2024 (9) TMI 11 - HC - Customs

Challenge to SCN - Classification of imported goods - light green tinted float glass - to be classified under CTH 70052110 or CTH 70051010? - invocation of extended period of limitation - HELD THAT - The issuance of a notice prior to the show cause notice is regulated by the Pre-Notice Consultation Regulations, 2018 (the Pre- Notice Regulations). Significantly, the definition of notice in Regulation 2(c) thereof is restricted to a show cause notice under subsection (1) of section 28. The petitioner received an audit consultative letter dated 01.05.2022 in respect of 35 bills of entry. While the said letter does not make express reference to the Pre-Notice Regulations, it makes express reference in paragraph 4 to waiver of show cause notice and penalty if payment is made pursuant to the audit consultative letter. This is a clear indication that the audit consultative letter was issued under sub-section (1) of section 28 because such waiver is provided in sub-section (2) of section 28 only in respect of proceedings under sub-section (1). The short-levy was computed at Rs. 1,14,03,577/- in this document. Although the petitioner replied thereto on 11.05.2022 and asserted that the classification was valid for reasons set out therein, such reply and the subsequent letter dated 06.03.2023 were not taken into account while issuing the impugned show cause notice under sub-section (4) of section 28. This aspect assumes significance while examining the validity of the impugned show cause notice. Section 28 of the Customs Act enables recovery inter alia of duty not levied or not paid or short-levied or short-paid. As per subsection (1), recovery proceedings may be initiated by issuing a show cause notice within two years from the relevant date. Sub-section (4) empowers the proper officer to initiate recovery proceedings within five years from the relevant date where inter alia non-levy, nonpayment, short-levy or short payment is on account of collusion, any wilful mis-statement or suppression of facts. The petitioner has imported light green float glass by classifying the same under CTH 70051010 since about 2011. The respondents did not question such classification by undertaking verification, and consequential reclassification under section 17 of the Customs Act. Earlier final assessments accepting the self-classification were not challenged. As discussed earlier, even appellate orders dated 20.07.2022 and 29.12.2022 accepting the petitioner's classification have not been challenged. While the impugned show cause notice refers to the audit consultative letter, it does not refer to the two replies thereto and wrongly records that no reply was received. No reasons were recorded for issuing the audit consultative letter under sub-section (1) of section 28 and, thereafter, issuing a show cause notice under sub-section (4) thereof - When the facts and circumstances are considered cumulatively, invoking the enlarged period of limitation is erroneous and qualifies as an additional reason to interfere with the show cause notice. Petition is disposed of by directing the respondents to clear goods labelled as Light Green Float Glass (tinted non-wired type) under CTH 70051010 subject to being satisfied that the consignments actually contain light green float glass (tinted non-wired type). Such direction is, however, subject to the appellate orders accepting the classification under CTH 70051010 in respect of the above goods not being reversed in further appeal.

Issues Involved:
1. Classification of imported light green tinted float glass under CTH 70051010 or CTH 70052110.
2. Validity of invoking the extended period of limitation under Section 28(4) of the Customs Act.
3. Compliance with pre-notice consultation requirements.
4. Jurisdiction and propriety of issuing the show cause notice.

Issue-wise Detailed Analysis:

1. Classification of Imported Light Green Tinted Float Glass:
The petitioner classified light green tinted float glass under CTH 70051010, which pertains to non-wired glass with an absorbent, reflecting, or non-reflecting layer. The respondents, however, issued a show cause notice asserting that the goods should be classified under CTH 70052110, which pertains to float glass colored throughout the mass (body tinted), opacified, flashed, or merely surface ground.

The petitioner provided test reports showing the presence of an absorbent tin layer, which they argued justified the classification under CTH 70051010. Previous appellate orders had accepted this classification. The respondents' show cause notice was based on a recent test report that also identified an absorbent tin layer but interpreted it as inherent to the production process and not qualifying for CTH 70051010.

2. Validity of Invoking the Extended Period of Limitation:
The show cause notice invoked the extended period of limitation under Section 28(4) of the Customs Act, alleging that the petitioner had misclassified the goods with the intent to evade duty. The court found that the petitioner had consistently imported the goods under the same classification for over a decade without any fraud, collusion, or willful misstatement. Previous final assessments and appellate orders had accepted the classification under CTH 70051010, and these were not challenged by the respondents.

3. Compliance with Pre-Notice Consultation Requirements:
The petitioner received an audit consultative letter in May 2022, which they responded to, but the respondents did not consider these replies when issuing the show cause notice. The court noted that the audit consultative letter was issued under Section 28(1) of the Customs Act, and the subsequent show cause notice under Section 28(4) did not provide adequate reasons for invoking the extended period of limitation.

4. Jurisdiction and Propriety of Issuing the Show Cause Notice:
The court referred to the principle that a subordinate authority must act in accordance with the conclusions of an appellate authority unless successfully challenged. The respondents' actions in issuing the show cause notice were seen as an attempt to reopen an issue already settled by the appellate authority, which violated judicial discipline as established in Kamalakshi Finance and Vicco Laboratories.

Conclusion:
1. W.P.No.28456 of 2023: The show cause notice dated 07.08.2023 was quashed.
2. W.P.No.28462 of 2023: The respondents were directed to clear goods labeled as Light Green Float Glass (tinted non-wired type) under CTH 70051010, subject to verification and unless the appellate orders accepting this classification are reversed in further appeal.
3. W.P.No.28465 of 2023: The petition seeking a declaration that the classification adopted by the petitioner is correct was dismissed, as such a declaration would require detailed examination not suitable for proceedings under Article 226.

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