Extended customs limitation cannot be used against a bona fide DEPB purchaser absent collusion or suppression.

Madras HC held that the extended limitation period under the proviso to Section 28 of the Customs Act could not be invoked against a bona fide subsequent purchaser of DEPB scrips. The purchaser had bought the scrips for value after departmental endorsement, with no allegation of collusion, wilful misstatement, or suppression against it. The alleged fraud was confined to the original exporter's procurement of the scrips through forged bank realisation certificates, and that third-party fraud was insufficient to reopen customs demand against a transferee without notice or participation. The show cause notices were therefore quashed.

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Issues: Whether the show cause notices issued to a bona fide subsequent purchaser of DEPB scrips were sustainable in law, particularly on limitation, when the alleged fraud and misrepresentation were attributed only to the original exporter and not to the noticee.

Analysis: The writ petitions arose from customs proceedings seeking to reopen duty-free imports made on the strength of DEPB scrips purchased in the open market. The decisive question was whether the proviso to Section 28 of the Customs Act, 1962 could be invoked against the importer for the extended period of limitation. The Court noted that the petitioner had purchased the scrips for value, without any allegation of collusion, wilful misstatement, or suppression on its part, and had acted after the departmental endorsement rendering the scrip transferable. The material showed that the alleged fraud was committed by the original exporter in securing the scrips through forged bank realisation certificates, whereas the petitioner was only a subsequent transferee. On those facts, the statutory precondition for invoking the extended limitation period had to exist qua the noticee, not merely qua the original exporter. The Court distinguished authorities relied upon by the Revenue on the footing that those cases involved either participation in fraud or a factual nexus between the transferee and the fraudulent transaction, which was absent here.

Conclusion: The extended period under the proviso to Section 28 of the Customs Act, 1962 was not available against the petitioner, and the impugned show cause notices were liable to be quashed.

Ratio Decidendi: For invoking the extended limitation under the customs demand provision, the Department must establish collusion, wilful misstatement, or suppression of facts by the person proceeded against; fraud attributable only to a third party does not justify reopening against a bona fide purchaser without notice or participation.

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