Customs show cause notice set aside where DGFT did not cancel licence; Circular No.334/1/2012-TRU applied, DRI barred

Madras HC allowed the petition, holding the customs authority lacked jurisdiction to issue the SCN dated 24 Nov 2020. Applying Supreme Court precedent, the court found that where the licensing authority (DGFT) has not cancelled or disavowed an issued license and has withdrawn earlier notices, customs/DRI cannot independently challenge the license on alleged misrepresentation. The HC set aside the impugned SCN as inconsistent with Circular No.334/1/2012-TRU and ruled in favour of the petitioner.

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Issues Involved:
1. Jurisdiction to issue show cause notice under Section 28 AAA of the Customs Act, 1962.
2. Applicability of Circular No.334/1/2012-TRU dated 01.06.2012.
3. Validity of actions taken by the DGFT and subsequent withdrawal.

Summary:

1. Jurisdiction to issue show cause notice under Section 28 AAA of the Customs Act, 1962:
The petitioner challenged the show cause notice dated 24.11.2020 issued by the second respondent under Section 28 AAA of the Customs Act, 1962. The petitioner contended that the notice was issued without jurisdiction as only the DGFT has the authority to inquire into the eligibility and validity of SEIS Scrips. The respondents argued that they had the jurisdiction to recover duties if the SEIS Scrips were obtained through collusion, wilful misstatement, or suppression of facts. The court held that unless the DGFT initiates proceedings to cancel the license, the customs authorities cannot assume jurisdiction to issue notices under Section 28 AAA.

2. Applicability of Circular No.334/1/2012-TRU dated 01.06.2012:
The petitioner argued that according to Circular No.334/1/2012-TRU dated 01.06.2012, the customs authorities can only initiate recovery proceedings after the DGFT has taken action for cancellation of the instrument. The court noted that the circular clearly states that recovery of duty can be initiated only after the DGFT initiates action for cancellation. Since the DGFT had withdrawn all show cause notices and orders against the petitioner, the customs authorities had no jurisdiction to issue the impugned notice.

3. Validity of actions taken by the DGFT and subsequent withdrawal:
The DGFT had issued multiple show cause notices and placed the petitioner under the Denied Entities List, but later withdrew all actions via a letter dated 20.09.2021. The court observed that since the DGFT had not taken any steps to cancel the license, the customs authorities could not interfere or assume jurisdiction. The court referred to the Supreme Court's decision in Titan Medical Systems (P) Ltd v. Collector of Customs, New Delhi, which held that if the licensing authority does not cancel the license, the customs authorities cannot allege misrepresentation.

Conclusion:
The court concluded that the show cause notice dated 24.11.2020 issued by the second respondent was without jurisdiction and not in consonance with Circular No.334/1/2012-TRU dated 01.06.2012. Therefore, the notice was set aside, and the writ petition was allowed.

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