Bombay High Court Upholds FTA Primacy: A Landmark Ruling on Third-Party Invoicing and Preferential Duty for Importers

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 23.08.2026

Bombay High Court Upholds FTA Primacy: A Landmark Ruling on Third-Party Invoicing and Preferential Duty for Importers

A highly prominent case that directly addresses the wrongful disallowance of Free Trade Agreement (FTA) benefits by the Customs Department for an importer dealing with Chapter 38 products (Miscellaneous Chemical Products) is the landmark decision by the Hon’ble Bombay High Court in M/s Covestro India Private Limited vs. Assistant Commissioner of Customs.

The core legal principles established in this matter, alongside other critical judicial precedents, favor importers facing FTA denials.

1. Key Case Analysis: Covestro India Pvt. Ltd. (Bombay High Court)

• The Product Focus: The importer (Covestro India) regularly imports chemical products, polycarbonate resins, and raw materials falling under Chapter 39 and Chapter 38.
• The Customs Dispute: The Customs Department denied the preferential rate of duty claimed under the ASEAN-India Free Trade Agreement (AIFTA). Customs cited Section 28DA of the Customs Act and Rule 5(5) of CAROTAR 2020, raising technical doubts because the Certificate of Origin (COO) reflected the Free on Board (FOB) value while the commercial invoice listed the Cost, Insurance, and Freight (CIF) value.
• The Department’s Basis: Customs relied on local Public Notice No. 33/2024 to demand the original manufacturer’s invoice and price breakup, failing which they unilaterally denied the FTA benefit. [3, 6, 8]

The Court’s Ruling in Favor of the Importer:

• Invalidation of Local Restrictive Notices: The High Court quashed and set aside the Customs order. It held that the Customs Department cannot issue local Public Notices or instructions that dilute or alter the strict legal provisions of international treaties (FTAs).
• Acceptance of Third-Party Invoicing: The Court firmly reiterated that third-party invoicing is globally accepted under major FTAs. Importers cannot be heavily penalized or denied benefits simply because an intermediary handles the commercial invoice, provided the origin of the goods is authentically established.
• Mandatory Procedure Over Unilateral Rejection: Customs cannot summarily reject a validly issued Certificate of Origin (COO). If they harbor doubts regarding the origin or value alignment (FOB vs. CIF), they are legally obligated to invoke the verification/retroactive check process with the issuing authority of the partner country, rather than passing a definitive adverse order immediately.

2. Supporting Precedents (Valuation & Verification)

Importers of Chapter 38 products can use several other strong, parallel rulings to counter customs disallowances:

Commissioner of Customs, Chennai vs. K B Autosys India Pvt. Ltd. (CESTAT)

• Context: Involved chemical/friction mixture mixtures claimed under HS Code 3824.
• Ratio: The tribunal ruled that the Customs Department cannot arbitrarily alter classification entries merely to strip an importer of an active FTA benefit, emphasizing that if the essential characteristics fulfill the declared tariff heading, the exemption under Notification No. 152/2009-Cus must be granted.

Purple Products vs. Union of India (Bombay High Court)

• Ratio: The court ruled against unilateral, aggressive actions taken by Indian Customs officials to deny treaty benefits before exhausting the formal treaty-based Dispute Resolution Mechanism or verification provisions outlined inside the FTA.

3. Core Legal Defenses for Importers to Raise

If your Chapter 38 import is experiencing an FTA disallowance under CAROTAR 2020, structure your defense on these points:

1. CBIC Instruction No. 23/2024 Compliance: Remind the adjudicating authorities that CBIC guidelines explicitly dictate that commercial confidentiality must be respected. Importers are not legally bound to disclose proprietary manufacturer invoices or back-to-back cost breakdowns.
2. Treaty Supremacy: Argue that international FTA treaty terms override any conflicting domestic procedural restrictions under CAROTAR.
3. No Merely Clerical Denials: Discrepancies between the currencies used or nominal description differences do not nullify a validly sealed COO.

