Extended limitation period denied as multiple SCNs for same goods impermissible under customs rules

The CESTAT Mumbai held that the extended period of limitation could not be invoked as the department was aware of all facts when the first SCN was issued, and issuing multiple SCNs for the same period and products is impermissible. The charge of suppression of facts against the appellants was rejected, given conflicting classification views by different customs wings and the absence of wilful misstatement. Further, since the DGFT had not cancelled the MEIS scrips, customs authorities lacked jurisdiction to deny benefits or reclassify goods. Consequently, the impugned order confirming demands was set aside on grounds of limitation and merit, and the appeal was allowed.

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1. ISSUES PRESENTED and CONSIDERED

• Whether the Customs Department can demand recovery of export benefits under Section 28(4) and/or Section 28AAA of the Customs Act, 1962, when the Merchandise Export from India Scheme (MEIS) scrips have not been cancelled by the Directorate General of Foreign Trade (DGFT).
• Whether the export benefit can be legitimately demanded by invoking Section 28(4) and/or Section 28AAA of the Customs Act, 1962.
• Determination of correct classification of the products in dispute under the Customs Tariff Heading (CTH): whether under CTH 38089199/38089290/38089910/38089990 as claimed by the appellants, or under CTH 38086100/38086200/38086900 as held by the adjudicating authority.
• Whether the extended period of limitation is invocable in the present case, considering the facts and circumstances, including prior knowledge of the department and existence of earlier show cause notices (SCNs) for the same period and products.
• Whether the Customs authorities have jurisdiction to question the validity of MEIS benefits granted by DGFT under the Foreign Trade Policy (FTP) and Foreign Trade (Development & Regulation) Act, 1992.
• Whether the allegation of suppression of facts or wilful misstatement justifying invocation of extended limitation period is sustainable.
• Whether different government departments (Customs, Excise, GST) can take contradictory stands on classification of the same products.
• Whether registration under the Insecticides Act, 1968 by the Central Insecticide Board and Registration Committee is determinative of product classification for Customs purposes.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Legality of demanding export benefit recovery under Section 28(4) and/or Section 28AAA of the Customs Act, 1962 when MEIS scrips have not been cancelled by DGFT

- The MEIS scheme, introduced under FTP 2015-2020, provides export incentives through scrips issued by DGFT after verification of eligibility.

- The Foreign Trade (Development & Regulation) Act, 1992 (FTDR Act) and its rules empower DGFT to cancel or withdraw MEIS benefits by cancelling issued licenses or scrips.

- The Customs Department's demand for recovery of export benefits under Section 28(4) and/or Section 28AAA of the Customs Act is based on alleged wrongful availment of MEIS benefits due to misclassification.

- Section 28(4) and Section 28AAA empower recovery of import duty wrongly forgone, but do not explicitly empower recovery of export benefits.

- The Tribunal referred to judicial precedents holding that Customs authorities cannot question the validity of MEIS scrips or benefits granted by DGFT unless the scrips have been cancelled or invalidated by the competent DGFT authority.

- The DGFT has exclusive jurisdiction over interpretation and enforcement of FTP provisions, including classification and eligibility for MEIS benefits (FTP Para 2.57).

- The DGFT had not cancelled the MEIS scrips issued to the appellants; hence, Customs demand for recovery is without jurisdiction.

- The Tribunal relied on Supreme Court and High Court decisions affirming that Customs cannot act against MEIS benefits without prior DGFT adjudication or cancellation.

Conclusion: Customs Department cannot demand recovery of export benefits under Section 28(4) and/or Section 28AAA when MEIS scrips have not been cancelled by DGFT; such demand is without jurisdiction and unsustainable.

Issue 3: Correct classification of the products in dispute under Customs Tariff Headings

- The appellants classified the products under CTH 38089910 or 38089990 ("Pesticides, not elsewhere specified or included") and claimed MEIS benefit @3% on FOB value.

- DGFT issued MEIS scrips based on this classification; local sales were also made under the same classification with applicable excise duty/GST paid.

- The Directorate General of Revenue Intelligence (DRI) initially alleged misclassification under CTH 380891, 380892, 380893 (technical grade insecticides/fungicides/herbicides) with MEIS benefit @2%.

- The Special Intelligence and Investigation Branch (SIIB-JNCH) later alleged classification under CTH 38086100, 38086200, or 38086900 (not covered under MEIS schedule), thus denying MEIS benefit eligibility.

