2025 (3) TMI 15 - AT - Customs

Jurisdiction of Commissioner to adjudicate the demand of duty against DTA sales made by an SEZ unit under section 30 of the SEZ Act 2005 - jurisdiction of Additional Commissioner to issue the SCN demanding duty against DTA sale made by SEZ unit under section 30 of the SEZ Act 2005 - pecuniary jurisdiction to issue SCN at the relevant date where the demand of duty is more than Rs. 50 lakhs - jurisdiction to confirm demand under section 28(4) of the Customs Act - suppression of facts or not. Jurisdiction of the Commissioner to adjudicate the matter relating to the demand of duty where the sale was under section 30 of the SEZ Act - HELD THAT - Section 51 read with section 53 of the SEZ Act makes it clear that to the extent of authorised operations SEZ will be treated as outside the Customs territory of India - no more and no less. Thus the Commissioner of Customs will not have jurisdiction only to the extent of the authorised operations within the SEZ. The words of both section 51 and 53 are fully in consonance with the object of the Act as is evident from its long title- to promote exports. SEZ cannot be treated as outside the Customs territory of India to carry on unauthorised operations and activities. In case of such activities SEZ itself will be treated as Customs port airport ICD etc. under section 7 of the Customs Act. Sub-section (2) of Section 53 makes this position explicit. Once the goods are imported into the DTA all duties as applicable have to be paid and if there is any short payment in such duties appropriate action can be taken. The goods in this case have been brought into the DTA falling under the jurisdiction of the Commissioner of Customs Indore. If any duty is short paid he has both the authority and duty to recover it. Merely because the goods were removed from SEZ unit as provided under section 30 of the SEZ Act and not directly imported from outside India would make no difference. The specified officer i.e. the Joint/Deputy/Assistant Commissioner posted in the SEZ has certain functions and they do not include issuing notices under section 28 - neither any provision of SEZ Act nor any provision of Customs Act excludes the jurisdiction of the Commissioner of Customs under section 28 in respect of the goods sold from an SEZ unit in DTA. There is therefore no force in the submission of the learned counsel that the Commissioner of Customs lacks jurisdiction to adjudicate the matter and to issue a notice under section 28. Jurisdiction of the Additional Commissioner to issue a notice under section 28 in a matter where the sale was under section 30 of the SEZ Act - HELD THAT - In view of the findings on the question of jurisdiction of the Commissioner to adjudicate the matter there are no reason to take a different view regarding the jurisdiction of the Additional Commissioner to issue the SCN. Jurisdiction of the Additional Commissioner to issue SCN demanding duty in excess of Rs. 50, 00, 000/- - HELD THAT - There are nothing in section 28 to support this argument. Commissioner confirmed the demand under section 28(4) of the Customs Act when the SCN was issued under section 28(1) and no corrigendum was issued to the SCN - HELD THAT - The SCN was clearly not issued under section 28(1) as asserted by the learned counsel but was issued under the proviso to section 28(1). Instead of quoting the amended provision of section 28(4) in the SCN the Additional Commissioner quoted the unamended provision proviso to section 28(1) . In the impugned order the Commissioner quoted correctly the amended provision of section 28(4). Mere mentioning of the old provision proviso to Section 28(1) instead of the provision applicable to the relevant period section 28(4) in the SCN and mentioning of the correct provision section 28(4) in the impugned order does not in any way invalidate the impugned order - the submission of the learned counsel that the impugned order is invalid on the ground that it confirmed the demand under section 28(4) while the SCN demanded duty under section 28(1) therefore has no force. Misconstruction/ misinterpretation of the provision of the notification does not amount to suppression of facts to invoke demand enlarging the period for issuing the SCN under section 28(4) of the Customs Act - HELD THAT - Section 28(4) can be invoked in case duty is short paid by reason collusion wilful misstatement or suppression of facts. According to the learned special counsel for the Revenue Prestige had indulged in wilful misstatement and suppression of facts while claiming the benefit of the notification which was available subject to the condition that the goods would be used in manufacture after following the procedure prescribed in the Rules - Trading in SEZ does not mean importing goods and selling in domestic market. Prestige did not use the imported goods either to manufacture or to export. Instead it cleared and sold them in the DTA. Even in the Bills of Entry which it filed to clear the goods to DTA Prestige claimed the benefit of the Notification No. 12/2012-Cus which was available only for goods to be used in manufacture of final goods following the procedure under ICGR 1996. Prestige sold the goods to traders in the DTA. There are no reason for Prestige to have claimed the benefit available to goods to be used in the manufacture when it neither had any such facility to manufacture and it simply imported the goods and within a few days sold them to another trader in DTA. The wilful misstatement or suppression of facts with an intention to evade can only be inferred from the circumstances and we find it in the facts of this case. It is found in favour of the Revenue and against Prestige on the question of confirming demand under section 28(4). Misconstruction/ misinterpretation of the provision of the notification does not amount to suppression of fact and misstatement for imposition of penalty under section 114AA of the Customs Act - HELD THAT - The expressions suppression of fact and misstatement do not even find place in this section. Learned counsel appears to have confused this section with the provision under section 28(4) to issue a demand invoking extended period of limitation. Section 114AA is attracted if any person knowingly makes signs or uses or causes to be made signed or used false or incorrect declaration statement or document in the transaction of any business under the Customs Act - the submission that penalty under section 114AA could not have been imposed because there is no suppression of facts is without any force and deserves to be rejected. However the allegation in the SCN and the finding in the impugned order is that Prestige had wrongly claimed the benefit of an ineligible exemption notification in the Bills of Entry and NOT that there was any factual mis-declaration in the Bills of Entry. Therefore