CESTAT Chennai: Procedural Lapse Cannot Defeat Substantive Customs Exemption; BHEL Gets Relief

April 10, 2026 : The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that concessional customs duty cannot be denied merely for procedural non-compliance when the importer has satisfied the substantive conditions of an exemption notification and established the end use of imported goods.

In a detailed ruling dated April 10, 2026, the Division Bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) allowed the appeal filed by Bharat Heavy Electricals Ltd. (BHEL), setting aside the Order-in-Original dated June 14, 2023 passed by the Commissioner of Customs, Chennai-II.

Background

BHEL had imported various goods under multiple Bills of Entry, including Bill of Entry No. 2295456, and claimed concessional duty under Sl. Nos. 413 and 414 of Notification No. 50/2017-Customs, paying Basic Customs Duty at 5% along with applicable levies.

During a post-clearance audit, the Department alleged non-compliance with Condition No. 9 of the notification, which requires adherence to the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 (IGCR Rules). A show cause notice was issued proposing denial of exemption, recovery of ₹4.56 crore in differential duty, confiscation of goods worth ₹93.75 crore, and imposition of penalty.

The adjudicating authority confirmed the demand, ordered reassessment, imposed a redemption fine of ₹9 crore, and levied penalty.

Key Issue

The central question before the Tribunal was whether exemption under Notification No. 50/2017-Customs could be denied solely due to non-compliance with procedural requirements under Rule 5 of the IGCR Rules.

Tribunal’s Findings

The Tribunal ruled decisively in favour of BHEL, holding that:

• Substantive compliance prevails over procedural lapses: The core requirement under the notification was proper authorization and intended end use of goods. There was no dispute that BHEL had fulfilled these conditions.
• Condition No. 9 is procedural in nature: The requirement to follow IGCR Rules was meant to ensure proper end use and prevent misuse, not to deny benefits where end use is established.
• The Tribunal observed that “non-compliance with CIGCRD, a procedural requirement, cannot come in the way… so long as the imported goods were used for the specified purposes.”
• Doctrine of substantial compliance applies: BHEL had executed end-use bonds, submitted Chartered Engineer certificates, and furnished end-use certificates from jurisdictional authorities, demonstrating actual use of goods for intended purposes.
• Department’s approach criticized: The Bench noted that the adjudicating authority failed to properly consider evidence and could have verified end use instead of denying exemption outright, leading to avoidable litigation.
• Impugned order termed non-speaking: The Tribunal found that relevant case laws cited by the appellant were not addressed, while unrelated precedents were relied upon without proper reasoning.

Reliance on Supreme Court Precedent

The Tribunal relied on the principles laid down by the Supreme Court in Mangalore Chemicals & Fertilizers Ltd., emphasizing that:

• Not all conditions in an exemption notification carry equal weight
• Conditions may be substantive or procedural
• Procedural lapses cannot defeat substantive benefits if the purpose of the notification is fulfilled

Confiscation and Penalty Set Aside

On the issue of confiscation and penalty, the Tribunal held:

• No misdeclaration existed to invoke Section 111(m)
• Section 111(o) was inapplicable once exemption eligibility was established
• Consequently, confiscation, redemption fine, and penalty under Section 112(a) were unsustainable

Outcome

The Tribunal allowed the appeal, setting aside the impugned order and granting consequential reliefs to BHEL.

Cause Title: Bharat Heavy Electricals Ltd. v. Commissioner of Customs
Case No.: Customs Appeal No. 40586 of 2023