Settlement under 28(5) and closure under 28(6)

[Pralhad Jadhav]

The importer pursuant to an investigation and before issuance of SCN, pays the differential customs duty, along with interest under 28AA and 15% penalty.

SCN comes to be issued invoking Section 28 and 124, proposing penalty under 114A, 114AA and fine under 125.

Thereafter, OiO was passed confirming penalty under 114A, 114AA and fine under 125. Inspite the Imported paid differential duty along with interest and 15% penalty, the OiO proposes 100% penalty with an option to pay 25% penalty (effectively 10% as 15% is already paid) along with penalty under 114AA and Fine under 125.

In facts above, request your expert opinion expecially judicial precedent which counters such illegality.  

[YAGAY andSUN]

Based on the facts stated, the impugned Order-in-Original is ex facie unsustainable in law. The importer had, during the course of investigation and prior to issuance of the show cause notice, voluntarily discharged the entire differential customs duty along with applicable interest under Section 28AA and the prescribed reduced penalty of 15% in terms of Section 28(5) of the Customs Act, 1962. Upon such payment and due intimation to the department, the statutory consequence under Section 28(6) is automatic and mandatory, namely that the proceedings in respect of the said short-levy stand concluded by operation of law.

Once the legislature has expressly provided a mechanism for conclusion of proceedings upon voluntary compliance, the Department is divested of jurisdiction to re-agitate the very same demand by issuing a show cause notice and thereafter imposing an enhanced penalty of 100% under Section 114A with a conditional option of 25%, particularly when the reduced penalty contemplated by the statute had already been paid prior to adjudication. The confirmation of penalty under Section 114A in excess of what is statutorily permissible, despite compliance with Section 28(5), is thus ultra vires the Act and contrary to settled law.

Further, the imposition of penalty under Section 114AA and fine under Section 125 in the absence of any surviving or live duty demand is legally impermissible. When the foundation of the proceedings, namely the short-payment of duty, stood extinguished and conclusively settled under Section 28(6), the consequential penal provisions could not have been independently invoked on the same set of facts.

It is a settled principle that penal consequences cannot survive when the substantive proceedings themselves are deemed to have been concluded by statute. The impugned Order, in effect, nullifies the legislative intent behind Sections 28(5) and 28(6) and seeks to penalise voluntary compliance, which is contrary to both the letter and spirit of the law. The Order-in-Original therefore deserves to be set aside as being without jurisdiction, arbitrary and contrary to the express scheme of the Customs Act, 1962.

AI Summary

Customs settlement under Section 28: voluntary duty payment bars enhanced penalties as statutory consequence. Voluntary payment of differential customs duty with interest and the prescribed reduced 15% penalty under Section 28(5) triggers statutory closure under Section 28(6), extinguishing the short levy demand and divesting the department of jurisdiction to re agitate the same demand or impose enhanced penalties thereafter.