2025 (4) TMI 382 - HC - Customs

Gujarat HC quashes show cause notices for excess drawback recovery citing seven-year adjudication delay violates reasonable limitation under Rule 16

Gujarat HC quashed show cause notices challenging recovery of excess drawback payments. Court applied precedent from M/s. SJS International case, ruling ... Challenge to SCN on the ground that the same are without jurisdiction as no action was taken by the respondents after issuance of the show cause notices and show cause notices therefore are deemed to have lapsed - HELD THAT:- This Court in case of M/s. SJS International [2021 (12) TMI 1339 - GUJARAT HIGH COURT] in similar facts after considering similar contentions raised by the petitioners and the respondents in the said case, examined Rule 16 of the Drawback Rules and held that 'It is quite clear from Rule 16 of the Drawback Rules that what all it provides for is the recovery of excess drawback paid erroneously, but choses not to prescribe the time limit. The question which has come up for consideration as to whether in absence of any period of limitation provided under Rule 16 of the Drawback Rules, any reasonable time period could be read into the said Rule. It also provides for statutory mechanism of recovery under Section 142 of the Act.' The decision in case of M/s. SJS International of this Court in similar facts would be squarely applicable to the facts of the present case also. However, in the facts of the present case, there is one additional factor that impugned show cause notices were kept in “call book” which was never informed to the petitioner and the show cause notices were not adjudicated for seven years and hence even if the show cause notices are issued within three years from date of shipping bill, the same would not be saved in view of inordinate delay for not adjudicating the same. Conclusion - The show cause notices quashed, held without jurisdiction due to delay, breach of natural justice, and time-barred under the reasonable limitation period applied to Rule 16. Petition allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the show cause notices issued by the respondent were without jurisdiction due to the delay in adjudication beyond the statutory period.Whether the classification of goods under different tariff headings was justified and whether the show cause notices could reopen final assessments.Whether the principle of limitation applies to the recovery of duty drawbacks under Rule 16 of the Drawback Rules.Whether the placement of show cause notices in the 'Call Book' without informing the petitioners constituted a breach of natural justice.2. ISSUE-WISE DETAILED ANALYSISJurisdiction and Delay in AdjudicationLegal Framework and Precedents: The petitioners argued under Section 28 of the Customs Act, 1962, which requires adjudication within six months, and cited precedents emphasizing timely adjudication.Court's Interpretation and Reasoning: The Court noted that the show cause notices were issued in 2016 but not adjudicated until 2023. The delay, coupled with the placement of notices in the 'Call Book,' was deemed unjustified.Key Evidence and Findings: The original file revealed the placement of notices in the 'Call Book,' which was not communicated to the petitioners.Application of Law to Facts: The Court applied the principle that undue delay in adjudication without informing the affected party breaches natural justice.Conclusions: The Court concluded that the delay rendered the notices without jurisdiction.Classification of GoodsLegal Framework and Precedents: The dispute involved classification under Chapter Heading 7318 versus 7308, impacting duty drawback rates.Court's Interpretation and Reasoning: The Court emphasized that previous assessments had attained finality, and the respondent's failure to appeal precluded reopening.Key Evidence and Findings: The petitioners had received duty drawbacks based on final assessments, which were not appealed by the respondents.Application of Law to Facts: The Court applied the principle that final assessments cannot be reopened without an appeal.Conclusions: The classification issue could not justify reopening the final assessments.Limitation under Rule 16 of the Drawback RulesLegal Framework and Precedents: Rule 16 allows recovery of erroneous payments but lacks a specified limitation period. The Court referenced its previous decisions setting a three-year limitation.Court's Interpretation and Reasoning: The Court held that a reasonable limitation period must be read into Rule 16, aligning with prior judgments.Key Evidence and Findings: The Court noted that some show cause notices were issued beyond the three-year period from payment of duty drawbacks.Application of Law to Facts: The Court applied the three-year limitation to determine the validity of the notices.Conclusions: Notices issued beyond three years were deemed time-barred.Breach of Natural JusticeLegal Framework and Precedents: The principle of natural justice requires informing parties of significant procedural actions.Court's Interpretation and Reasoning: The failure to inform the petitioners about the 'Call Book' status constituted a breach of natural justice.Key Evidence and Findings: The respondents did not disclose the placement of notices in the 'Call Book' during proceedings.Application of Law to Facts: The Court found this omission significant enough to impact the fairness of the process.Conclusions: The breach supported quashing the notices.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: The Court emphasized, 'The delay, coupled with the placement of notices in the 'Call Book,' was deemed unjustified,' highlighting the breach of natural justice.Core Principles Established: Final assessments cannot be reopened without an appeal; a reasonable limitation period applies to Rule 16; procedural fairness requires informing parties of significant actions.Final Determinations on Each Issue: The Court quashed the show cause notices, ruling them without jurisdiction due to delay, breach of natural justice, and time-barred under the reasonable limitation period applied to Rule 16.