LIMITATION FOR ADJUDICATION OF SHOW CAUSE NOTICE UNDER CUSTOMS ACT, 1962

[Mr. M. GOVINDARAJAN]

Limitation for service of notice

Section 28(1)(a) of Customs Act, 1962 (‘Act’ for short), provides that the proper officer shall, within 2 years from the relevant date, serve notice on the person chargeable with the duty or interest which has not been so levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.

Section 28(4) of the Act provides that where any duty has not been levied or not paid or has been short-levied or short-paid or erroneously refunded, or interest payable has not been paid, part-paid or erroneously refunded, by reason of,-     

• collusion; or
• any willful mis-statement; or
• suppression of facts,

by the importer or the exporter or the agent or employee of the importer or exporter, the proper officer shall, within 5 years from the relevant date, serve notice on the person chargeable with duty or interest which has not been so levied or not paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.

Limitation for determination of duty

Section 28(9) provides that the proper officer shall determine the amount of duty or interest-

1. within 6 months from the date of notice in respect of case falling under section 28(1)(a);
2. within 1 year from the date of notice in respect of case falling under section 28(8).the proper officer fails to do so within the specified period any officer senior in rank to the proper officer may extend the period specified in clause (a) to a further period of 6 months and the period specified in clause (b) to a further period of 1 year.

If the proper officer fails to determine within such extended period such proceeding shall be deemed to have concluded as if no notice had been issued.

Where the proper officer cannot able to determine duty for the reason that-

• an appeal in a similar matter of the same person or any other person is pending before the Appellate Tribunal or the High Court or the Supreme Court; or
• an interim order of stay has been issued by the Appellate Tribunal or the High Court or the Supreme Court; or
• the Board has, in similar matter, issued specific direction or order to keep such matter pending; or
• the Settlement Commission has admitted an application made by the person concerned,

then the proper officer shall inform the person concerned the reason for non determination of duty.

Case law

In SWATCH GROUP INDIA PVT LTD & ORS. VERSUS UNION OF INDIA & ORS. - 2023 (8) TMI 864 - DELHI HIGH COURT , the petitioner is an importer and an exclusive authorized distributor of Swatch products and distributes various brands of luxury watches, accessories etc.  The DRI on receipt of credible information made searches the premises of petitioner No. 1 and various premises of the retailers.  During the search watches of the value of Rs.5.68 crores were seized.  Watches of the value of Rs.39.47 crores were detained from the premises of seven retailers of petitioner No.1.

The investigation led to the issue of show cause notice on 14.02.2018 amended on 28.02.2018 under Section 28 of the Act.   The show cause notice proposed for the recovery of custom duty Rs.38.95 lakhs along with interest and penalty.  It was also proposed to confiscate the seized watches in terms of Section 111(d) and 111(m) of the Act and imposition of penalty under Section 112(a), 112 (b) and Section 114AA of the Act on the officials of petitioner no.1.  The show cause notice was not adjudicated for a long time.  Therefore the petitioners filed the present writ petition before the High Court.  The petitioners challenged the show cause notice on the following two grounds-

• The respondent No. 2 is not a proper officer for the assessment of goods under Section 28 of the Act and therefore the show cause notice was issued without jurisdiction.
• The show cause notice was issued during February 2018 and the same ought to be adjudicated within 12 months as per Section 28(9) of the Act.  Therefore, if any adjudication is made it will be time barred.

The Revenue denied that the show cause notice was issued without jurisdiction.  The adjudication was kept in abeyance in view of the instructions of the Board on 17.03.2021 which was issued in view of the Supreme Court in M/S CANON INDIA PRIVATE LIMITED VERSUS COMMISSIONER OF CUSTOMS - 2021 (3) TMI 384 - SUPREME COURT.  Further these changes have been brought in Finance Act, 2022 which amended Section 2(34).  In terms thereof, more classes of officers of Customs have been specified as proper officer.  Therefore the DRI officers are proper officers.  The Revenue further contended that in terms of circular dated 17.03.2021 it was not possible by the Revenue to determine the amount of duty since all the show cause notices issued by DRI were kept in abeyance.

The petitioner,  on the points raised by the Revenue, contended that even if it is to be assumed that the respondent No. 2 is the proper officer, the petition shall still deserves to be allowed in view of the specific provisions of the Act.

The High Court considered the submissions of the parties to this writ petition.  The High Court analyzed the provisions of Section 28, prior to the amendment on 29.03.2018 and after the amendment which took effect from 29.03.2018.  The High Court observed that it is evident that the proper officer is bound to pass an order within 6 months of 1 year.  The said period can be extended for a further period of 6 months or 1 year by a senior officer than 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 is unable to determine the duty within such extended period the same shall be informed to the concerned person.  Therefore the High Court was of the view that with effect from 29.03.2018 it is mandatory for the proper officer to adjudicate the show cause notice within the period as discussed above.

The High Court further observed that an Explanation 4 was inserted by the Finance Act, 2018 which clarified that the show cause notices issued prior to the date on which Finance Bill, 2018 receives the assent of the President shall continue to be governed by the provisions of unamended Section 28 of the Act.  The intention of the legislation is like that only. 

The High Court observed that the Legislature has provided flexibility only to the extent that if the same is not possible the period can be extended.  The same, however, cannot be an endless period without any plausible justification.

The High Court observed that the Revenue has produced various documents and records and contended that the Revenue was not in a position to adjudicate the impugned show cause notice.   The High Court perused all the documents and the timelines reflected by them.  The High Court found that no sincere efforts have been made by the Department for adjudicating the impugned show cause notice.  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 Act.  The Revenue has no justification as to why it was not possible to determine the amount of customs duty within the prescribed period of time.  The indifference of the concerned officer to complete the adjudication within the time period as mandate cannot be condoned to the detriment of the assessee.  Such indifferences is not only detrimental to the interest of the tax payer but also to the exchequer.  The High Court allowed the writ petition.