2026 (1) TMI 534 - AT - Customs

Countervailing duty and export obligation breach for imported silk fabrics (2012-2013) rejected; extended-period demand and penalties set aside

Countervailing duty on imported silk fabrics for 2012-2013 was inapplicable because binding SC precedent held CVD not leviable on such imports during the ... Levy of countervailing duty on silk yarn and silk fabrics - Show Cause Notice alleging misuse of the Advance Authorization scheme and diversion of duty-free imported goods into the domestic market - post-import failure to fulfil export obligation under Notification No. 96/2009-Cus - duty along with interest in terms of the bond executed at the time of import - Whether Countervailing Duty (CVD) was leviable on imported silk fabric during 2012–2013 - HELD THAT:- Following the binding precedents of the Hon’ble Supreme Court in SRF Ltd. [2015 (4) TMI 561 - SUPREME COURT] as reinforced by the Chennai Bench decision in Enterprise International Ltd./Sunstar International [2015 (8) TMI 191 - CESTAT CHENNAI] and the subsequent dismissal of the Department’s appeals by the Hon’ble Supreme Court, we hold that countervailing duty was not leviable on the imported silk fabrics during the period 2012–2013. We therefore hold that CVD was not leviable on the subject imports. Whether invocation of Section 28(4) (extended period) or Section 28(2) of Customs Act is applicable in this case. - The failure to fulfil export obligation is admittedly a post-import event and, by itself, does not constitute suppression or wilful misstatement at the time of import. Section 28(2) of the Customs Act, 1962, being a beneficial provision intended to encourage voluntary compliance, mandates statutory conclusion of proceedings once duty and interest are paid prior to issuance of show cause notice. In the present case, there is no evidence of suppression or misdeclaration at the time of import, and invocation of the extended period under Section 28(4) is therefore legally impermissible. Having held that countervailing duty was not leviable on silk fabric during the relevant period, the amounts paid necessarily relate to Basic Customs Duty with interest. Once the duty liability stood fully discharged prior to issuance of notice, the very foundation of invocation of Section 28(4) and the consequential penal proceedings ceases to exist. Accordingly, we hold that Section 28(4) was wrongly invoked and the proceedings stood concluded by operation of Section 28(2) of the Customs Act, 1962. Whether confiscation and penalties under Sections 111, 112, 114A and 114AA of the Customs Act, 1962 are sustainable. - Once the substantive demand fails by operation of law, there survives no enforceable determination of duty by reason of fraud or suppression. Penalty under Section 114A, being inextricably linked to valid determination under Section 28(4), is therefore barred. Further, the Appellant’s prior disclosure vide letter dated 04.01.2013, coupled with discharge of duty and interest before issuance of notice, clearly negatives the existence of mens rea required for imposition of penalties. Penalty under Section 114AA, which requires strict proof of intentional use of false or fabricated documents, is equally unsustainable, as no such document or deliberate falsification has been identified in the impugned order. Confiscation under Sections 111(d), 111(m) and 111(o), and penalty under Section 112, presuppose a subsisting contravention at the time of import, which is absent in a case of post-import failure expressly contemplated under Notification No. 96/2009-Cus. Accordingly, confiscation, redemption fine and all penalties imposed under Sections 112, 114A and 114AA are set aside in entirety, and the surviving issue, if any, is confined only to verification of the arithmetical correctness of Basic Customs Duty along with applicable interest already paid. Thus, the statutory framework governing Advance Authorizations, and the provisions of Sections 28(2) and 28(4) of the Customs Act, 1962, we hold that the impugned proceedings are unsustainable both in law and on facts. Post-import failure to fulfil export obligation under Notification No. 96/2009-Cus - The Appellant voluntarily discharged the applicable customs duty along with interest prior to issuance of the Show Cause Notice. In such circumstances, proceedings stood statutorily concluded by operation of Section 28(2) of the Act, rendering invocation of the extended period under Section 28(4) legally impermissible particularly in view of the Appellant’s prior written intimation dated 04.01.2013, which preceded the DRI search and remained unrebutted. We further hold that countervailing duty was not leviable on imported silk fabric during the period 2012–2013 in view of the binding law laid down by the Hon’ble Supreme Court in SRF Ltd., which continues to hold the field. Once the foundational demand itself fails, the consequential confiscation, redemption fine and penalties imposed under the Customs Act cannot be sustained. The case laws relied upon by the Revenue, being distinguishable on facts, period and statutory context, do