M/s Covestro India Private Limited v. Assistant Commissioner of Customs & Ors.

1. Case Details, Parties, and Judicial Forum

• Case Title: M/s Covestro India Private Limited v. Assistant Commissioner of Customs & Ors.
• Petitioner: Covestro India Private Limited
• Respondents:
  1. Assistant Commissioner of Customs, Group II (G), NS-I, JNCS, Nhava Sheva
  2. Commissioner of Customs (NS-III), Turant Suvidha Kendra, JNCH, Nhava Sheva
  3. Union of India (Secretary, Dept. of Revenue, Ministry of Finance)
• Judicial Forum: High Court of Judicature at Bombay, Civil Appellate Jurisdiction
• Bench: Justices G. S. Kulkarni & Aarti Sathe
• Date of Judgment: 16th April 2026

2. Case Summary & HSN Code(s) in Dispute

• Background: Covestro India imported goods (polycarbonate resins, specialty film rolls, etc.) from Thailand, claiming preferential duty under Notification No. 46/2011 (ASEAN-India Free Trade Agreement, AIFTA).
• Dispute: Customs authorities denied the preferential rate, citing non-compliance with requirements in Public Notice No. 33/2024, particularly regarding third-party invoicing and FOB value documentation.
• HSN Codes: The dispute involved classification and eligibility for preferential duty under specific HSN codes as per the Bills of Entry and FTA certificates (exact HSN codes not specified in the summary, but relate to polycarbonate resins and specialty films).

3. Arguments of the Parties

1. Petitioner (Covestro India):
   • Claimed eligibility for preferential duty based on valid Country of Origin (CoO) certificates from Thailand.
   • Challenged the legality and jurisdiction of Public Notice No. 33/2024, arguing it imposed additional requirements not supported by law or the FTA.
   • Argued that subsequent CBIC instructions and public notices superseded the earlier notice and clarified that third-party invoicing is permissible.
   • Asserted that denial of benefit was mechanical and not in accordance with law.
2. Respondents (Customs Authorities):
   • Justified denial of preferential duty based on Public Notice No. 33/2024, which required additional documentation for third-party invoicing.
   • Argued that the petitioner failed to provide the required exporter’s invoice and breakdown of values, leading to doubts about the actual FOB value and eligibility for FTA benefits.

4. Key Statutory Provisions Considered

1. Customs Act, 1962:
   • Section 28DA: Procedure regarding claim of preferential rate of duty
2. CAROTAR, 2020:
   • Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020
   • Rule 5(5): Denial of preferential claim without further verification if sufficient evidence exists
3. Relevant Notifications:
   • Notification No. 46/2011 (Customs), Notification No. 85/2004, Notification No. 101/2004, Notification No. 153/2009, Notification No. 189/2009
4. CBIC Circulars and Instructions:
   • Circular No. 38/2020, Instruction No. 23/2024-Customs (clarifying third-party invoicing and origin procedures)
5. Public Notices:
   • Public Notice No. 33/2024, 55/2024, and 10/2025

5. Key Legal Principles Adopted

1. Primacy of Trade Agreement Provisions:
   • In case of conflict, the provisions of the trade agreement (AIFTA) prevail over CAROTAR and public notices.
2. Legality of Public Notices:
   • Public notices cannot override or dilute statutory provisions or CBIC instructions.
3. Third-Party Invoicing:
   • Explicitly allowed under AIFTA; denial of benefit solely on this ground is not permissible.
4. Requirement of Verification:
   • Preferential claims cannot be denied without following the due process of verification as per the agreement and CAROTAR.
5. Natural Justice:
   • Orders affecting rights must be passed after giving an opportunity to be heard and following due process.

6. Order of the Court

1. The impugned order dated 12th June 2024 (denying preferential duty) is quashed and set aside.
2. Assessment proceedings are remanded to the Assistant Commissioner of Customs for fresh assessment in accordance with law and the latest CBIC instructions.
3. All contentions of the parties are kept open for reconsideration.
4. Similar orders passed in connected writ petitions.

