2026 (2) TMI 40 - AT - Customs

Customs limitation and suppression claim over DFIA exemption; extended period denied and duty, penalty and confiscation set aside

The dispute concerns invocation of the extended limitation under the proviso to section 28(1) of the Customs Act in relation to claimed DFIA exemption. ... Suppression of facts with intent to evade payment of duty - extended period of limitation under the proviso to section 28(1) of the Customs Act, 1962 - benefit of exemption under Notification No. 40/2006-CUS (DFIA) - knowledge of department following first check, examination and testing - burden on Revenue to prove deliberate suppression - demand of customs duty with interest, penalty and confiscation - HELD THAT:- It is not in dispute that on the filing of the Bills of Entries, the proper officer resorted to first check an ordered for examination of the consignment and testing of representative samples drawn from the consignment. It is also not in dispute that the examining officer found the goods to be the same in terms of description, quantity and value. It is also not in dispute that the Textile Committee, to whom the representative sample was sent for testing, found the goods to be as declared in the Bills of Entry. Thereafter, finding that the conditions of the Notification stood satisfied, the goods were cleared and an out of charge order was issued. In such circumstances, it cannot be said that the department was not aware of the goods that were imported by the appellant in the four Bills of Entries. In the instant case, the show cause notice alleges that the appellant suppressed facts regarding benefit of the Notification, but there is no allegation that it was suppressed with an intent to evade payment of duty. The impugned order also merely holds that the appellant suppressed facts and there is no finding that it was done to evade payment of duty. This fact alone is sufficient to hold that the extended period of limitation could not have been invoked in the facts and circumstances of the case. The impugned order however, holds that while examining the goods under the first check, the officer was not aware that the end use of the Polyester Bonded Fabric was to manufacture Jackets. In such circumstances, as the invocation of the extended period of limitation is not justified and the entire demand of duty that has been confirmed is for the extended period, the confirmation of duty demanded with penalty and confiscation of goods and cash cannot be sustained. They are, accordingly, set aside and the appeal is allowed. Issues: (i) Whether invocation of the extended period of limitation under the proviso to section 28(1) of the Customs Act, 1962 was justified by the Department on the ground of suppression of facts; (ii) Whether the demand of customs duty with interest, penalty and confiscation (including confiscation of sale proceeds) founded on that invocation is sustainable.Issue (i): Whether the proviso to section 28(1) of the Customs Act, 1962 could be invoked on the facts of the case for suppression of facts with intent to evade payment of duty.Analysis: The proviso permits reopening within five years only where suppression is deliberate and accompanied by intent to evade duty. Judicial authorities interpreting comparable provisions require a positive, deliberate act to withhold correct information so as to escape duty; mere nondisclosure or facts known to the Department do not satisfy the proviso. The record shows consignments were subject to first check, physical examination and testing by the Textile Committee, and the Department cleared the goods after receiving examination and test reports. The show cause notice and the adjudicating order alleged suppression of facts but did not plead or find that suppression was with intent to evade duty; the impugned finding that end-use was not known at first check was not supported by any condition in the licence requiring ascertainment of end-use and was found to be perverse.Conclusion: The extended period of limitation under the proviso to section 28(1) could not be invoked. This conclusion is in favour of the assessee.Issue (ii): Whether the demand of customs duty with interest, penalty and confiscation confirmed by the adjudicating authority can be sustained when based on the extended period invocation.Analysis: The entire confirmed demand, penalty and confiscation rest on the extended-period invocation. As the extended period invocation fails for lack of pleaded or proved deliberate suppression with intent to evade duty, the foundational basis for confirming duty, imposing penalty and ordering confiscation does not survive. Where the statutory precondition for reopening is absent, consequential demands and punitive measures cannot be sustained.Conclusion: The demand of duty with interest, penalty and confiscation (including confiscation of sale proceeds) cannot be sustained and is set aside. This conclusion is in favour of the assessee.Final Conclusion: The appeal is allowed and the adjudication that invoked the extended period and confirmed duty, penalty and confiscation is set aside; the demand and related punitive measures are quashed.Ratio Decidendi: Invocation of the proviso to section 28(1) of the Customs Act, 1962 requires proof of deliberate suppression of facts with intent to evade payment of duty; mere nondisclosure or facts known to the Department do not meet this threshold.