2025 (5) TMI 588 - AT - Customs

Revenue's 13-year delay in adjudication renders customs demand unsustainable for Optical Fibre Cables classification

The CESTAT Chennai set aside an adjudication order passed after an inordinate delay of nearly 13 years from the issuance of the show cause notice ... Time Limitation - adjudication order passed after an inordinate delay of nearly 13 years from the issuance of the show cause notice (SCN) - Classification of “Loose Tube Optical Fibre Cables” imported by the importer - to be classified under CTH 9001 or not - denial of benefit of Customs Notification No.24/2005 dated 01.03.2005 - HELD THAT:- The Hon’ble Bombay High Court in Lanvin Synthetics Pvt. Ltd. [2015 (8) TMI 387 - BOMBAY HIGH COURT] held that 'In the present case the show cause notice was kept dormant and the notice for personal appearance was issued 18 years ago. The dicta as laid down is clearly applicable to the facts of the present case. There is no dispute and cannot be any dispute regarding the above position of law laid down in these decisions. The petition was admitted and Rule was issued, and thus, the position has continued for 25 years.' The impugned order has not been passed in time, but with inordinate delay which is not at all explained by Revenue. Consequently, the demand therefore cannot sustain. The impugned order therefore, requires to be set aside - Appeal allowed. The core legal issues considered in this judgment revolve around the validity and timing of the adjudication order passed by the Customs authorities concerning the classification and consequent differential duty demand on imported 'Loose Tube Optical Fibre Cables.' Specifically, the Tribunal examined:Whether the adjudication order passed after an inordinate delay of nearly 13 years from the issuance of the show cause notice (SCN) was legally sustainable.The legal implications of the absence of a prescribed statutory time limit for adjudication under Section 122 of the Customs Act.The responsibility of the Revenue and the importer/noticee concerning follow-up and prosecution of the adjudication proceedings.The applicability of judicial precedents relating to delay and laches in adjudication of show cause notices in customs and related matters.Whether the differential duty demand and classification order could be upheld given the procedural and delay-related infirmities.Issue-wise Detailed Analysis:1. Legality of adjudication order passed after inordinate delayLegal framework and precedents: Section 122 of the Customs Act empowers authorities to adjudicate show cause notices but does not prescribe a limitation period for passing orders. The courts have held that despite the absence of a statutory time limit, adjudication must be completed within a reasonable time to prevent injustice and arbitrariness. The judgment extensively relied on precedents from the Hon'ble Madras High Court and Bombay High Court, including J.M. Baxi & Co., Transworld Shipping Services Pvt. Ltd., Lanvin Synthetics Pvt. Ltd., and Zodiac Clothing Co. Ltd.Court's interpretation and reasoning: The Tribunal rejected the Revenue's attempt to attribute blame for delay to the importer, clarifying that once a statutory notice and reply are on record, the onus lies on the Department to proceed with adjudication. The Tribunal emphasized that the statute does not impose a duty on the noticee to follow up with the Department after filing a reply. The Revenue's inaction for nearly 13 years was found to be unjustified and unreasonable.Key evidence and findings: The SCN was issued in 2007, but the adjudication order was passed only in 2020. The importer had responded to the SCN promptly and questioned the delay. The Department failed to provide a satisfactory explanation for the delay. The Tribunal noted that the First Appellate Authority erroneously accepted the Revenue's view blaming the importer for the delay.Application of law to facts: Applying the principles from the cited case law, the Tribunal held that the delay was inordinate and arbitrary, violating the principle of reasonable time for adjudication. The delay prejudiced the importer and rendered the adjudication order unsustainable.Treatment of competing arguments: The Revenue argued that the importer should have followed up with the Department, but the Tribunal dismissed this, clarifying the procedural obligations. The importer's argument that delay was unjustified and prejudicial was accepted.Conclusion: The adjudication order passed after such delay was quashed, and the differential duty demand was set aside.2. Responsibility for follow-up and procedural fairnessLegal framework and precedents: The Tribunal referred to the statutory scheme and judicial pronouncements emphasizing that once a noticee replies to a SCN, the Department must either accept the reply or pass an order within a reasonable time. The noticee is not obligated to pursue the matter actively beyond filing the reply.Court's interpretation and reasoning: The Tribunal found the Revenue's position that the importer failed to follow up as legally