2025 (11) TMI 140 - AT - Customs

Appeal allowed where revenue failed to issue mandatory notice under s.28(6) CA,1962; extended limitation not justified

M/s. Larsen & Toubro Ltd., E. Murugan, B. Ashok, K. Nagarajan, Versus The Commissioner of Customs, Chennai

CESTAT allowed the appeal of the importer, holding that revenue failed to issue the mandatory notice under s.28(6) CA, 1962 and could not justify invoking ... Non-issuance of required / mandatory notice u/s 28 (6) of CA, 1962, despite recording the specific contention in this regard of the Appellant - basis of the allegation of suppression of facts present or not - HELD THAT:- A perusal of the SCN reveals that several Bills of Entry were filed, as extracted at Table-II below at para 10.6 therein and the last of such Bills of Entry is dated 26.04.2012, for which, a SCN issued [dated 08.10.2014], which is clearly beyond the normal period and the only allegation in the SCN is non-compliance with the Board’s Circular No.42/2005-Customs dated 24.11.2005 as amended by Circular No.29/2010-Customs dated 20.08.2010 by which the importers were considered as highly compliant and that the Appellant/Importer in spite of their status chose to mis-declare the values of the used machinery which, according to the officer, amounted to misdeclaration and suppression; the same, however, is not held to be “with intent to evade duty”. This does not automatically lead to the triggering of provisions of Section 28 since Section 28 lays down specific conditions for pressing the said section into service. Revenue has not been able to establish its case (i) for non-issuance of mandatory notice under Section 28 (6); and (ii) invoking the extended period of limitation, which are sufficient to set aside the demand raised by invoking the larger period of limitation, for which reason the impugned order cannot sustain. The same is, accordingly, is set aside and the Appeals filed by Appellants/Importer are allowed on this ground with consequential benefits, if any, as per law. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the mandatory notice requirement under Section 28(6) must be complied with before invoking the extended limitation period and reassessment under Section 28. 2. Whether invocation of Section 28 (extended limitation) is justified where the allegation is mis-declaration or valuation variance that does not allege suppression 'with intent to evade duty', and where issues may be interpretational rather than factual. 3. Whether non-issuance of the mandatory notice under Section 28(6) renders proceedings instituted by a Show Cause Notice (SCN) time-barred or otherwise vitiates the reassessment and demands raised under Rules 9 and 10 of the Customs Valuation Rules, 2007 read with Section 14 and demands under Section 28. 4. Whether an adjudication founded on the extended period of limitation can be sustained where the relevant Bills of Entry fall outside the normal limitation period and the Revenue fails to establish conditions required for invoking the extended period. 5. Treatment of an ancillary Department appeal attacking parts of an order held to be unsustainable on limitation grounds. ISSUE-WISE DETAILED ANALYSIS Issue 1: Mandatory nature of Section 28(6) notice before invoking extended limitation Legal framework: Section 28 creates a mechanism for reassessment and recovery where there is short payment/variation in duty; Section 28(5) permits an importer to make an application and Section 28(6) mandates issue of a notice by the proper officer if he is of opinion there is short payment/variation. The statutory language requires issuance of notice when the officer forms such an opinion. Precedent Treatment: No specific precedent was cited or applied in the reasoning; analysis is based on statutory interpretation of the mandatory language of Section 28(6). Interpretation and reasoning: The Court treats Section 28(6) as mandatory and not merely directory. Non-issuance of the required notice is held to render the provision otiose and to defeat the statutory purpose. Where the officer failed to issue the notice despite recording that importer's calculations were at variance, the omission cannot be cured by subsequent adjudication invoking extended limitation. Ratio vs. Obiter: Ratio - Failure to issue the mandatory Section 28(6) notice invalidates use of Section 28 to extend limitation and sustain reassessment. Obiter - none materially affecting outcome on this point. Conclusion: Non-compliance with Section 28(6) is fatal to the Department's attempt to invoke extended limitation and sustain differential demand; adjudication founded on that omission cannot be sustained. Issue 2: Requirement of intent to evade duty for invocation of Section 28 and extended period Legal framework: Section 28 contemplates pressing extended action in specified circumstances; underlying mis-declaration or suppression that triggers extended limitation generally requires a culpable element consistent with the statutory scheme. Precedent Treatment: No direct precedents invoked; the Court relies on statutory text and the distinction between factual suppression and interpretational/valuation disputes. Interpretation and reasoning: The SCN did not allege suppression 