2024 (11) TMI 1433 - AT - Customs

CESTAT allows appeal citing natural justice violations in adjudication without proper notice and hearing opportunity

M/s. Khanna Traders & Engineers Versus Commissioner of Customs, Noida And (Vice-Versa)

CESTAT Allahabad allowed appellant's appeal by way of remand, finding gross violation of natural justice principles. The adjudication order was passed ... Violation of principles of natural justice - SCN not recived in time - classification of imported goods - Tin Ingots - classifiable under Customs Tariff Heading (CTH) 80011090 or not - recovery of duty with interest and penalty - HELD THAT:- The appellant is right in his submission that the adjudication order has been passed in gross violation of principles of natural justice and only one date of hearing i.e. 25.06.2020 was given to the appellant. No show cause notice was served on the appellant and the same was given to them at the time of hearing is evident from the record of hearing. After service of the show cause notice no opportunity for any personal hearing was given to the appellant and the matter has been adjudicated, immediately after the expiry of the date given for making written submissions. It is settled principle in law that justice should not only be done in quasi judicial proceedings but should be apparent from the manner of conduct of proceedings. The submission of the appellant is agreed that the order has been passed in gross violation of principles of natural justice. There are no merits in the appeal filed by the revenue to the extent that interest amount should have been added to the duty short paid while imposition of penalty under Section 114A of the Act. Tribunal and even High Court has repeatedly emphasized that the word used in the section “or” and not “and”. In case of Sony sales Corporation 2021 (3) TMI 174 - KARNATAKA HIGH COURT] Hon’ble Karnataka high Court has held that 'From perusal of the relevant extract of Section 114A, it is evident that the language employed by the Legislature is plain and unambiguous and the provision contains a positive condition with regard to levy of penalty equal to duty or interest and does not contain any negative condition. The expression used is “or” which is disjunctive between duty or interest and further use of expression as the case may be clearly suggest that aforesaid provision refers to two different persons and two different situations viz., one in which a person will be liable to duty and in other he may be liable to pay interest only and provides that in both the situations the person liable to duty would be liable to penalty equal to duty and person liable to interest would be liable to penalty equal to interest.' Conclusion - i) There are errors in the computation of demand, specifically noting a repetition of a Bill of Entry number in the calculations. ii) The interest amount should not have been added to the duty short paid while imposing the penalty under Section 114A of the Act. The matter is remanded back to the Original Authority for fresh decision on merits and after following the principles of natural justice within a period of three months from receipt of this order - appeal allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether the impugned adjudication was vitiated for breach of principles of natural justice by adjudicating ex parte without proper service of the Show Cause Notice and without affording adequate opportunity for hearings and submissions. 2. Whether the benefit of the notifications under the Free Trade Agreement (Notification No. 46/2011-Cus and 53/2011-Cus) was admissible to the importer for the imported 'Tin Ingots' and, if not, whether duty along with applicable interest under Sections 28(4) and 28AA of the Customs Act, 1962 is recoverable. 3. Whether penalty under Section 114A of the Customs Act, 1962 is imposable to the extent of duty shortpaid and whether interest amount is also exigible as part of the penalty (i.e., whether Section 114A contemplates penalty equal to duty and interest conjunctively or disjunctively). 4. Whether there were computation errors in the demand raised by the adjudicating authority (specifically duplication of a Bill of Entry) affecting the quantum of the short levy. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Natural Justice: service of Show Cause Notice and opportunity of hearing Legal framework: Principles of natural justice require service of notice and fair opportunity to be heard in quasi-judicial/adjudicatory proceedings; the adjudicating authority must conduct proceedings so that justice is not only done but appears to be done. Precedent Treatment: The Tribunal applied settled principles of natural justice (referring to established law that orders must not be passed in gross violation of audi alteram partem). Interpretation and reasoning: The record shows the Show Cause Notice was not served prior to the single hearing date (25.06.2020) and a copy was handed over at that hearing. The party sought time (agreed to submit reply by 04.08.2020) and the adjudicating authority proceeded to decide immediately upon expiry of that date without further hearing or consideration of additional time or submissions. The Tribunal found that only one date of hearing and the absence of prior service and further opportunity constituted gross violation of principles of natural justice. The Tribunal emphasised that mere availability of documents on record does not cure failure to afford the party adequate opportunity when service and additional hearings were lacking. Ratio vs. Obiter: Ratio - adjudication in absence of proper service and without affording reasonable opportunity to present written or oral submissions vitiates the order and requires remand for