CESTAT Kolkata Sets Aside Customs Duty and IGST Demand

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 20.03.2026

CESTAT Kolkata Sets Aside Customs Duty and IGST Demand

In a significant ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Eastern Zonal Bench, Kolkata, has delivered a judgment in favor of M/s. ​ Imperial Fragrance & Flavours Pvt. ​ Ltd. in Customs Appeal No. ​ 75890 of 2023. ​ The case revolved around the import of ‘Gurjon Oil’ and ‘Patchouli Oil’ from Indonesia, where the appellant sought exemption from Basic Customs Duty (BCD) under Notification No. ​ 46/2011-Cus., as amended by Notification No. ​ 82/2018-Cus., and faced a demand for differential Integrated Goods and Services Tax (IGST).

Background of the Case

M/s. Imperial Fragrance & Flavours Pvt. ​ Ltd. imported ‘Gurjon Oil’ and ‘Patchouli Oil’ from Indonesia and filed Bill of Entry No. ​ 4012164 dated 11.07.2019, claiming exemption from BCD under the aforementioned notifications. ​ The goods were assessed, examined, and granted Out-of-Charge on 19.07.2019 after the submission of all required documents, including the certificate of origin and invoice. ​

However, during an audit in 2021, the Audit team raised objections, alleging that the appellant had paid IGST at 12% instead of the applicable rate of 18%. ​ The appellant acknowledged the error and expressed willingness to pay the differential IGST, requesting permission to file a supplementary Bill of Entry to claim input tax credit for the additional IGST paid. ​ This request was denied. ​

Subsequently, a Show Cause Notice (SCN) was issued on 09.07.2021, challenging the classification of the imported goods and asserting that the appellant was ineligible for the concessional BCD rate. ​ The SCN also demanded the differential IGST. ​ The adjudicating authority confirmed the demand for BCD, SWS, and IGST, which was upheld by the Commissioner of Customs (Appeals). ​ Aggrieved by the decision, the appellant approached the Tribunal. ​

Key Arguments Presented

Appellant’s Submissions

1. Proper Documentation and Classification: The appellant argued that the Bill of Entry was assessed and cleared after thorough examination by Customs authorities, who were satisfied with the classification and documentation provided. ​
2. Eligibility for BCD Exemption: The appellant contended that the imported goods fell under Chapter Heading 3301, which qualifies for concessional BCD rates under the relevant notifications. ​
3. IGST Payment Error: The appellant admitted to a genuine error in paying IGST at 12% instead of 18%. ​ They emphasized their willingness to pay the differential IGST and requested permission to file a supplementary Bill of Entry to claim input tax credit, which was denied. ​
4. Revenue Neutrality: The appellant argued that the differential IGST payment would result in a revenue-neutral situation, as they would be eligible to claim input tax credit for the additional IGST paid. ​

Revenue’s Submissions

1. Incorrect Classification: The Revenue argued that the classification adopted by the appellant was incorrect, making them ineligible for the concessional BCD rate. ​
2. IGST Payment Error: The Revenue contended that the appellant had admitted to paying IGST at an incorrect rate, justifying the demand for differential IGST. ​

Tribunal’s Observations and Decision ​

After hearing both sides and reviewing the appeal papers and supporting documents, the Tribunal made the following observations:

1. BCD and SWS Demand: The Tribunal noted that the Customs authorities had assessed and cleared the goods after verifying the classification and documentation, including the certificate of origin. ​ The relevant notifications provide BCD exemption for goods under Chapter Heading 3301, irrespective of sub-headings. ​ Therefore, the Tribunal found no merit in the confirmed demand for BCD and SWS and set it aside. ​
2. Differential IGST Demand: The Tribunal acknowledged the appellant’s genuine error in paying IGST at 12% instead of 18%. ​ It emphasized that the appellant had demonstrated their bona fides by agreeing to pay the differential IGST and requesting permission to file a supplementary Bill of Entry to claim input tax credit. ​ The Tribunal highlighted that input tax credit is an indefeasible right of the appellant, and the denial of this request was unjustified. ​
3. Revenue Neutrality: Citing multiple case laws, including M/s. ​ Chiripal Polyfilms Ltd. v. Commissioner of C.Ex. ​ & S.T., Vadodara-I, the Tribunal reiterated that when differential duty or tax results in a revenue-neutral situation, the demand is not legally sustainable. ​ The Tribunal emphasized that the appellant’s case was revenue-neutral, as the differential IGST paid would have been available as input tax credit. ​

Final Order

The Tribunal set aside the impugned order, allowing the appeal filed by M/s. ​ Imperial Fragrance & Flavours Pvt. ​ Ltd. The appellant was granted consequential relief as per law. ​

Key Takeaways

1. Importance of Proper Documentation: The Tribunal’s decision underscores the significance of maintaining accurate and complete documentation during imports to substantiate claims for exemptions and concessions. ​
2. Revenue Neutrality Principle: The judgment reaffirms the principle that demands for differential duty or tax are not sustainable in cases where the payment results in a revenue-neutral situation. ​
3. Right to Input Tax Credit: The Tribunal emphasized that input tax credit is an indefeasible right of the assessee, and authorities should consider requests to facilitate its utilization. ​

This ruling serves as a precedent for similar cases, highlighting the importance of procedural fairness and adherence to established legal principles in customs and tax disputes.

Source: CESTAT Kolkata

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