2011 (5) TMI 604 - AT - Customs

Confiscation proceedings invalid due to time-barred show cause notice served after five years under Section 28

M/s. Usha Stud & Agricultural Farms (P) Ltd. & Others Versus CC, New Delhi

M/s. Usha Stud & Agricultural Farms (P) Ltd. & Others Versus CC, New Delhi - 2011 (274) E.L.T. 365 (Tri. - Del.) 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this matter were:(a) Whether the show cause notice demanding differential customs duty and proposing confiscation and penalties was issued within the prescribed limitation period under Section 28 of the Customs Act;(b) Whether the service of the show cause notice on a third party (a friend of the appellant director) constituted valid service under Section 153 of the Customs Act;(c) Whether the Department could rely on Section 124 of the Customs Act, which does not prescribe any limitation period, to uphold confiscation and penalty proceedings initiated beyond the five-year period prescribed under Section 28;(d) Whether the allegations of undervaluation and consequent duty demand were supported by sufficient evidence;(e) The validity of penalties imposed on the appellant company and its managing director based on the above proceedings.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Limitation period for issuance of show cause notice under Section 28Relevant legal framework and precedents: Section 28 of the Customs Act mandates that a show cause notice demanding duty not levied or short levied must be served within one year or six months from the relevant date, except where there is collusion, willful misstatement, or suppression of facts, in which case the period extends to five years. The 'relevant date' for duty paid cases is the date of payment of duty (Section 28(3)(d)).The appellant paid duty on 21.1.99, and the Department claimed clearance was granted on 22.1.99. The show cause notice was dated 20.1.04 but served on 23.1.04. The appellant contended that the notice was served beyond the five-year extended period.Court's interpretation and reasoning: The Tribunal held that since duty was paid on 21.1.99, the five-year limitation expired on 21.1.04. The notice served on 23.1.04 was therefore beyond the extended limitation period prescribed under Section 28. The Tribunal emphasized that the extended period applies only where there is suppression or collusion, which was the case alleged by the Department.Key evidence and findings: The Department failed to prove valid service within the limitation period. The date of service was critical, and the notice was served after the five-year period.Application of law to facts: The Tribunal applied the limitation provisions strictly, holding that the issuance of the show cause notice beyond five years under Section 28 was not sustainable.Treatment of competing arguments: The Department argued that the clearance date was 22.1.99 and that the notice was served within five years. The Tribunal rejected this, noting the actual service date was 23.1.04, beyond the limitation. The appellant's reliance on precedents supporting strict adherence to limitation was accepted.Conclusion: The show cause notice was time-barred under Section 28.Issue (b): Validity of service of the show cause notice under Section 153Relevant legal framework: Section 153 of the Customs Act prescribes that service of any order or notice must be by tendering it to the person for whom it is intended or his agent, or by registered post. If not possible, it may be affixed on the notice board of the customs house.Court's interpretation and reasoning: The Tribunal held that service of the show cause notice on Ms. Ritika Goel, a friend of the appellant director, did not constitute valid service under Section 153. The notice must be served on the person concerned or his authorized agent. Service on a third party without authority was invalid.Key evidence and findings: The Department's claim that Ms. Goel accepted the notice on behalf of the appellant was not substantiated by evidence of authorization.Application of law to facts: The Tribunal applied the statutory requirement strictly, concluding that the notice was effectively served only on 23.1.04, after the limitation period.Treatment of competing arguments: The Department argued that service on Ms. Goel was valid. The Tribunal rejected this, relying on the statutory language and principles of valid service.Conclusion: Service of the show cause notice was invalid and occurred after the limitation period.Issue (c): Applicability of Section 124 for confiscation and penalty beyond limitation period under Section 28Relevant legal framework and precedents: Section 124 of the Customs Act empowers confiscation of goods and imposition of penalties but does not prescribe any limitation period. The Department contended that confiscation and penalties could be upheld under Section 124 even if Section 28 limitation expired.The Tribunal referred to the decision in Collector of Customs, Madras vs. T.V.S. Whirlpool Ltd., where it was held that where no time limit is prescribed for demand of interest or penalties, the limitation period for demand of differential duty under Section 28 applies.Court's interpretation and reasoning: The Tribunal reasoned that confiscation and penalties are inherently linked to the demand of differential duty. Since the demand of duty was time-barred under Section 28, the proceedings for confiscation and penalty could not be sustained under Section 124 beyond the five-year period.Application of law to facts: The Tribunal rejected the Department's contention that Section 124 could be invoked independently of Section 28's limitation.Treatment of competing arguments: The Department's argument for unlimited time under Section 124 was dismissed based on binding precedent and statutory interpretation.Conclusion: Confiscation and penalties could not be imposed beyond the limitation period prescribed under Section 28.Issue (d): Sufficiency of evidence supporting undervaluation and duty demandRelevant legal framework: Allegations of undervaluation require credible evidence to justify additional duty demand and penalties.Court's interpretation and reasoning: The appellant argued that the Department did not provide evidence of any payment over and above the declared value. The Tribunal noted the absence of evidence substantiating undervaluation.Key evidence and findings: No concrete evidence was presented to prove suppression or undervaluation beyond the declared value.Application of law to facts: Lack of evidence weakened the Department's case for differential duty and penalties.Treatment of competing arguments: The Department's claim was unsubstantiated; the Tribunal favored the appellant's contention.Conclusion: The charge of undervaluation was not supported by evidence.Issue (e): Validity of penalties imposed on appellant company and managing directorRelevant legal framework: Penalties under the Customs Act are contingent upon valid demand of duty and proper proceedings.Court's interpretation and reasoning: Since the show cause notice and demand of duty were time-barred and service invalid, the penalties imposed on both the company and its managing director could not stand.Application of law to facts: Penalties are ancillary to the demand and confiscation proceedings; invalidity of the latter invalidates the former.Conclusion: Penalties were quashed along with the demand and confiscation.3. SIGNIFICANT HOLDINGSThe Tribunal held:'The show cause notice demanding differential duty under Section 28 must be served within five years from the relevant date, which in the present case is the date of payment of duty, namely 21.1.99. Service beyond this period is not sustainable.''Service of the show cause notice on a third party without authority, such as a friend of the appellant director, does not constitute valid service under Section 153 of the Customs Act.''Although Section 124 of the Customs Act does not prescribe a limitation period for confiscation and penalty proceedings, such proceedings are linked to the demand of duty under Section 28, and therefore cannot exceed the five-year limitation period.''In the absence of evidence supporting suppression of facts or undervaluation, the demand of differential duty and consequent penalties cannot be sustained.''The order of confiscation, demand of duty, interest, and imposition of penalties is set aside as the proceedings were initiated beyond the prescribed limitation period and the notice was not validly served.'