the penalty under section 114AA deserves to be set aside. Penalty under section 114A of the Customs Act cannot be imposed if the demand has been raised under section 28(1) of the Customs Act - HELD THAT - The correct provision applicable during the relevant period was 28(4) which is the same as the old provision of proviso to section 28(1) . It is also found that the well settled legal position is that merely citing a wrong provision will not vitiate the SCN or the order. Therefore there are no force in this submission of Prestige that penalty under section 114A could not have been imposed because the demand was under section 28(1). The adjudicating authority failed to deal with the Notification No. 18/2011 which amended earlier Notification No. 45/2005-Cus dated 16.5.2005 since the Notification No. 18/2011 has substituted the words produced or manufactured in with the words cleared from - HELD THAT - Learned counsel is correct in her submission that the SAD was exempted by this Notification on all goods cleared from an SEZ unit. However this is subject to the condition that if the goods which are sold in the DTA are not exempted from the Sales tax by the State Government. This is a fact to be verified in respect of each of the invoices and the issue needs to be remanded to the Commissioner for examination and re-determination of SAD if any. Since Prestige was the exporter and not the importer in the DTA Bills of Entry no duty can be demanded from it - HELD THAT - As per section 28 the short paid duty can be demanded from the person chargeable with duty or interest. The person who is chargeable with duty or interest is the one who had allegedly short paid the duty and cleared the goods to DTA. In the facts of this case Prestige paid duty and cleared the goods. The entities to which Prestige had sold the goods after clearing them from customs at their places neither filed the Bills of Entry nor paid the duty. They bought them from Prestige after they were cleared and the sale took place at their premises. Therefore if Prestige short paid any duty and cleared the goods such short paid duty can only be demanded from Prestige and not from the entities to which it had after clearing them sold the goods. Since SEZ is treated as outside the customs territory of India bringing goods into DTA from SEZ area is the import. Once such goods are cleared for consumption in the DTA they cease to be imported goods. Therefore there cannot be any assessment of duty under section 17 after they are cleared for consumption in the DTA - Prestige as the owner of the goods as the one who filed the Bills of Entry as the one who paid the duty and cleared the goods to DTA was also the importer in the case. It was responsible for paying the duty short paid and therefore demand under section 28 has been correctly made on Prestige - In respect of the DTA Bills of Entry Prestige was not only the exporter but was also for the reasons stated before the importer. The demand of duty short paid by Prestige can only be made from Prestige by issuing a notice under section 28. Notification no. 12/2012-Cus dated 17.3.2012 (S.No.432) exempts BCD unconditionally and Additional Duty of Customs subject to the condition indicated therein and Prestige had paid the additional duty of customs as it had not fulfilled the condition - HELD THAT - Notification No. 21/2002-Cus had in turn replaced its predecessor mega Notification No. 17/2001-Cus which had until then prescribed the effective rates of duties for all goods. All these three Notifications are worded similarly and have tables with similar columns viz. S. No. Chapter heading or sub-heading description of goods standard rate additional duty rates and condition no. against each entry where the exemption is subject to a condition the condition number is indicated and the conditions under each S. No. were described at the end. The ambiguity in Notification No. 12/2012-Cus created by lack of an extra line space between the second clause and the clause pertaining to the condition must be interpreted in favour of the Revenue. It is held by the Constitution Bench of Supreme Court in Commissioner of Customs (Import) Mumbai versus Dilip Kumar and Company 2018 (7) TMI 1826 - SUPREME COURT (LB) that in case of any ambiguity in a Notification it should be interpreted in favour of the Revenue and against the assessee. In this case the ambiguity is only on account of typographical mistake in not leaving an extra line space in the Notification. Therefore condition no. 5 at S. No. 432 of the exemption Notification No. 12/2012-Cus as amended must be fulfilled to avail the benefit of exemption from basic customs duty also. The remark of the Commissioner in paragraph 28 of the impugned order is not correct and his final order confirming the demand of basic customs duty is correct. Penalties imposed on Manish and Chirag - HELD THAT - Nothing in the section confines its application to only mis-declarations in exports. Evidently it applies to both imports and exports. In this case in the Bills of Entry filed by Prestige a wrong exemption Notification was claimed which it was not entitled to because on the very face of the Notification it is clear that it is subject to a condition of the imported goods being used for manufacture following a procedure. Neither Prestige nor its buyers had any manufacturing facilities let alone manufacturing goods after following the proper procedure. However no facts were mis-declared in the Bills of Entry. Therefore penalty under section 114AA on Manish and Chirag canCnot be sustained. Conclusion - i) SEZ is treated as outside the customs territory of India only for authorized operations. For unauthorized operations SEZ is treated as a customs port. ii) The Commissioner of Customs has jurisdiction to demand duty on goods cleared from SEZ to DTA. iii) Misstatement or suppression of facts justifies invoking the extended period of limitation under section 28(4). iv) The exemption from basic customs duty under Notification No. 12/2012-Cus is conditional upon the use of goods for manufacturing which was not met by Prestige. v) Penalty under section 114AA was set aside due to lack of factual mis-declaration. vi) The demand of duty and penalty under section 114A were upheld subject to re-examination of SAD exemption. Appeal filed by Prestige is partly allowed to the extent of setting aside the penalty under section 114AA partly rejected to the extent of confirmation of demand of basic customs duty and additional duty of customs and partly remanded to determine if there is any evidence of the imported goods being exempted from VAT or Sales Tax by the State Government and accordingly determine if any SAD is required to be paid and also to consequently re-determine the quantum of penalty under section 114A.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

