Commissioner of Customs v. Lulu International Shopping Malls Pvt. Ltd. Case Number: Diary No. 47976/2025

In a landmark decision reinforcing the principles of customs tariff classification and valuation, the Supreme Court of India has dismissed the Commissioner of Customs' appeal against a CESTAT Bengaluru order favoring importer Lulu International Shopping Malls Pvt. Ltd. This ruling, delivered on October 31, 2025, provides critical clarity on interpreting the Harmonized System of Nomenclature (HSN) under the Customs Tariff Act, 1975, and applying preferential duties under the ASEAN-India Free Trade Agreement (AIFTA). For importers navigating complex tariff disputes, the judgment underscores the revenue's burden of proof and the strict confines of customs valuation rules.

Background: The Import Dispute and Initial Proceedings

Lulu International Shopping Malls Pvt. Ltd., a prominent retail chain known for its expansive malls across India and the Middle East, imported trampolines and "tag arenas" (amusement equipment) from producers in the Subic Bay Free Port Zone, Philippines. Valued at approximately €401,032.82 (around ₹3.67 crore), the consignment was intended for the company's "Funtura" recreational facility in Thiruvananthapuram, Kerala.

Upon arrival at Kochi Customs on December 28, 2020, Lulu self-assessed the goods under Tariff Item 9506 9190 of the First Schedule to the Customs Tariff Act, 1975—covering "articles and equipment for general physical exercise, gymnastics, or athletics." This classification enabled the importer to claim preferential duty exemption under Notification No. 46/2011-Customs (dated June 1, 2011), issued pursuant to AIFTA, supported by valid Certificates of Origin (CoO) from a competent ASEAN agency. The assessed integrated goods and services tax (IGST) liability stood at ₹66.05 lakh at 18% ad valorem.

However, Customs authorities reclassified the goods under Tariff Item 9506 9990 ("Other" under Heading 9506), denying AIFTA benefits and alleging ineligibility for the exemption limited to sub-heading 9506 91. Additionally, invoking Rules 3(1) and 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, they sought to enhance the assessable value by €74,100—comprising post-import payments for installation and commissioning services (€27,300 on February 24, 2020; €46,800 on December 28, 2020; and €19,111.80 on June 25, 2021).

The Order-in-Original No. 18/2023-24 (dated March 27, 2024) by the Commissioner of Customs, Kochi, confirmed a differential duty demand of ₹93.24 lakh under Section 28(4) of the Customs Act, 1962, plus interest under Section 28AA. It also confiscated the goods (valued at ₹4.35 crore) under Sections 111(m) and 111(o), offering redemption via a ₹40 lakh fine under Section 125, and imposed penalties totaling ₹1.03 crore under Section 114A and ₹10 lakh each under Section 114AA.

CESTAT Bengaluru's Analysis: Applying General Rules for Interpretation

Challenging the order, Lulu appealed to the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Bengaluru (Customs Appeal No. 20383/2024). In its Final Order No. 20774/2025 (dated June 2, 2025), the Tribunal—comprising Technical Member C.J. Mathew and Judicial Member Augustian P.A.—meticulously applied the General Rules for the Interpretation of the Tariff (GRI), emphasizing their absolute and exclusive control over classification disputes.

Key GRI Principles Invoked

The Tribunal drew on foundational rules from the First Schedule to the Customs Tariff Act, 1975, aligned with the World Customs Organization's (WCO) HSN. Here are the key principles in bullet points:

1. GRI Rule 1: Classification is based on headings, Section/Chapter Notes, and subsequent rules. Titles are for reference only. In this case, the goods' visual and technical characteristics (e.g., trampolines as gymnastic apparatus) must align with Heading 9506's terms, not their end-use in commercial amusement.
2. GRI Rule 3(a): Prefer the most specific description over general ones. In application, tariff item 9506 9190 (specific to gymnastics/athletics equipment) prevails over 9506 9990 ("Other"). Trampolines are prima facie gymnastic tools, per WCO Explanatory Notes.
3. GRI Rule 3(c): If equally specific, classify under the last numerical heading. This was not triggered, as 9506 9190 was more specific; fallback to Rule 4 (akin goods) was unnecessary.
4. GRI Rule 4: Classify under the heading most akin to unclassifiable goods. This was reserved; the importer's classification was upheld as fitting.

Citing Supreme Court precedents like Hindustan Ferodo Ltd. v. Collector of Central Excise (1997) 89 ELT 16 (SC) and HPL Chemicals Ltd. v. Commissioner of Central Excise (2006) 197 ELT 324 (SC), CESTAT placed the onus of reclassification squarely on the revenue. Finding no evidence from Customs to rebut the importer's declaration—bolstered by invoices, packing lists, and CoOs—the Tribunal upheld 9506 9190. It restored AIFTA benefits, noting treaty concessions under Section 25 of the Customs Act, 1962, cannot be undermined by presumptive tariff switches.

On valuation, CESTAT ruled that post-import installation (performed in India and subjected to GST) was not a "condition of sale" or integral to the goods' price under Rule 3(1). Enhancements under Rule 10 were impermissible, avoiding double taxation and ensuring "revenue neutrality." The Tribunal set aside the demands, confiscation, and penalties, providing importers with a robust defense against arbitrary reassessments

Supreme Court's Affirmation: No Infirmity in CESTAT's Reasoning

The Commissioner appealed to the Supreme Court (Diary No. 47976/2025), arguing misclassification and undervaluation. On October 16, 2025, Hon'ble Bench heard initial arguments, adjourning for October 31. the revenue reiterated its stance.

In a concise order dated October 31, 2025, the Court found "no infirmity" in CESTAT's classification or valuation conclusions. It affirmed trampolines as "unmistakably" gymnastic equipment under Heading 9506, emphasizing the revenue's unmet burden of proof. On valuation, the Bench endorsed excluding optional post-import services, aligning with statutory intent to prevent overlap with domestic taxes like GST.

The appeal was dismissed, upholding CESTAT in toto and closing a protracted saga from import (2020) to finality (2025).

Key Takeaways: Clarifying Customs Tariff Rules and Regulations

This ruling reinforces key principles in Indian customs law for FTA trade predictability:

1. Revenue's Classification Burden: Importer declarations (Section 46) are presumptively valid; reclassification requires evidence per GRI and SC precedents. Intrinsic traits trump end-use.
2. AIFTA Preferential Duties: Exemptions (e.g., Notification 46/2011-Cus) depend on HSN fit; CoOs are sufficient—tariff shifts to deny benefits violate treaties and Section 25.
3. Strict Valuation Rules: CVR 2007 limits additions to integral sale prices; post-import services (e.g., installation) fall under GST, avoiding dual taxation.
4. GRI and HSN Supremacy: Resolve disputes via WCO rules, not presumptions, ensuring global trade stability.