry to avail input tax credit (ITC). However, this request was not entertained, and the demands were confirmed by the adjudicating authority and upheld in appeal.

Main Issue: Whether denial of BCD exemption based on alleged reclassification was justified despite initial assessment and clearance and whether differential IGST demand is sustainable when the situation is revenue neutral and ITC is available to the assessee.

Tribunal Decided: The Tribunal allowed the appeal and granted complete relief to the assessee. On the issue of BCD exemption, it held that the goods were assessed and cleared after proper verification of documents and classification. The exemption notification applied to the entire tariff heading irrespective of sub-classification, and therefore, denial of benefit at a later stage was not justified. Regarding differential IGST, the Tribunal noted that the short payment arose from a bona fide error.

Since the assessee would be entitled to input tax credit of the additional IGST paid, the situation was clearly revenue neutral. It further observed that the assessee had voluntarily offered to pay the differential amount and sought permission for a supplementary Bill of Entry, which ought to have been considered. Relying on settled legal principles, the Tribunal held that demands in revenue neutral situations are not sustainable in law. Thus, both the BCD and IGST demands were set aside.

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