2025 (7) TMI 1271 - AT - Customs

Levy of penalty u/s 114A of CA 1962 - Issuance of SCN - power of Commissioner to issue SCN - Bonafide belief - appellant reviewed the classification and agreed with the classification of the parts proposed by DRI and paid the full amount of differential duty along with interest - Invocation of extended period of limitation - suppression of facts or not - HELD THAT - Section 28(2) applies to those cases where duty was not paid or short paid by reasons other than collusion or any wilfull mis-statement or suppression of facts. The case of the appellant is that none of these elements were present in this case and it was only a question of interpretation of the tariff and classification of the goods. The case of the Revenue is that the appellant had willfully by mis-classified the goods in the Bills of Entry and thereby evaded paying duty and therefore section 28(2) will not apply. It needs to be pointed out that the penalty under section 114A can be imposed only if the duty was not paid or short paid by reasons of collusion or any willful mis-statement or suppression of facts. It is found that importer is required to make a truthful declaration by making any entry of the imported goods under section 46 of the Act. This entry under section 46 is in the form of Bill of Entry in which the importer has to declare all facts truthfully and also subscribe to a declaration as to the truth of the contents of the Bills of Entry. The importer is also required to self-assess duty under section 17 of the Act. There is no separate document or procedure self-assess duty and it is done by filing the Bill of Entry - the classification of the imported goods under the Customs Tariff is part of the assessment of the duty under section 17 of the Act. This is done by the importer by declaring the classification of the goods in the Bill of Entry filed under section 46. Thus in the Bills of Entry there are factual details such as the description of the goods the quantity the transaction value paid or payable and also matters of opinion such as the classification of the goods. The Commissioner erred in issuing the show cause notice to the appellant invoking the extended period of limitation and alleging mis-declaration simply because the importer had classified the goods as per its understanding and not as per the understanding of the DRI during investigation. Clearly this is not a case of any collusion or willful mis-statement or suppression of facts. Therefore the demand of duty even if the classification proposed by the Revenue is accepted would fall under section 28 (1) of the Act. Once the appellant had paid the entire amount of duty with interest show cause notice could not have been issued by the DRI because the mandate in section 28(2) is that the proper officer shall not serve any notice . The show cause notice issued by Commissioner in pursuance of the investigation conducted by the DRI is therefore contrary to law. The impugned order confirming the proposals in the show cause notice cannot therefore be sustained. As it is already held that Section 28(2) would not apply to this case because the appellant had paid the full amount of duty and interest the appellant cannot now claim the refund either duty or interest. The impugned order is set aside and the appeal is allowed.

Summary

ISSUES:

Whether a show cause notice (SCN) under section 28(1) and penalty under section 114A of the Customs Act, 1962 can be issued when the importer has paid differential duty and interest after re-classification of goods during investigation.Whether classification of imported goods by the importer in the Bill of Entry is a matter of fact or a matter of opinion, and the legal consequences of any difference in classification with the investigating authority.Whether invocation of the extended period of limitation and imposition of penalty under section 114A is justified in the absence of collusion, willful mis-statement, or suppression of facts by the importer.Whether goods are liable for confiscation under section 111(l) of the Customs Act, 1962 on the basis of disputed classification.Whether the provisions of section 28(2) of the Customs Act, 1962 bar issuance of SCN and penalty once the differential duty and interest have been paid.

RULINGS / HOLDINGS:

Since the appellant paid the full differential duty and interest after agreeing to re-classification proposed by the investigating authority, issuance of SCN and imposition of penalty under section 114A was improper; "the proper officer shall not serve any notice" under section 28(2) once duty and interest are paid.Classification of goods in the Bill of Entry is a matter of opinion and not a matter of fact; an importer fulfilling its obligation by declaring classification according to its bona fide understanding does not amount to mis-declaration.Extended period of limitation and penalty under section 114A cannot be invoked absent any evidence of collusion, willful mis-statement, or suppression of facts; mere difference in classification does not justify penalty.The goods are not liable for confiscation under section 111(l) merely due to disputed classification when there is no intent to evade duty.Section 28(2) precludes issuance of any notice or penalty once duty and interest are paid unless there is collusion or willful mis-statement; hence, the SCN and penalty are set aside, but refund of duty or interest is not allowed.

RATIONALE:

The Court applied the statutory framework of the Customs Act, 1962, particularly sections 17, 28, 46, 111(l), and 114A, along with the definition of "assessment" under section 2(2), emphasizing the importer's obligation to make a truthful declaration in the Bill of Entry.Section 28(2) was interpreted to bar issuance of SCN and penalty once the duty and interest are paid voluntarily and there is no collusion or willful mis-statement, reflecting a safeguard for bona fide importers.The Court relied on the principle that classification is a matter of opinion subject to judicial review and administrative reassessment, not a strict factual declaration, thus protecting an importer's bona fide classification choice.The Supreme Court precedent applying the principal/sole use test for classification under Chapter 86 was noted to support the appellant's initial classification, underscoring the interpretative nature of tariff classification disputes.The decision reflects a doctrinal affirmation that penalty under section 114A requires willful evasion or suppression, and mere disagreement on classification without such intent does not attract penalty.