not advance its case. Demand of Basic Customs Duty along with applicable interest is concerned - Having held that countervailing duty is not leviable and that confiscation and penalties are unsustainable, the surviving issue is confined only to verification of the arithmetical correctness of the Basic Customs Duty and interest actually payable. Accordingly, the impugned order is set aside in part, and the matter is remanded to the adjudicating authority strictly for the limited purpose of re-computing and verifying whether the Basic Customs Duty along with applicable interest has been correctly discharged by the Appellant in terms of Notification No. 96/2009-Cus and the bonds executed, without invoking Section 28(4). Appeal is disposed of on the above terms. Issues: (i) Whether countervailing duty (CVD) was leviable on imported silk fabric during 2012–2013; (ii) Whether invocation of Section 28(4) of the Customs Act, 1962 was proper or whether Section 28(2) applied; (iii) Whether confiscation and penalties under Sections 111, 112, 114A and 114AA of the Customs Act, 1962 are sustainable; (iv) Whether any surviving demand remains and the appropriate limited remedial direction.Issue (i): Whether countervailing duty (CVD) was leviable on imported silk fabric during 2012–2013.Analysis: The legal framework requires that CVD under Section 3 of the Customs Tariff Act be assessed by imagining the goods as if manufactured in India and determining whether excise duty would be leviable on like goods. During 2012–2013 silk yarn and silk fabrics were exempt from excise duty under Notification No. 30/2004-CE. Binding precedent establishes that conditions relating to non-availment of CENVAT credit are inapplicable to imports and cannot render CVD leviable where excise duty is nil. Subsequent notifications issued after the relevant period cannot be applied retrospectively to imports made in 2012–2013.Conclusion: Countervailing duty was not leviable on the imported silk fabrics during 2012–2013 and the demand for CVD is set aside.Issue (ii): Whether invocation of Section 28(4) of the Customs Act, 1962 was proper or whether Section 28(2) applied.Analysis: Notification No. 96/2009-Cus contemplates post-import failure to fulfill export obligation and recovery of duty with interest. Section 28(2) operates to bring proceedings to a statutory conclusion where duty and interest are paid prior to issuance of a show cause notice, provided there is no suppression or misdeclaration at the time of import. The record includes an earlier written intimation of inability to fulfill export obligation and payment of Basic Customs Duty with interest prior to the show cause notice. A subsequent detection or search does not convert a prior voluntary disclosure and payment into post-detection payment absent rebuttal or evidence of suppression at import time.Conclusion: Invocation of Section 28(4) was legally impermissible; Section 28(2) applies and the proceedings stood concluded upon voluntary payment of duty and interest prior to issuance of the show cause notice.Issue (iii): Whether confiscation and penalties under Sections 111, 112, 114A and 114AA of the Customs Act, 1962 are sustainable.Analysis: Confiscation and penalties presuppose a subsisting contravention at the relevant time or mens rea/intentional falsification as required by the specific penal provisions. Where the foundational demand fails by operation of law (Section 28(2)) and no deliberate suppression or fabricated documents at import are shown, the essential legal prerequisites for confiscation, redemption fine and penalties do not subsist. The record does not identify the strict proof required for penalties under Sections 114A and 114AA.Conclusion: Confiscation, redemption fine and penalties imposed under Sections 111, 112, 114A and 114AA are unsustainable and are set aside.Issue (iv): Whether any surviving demand remains and the appropriate limited remedial direction.Analysis: With CVD set aside and penalties/confiscation invalidated, the only surviving question is the arithmetic correctness of Basic Customs Duty and applicable interest (as contemplated by Notification No. 96/2009-Cus and the bonds). The evidential record shows payments aggregating to Rs.1,75,00,000 made prior to the show cause notice which were appropriated. A confined verification by the adjudicating authority is necessary solely to determine any shortfall or excess in Basic Customs Duty and interest paid, without fresh adjudication on merits or invocation of extended limitation.Conclusion: The matter is remanded to the adjudicating authority for limited arithmetical verification of Basic Customs Duty and applicable interest paid; recovery or refund to follow strictly on that verification.Final Conclusion: The impugned proceedings are legally unsustainable to the extent indicated, the demand for CVD and all confiscation and penalties are set aside, and the sole remaining task directed is a limited arithmetical verification of Basic Customs Duty and interest paid by the importer, to be carried out without reopening merits or invoking extended limitation.