2025 (7) TMI 499 - HC - Customs

Advance License Scheme - non-fulfilment of export obligation - inordinate delay in issuing the show cause notice for non-production of EODCs - HELD THAT - Admittedly in the instant case the first respondent issued a Bond Enforcement cum Demand Notice only on 08.02.2019 requiring the petitioner to issue Export Obligation Discharge Certificates (EODCs) in respect of 24 Advance Licences issued to the petitioner by DGFT during the period of 1998 and 2000 which is after a period of 17 years from the issuance of the said documents. It is also the petitioner s case that they have fulfilled all the export obligations in respect of the imports made by them between 1998 and 2000 which is the subject matter of the show cause notice issued by the respondents which has been issued with an inordinate delay of 17 years. However it is the petitioner s case due to the long lapse of time they are able to produce EODCs pertaining to 13 Advance Licences alone out of 24 Advance Licences. They have also categorically stated that due to the long lapse of time the EODCs pertaining to the remaining 11 Advance Licences are not available with them. It is also not their case that they have never produced EODCs for the remaining Advance Licences. Rule 226A of the Central Excise Rule 1944 which pertains to electronic maintenance or generation of records returns and documents using computer also does not stipulate any time limit and the Circular issued by the CBIC by considering Rule 226A of the Central Excise Rule 1944 has fixed the time limit as five years. The same yardstick even if it is applied to the case on hand it can be conclusively established that the 17 years delay in the issuance of the show cause notice on account of non-production of EODCs by the petitioner is an inordinate delay and therefore the same will have to be quashed by this Court. Thus on account of the inordinate delay in issuance of the show cause notice i.e. the show cause notice having been issued after a lapse of 17 years necessarily the impugned order-in- original has to be quashed by this Court. In fact as seen from the proceedings which culminated in the passing of the impugned order-in-original at the first instance the petitioner had raised the plea of inordinate delay through the reply sent by the petitioner to the respondents for the show cause notice. The impugned order-in-original dated 24.05.2022 passed by the 1st respondent is hereby quashed and the writ petition stands allowed.

Summary

Issues Presented and Considered

The core legal questions considered by the Court were:

• Whether the issuance of a Bond Enforcement cum Demand Notice after a prolonged period (17 years and subsequently 22 years) from the date of issuance of Advance Licences and imports made thereunder, is legally sustainable.
• Whether the Customs authorities can initiate proceedings for non-production of Export Obligation Discharge Certificates (EODCs) after such an inordinate delay.
• The applicability and interpretation of Section 143 of the Customs Act, 1962, particularly regarding any implied or reasonable time limit for issuance of show cause notices related to bond enforcement.
• The relevance of precedents and statutory provisions, including Rule 226A of the Central Excise Rules, 1944, and Circulars issued by the Central Board of Indirect Taxes and Customs (CBIC), in determining the reasonableness of delay for issuing show cause notices.
• The effect of inordinate delay on the maintainability of the proceedings and the enforceability of bonds executed under Advance Licences.
• The impact of pending Supreme Court proceedings on the hearing and determination of the present matter.

Issue-wise Detailed Analysis

1. Legality of Issuance of Bond Enforcement Notices after Prolonged Delay

Legal Framework and Precedents: Section 143 of the Customs Act, 1962 empowers Customs officers to allow imports or exports on execution of bonds and provides for enforcement if obligations under the bond are not met within the specified time. However, the statute does not prescribe any explicit time limit for initiating proceedings for enforcement.

Precedents cited included a recent Division Bench decision of the Bombay High Court, which quashed a show cause notice issued after a long delay for non-production of EODCs, emphasizing the principle that enforcement actions must be initiated within a reasonable time.

Court's Interpretation and Reasoning: The Court acknowledged the absence of a statutory time limit in Section 143 but held that issuance of show cause notices after an inordinate delay-here, 17 years and later 22 years-is unreasonable and unsustainable. The Court aligned with the Bombay High Court's view that a reasonable period must be observed to prevent prejudice caused by delay.

Key Evidence and Findings: The petitioner had imported goods under Advance Licences between 1998 and 2000 and executed bonds as per Notification No.30/1997 Customs. The show cause notice was issued only in 2019, after 17 years. The petitioner submitted EODCs for 13 out of 24 licences but could not produce the rest due to the long lapse of time, not denying prior compliance.

