Customs adjudication proceedings time-barred under section 28(9A), walnut import penalties quashed against transferable scrips

CESTAT Mumbai allowed the appeal challenging recovery of differential duty, interest and penalties on walnut imports under notification 98/2009-Cus against transferable scrips. The tribunal held that adjudication proceedings exceeded the statutory time limit under section 28(9A) of Customs Act, 1962, as the notice dated September 2020 was adjudicated only in May 2023, well beyond the permitted extension period ending March 2022. Additionally, following Bombay HC precedent in Shah Nanji Nagsi Exports case, the tribunal ruled that no conditions could attach to goods imported against scrips released from export obligations, negating liability under section 111(o) and consequent penalties under section 112.

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Issues Involved:

1. Authority of Customs Officers to specify import articles under the Foreign Trade Policy (FTP) and Customs Act, 1962.
2. Recovery of differential duty and imposition of fines and penalties.
3. Validity of the import of 'inshell walnuts' under the 'dietary fibre' category.
4. Adherence to judicial precedents and principles of judicial discipline.
5. Timeliness and procedural compliance in adjudication under Section 28 of the Customs Act, 1962.
6. Applicability of penalties under Section 112 of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Authority of Customs Officers to specify import articles under the FTP and Customs Act, 1962:
The principal challenge was whether the Customs authorities had the power to specify the article of import even when such details were not explicitly mentioned in the notification and the scheme confined itself to generic descriptions. The Customs authorities concluded that 'dietary fibre' permitted for import did not include 'inshell walnuts'. The Tribunal found that the Customs authorities overstepped their jurisdiction by interpreting the scheme and notification in a manner that restricted entitlement to 'dietary fibre' actually used by the exporter, which was not their prerogative.

2. Recovery of differential duty and imposition of fines and penalties:
The Customs authorities sought to recover Rs. 26,82,71,059 as differential duty along with interest, imposed a fine of Rs. 2,00,00,000, and penalties under various sections of the Customs Act, 1962. The Tribunal noted that the Customs authorities' actions were not supported by law or facts, as the imports were made under valid 'scrips' and the Customs authorities had no grounds to retrospectively alter the entitlement.

3. Validity of the import of 'inshell walnuts' under the 'dietary fibre' category:
The Tribunal observed that the Customs authorities' rejection of 'inshell walnuts' as 'dietary fibre' was based on flawed reasoning. The Central Revenue Control Laboratory (CRCL) report confirmed that 'inshell walnuts' contained 'dietary fibre', and there was no legal basis to exclude them. The Tribunal found that the Customs authorities' reliance on commercial feasibility and tariff classification was misplaced and unsupported by law.

4. Adherence to judicial precedents and principles of judicial discipline:
The Tribunal criticized the Customs authorities for disregarding judicial precedents and the decisions of higher courts and tribunals. The Tribunal emphasized that the Customs authorities are bound by the decisions of appellate authorities and cannot discard them without valid reasons. The Tribunal noted that the Customs authorities' actions constituted a breach of judicial discipline as established by the Supreme Court in Union of India v. Kamalakshi Finance Corporation Ltd.

5. Timeliness and procedural compliance in adjudication under Section 28 of the Customs Act, 1962:
The Tribunal found that the Customs authorities failed to complete the adjudication within the statutory time frame prescribed by Section 28(9) of the Customs Act, 1962. The Tribunal noted that the extension of time under Section 28(9A) was not properly invoked, and the proceedings were not concluded within the permissible period. Consequently, the Tribunal deemed the proceedings as having been concluded well before the impugned order was issued.

6. Applicability of penalties under Section 112 of the Customs Act, 1962:
The Tribunal held that the penalties under Section 112 were consequent upon the liability to confiscate under Section 111(o). Since the Tribunal found no basis for confiscation, the penalties under Section 112 were also deemed unsustainable. The Tribunal referred to the decision in Shah Nanji Nagsi Exports Pvt Ltd, which clarified that no conditions could attach to goods imported against 'scrips' released from export obligation.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeals and emphasizing adherence to legal principles and judicial discipline. The Tribunal criticized the Customs authorities for overstepping their jurisdiction, disregarding judicial precedents, and failing to adhere to statutory timelines and procedural requirements.

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