CESTAT Kolkata Sets Aside IGST Demand

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 03.03.2026

CESTAT Kolkata Sets Aside IGST Demand

In a significant ruling, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Kolkata, has set aside a demand raised by the Commissioner of Customs (Port), Kolkata, against M/s Chirag Corporation. ​ This case, revolving around the classification and IGST rate applicable to imported goods, highlights critical aspects of customs law, including the finality of assessments, the invocation of the extended period under Section 28(4) of the Customs Act, 1962, and the concept of revenue neutrality. ​

Case Background

M/s Chirag Corporation imported 40 sets of Divya Shakti brand power tillers in August 2017 and filed a Bill of Entry, classifying the goods under CTH 84328090. ​ The company paid IGST at the rate of 12% as per Notification No. ​ 1/2017-CT (Rate) dated 28.06.2017. ​ The Bill of Entry was assessed and cleared without any provisional assessment, bond, or bank guarantee. ​

However, nearly five years later, on 6th April 2022, the Department issued a Show Cause Notice (SCN) invoking the extended period under Section 28(4) of the Customs Act, alleging that the applicable IGST rate was 18%, not 12%. ​ The lower authorities confirmed the demand, prompting M/s Chirag Corporation to file an appeal before the CESTAT. ​

Key Arguments by the Appellant ​

The appellant, represented by Advocate, raised the following points:

1. Finality of Assessment: The Bill of Entry was finalized and never challenged by the Department. ​ Referring to the Supreme Court’s judgment in ITC Ltd. v. Commissioner of Central Excise, Kolkata-IV, the appellant argued that a finalized assessment cannot be reopened indirectly through a demand notice without first challenging the assessment itself. ​
2. Limitation Period: The SCN was issued nearly five years after the import, exceeding the normal limitation period. ​ The appellant contended that there was no suppression, misstatement, collusion, or fraud, which are prerequisites for invoking the extended period under Section 28(4). ​
3. Revenue Neutrality: The appellant emphasized that the IGST paid at the time of import was fully available as Input Tax Credit (ITC) under the CGST Act, 2017. ​ Since the goods were sold on payment of GST, the situation was revenue-neutral, and there was no intention to evade tax. ​

Key Arguments by the Respondent ​

The respondent argued that the appellant had wrongly claimed the benefit of the notification, and the extended period was rightly invoked. ​

CESTAT’s Observations and Ruling

The Tribunal, comprising Hon’ble Judicial Member and Hon’ble Technical Member, made the following observations:

1. Finalized Assessment: The Tribunal acknowledged that the Bill of Entry was finalized and not challenged by the Department. ​ However, since the imports occurred before the Supreme Court’s judgment in ITC Ltd., the Tribunal did not accept the appellant’s argument on this count. ​
2. Limitation Period: The SCN was issued well beyond the normal limitation period. ​ The Tribunal noted that the classification, notification number, and IGST rate were clearly declared in the Bill of Entry, and the dispute was merely a matter of interpretation. ​ This did not constitute suppression or willful misstatement, which are necessary to invoke the extended period under Section 28(4). ​
3. Revenue Neutrality: The Tribunal emphasized that the appellant was eligible to avail ITC for the IGST paid at the time of import, and the goods were sold on payment of GST. ​ This made the situation revenue-neutral, further negating any intention to evade tax. ​
4. Precedents: The Tribunal referred to similar cases, including Chiripal Poly Films Ltd. v. Commissioner of Customs, Ahmedabad and Himadri Speciality Chemical Ltd. v. Principal Commissioner of Customs, Visakhapatnam. ​ In both cases, the extended period was held to be inapplicable due to the absence of suppression and the revenue-neutral nature of the transactions. ​

Final Decision

The Tribunal concluded that the demand raised by the Department was barred by limitation and could not be sustained. ​ The impugned order was set aside, and the appeal was allowed with consequential relief as per law. ​

Key Takeaways

1. Finality of Assessment: Once a customs assessment is finalized, it cannot be reopened indirectly through a demand notice unless the assessment itself is challenged. ​
2. Extended Limitation Period: The extended period under Section 28(4) of the Customs Act can only be invoked if there is evidence of suppression, willful misstatement, collusion, or fraud. ​
3. Revenue Neutrality: In cases where the tax paid is available as ITC and the situation is revenue-neutral, the intention to evade tax cannot be established. ​
4. Judicial Precedents: The Tribunal’s reliance on previous rulings underscores the importance of consistency in judicial decisions and the application of established legal principles. ​

Conclusion

The decision in M/s Chirag Corporation v. Commissioner of Customs (Port), Kolkata serves as a reminder of the importance of adhering to procedural requirements in customs assessments and the limitations on invoking the extended period for demand notices. ​ It also highlights the significance of revenue neutrality in determining the intent to evade tax. ​ This ruling is likely to have far-reaching implications for similar cases in the future, providing clarity and guidance to both taxpayers and the Department.

Source: CESTAT Kolkata

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