2025 (3) TMI 586 - HC - Customs

Validity of issuance of subsequent SCN when a prior SCN under Section 28 (1) had already been issued on a similar factual matrix - the requirements of Section 28 (4) of the Customs Act satisfied or not - change of opinion - impugned notice is supplementary notice or not. Validity of issuance of subsequent SCN when a prior SCN under Section 28 (1) had already been issued on a similar factual matrix - HELD THAT - A bare perusal would show that the two SCNs are identical in almost every respect except for the differences as highlighted. Apart from the more obvious differences relating to the Notices being under Sections 28 (1) and 28 (4) and the corresponding penalty provisions being Sections 112 and 114A which are consequential upon the Section under which the notices are issued some of the differences inter alia are the periods to which they pertain the invoices and quantities of the goods therein. Notices under Section 28 (1) and Section 28 (4) operate in different scenarios and even by an exaggerated stretch cannot possibly be said to be interchangeably issued - In the present case a prior notice under Section 28 (1) of the Act had already come to be issued in respect of similar goods with a similar alleged mis-declaration . Both notices have the benefit of the reports dated 29 November 2022 and 05 January 2023 by the Chartered Engineer engaged by the Respondents. The issuance of the impugned Show Cause Notice under the said facts and circumstances is clearly unsustainable. Change of opinion - HELD THAT - The fact that the same officer within a span of just 6 weeks presented with an almost identical set of facts has chosen to issue the two notices under different Sections would also taint the impugned SCN with the vice of a change of opinion and for that reason too render it unsustainable. The requirements of Section 28 (4) of the Customs Act satisfied or not - HELD THAT - It would appear that in the present case there is a mere incantation of the provisions of the Section without any substance to back it up leading to the issuance of two SCNs under sub-sections (1) and (4) of Section 28 - Since it is held that the impugned SCN does not fulfill the requirements of the Section the Respondent would also cease to have the benefit of an extended period of limitation for the purpose of its issuance. Impugned notice is supplementary notice or not - HELD THAT - In view of the abject failure on behalf of the Respondents to state either in the SCN itself or even specify as to which of the four heads enumerated in the counter the alleged impugned notice is being issued as a Supplementary Notice the said contention needs to be rejected - Additionally Section 28 of the Act by its very nature posits in a given set of facts and circumstances the issuance of a SCN either under Section 28 (1) or under Section 28 (4) of the Act and not under both. Under the circumstances we are unable to agree that the impugned SCN under section 28 (4) of the Act post the issuance of the SCN under Section 28 (1) could be termed a Supplementary Notice . Conclusion - i) The issuance of two SCNs under different subsections for the same factual matrix is not permissible. ii) The impugned SCN did not satisfy the requirements of Section 28 (4) regarding collusion wilful misstatement or suppression of facts. iii) The issuance of the impugned SCN constituted a change of opinion by the authorities. iv) The impugned SCN could not be considered a supplementary notice under the 2019 notification. The impugned SCN under Section 28 (4) is liable to be set aside - Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Court considered the following core legal questions:

i. Whether the issuance of a subsequent Show Cause Notice (SCN) dated 01 September 2023 under Section 28 (4) of the Customs Act, 1962 is valid when a prior SCN dated 25 July 2023 under Section 28 (1) had already been issued on a similar factual matrix.

ii. Whether the impugned SCN satisfies the requirements of Section 28 (4) of the Customs Act, specifically regarding allegations of collusion, deliberate misrepresentation, or withholding of crucial information.

iii. Whether the issuance of the impugned SCN constitutes a "change of opinion" by the authorities, rendering it unsustainable.

iv. Whether the impugned SCN can be considered a supplementary notice under the Notification No. 42 of 2019 Customs (NT) dated 18 June 2019.

2. ISSUE-WISE DETAILED ANALYSIS

i. Validity of Issuance of Subsequent SCN under Section 28 (4)

The legal framework under Section 28 of the Customs Act distinguishes between notices issued under subsection (1) and subsection (4), with the latter being applicable only in cases involving collusion, wilful misstatement, or suppression of facts. The Court noted that both SCNs were issued based on an almost identical factual matrix and relied on the same reports by a Chartered Engineer. The issuance of two SCNs under different subsections, when one can only operate in the absence of the conditions prescribed in the other, was deemed unsustainable.

ii. Satisfaction of Requirements under Section 28 (4)

The Court examined whether the impugned SCN fulfilled the criteria of Section 28 (4), which necessitates allegations of collusion, wilful misstatement, or suppression of facts. The Court found that the Respondents did not substantiate claims of collusion or wilful misstatement and that the classification dispute did not amount to suppression. The complete disclosure of goods by the Petitioner negated any claim of suppression.

iii. Change of Opinion

The Court referred to precedents from the Hon'ble Supreme Court on "change of opinion," emphasizing that a mere change of opinion cannot justify reassessment. The issuance of two SCNs under different sections for the same set of facts was seen as a change of opinion, rendering the impugned SCN unsustainable.

iv. Supplementary Notice under Notification No. 42 of 2019

The Respondents argued that the impugned SCN was a supplementary notice under the 2019 notification. However, the Court noted the Respondents' failure to specify under which head the notice was issued as a supplementary notice. The Court rejected this argument, stating that Section 28 posits the issuance of a SCN under either subsection (1) or (4), not both.

3. SIGNIFICANT HOLDINGS

The Court held that the issuance of the impugned SCN under Section 28 (4) was unsustainable due to the following reasons:

- The issuance of two SCNs under different subsections for the same factual matrix is not permissible.

- The impugned SCN did not satisfy the requirements of Section 28 (4) regarding collusion, wilful misstatement, or suppression of facts.

- The issuance of the impugned SCN constituted a change of opinion by the authorities.

- The impugned SCN could not be considered a supplementary notice under the 2019 notification.

The Court allowed the petition, setting aside the impugned SCN under Section 28 (4) and disposing of the pending applications.