Provisional Release Cannot Be Denied on Mere National Security Grounds Without Evidence: CESTAT [Read Order]

TheMumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that Rule 2(a) of the General Rules for Interpretation of Customs Tariff cannot be applied to interpret restrictions under the ForeignTrade Policy.

IZI and IZI Ventures Pvt Ltd, the appellants, imported goods declared as “drone parts and components.” The department treated these imports as complete drones in CKD or SKD condition by applying Rule 2(a) of the General Rules for Interpretation and held that the imports violated DGFT Notification No. 54/2015-20. The goods were seized and provisional release was denied. Aggrieved by this action, the appellants approached the CESTAT.

The appellants’ counsel argued that Rule 2(a) applies only for classification under the Customs Tariff and cannot be used to interpret policy restrictions under the Foreign Trade Policy. The counsel relied on Tribunal decisions and Supreme Court rulings to argue that tariff interpretation rules cannot override policy condition.

The revenue counsel argued that the imported components had the essential character of complete drones and Rule 2(a) was correctly applied to treat them as finished goods. The department argued that such interpretation was necessary to prevent circumvention of import restrictions.

The two-member bench comprising Dr. Suvendu Kumar Pati (Judicial Member) and M.M. Parthiban (Technical Member) observed that Rule 2(a) is meant for tariff classification and not for interpreting restrictions under the Foreign Trade Policy. The tribunal observed that earlier judicial decisions have held that tariff rules cannot be applied to policy conditions.

The tribunal explained that policy restrictions under the Foreign Trade Policy must be interpreted by the competent authority under that policy and not by applying tariff interpretation rules. The tribunal pointed out that applying Rule 2(a) to treat parts as complete goods for policy purposes is not sustainable in law.

The tribunal set aside the reasoning of the department based on Rule 2(a) and allowed the appeal with direction for provisional release of the goods as per l

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