fresh adjudication following natural justice. Conclusion: The adjudication is quashed on grounds of breach of natural justice; matter remanded to the Original Authority for fresh decision on merits after following principles of natural justice within three months. Issue 2 - Admissibility of Notification benefits and recoverability of duty and interest (Sections 28(4) and 28AA) Legal framework: Self-assessed bills of entry attract scrutiny; if preferential tariff benefit under a notification is inadmissible, duty shortpaid is recoverable under Section 28(4) and interest leviable under Section 28AA as applicable. Precedent Treatment: The Tribunal did not decide the ultimate admissibility of the notification benefits on merits because adjudication was remanded for fresh consideration. The Tribunal confined itself to procedural infirmity and did not resolve the substantive entitlement to notification benefits in the present order. Interpretation and reasoning: The Tribunal identified the core substantive issue (whether notifications were rightly availed) but considered that due to procedural infirmity the Original Authority must reconsider the admissibility and quantum. The Tribunal therefore declined to affirm or reverse the substantive demand in this appeal and sent the matter back for fresh adjudication with opportunity to the party to be heard. Ratio vs. Obiter: Obiter with respect to substantive entitlement - the Tribunal did not pronounce a final ratio on admissibility because remand was ordered; primary holding concerns procedural defect, not merits. Conclusion: Substantive question of entitlement to notification benefit and recoverability of duty/interest to be decided afresh by the Original Authority after affording opportunity of hearing. Issue 3 - Imposition of penalty under Section 114A and whether penalty can include interest amount Legal framework: Section 114A prescribes penalty for short-levy/non-levy where duty or interest determined under Section 28 arises by reason of collusion or willful mis-statement or suppression of facts; the provision states liability to pay a penalty equal to the duty or interest so determined. Precedent Treatment: The Tribunal followed prior Tribunal and High Court decisions (including reference to a Karnataka High Court decision) that the word 'or' in Section 114A is disjunctive and cannot be read as conjunctive so as to require penalty equal to duty plus interest. The Tribunal cited reasoning from higher authorities on statutory interpretation (including the Constitution Bench guidance) that 'or' is generally disjunctive unless context requires otherwise. Interpretation and reasoning: The Tribunal examined the language of Section 114A and applied established principles of statutory interpretation: 'or' is normally disjunctive; the phrase 'as the case may be' shows two distinct scenarios - one where duty is payable and another where interest is payable - and the penalty attaches to the relevant head (duty or interest) in each respective situation. The Tribunal rejected revenue's contention that interest should be added to the duty for penalty computation, observing that neither the plain language nor light of precedents supports reading 'or' as 'and' in this provision. The Tribunal also noted that administrative clarifications cannot override plain statutory language. Ratio vs. Obiter: Ratio - Section 114A contemplates penalty equal to either the duty determined or the interest determined (disjunctive), and does not mandatorily require addition of interest amount to the penalty where duty is determined; revenue's appeal to include interest in penalty is dismissed. Conclusion: Revenue's appeal seeking inclusion of interest amount in penalty is dismissed; penalty should not be construed to include both duty and interest where statutory language uses 'or'. The Tribunal follows earlier authoritative interpretations. Issue 4 - Computational error in demand (duplication of Bill of Entry) Legal framework: Accurate computation of duty shortfall is essential to valid demand; obvious computational errors must be corrected on record or on remand. Precedent Treatment: The Tribunal noted and relied on the impugned order's own reproduction of the demand table, observing duplication of Bill of Entry No. 6239379 in columns 4 and 7, indicating an arithmetical error. Interpretation and reasoning: The duplication undermines the correctness of the quantified short duty figure. Given the remand occasioned by breach of natural justice, the Tribunal directed that the Original Authority reconsider the quantum, rectify computational errors and determine demand and penalty (subject to the statutory construction in Issue 3) after affording opportunity to the party. Ratio vs. Obiter: Ratio - demonstrable computational errors invalidate the precise quantum and require rectification on fresh adjudication; the Tribunal's remand includes direction to correct such errors. Conclusion: The computation contains an apparent error (duplication of a Bill of Entry) which must be rectified by the Original Authority when adjudicating afresh. Reliefs and disposition (cross-reference to issues) Because of the breach of natural justice (Issue 1) and the presence of computational error (Issue 4), the Tribunal set aside the impugned adjudication and remanded the matter to the Original Authority for fresh decision on merits after following principles of natural justice and correcting computation, within three months. The Tribunal dismissed the revenue's appeal (Issue 3) seeking inclusion of interest in penalty, following the disjunctive construction of Section 114A. The substantive entitlement to notification benefits and consequent duty/interest (Issue 2) is to be decided on remand.