2025 (11) TMI 83 - AT - Customs

Show cause notice unnecessary where exporter paid differential duty with interest; proceedings and Section 114A penalties quashed under Section 28(2)

M/s. Indrani Patnaik Versus Commissioner of Customs (Preventive), Odisha

CESTAT KOLKATA - AT held that the show cause notice issued after the appellant had already paid the differential duty with interest for export of iron ore ... Levy of redemption fine and penalty u/s 114A of the Customs Act, 1962 - export of iron ore fines to various overseas buyers during the period 2010-11 under various shipping bills and invoices - rejection of transaction value on the ground that the FOB value realized by issuance of final invoice by the appellant was more than the FOB value as considered for assessment of shipping bills by the Customs authorities - HELD THAT:- It is found that it is a fact on record that initially, the shipping bills had been assessed finally, although the appellant had recovered an excess amount than the FOB value declared while filing the shipping bills. The appellant paid the differential duty, on being pointed out by the DRI, along with interest thereon. In these set of facts, a Show Cause Notice was not required to be issued in this case, as held by this Tribunal in the case of M/s. MMTC Ltd.[2025 (4) TMI 1716 - CESTAT KOLKATA], wherein it has been observed that 'We find that the admittedly the appellant realized higher amount in view of the difference in the moisture content. On being pointed out, the appellant has paid the differential duty along with interest as has already been noted in the Show Cause Notice. Therefore, we find force in the appellant's argument that Show Cause Notice itself should not have been issued as per the provisions of Section 28(2) of the Customs Act 1962.' Admittedly, the impugned Show Cause Notice has been issued after payment of differential duty along with interest by the appellant. The Show Cause Notice was not required to be issued to the appellant in this case and therefore, the proceedings initiated against the appellant by way of issuance of the impugned Show Cause Notice are set aside. Consequently, the redemption fine and penalties imposed on the appellant are also set aside. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether issuance of a Show Cause Notice under the Customs Act, 1962 was required where differential export duty and interest were voluntarily paid by the exporter after being pointed out by the Directorate of Revenue Intelligence. 2. Whether exported goods, already physically exported and unavailable for confiscation, can be subject to confiscation with a consequential option to pay a redemption fine in lieu of confiscation. 3. Whether penalty under Section 114A of the Customs Act, 1962 can be validly imposed where the differential duty (and interest) has been paid prior to initiation of adjudication proceedings. ISSUE-WISE DETAILED ANALYSIS - I. Requirement of Show Cause Notice where differential duty is paid Legal framework: Section 28(2) of the Customs Act, 1962 (procedure relating to provisional assessment and finalization) and the statutory scheme governing demand, recovery and adjudication of customs duty; role of Directorate of Revenue Intelligence in pointing out discrepancies. Precedent Treatment: The Tribunal relied on its earlier decision in M/s. MMTC Ltd. (cited in the judgment) as dispositive authority that where higher consideration is realized post-export and differential duty with interest is paid on being pointed out, issuance of a Show Cause Notice may not be required and penalty may be unsustainable. Interpretation and reasoning: The Court found as a fact that the shipping bills were assessed finally but the exporter realized a higher FOB amount subsequently due to post-export variations (moisture/Fe content) and, on being pointed out by DRI, voluntarily paid the differential duty with interest before issuance of the Show Cause Notice. In those circumstances the Tribunal held that initiating adjudication by issuing a Show Cause Notice was unnecessary and contrary to the principle applied in the MMTC decision; the rationale is that once duty and interest have been discharged voluntarily on detection, the statutory purpose of the Show Cause Notice (to demand unpaid duty) is obviated. Ratio vs. Obiter: Ratio - where differential export duty and interest are paid voluntarily upon detection and prior to adjudication, issuance of a Show Cause Notice for demand and penalty is not required and penalties based on such proceedings are liable to be set aside. This follows the Tribunal's prior pronouncement applied as binding precedent for similar factual matrices. Observations about bonafides and public sector status in MMTC are explanatory but not essential to the ratio here. Conclusions: The Tribunal concluded