7. Message for Importers/Exporters & Impact on Trade

• Key Takeaways:
  1. Customs authorities must strictly follow the provisions of trade agreements and CBIC instructions; local public notices cannot impose additional requirements.
  2. Third-party invoicing is permissible under AIFTA and similar FTAs, provided origin criteria are met.
  3. Importers should ensure all required documents (CoO, invoices, etc.) are in order, but cannot be compelled to provide commercially confidential information not required by law.
  4. Any denial of preferential benefit must follow due process, including verification and opportunity to be heard.
• Impact:
• The ruling reinforces legal certainty for importers/exporters using FTAs, prevents arbitrary denial of benefits, and ensures smoother trade operations by upholding the primacy of central instructions and trade agreements over local administrative notices.

 8. Key Citations Referred in the Case

1. Statutory Provisions and Notifications

a. Customs Act, 1962

• Section 28DA: Governs the procedure for claiming preferential rate of duty under trade agreements, including requirements for declarations, documentation, and verification.

b. CAROTAR, 2020

• Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020: Lays down the process for determining origin of goods and the obligations of importers and customs authorities.
• Rule 5(5): Allows denial of preferential claim without further verification if sufficient evidence exists.

c. Relevant Notifications

• Notification No. 46/2011 (Customs): Provides for preferential rate of duty for goods imported from specified countries under FTAs.
• Notification Nos. 85/2004, 101/2004, 153/2009, 189/2009: Earlier notifications governing preferential duty and rules of origin under various FTAs.

d. CBIC Circulars and Instructions

• Circular No. 38/2020: Clarifies operational procedures for rules of origin under trade agreements.
• Instruction No. 23/2024-Customs: Clarifies that third-party invoicing is permissible under AIFTA and that denial of preferential benefit must follow due process.

e. Public Notices

• Public Notice No. 33/2024: Imposed additional requirements for third-party invoicing, later found to be inconsistent with central law and superseded.
• Public Notice No. 55/2024: Issued revised guidelines for verification under CAROTAR, 2020.
• Public Notice No. 10/2025: Incorporated CBIC’s clarifications and superseded earlier local notices.

2. Key Judicial and Administrative Principles Cited

a. Article 22 of Operational Certification Procedures (AIFTA)

• Allows third-country invoicing, provided the product meets the origin criteria under AIFTA Rules of Origin.

b. Section 151A of the Customs Act

• Empowers only the CBIC to issue binding instructions to customs officers, reinforcing that local public notices cannot override central law or instructions.

c. CBIC Instruction No. 19/2022-Customs

• Reiterates that in case of conflict, the provisions of the trade agreement prevail over CAROTAR and local administrative instructions.

3. Short Summary of Each Citation

1. Section 28DA, Customs Act, 1962: Sets out the process for claiming preferential duty, including documentation, verification, and the rights of importers and customs.
2. CAROTAR, 2020: Provides detailed rules for administration of origin under trade agreements, including when and how customs can seek further information or deny claims.
3. Notification No. 46/2011 (Customs): The main notification under which Covestro India claimed preferential duty for imports from Thailand.
4. CBIC Circular No. 38/2020: Clarifies the process for customs officers and importers regarding rules of origin and documentation.
5. Instruction No. 23/2024-Customs: Central instruction clarifying that third-party invoicing is allowed and that denial of benefit must follow due process, not be based on local notices.
6. Public Notice No. 33/2024: Local customs notice imposing extra requirements for third-party invoicing, later found to be ultra vires and superseded.
7. Public Notice No. 55/2024 & 10/2025: Revised and clarified the process for verification and assessment, aligning with central instructions.
8. Article 22, AIFTA Procedures: Explicitly allows third-country invoicing under the FTA.
9. Section 151A, Customs Act: Restricts the power to issue binding instructions to the CBIC, not local customs commissioners.
10. CBIC Instruction No. 19/2022-Customs: Ensures trade agreement provisions override conflicting domestic rules or instructions.

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Source: Bombay High Court

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