ADJUDICATION ON LAPSED SHOW CAUSE NOTICE UNDER CUSTOMS ACT, 1962

[Mr. M. GOVINDARAJAN]

In SWATCH GROUP INDIA PVT LTD & ORS. VERSUS UNION OF INDIA & ORS. - 2023 (8) TMI 864 - DELHI HIGH COURT, there are three petitioners.  Swatch Group India Private Limited is the first petitioner.  The second petitioner is Country Manager cum Director of the first petitioner and the third petitioner is the Chief Financial Officer of the first petitioner.  The first petitioner is an importer and an exclusive authorized distributor of Swatch products, and distributes various brands of luxury watches, accessories, etc.

The DRI, the respondent No. 2,  received credible information that Petitioner No. 1 is importing consignments of branded watches of Swiss origin falling under Customs Tariff item 91021100/ 91021900, from different related overseas suppliers.  The DRI found that the first petitioner is resorting to mis-declaration of retail sale prices to evade payment of appropriate customs duty.   Certain authorized retailers of Petitioner No. 2 were changing the Maximum Retail Price (MRP).   Searches were carried out by the officers of Respondent No. 2 on 17.02.2017 at various premises of Petitioner No. 1 and also at the premises of various retailers.

During the search conducted on 17.02.2017 certain watches valued at Rs.5,68,87,800/-were detained.  Watches worth Rs. 39,47,18,823/- detained from the premises of seven retailers of petitioner No. 1.  The DRI issued show cause notice on 14.02.2018 which was amended on 28.02.20218.  The show cause notice proposed for the recovery of Rs.38,94,832/- along with interest and penalty, confiscation of the seized watches in terms of Section 111(d) and Section 111(m) of the Customs Act and imposition of penalty under Section 112(b) of the Customs Act. A penalty was also proposed under Section 112(a), 112(b), and Section 114AA of the Customs Act on the officials of petitioner No. 1.

Since the show cause notice was not adjudicated, the petitioner filed the present writ petition before the High Court challenging the impugned show cause notice.  The petitioner contended that-

• The DRI is not a proper officer appointed under Section 2(34) of the Customs Act for the assessment and re-assessment of goods under Section 28 of the Customs Act. Hence, the show cause notice has been issued without any jurisdiction.
• The show cause notice was issued in the month of February 2018, and in terms of Section 28(9) of the Customs Act, the same having not been adjudicated within a period of 12 months, any adjudication now was time-barred.

The Department submitted the following before the High Court-

• The adjudication of the impugned show cause notice is kept in abeyance in terms of the CBIC instructions dated 17.03.2021.
• A review petition has already been filed before the Supreme Court, and the Supreme Court had, vide its order dated 15.02.2022, permitted oral hearing of the said review petitions.
• The amendments have been carried out in the Customs Act in the Finance Act, 2022 and the changes have been made in Sub-section 34 of Section 2 of the Customs Act. In terms thereof, more classes of Officers of Customs have been specified as proper officers.
• The validation provisions under Section 97 of Finance Act, 2022, the legislative intent has been made clear that the officers of the DRI are and were always proper Officers under the Customs Act.
•  The impugned show cause notice was issued on 14.02.2018 that is, prior to the amendment carried out in Section 28(9) of the Customs Act and therefore would be governed by the said provision as in force prior to its amendment with effect from 29.03.2018.
• Prior to the amendment, which was carried out with effect from 29.03.2018, Section 28(9) of the Customs Act did not provide for strict timelines for determining duty under Section 28(8) of the Customs Act.
•  In terms of the Circular dated 17.03.2021, it was not possible for the respondent to determine the amount of duty since all Show Cause Notices issued by officer of DRI are kept in abeyance.
• Therefore the relaxation is available for such – exception under the pre-amended Section 28(9) of the Customs Act, would be applicable in respect of the impugned show cause notice.