that the Show Cause Notice was not required and set aside proceedings initiated thereby; consequentially the redemption fine and penalties founded on such proceedings were set aside (cross-ref. Issues II and III for connected relief). ISSUE-WISE DETAILED ANALYSIS - II. Confiscation and imposition of redemption fine where goods are already exported and unavailable Legal framework: Section 113(i) of the Customs Act, 1962 (confiscation of goods) and the statutory alternative of payment of a redemption fine in lieu of confiscation. Precedent Treatment: The appellant relied on multiple authorities (Bombay High Court, Supreme Court and various Benches of the Tribunal) for the proposition that redemption fine cannot be imposed where goods are no longer available for confiscation because they have been exported and cannot be recovered. The Tribunal did not undertake an independent reappraisal of those authorities in detail but treated the unavailability of goods as a factual circumstance relevant to the viability of confiscation proceedings. Interpretation and reasoning: The Tribunal's primary ground for setting aside the confiscation and redemption fine was procedural - the issuance of the Show Cause Notice after payment of differential duty and interest rendered the adjudication itself unnecessary. Because the adjudicatory proceedings were quashed, the consequent finding of confiscation under Section 113(i) and the option to pay a redemption fine fell with it. The judgment notes the factual reality that the goods had been exported and were not available, which supports the practical impossibility of effectuating confiscation, but the operative disposal rests on the procedural error in initiating proceedings post-payment. Ratio vs. Obiter: Ratio - where adjudication leading to confiscation and imposition of a redemption fine is initiated after the differential duty and interest have been paid (and the goods are already exported/unavailable), the confiscation/redemption fine cannot stand insofar as the underlying adjudication is set aside as unnecessary. Observations concerning the unavailability of goods are supportive but ancillary to the primary holding. Conclusions: The Tribunal set aside the confiscation finding and the redemption fine, concluding that proceedings founded on a Show Cause Notice issued after voluntary payment of duty and interest are unsustainable; unavailability of goods reinforced the practical ground for not sustaining confiscation/redemption relief. ISSUE-WISE DETAILED ANALYSIS - III. Validity of penalty under Section 114A after payment of differential duty and interest Legal framework: Section 114A of the Customs Act, 1962 (penalty for wrongful act/omission in relation to export) and general principles governing imposition of penalties - proximate causation, mens rea/recklessness, and the remedial purpose of penalty provisions. Precedent Treatment: The Tribunal applied its prior decision in M/s. MMTC Ltd., which mitigated or set aside penalty where differential duty and interest were paid voluntarily upon detection and where there was no intent to evade duty; that decision was followed rather than distinguished. Interpretation and reasoning: The Tribunal emphasized that since the differential duty and interest were paid prior to issuance of the Show Cause Notice, the statutory basis for initiating penalty proceedings under Section 114A was undermined. The Tribunal accepted the view (from MMTC) that voluntary payment and absence of wrongful intent reduce the justification for penal consequences. Consequently, the penalty imposed under Section 114A was set aside along with the contested adjudication. Ratio vs. Obiter: Ratio - penalty under Section 114A cannot be sustained where the duty shortfall has been rectified voluntarily by the exporter upon detection and the Show Cause Notice was issued thereafter; such penal proceedings are liable to be quashed. Any remarks on the exporter's reputation or bonafides in precedent are obiter when used to characterize intent but may be relevant to mitigation. Conclusions: The penalty under Section 114A imposed following issuance of the Show Cause Notice after payment of duty and interest was set aside; the Tribunal directed consequential relief consistent with its holding on the invalidity of the Show Cause Notice (cross-ref. Issue I). CROSS-REFERENCES AND OPERATIVE CONCLUSION All three issues are interlinked: the Tribunal's primary finding that a Show Cause Notice was unnecessary because the differential duty and interest had been paid prior to adjudication (Issue I) determines the outcome on confiscation/redemption fine (Issue II) and penalty (Issue III). The Tribunal followed its earlier pronouncement in M/s. MMTC Ltd. and applied that principle to set aside the impugned proceedings, redemption fine and penalty.