2023 (6) TMI 157 - AT - Customs

Power of Dept to issue supplementary SCN - challenged on the ground that the same is without jurisdiction and the law does not permit issuance of such supplementary Show Cause Notice - independent SCN or supplementary SCN - issuance of SCN prior to insertion of second proviso to Section 124 of the Customs Act, 1962 - HELD THAT - A reading of Section 124 before the insertion of Second Proviso with effect from 29/3/2018, would clarify that there was no mention of any Supplementary Show Cause Notice that can be issued. In other words, Section 124 was silent as to whether Show Cause Notice once issued, can be followed by another Supplementary Show Cause Notice or not. The amendment carried out by way of Second Proviso clarifies that Supplementary Show Cause Notice can be issued for any Show Cause Notice already issued as per the circumstances and manner that may be prescribed. The circumstances and manner have been prescribed subsequently in June 2019. Therefore, a harmonious reading of Section 124 prior and subsequent to the amendment, would clarify that till the amendment was carried out, there was no specific provision to issue the Supplementary Show Cause Notice. There is nothing to indicate that this Proviso has been brought into effect with a retrospective date. Therefore, a proper and harmonious reading of Section 124, after the addition of the Second Proviso will clarify that only from 29/03/2018, the Department was empowered to issue a Supplementary Show Cause Notice in respect of the Show Cause Notice already issued by them. If the Supplementary Show Cause Notice was issued prior to 29.3.2018 and no amendment was carried out on 29.3.2018 by way of insertion of Second Proviso, the appellant would not have been in a position to challenge the issuing of the Supplementary Show Cause Notice, since the Section 124 was silent, neither allowing nor disallowing the issuing of Supplementary Show Cause Notice. But insertion of the Second Proviso to Section 124 on 29.3.2018, without any clause towards its being retrospective in nature, the clarification has been now brought in only with effect from 29.3.2018 that Supplementary Show Cause Notice can be issued. Therefore, while the appellant could not have challenged the issue of Supplementary Show Cause Notice prior to 29.3.2018, only this amendment carried out to Section 124 would give him the right to do so, which has been taken by him in the present proceedings before the High Court, Adjudicating Authority and this Tribunal. The question also arises as to whether the Supplementary Show Cause Notice issued on 18/5/2017 is to be considered as a Supplementary Notice to the Show Cause Notice or is to be treated as a separate Show Cause Notice. The facts themselves clearly prove that the Department has mentioned very clearly that it is a Supplementary Notice to Show Cause Notice F. No. DRI/KZU/AS/ENO-13/2016/2981 to 2986 dated 26.8.2016. The Addendum issued on 22/9/2017 specifies that it is an Addendum to Supplementary Notice to Show Cause Notice F. No.DRI/KZU/AS/ENO-13/2016/2981 to 2986 dated 26.8.2016 - the very fact that the Adjudicating Authority has held at Para 8.4 of Order in Original that this is not a Supplementary Show Cause Notice but it is an independent Show Cause Notice shows that even he had the doubt that they did not have the power to issue the Supplementary Show Cause Notice as the Second Proviso was inserted only with from 29.3.2018. In order to overcome the action already taken to issue the Supplementary Show Cause Notice, he takes the stand that it is only a Show Cause Notice and not Supplementary Show Cause Notice. Therefore, it cannot be held that the Notice issued to the Appellant is an independent Show Cause Notice. Holding that the issue of Supplementary Notice to the Appellant on 18.5.2017, prior to insertion of Second Proviso to Section 124, which came into effect from 29.3.2018, is legally not sustainable - appeal allowed.

Summary

Issues Involved:

1. Whether the Department could have issued the Supplementary Show Cause Notice to the Appellant on 18/5/2017 after having issued the normal Show Cause Notice on 26/8/2016?
2. Whether the Supplementary Show Cause Notice issued on 18/5/2017 can be treated as a normal Show Cause Notice?

Summary:

Issue 1: Authority to Issue Supplementary Show Cause Notice
The Appellant challenged the Supplementary Show Cause Notice dated 18/5/2017 on the grounds of lack of jurisdiction, arguing that the second proviso to Section 124 of the Customs Act, 1962, which permits the issuance of such notices, was inserted only on 29/3/2018 by the Finance Act, 2018. The Adjudicating Authority initially upheld the Department's action. However, the Tribunal found that prior to the amendment, Section 124 did not specifically allow for Supplementary Show Cause Notices. The Customs (Supplementary Notice Regulations 2019) further clarified the procedure only from 18/6/2019. Therefore, the Tribunal concluded that the Department was not empowered to issue the Supplementary Show Cause Notice on 18/5/2017, rendering it legally unsustainable.

Issue 2: Nature of the Supplementary Show Cause Notice
The Department argued that the Supplementary Show Cause Notice issued on 18/5/2017 was essentially an independent Show Cause Notice. The Tribunal, however, noted that the notice was explicitly termed as a "Supplementary Notice to Show Cause Notice" and an "Addendum to Supplementary Notice to Show Cause Notice." The Tribunal found that the Adjudicating Authority's attempt to reclassify it as an independent notice was an effort to circumvent the lack of authority to issue a supplementary notice prior to the amendment. Consequently, the Tribunal held that the notice could not be treated as an independent Show Cause Notice and was invalid.

Conclusion:
The Tribunal allowed the appeal, holding that the Supplementary Show Cause Notice issued on 18/5/2017 was not legally sustainable as the authority to issue such a notice was granted only from 29/3/2018. The appeal was pronounced in open court on 03/05/2023.