untenable and procedurally unfair. The Department's failure to act in a timely manner cannot be shifted onto the importer.Key evidence and findings: The importer's detailed reply to the SCN was on record, and no further procedural steps were taken by the Department for over a decade.Application of law to facts: The Tribunal held that procedural fairness requires the Department to act diligently after receiving the reply, and failure to do so vitiates the adjudication process.Treatment of competing arguments: The Revenue's argument blaming the importer was rejected as contrary to established legal principles.Conclusion: The delay cannot be excused on the basis of alleged inaction by the importer.3. Classification and differential duty demandLegal framework and precedents: The classification of imported goods determines the applicable customs duty. The importer claimed classification under a tariff heading eligible for exemption under Customs Notification No.24/2005. The Original Authority reclassified the goods under a different heading, denying exemption and demanding differential duty.Court's interpretation and reasoning: Although the Tribunal did not delve deeply into the technical classification issue, it found that since the adjudication order was invalid due to delay, the differential duty demand based on that order could not be sustained.Key evidence and findings: The order-in-original and the order-in-appeal confirmed the differential duty demand, but both were passed after inordinate delay.Application of law to facts: The procedural infirmity of delay rendered the classification and consequent demand unsustainable, irrespective of the merits of classification.Treatment of competing arguments: The Tribunal did not engage in detailed classification debate, focusing instead on procedural fairness and delay.Conclusion: The demand for differential duty was set aside due to invalid adjudication.4. Applicability of judicial precedents on delay and lachesLegal framework and precedents: The Tribunal extensively cited higher court decisions holding that delay in adjudication beyond a reasonable time is impermissible, even in the absence of a statutory limitation period. The courts have condemned prolonged pendency of show cause notices and emphasized administrative discipline and fairness.Court's interpretation and reasoning: The Tribunal found the facts squarely covered by these precedents, noting that delays of 13 to 18 years, as in the cited cases, are manifestly unreasonable.Key evidence and findings: The cited cases involved delays ranging from 11 to 25 years, with courts holding that such delays cause prejudice and violate principles of natural justice.Application of law to facts: The Tribunal applied these principles to the present case, concluding that the delay was similarly inordinate and unjustified.Treatment of competing arguments: The Revenue's attempt to distinguish these precedents was rejected.Conclusion: The settled legal principles on delay and laches mandate quashing the adjudication order.Significant holdings:'When a statutory notice/SCN is issued, the noticee is duty bound to reply; there is no dispute that the SCN as well as the reply are on record. When such a reply is filed, then it is the duty of the Department through the Officer to either accept the reply and drop the further proceedings; or not to accept the reply and pass suitable order and hence, as long as the officer does not call for appearance or clarification from the noticee, the statute does not prescribe any duty on the part of such notice as alleged by the Additional Commissioner/Adjudicating Authority in the case in hand, to follow up with the officer.''If the law postulates early end to such proceedings and there is no period of limitation prescribed, does not mean that the proceedings initiated could be concluded at the sweet will and fancies of the department.''The period that has been taken in this case for adjudication of the show cause notice cannot be said to be reasonable. If within a reasonable time the proceedings have to be concluded then in the present case 17 years can never be said to be a reasonable period or time.''Keeping the show cause in Call Book without informing the notice for a long period of time causes severe prejudice, as the noticee may act on the premise that the proceedings have been dropped and it is also likely that the record and proceedings are not available.'Core principles established include the imperative that adjudication of show cause notices must be completed within a reasonable time, failing which the orders passed become unsustainable; the statutory scheme does not impose an obligation on the noticee to pursue the matter beyond replying to the SCN; and the Revenue cannot justify inordinate delay by blaming the importer.Final determinations on the issues were that the adjudication order passed after nearly 13 years was invalid due to inordinate delay, the differential duty demand was consequently unsustainable, and the appeal was allowed with consequential benefits to the importer.