AIFTA's Article 24 Not Directly Enforceable to Oust Customs Act (S.28) Jurisdiction Without Domestic Incorporation: Bombay High Court - 2025-06-13

Law, Judgments & Legal Insights.

Bombay High Court Upholds Customs' Jurisdiction in AIFTA Import Case, Says Treaty Clauses Not Directly Enforceable Without Domestic Law Transformation

Mumbai: The High Court of Bombay, in a significant ruling on the interplay between international treaties and domestic law, has held that provisions of an international agreement, such as the ASEAN-India Free Trade Agreement (AIFTA), cannot automatically override national laws like the Customs Act, 1962 , unless specifically incorporated into domestic legislation. The division bench of Justices M.S. Sonak and Jitendra Jain dismissed writ petitions filed by Purple Products Private Limited, affirming the jurisdiction of customs authorities to issue show-cause notices for alleged violations related to imports under the AIFTA.

The Court clarified that a dispute resolution mechanism within a treaty (Article 24 of AIFTA, in this instance) does not strip domestic authorities of their statutory powers if that mechanism hasn't been transformed into Indian law.

Background of the Dispute

Purple Products Private Limited challenged show-cause-cum-demand notices issued by the customs authorities under Section 28 of the Customs Act, 1962 . The notices alleged that the company had wrongly availed benefits under Customs Notification No. 46/11 (implementing AIFTA concessions) for the import of "Tin Ingots" from Malaysia. The core allegation was the misrepresentation of the Regional Value Content (RVC) of the ingots, claiming it was above the requisite 35% when investigations suggested otherwise.

This matter had previously been dismissed by the High Court, relegating the petitioners to reply to the notices. However, the Supreme Court, on appeal, set aside this dismissal and remanded the petitions back to the High Court specifically to decide on the "efficacy of Article 24 of Appendix ‘D’ to the Treaty," a point the apex court noted could not be adjudicated by the customs authorities themselves.

Petitioners' Arguments: Primacy of Treaty Mechanism

Counsel for the petitioners, Mr. Nankani , argued that:

* Article 24 of AIFTA provides a specific dispute resolution mechanism between the contracting states (India and Malaysia, in this context) for issues like origin determination.

* This treaty-based mechanism should be exhausted before Indian customs authorities can initiate proceedings under the Customs Act.

* The customs authorities' assumption of jurisdiction was improper, rendering the show-cause notices null and void.

* Treaty provisions should prevail, and only Parliament can enact laws to dilute them; subordinate legislation (like rules not incorporating Article 24) cannot override treaty obligations.

* The subsequent introduction of Chapter VAA (including Section 28 DA concerning country-of-origin disputes) in the Customs Act implied a prior lack of jurisdiction for such matters.

Customs Department's Defence: Domestic Law Prevails

Representing the Union of India, Mr. Mishra contended that:

* International treaty provisions are not directly enforceable in domestic courts unless incorporated into municipal law. The Customs Tariff (DOGPTA) Rules 2009, meant to implement AIFTA, do not incorporate Article 24.

* The Customs Act provides ample power to issue show-cause notices for misrepresentation, suppression, or fraud, particularly regarding RVC.

* The petitioners were attempting to stall adjudication by relying on treaty provisions not integrated into domestic law.

* The Gujarat High Court's decision in

* Trafigura India Private Limited V/s. Union of India

*, which dealt with similar issues and upheld customs' actions, was pertinent.

High Court's Analysis: Transformation is Key

The High Court meticulously examined the principles governing the application of international treaties within India's domestic legal system.

The Principle of Transformation: The Court heavily relied on the Supreme Court's decision in Union of India Vs. Agricas LLP , which distinguishes between 'direct application' of treaties and systems requiring an 'act of transformation'. "India, like many Commonwealth countries, follows a dualist system," the Court reiterated, meaning "international law and municipal law operate separately, and before any rule or principle of international law can have effect within a domestic jurisdiction, it must be expressly or transformed explicitly into municipal law by use of appropriate constitutional machinery."

As the judgment stated: > "The 'act of transformation' principle means and implies that an international treaty is not directly applicable in the domestic law system and requires provision in the domestic rules before it is applied... Where the treaty or portion thereof becomes a part of the domestic law by 'act of transformation', it is obvious that only the part incorporated or transformed into domestic law is invocable and justiciable and not the parts that are not codified into domestic law."

Article 24 of AIFTA Not Incorporated: The Court found that Article 24 of AIFTA, which the petitioners sought to enforce, had not been transformed into Indian municipal law. While the Customs Tariff (DOGPTA) Rules 2009 were enacted to give effect to AIFTA, these rules "provide no statutory recognition to Article 24." > "The petitioners cannot therefore, seek the enforcement of Article 24 of AIFTA before the domestic or municipal Courts... The petitioners, in fact, seek to suspend the provisions of the national law i.e. the Customs Act and denude the customs authorities of their statutory powers. This is impermissible," the Court observed.

Reliance on Precedents and Trafigura : The bench distinguished cases cited by the petitioners (like G. M. Exports ), noting they dealt with interpreting domestic law after an act of transformation to align with treaty obligations, not the direct enforcement of untransformed treaty provisions. The Court found the reasoning of the Gujarat High Court in Trafigura (supra) , which rejected similar arguments regarding Article 24 of AIFTA in the context of tin ingot imports, to be persuasive.

Customs Act Powers Remain Intact: The Court affirmed that Section 28 of the Customs Act confers ample powers on customs authorities to investigate and adjudicate violations involving misrepresentation or fraud. The introduction of Chapter VAA in 2020 did not imply that prior powers under Section 28 were insufficient. > "The provisions of Article 24 of AIFTA do not deprive the customs authorities of their powers or jurisdiction to issue such show cause notices. The Petitioners virtually insist that the treaty provisions prevail over national laws, even though the treaty provisions on which they rely have not been incorporated into any national law. This is clearly impermissible..."

Final Decision and Implications

Dismissing the petitions, the High Court concluded that the challenge to the show-cause notices based on a lack of jurisdiction due to non-compliance with AIFTA's Article 24 was without merit. The interim orders were vacated, allowing the customs authorities to proceed with the adjudication.

This judgment reinforces a crucial aspect of Indian law: international treaty obligations, while binding on the State at an international level, do not automatically grant rights or create obligations enforceable by individuals in domestic courts unless Parliament enacts legislation to that effect. Importers cannot, therefore, use untransformed treaty clauses as a shield against investigations by domestic authorities acting under valid national statutes like the Customs Act.