SCN issued after ten years held time-barred under section 28, penalty under section 114 unsustainable without section 113 confiscation proposal

The CESTAT New Delhi held that a SCN issued after more than ten years was time-barred, exceeding even the extended five-year limitation period under section 28. The tribunal found that proposals in the SCN did not fall within section 124's scope, which only permits notices for goods confiscation and penalty imposition. Since there was no proposal to confiscate export goods under section 113, the penalty under section 114 could not be sustained. The remaining SCN proposals fell outside section 124's scope entirely.

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Issues Involved:

1. Whether the Show Cause Notice (SCN) was time-barred under section 28 or valid under section 124.
2. Whether the proposals in the SCN fall within the scope of section 124.
3. Legitimacy of the denial of export incentives and recovery of duties.
4. Legitimacy of the recovery of drawback for non-receipt of remittances.
5. Imposition of penalty under section 114 without a proposal for confiscation under section 113.

Issue-wise Detailed Analysis:

1. Limitation of the Show Cause Notice:

The primary contention was whether the SCN was issued beyond the permissible time frame. The appellants argued that the SCN, issued on 29.03.2017, was time-barred as it was issued more than ten years after the relevant period, exceeding even the extended five-year limitation under section 28. However, the Revenue contended that the SCN was issued under section 124, which does not prescribe a time limit. The tribunal found that the SCN was indeed issued beyond ten years, but since it was issued under section 124, which lacks a time constraint, the question of time-bar under section 28 did not arise.

2. Scope of Section 124:

The tribunal examined whether the proposals in the SCN fell within the ambit of section 124, which pertains to the confiscation of goods or imposition of penalties. It concluded that section 124 could only be invoked for confiscation or penalties, and not for recovery of duties or denial of export incentives. Thus, the proposals to deny export incentives and recover duties fell outside the scope of section 124.

3. Denial of Export Incentives and Recovery of Duties:

The SCN proposed to deny export incentives on allegedly fraudulently obtained DFRCs and recover duties not paid. The tribunal found that such proposals should have been issued under section 28, which has a limitation period of five years. Since the SCN was not issued under section 28, these proposals could not be sustained and were beyond the scope of a notice under section 124.

4. Recovery of Drawback for Non-receipt of Remittances:

The tribunal noted that the recovery of drawback due to non-receipt of remittances is an execution proceeding and not an adjudication proceeding. It emphasized that such recoveries are governed by Rule 16A of the Drawback Rules and are not covered under an SCN issued under section 124. The tribunal cited the Punjab & Haryana High Court's decision in Jairath International vs. Union of India, which clarified that such proceedings are execution in nature and cannot modify the assessment of the Shipping Bill.

5. Imposition of Penalty under Section 114:

The tribunal scrutinized the imposition of penalties under section 114, which requires a proposal for confiscation under section 113. The SCN lacked any proposal to confiscate goods or hold them liable for confiscation under section 113, rendering the penalty under section 114 unsustainable. The tribunal highlighted that the Joint Commissioner's finding of goods liable for confiscation was beyond the SCN and violated section 124, which mandates an SCN for confiscation.

Conclusion:

The tribunal concluded that the impugned order upholding the Order-in-Original was not sustainable as it was based on an SCN issued under section 124, which did not cover the proposals for denial of export incentives and recovery of duties. The imposition of penalties under section 114 was also invalid due to the absence of a proposal for confiscation under section 113. Consequently, both appeals were allowed, and the impugned order was set aside.

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