For the arguments of the Department, the petitioner contended that even if it is to be assumed that DRI is the proper officer, the petition still deserves to be allowed in view of the specific provisions of the Customs Act.  The petitioner did not press the issue regarding the jurisdiction of the officers to issue the impugned show cause notice at this stage and this Court is to consider the question whether the impugned show cause notice has lapsed and cannot be adjudicated.

The High Court analyzed the provisions of Section 28 of the Customs Act.  The High Court observed that from a bare perusal of amended Sub-sections (9) and (9A) of Section 28 of the Customs Act, it is evident that the proper officer is bound to pass an order within 6 months or 1 year from the date of notice as the case may be, in cases of duties not paid or short-levied or short-paid or erroneously refunded.   The said period can be extended for a further period of 6 months or 1 year in the cases specified in clause (a) and (b) of Section 9, respectively, by an officer, senior in rank to the proper officer having regard to the circumstances under which the proper officer was prevented from determining the amount of duty or interest within the prescribed period.  If the proper officer could not make assessment the same should be informed to the assessee for the reason for the non assessment of duty. 

The High Court analyzed the explanation to Section 28(9) of the Customs Act.  The High Court observed that in case where the notice has been issued after the 14th day of May, 2015 but before the date on which the Finance Bill, 2018 received the assent of the President, the said notice shall continue to be governed by the provisions of Section 28 of the Customs Act as it stood immediately prior to the amendment.  Therefore the Proper Officer was to adjudicate the Show Cause Notices that are issued after the amendment to Section 28(9) of the Customs Act within a period of 6 months or 1 year of the date of issuance as the case maybe.  The same can be extended for a further period of 1 year by an officer senior in rank to the proper officer, after considering the circumstances under which the proper officer was prevented from passing an order within the prescribed period.

The intention of the legislation is apparent that the show cause notices which were issued prior to the Finance Act coming into force the Finance Act, 2014 were required to be governed by unamended Act of Section 28(9) of the Customs Act.

The High Court considered the question to be decided in the present petition is as to whether in the facts and circumstances of the present case, it was not possible for the Revenue to adjudicate the impugned show cause notice within the period of 12 months from the date of issuance.

The High Court observed that the unamended Section 28(9) of the Customs Act specifically provides that the proper officer ‘shall’ determine the amount of duty within 6 months or within 1 year, as the case may be, from the date of notice. It only provides certain degree of inbuilt flexibility by incorporating the words ‘where it is possible to do so’.  The flexibility, at the same time, in the opinion of High Court, cannot be equated with the lethargy of the Department or its officers.  The High Court analyzed the various events in the process of adjudication of show cause notice.  It is apparent from the documents and the timelines reflects by them that no sincere efforts have been made by the Department for adjudicating the impugned show cause notice despite being aware of the provisions of the Customs Act.  The Department for almost a period of 17 months slept over the matter despite the specific mandate of even the unamended Section 28(9) of the Customs Act that the duty shall be levied within a period of 12 months from the date of issuance of the notice.

The Department has merely produced various letters received from the petitioner, DRI, and others, and has contended that some adjournments were asked for by the petitioners. Admittedly, the matter was listed from time to time for a personal hearing. However, no justification has been provided as to why it was not possible for the Department to determine the amount of custom duty within the prescribed period of time.  For a period of almost three years, various letters were exchanged. The matter was fixed for personal hearing on more than five occasions. No reason has been provided as to why the hearings were not concluded on the said dates and the duties payable, if any, were not determined.

Since there is no material to show that it was not possible for the proper Officer to determine the amount of duty within the prescribed period.   The indifference of the concerned officer to complete the adjudication within the time period as mandated cannot be condoned to the detriment of the assessee.  Such indifference is not only detrimental to the interest of the taxpayer but also to the exchequer.

The High Court held that in the absence of any ground that it was not possible for the officer to determine the amount of duty within the prescribed period, the impugned show cause notice has lapsed and cannot be adjudicated.

Discussions to this article

[Gurjeet Walia]

Is this ratio of section 28(9) limitations applicable on export case also where the raised the demand on duty Drawback

[Sandeep Chilana]

This is a landmark judgement. I was fortunate to be part of this litigation from initial stage itself.