'with intent to evade duty'; instead the allegations relate to non-compliance with circulars and alleged mis-declaration/valuation variances. The Court observes that part of the alleged difference arose from interpretation issues, not purely factual suppression. Because Section 28 sets out specific conditions to justify extended action, an allegation lacking intent and relying on interpretational disagreements does not automatically meet those conditions. Ratio vs. Obiter: Ratio - Extended limitation under Section 28 cannot be invoked solely on a claim of mis-declaration or valuation difference absent the requisite conditions (including intent) and procedural compliance. Obiter - observations about the distinction between factual suppression and interpretational disputes. Conclusion: Where the case involves interpretation issues and lacks an allegation of intent to evade duty, the extended period under Section 28 is not appropriately triggered. Issue 3: Effect of non-issuance of Section 28(6) notice on reassessment under Customs Valuation Rules and demands under Section 14/Rules 9-10 Legal framework: Reassessment of declared value can be undertaken under Rule 9 read with Rule 10 of the Customs Valuation Rules, 2007 and Section 14; any demand arising may be recoverable under Section 28 subject to its procedural and temporal safeguards. Precedent Treatment: No authority was applied to displace the statutory mandate; the Court assessed the interplay between valuation rules and Section 28 procedural precondition. Interpretation and reasoning: The Court found that, notwithstanding the Valuation Rules permitting redetermination, the Revenue could not bypass the mandatory procedural step in Section 28(6) when seeking to invoke extended limitation for older Bills of Entry. The Adjudicating Authority's reliance on valuation rules did not cure failure to follow Section 28(6). The factual record showed that importers had paid duty on freight, overheads and yard charges and placed a worksheet before the authority; the adjudicator characterized discrepancies as partly interpretational, undermining a finding of deliberate suppression. Ratio vs. Obiter: Ratio - Reassessment and demand under valuation rules cannot be sustained where the prerequisite statutory notice under Section 28(6) is not issued and conditions for extended limitation are not established. Obiter - remarks about the sufficiency of the importer's explanations on payment of freight and ancillary charges. Conclusion: The demands raised under valuation rules and Section 14, sought to be enforced through extended limitation under Section 28, are vitiated by non-compliance with Section 28(6) and by failure to establish the conditions for extended limitation. Issue 4: Validity of invoking extended limitation where Bills of Entry and SCN timing fall outside normal period Legal framework: Normal limitation applies to recovery of duty; extended limitation under Section 28 requires statutory conditions and procedural compliance to be invoked for older entries. Precedent Treatment: No specific precedents were cited; the issue resolved by applying statutory conditions and the timing of SCN relative to Bills of Entry. Interpretation and reasoning: The last relevant Bill of Entry predated the SCN by a period indicating the proceedings were beyond the normal limitation. Given the Revenue's failure to issue mandatory Section 28(6) notice and absence of established intent to evade duty, the Court held that invoking the extended period was unsustainable. The Adjudicating Authority's own observations that differences involved interpretation reinforced that extended limitation should not be applied. Ratio vs. Obiter: Ratio - When the Revenue relies on extended limitation to sustain demands for out-of-period entries, it must both comply with mandatory procedural requirements and establish the substantive conditions permitting extension; failure on either front invalidates the demand. Obiter - none significant beyond this application. Conclusion: The impugned demands based on extended limitation are set aside as unsustainable; appeals allowed on limitation grounds with consequential relief. Issue 5: Disposition of Departmental appeal when impugned order is set aside on limitation grounds Legal framework: An appellate challenge to parts of an order merges into the fate of the impugned order when the primary order is quashed on threshold grounds. Precedent Treatment: Not addressed; court applied principle of merger of grievances. Interpretation and reasoning: Since the impugned Order-in-Original was held unsustainable on limitation/Section 28(6) non-compliance, the Department's appeal against portions of that order became subsumed and required no separate deliberation. Ratio vs. Obiter: Ratio - Ancillary appeals raising grievances about aspects of an order that is wholly set aside on threshold grounds stand disposed and need not be independently entertained. Obiter - procedural directions for disposal of cross-objections. Conclusion: The Departmental appeal and cross-objections were treated as disposed by virtue of setting aside the impugned order on limitation and procedural non-compliance grounds; no separate adjudication on merits was required.