- The appellants relied on registration certificates issued under the Insecticides Act, 1968 by the Central Insecticide Board and Registration Committee, which specify the product as pesticide or insecticide, supporting their classification.

- It was noted that the classification is primarily a function of Customs authorities during assessment, but the appellants' bona fide claim supported by registration and acceptance by other government departments (Excise/GST) was relevant.

- The Tribunal observed that different wings of the Customs Department themselves had divergent views on classification (DRI vs SIIB-JNCH), indicating uncertainty within the department.

Conclusion: The classification claimed by the appellants under CTH 38089910/38089990 is supported by registration and acceptance by other departments; the department's contradictory classification allegations lack clarity and do not justify rejection of appellants' classification.

Issue 4: Invocability of extended period of limitation in view of prior knowledge and earlier SCN for same period and products

- The SIIB-JNCH issued the impugned SCN dated 28.09.2023 invoking extended limitation period for recovery of MEIS benefits for exports during January 2017 to December 2019.

- The DRI had earlier issued an SCN dated 20.10.2020 for the same products and same period alleging wrongful availment of MEIS benefits.

- The Tribunal held that issuance of a second SCN invoking extended limitation for the same facts, period, and products where the department had prior knowledge is impermissible.

- The Tribunal relied on the Supreme Court decision that suppression of facts cannot be alleged in a second SCN when all relevant facts were known to authorities at the time of the first SCN.

- The SIIB-JNCH itself acknowledged the existence of the earlier DRI SCN and excluded common shipping bills from its investigation.

- The Tribunal emphasized that allowing multiple SCNs for the same issue leads to endless litigation, contrary to legislative intent.

Conclusion: Extended period of limitation cannot be invoked where the department had full knowledge and had already issued an SCN for the same issue and period; the impugned SCN and order are barred by limitation and unsustainable.

Issue 5: Jurisdiction of Customs authorities to question MEIS benefits granted by DGFT

- The FTP and Foreign Trade (Regulation) Rules vest exclusive authority in DGFT to interpret and decide on eligibility and classification for MEIS benefits.

- Para 2.57 of FTP states that DGFT's decision is final and binding on matters of policy interpretation and classification under ITC (HS).

- The Tribunal referred to judicial precedents holding that Customs authorities cannot override or question DGFT's grant of benefits unless DGFT cancels or invalidates the scrips.

- The appellants' MEIS scrips were never cancelled or invalidated by DGFT following due procedure.

Conclusion: Customs authorities lack jurisdiction to deny or recover MEIS benefits granted by DGFT absent cancellation or invalidation by DGFT; the impugned demand is beyond Customs' authority.

Issue 6: Allegation of suppression of facts or wilful misstatement justifying extended limitation period

- The appellants consistently classified the products under the claimed headings and paid applicable duties locally.

- The department was aware of the classification and had cleared goods without objection during the period in dispute.

- Divergent classification views within Customs departments (DRI and SIIB) indicate lack of clarity rather than deliberate suppression by appellants.

- The Tribunal relied on Supreme Court authority holding that extended limitation period cannot be invoked where bona fide doubts or divergent views exist, and no evidence of fraud, collusion, or wilful suppression is present.

Conclusion: Allegations of suppression or wilful misstatement are not sustainable given departmental knowledge, divergent views, and absence of mala fide intent; extended limitation period invocation is unjustified.

Issue 7: Consistency of classification across government departments

- Appellants' classification under CTH 38089910/38089990 was accepted by Excise and GST authorities, with applicable duties paid.

- The Tribunal observed settled law that different government wings cannot take contradictory stands on classification of the same product.

- Reliance was placed on Supreme Court decisions mandating consistent classification across departments.

Conclusion: Customs authorities cannot take a contrary classification stand inconsistent with Excise and GST authorities on the same product; appellants' classification is supported by other departments' acceptance.

Issue 8: Role of registration under the Insecticides Act, 1968 in classification

- The Central Insecticide Board and Registration Committee under the Insecticides Act, 1968 is the competent authority to determine whether a product is a pesticide, insecticide, etc.

- Appellants obtained registration certificates under Section 9 of the Insecticides Act, specifying the product category.

- The Tribunal noted that registration certificates issued by the competent authority are relevant and binding for classification purposes.

- Reliance was placed on Supreme Court precedents holding that classification cannot be contrary to the determination of the competent authority under the Insecticides Act.

Conclusion: Registration under the Insecticides Act by the competent authority supports appellants' classification; Customs cannot disregard such registration in classification disputes.

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