2006 (3) TMI 783 - HC - Customs

Summary

Issues Involved:
1. Determination of tax arrears under KVSS.
2. Validity of endorsements on bills of entry as demand notices.
3. Validity of the demand notice dated 28th July, 1994.

Issue-wise Detailed Analysis:

1. Determination of Tax Arrears under KVSS:

The petitioner challenged the rejection of their declaration under the Kar Vivad Samadhan Scheme (KVSS) by the Commissioner of Central Excise, Mumbai - III on the grounds that there was no determination of tax arrears and the goods were cleared on provisional assessment without a show cause or demand notice as required under Section 95(ii)(b) of the KVSS.

The petitioner argued that the exact disputed amount was determined and endorsed on each bill of entry, and upon furnishing a bank guarantee, the goods were cleared. They contended that this constituted a determination of duty payable, not provisional assessment, and cited decisions from the Apex Court in support.

The court, however, found that no assessment orders were passed on the bills of entry under Section 17 of the Customs Act before the declaration. The endorsements on the bills of entry were provisional, made for facilitating the issuance of bank guarantees, and not actual determinations of duty due and payable under the Customs Act. The final assessment was only made on 7th December 2004, after the declaration date, meaning there were no tax arrears determined as due and payable on 31st March 1998.

2. Validity of Endorsements on Bills of Entry as Demand Notices:

The petitioner claimed that the endorsements on the bills of entry, which quantified the disputed duty, constituted demand notices under Section 87(m)(ii)(b) and Section 95(ii)(b) of the KVSS.

The court disagreed, stating that the endorsements were made to facilitate the furnishing of bank guarantees as ordered by the court and did not demand any duty from the petitioner. The endorsements were not considered show-cause or demand notices within the meaning of Section 95(ii)(b) of the Finance Act, 1998. The court referenced a Division Bench judgment of the Calcutta High Court, which held that mere endorsements on bills of entry do not constitute demand notices.

3. Validity of the Demand Notice Dated 28th July, 1994:

The petitioner argued that the demand notice issued on 28th July, 1994, which called for payment of the disputed duty, satisfied the criteria under Section 95(ii)(b).

The court found this argument without merit for several reasons:
- The demand notice pertained to only one bill of entry for a sum of Rs. 5,08,300/-, while the declaration was for 939 bills of entry amounting to Rs. 6,34,87,079/-.
- The Assistant Commissioner had kept the demand in abeyance due to the stay order from the court.
- The demand notice was for enforcing a bank guarantee for a provisionally determined amount, not an assessed duty.

The court concluded that the demand notice did not constitute a valid demand under Section 95(ii)(b) of the KVSS.

Conclusion:

The court upheld the Commissioner of Central Excise's decision to reject the petitioner's declaration under KVSS, finding no determination of duty due and payable on the relevant date and no valid demand notice. The petition was thus dismissed, and the rule was discharged with no order as to costs.