Application of Law to Facts: The Court applied the principle of reasonable time for initiation of proceedings, finding that 17 years far exceeds any reasonable period. The petitioner's inability to produce some EODCs was attributed to the delay itself, undermining the respondents' case.

Treatment of Competing Arguments: The respondents relied on a Supreme Court order concerning delayed adjudication in a different context, arguing for deferral of hearing. The Court distinguished that case, holding it concerned delay in adjudication, not delay in issuing show cause notices, and thus irrelevant here.

Conclusion: The Court concluded that the issuance of Bond Enforcement cum Demand Notices after 17 and 22 years respectively was an inordinate delay rendering the proceedings unsustainable in law.

2. Reasonableness of Delay and Time Limits in Customs and Excise Law

Legal Framework and Precedents: The Court examined Rule 226A of the Central Excise Rules, 1944, which governs electronic maintenance of records but does not prescribe a time limit for initiating proceedings. The CBIC Circular, however, fixed a five-year time limit for related actions. Additionally, several Constitutional Court decisions on duty drawback claims were cited, which held that a three-year period is a reasonable limitation for issuance of show cause notices.

Court's Interpretation and Reasoning: The Court found that although no explicit statutory time limit exists under Section 143, the principles derived from related statutes, rules, and judicial decisions impose a reasonable time frame for enforcement actions. The five-year limit from the CBIC Circular and three-year limit from duty drawback cases were considered appropriate yardsticks.

Application of Law to Facts: Applying these principles, the Court held that the 17-year delay in issuing the show cause notice was grossly excessive and unjustifiable.

Treatment of Competing Arguments: The respondents did not provide any justification for the delay. The Court noted the petitioner's submission of EODCs for some licences and the absence of any claim that EODCs were never produced, emphasizing that the delay itself caused evidentiary difficulties.

Conclusion: The Court concluded that the delay violated the principle of reasonable time and thus invalidated the enforcement proceedings.

3. Effect of Delay on Enforcement of Bonds and Export Obligation Discharge Certificates

Legal Framework: Section 143(3) of the Customs Act provides that if the bonded obligation is not fulfilled within the time specified, Customs may proceed on the bond. However, the statute does not clarify the period within which such proceedings must be initiated.

Court's Interpretation and Reasoning: The Court emphasized that the absence of a statutory time limit cannot justify indefinite delay. The enforcement of bonds must be balanced against principles of fairness and natural justice, which require timely action to avoid prejudice to the bonded party.

Key Findings: The petitioner's status as a 'star export house' and partial submission of EODCs indicated compliance, and the delay impaired the petitioner's ability to produce all documents.

Application of Law to Facts: The Court found that the delay undermined the purpose of bond enforcement and that the petitioner should not be penalized for the respondents' failure to act promptly.

Conclusion: The Court held that enforcement of bonds after such delay is not sustainable.

4. Impact of Supreme Court Proceedings on the Present Case

Legal Framework and Facts: The respondents relied on a Supreme Court order in a pending Special Leave Petition concerning delayed adjudication, seeking deferral of the present matter.

Court's Reasoning: The Court distinguished the pending Supreme Court matter as dealing with delayed adjudication, whereas the present case concerns delayed issuance of show cause notices. Hence, the Supreme Court order was held inapplicable.

Conclusion: The Court proceeded to decide the matter on its merits without deferral.

Significant Holdings

"Though the aforesaid Section [143] does not prescribe any time limit, this Court is of the considered view that any show cause notice will have to be issued for non-production of EODCs within a reasonable time."

"The 17 years delay in the issuance of the show cause notice on account of non-production of EODCs by the petitioner is an inordinate delay and therefore, the same will have to be quashed by this Court."

"The Constitutional Courts in those decisions while dealing with Rule 16 of Duty Drawback Rules, 1995, which also did not provide for any time limit for issuing show cause notices held that the show cause notice will have to be issued within a reasonable period and the Constitutional Courts held in those decisions that the reasonable period is three years."

"In the result, the impugned order-in-original, dated 24.05.2022 passed by the 1st respondent, is hereby quashed and the writ petition stands allowed."

The Court established the core principle that enforcement actions under Customs law, including issuance of show cause notices for non-production of EODCs under bonds executed pursuant to Advance Licences, must be initiated within a reasonable period to avoid prejudice and uphold principles of natural justice. Inordinate delay, such as the 17-year delay in the present case, renders such proceedings unsustainable and liable to be quashed.