No Jurisdiction for SCN Under Extended Limitation Without Collusion or Suppression of Facts

The HC held that the respondent authority lacked jurisdiction to issue the SCN under the extended limitation period as there was no collusion, willful misstatement, or suppression of facts by the petitioners. The petitioners, having legitimately purchased DEPB licenses from the open market and paid consideration for imports without duty evasion, were not liable. The demand raised was below the threshold for challenging before CESTAT, and prior orders in favor of the petitioners remained effective. Consequently, the SCN dated 27.8.2002 was quashed and set aside, and the appeal was allowed.

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ISSUES:

Whether the show-cause notice issued under the extended period of limitation of five years without recording prima-facie satisfaction or alleging collusion, willful mis-statement, or suppression of facts is without jurisdiction.Whether transferees of DEPB Licences purchased in good faith can be held liable for recovery of customs duty on goods imported duty-free against such licences obtained fraudulently by the original exporter.Whether the valuation of exported goods and the consequent DEPB credit entitlement can be re-determined and duty recovered from transferees under the Customs Act.Whether penal provisions under Sections 112 and 114A of the Customs Act can be invoked against importers who utilized DEPB scrips without knowledge of any fraud.The applicability and effect of Section 28AAA of the Customs Act, 1962 on recovery of duty foregone from importers and exporters in cases of fraudulent export incentives.

RULINGS / HOLDINGS:

The show-cause notice invoking the extended period of limitation under Section 28(1) without any allegation of collusion or willful mis-statement or suppression of facts is without jurisdiction and non est.The petitioners, as bonafide transferees of DEPB Licences purchased from the open market with valuable consideration and without any knowledge of fraud, cannot be held liable for recovery of duty on goods imported duty-free against such licences.The investigation and re-determination of value by the DRI showed that the declared transaction value was fair and the DEPB entitlements were genuine, negating the demand for differential duty from both exporters and importers.Penal provisions under Sections 112 and 114A of the Customs Act are not applicable to importers who utilized the DEPB scrips in good faith without collusion or suppression of facts.Section 28AAA of the Customs Act restricts recovery of duty foregone to utilization of scrips on or after 28.05.2012, thus limiting retrospective recovery claims.

RATIONALE:

The Court applied the statutory framework of the Customs Act, particularly Section 28(1) and Section 28AAA, emphasizing that extended limitation periods require specific allegations of collusion or willful mis-statement or suppression of facts.The Court relied on precedent establishing that jurisdiction to proceed beyond six months under Section 28(1) is contingent upon such allegations being present in the show-cause notice.The investigation by the Directorate of Revenue Intelligence (DRI) and subsequent order-in-original demonstrated that the declared export values were consistent with market realities and that the DEPB credits were duly verified and granted by the competent authority (DGFT).The Court noted that the importers purchased DEPB Licences from authorized transferees and had no knowledge of any fraudulent procurement by the original exporter, thus negating any basis for penalty or duty recovery.The Court recognized that Section 28AAA, introduced by the Finance Bill effective 28.05.2012, limits recovery of duty foregone in cases of fraudulent export incentives to transactions occurring on or after that date, which precludes retrospective claims in this case.The Court also considered relevant Supreme Court decisions on jurisdiction and valuation, and the principle that High Court jurisdiction under Article 226 is invoked where the authority has no jurisdiction or usurps jurisdiction without legal foundation.

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