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. Administrative examination and representative sample testing by the Textile Committee confirmed the goods matched the bills of entry and the consignments were cleared by an out-of-charge order, indicating departmental knowledge. The authority failed to establish suppression with intent to evade duty; absent that requisite intent, the extended period could not be invoked, and the demand for duty, interest, penalty and confiscation based on the extended period was set aside.

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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.

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