(i) Whether the Commissioner had jurisdiction to adjudicate the demand of duty against DTA sales made by an SEZ unit under section 30 of the SEZ Act, 2005.

(ii) Whether the Additional Commissioner had jurisdiction to issue the SCN demanding duty against DTA sales made by an SEZ unit under section 30 of the SEZ Act, 2005.

(iii) Whether the Additional Commissioner had pecuniary jurisdiction to issue SCN where the demand of duty exceeds Rs. 50 lakhs.

(iv) Whether the Commissioner could confirm demand under section 28(4) of the Customs Act when the SCN was issued under section 28(1) without a corrigendum.

(v) Whether misconstruction/misinterpretation of the notification amounts to suppression of facts to invoke the extended period for issuing the SCN under section 28(4) of the Customs Act.

(vi) Whether misconstruction/misinterpretation of the notification amounts to suppression of fact and misstatement for imposing a penalty under section 114AA of the Customs Act.

(vii) Whether a penalty under section 114A of the Customs Act can be imposed if the demand has been raised under section 28(1) of the Customs Act.

(viii) Whether the adjudicating authority failed to consider Notification No. 18/2011, which amended Notification No. 45/2005-Cus, as the words "produced or manufactured in" were substituted with "cleared from."

(ix) Whether duty could be demanded from Prestige as it was the exporter and not the importer in the DTA Bills of Entry.

(x) Whether Notification No. 12/2012-Cus exempts BCD unconditionally and whether Prestige had paid the additional duty of customs as it had not fulfilled the condition.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of the Commissioner

The Court examined whether the Commissioner of Customs had jurisdiction to adjudicate the demand of duty on goods cleared from SEZ to DTA. The SEZ Act treats SEZ as a territory outside the customs territory of India for authorized operations. However, when goods are cleared to DTA, they are treated as imports, and customs duty is applicable. The Court concluded that the Commissioner had jurisdiction under the Customs Act to demand duty on goods cleared from SEZ to DTA.

Issue 2: Jurisdiction of the Additional Commissioner

The Court found no reason to differ from its findings on the jurisdiction of the Commissioner. The Additional Commissioner was within jurisdiction to issue the SCN.

Issue 3: Pecuniary Jurisdiction of the Additional Commissioner

The Court did not find any support in section 28 for the argument that the Additional Commissioner lacked pecuniary jurisdiction to issue the SCN.

Issue 4: Confirmation of Demand under Section 28(4)

The SCN was issued under the proviso to section 28(1), which allowed for the extended period of limitation. The Court held that quoting the old provision in the SCN did not invalidate the order, as the allegations and findings were clear.

Issue 5: Misconstruction/Misinterpretation of Notification

The Court found that Prestige had deliberately claimed the benefit of a notification for manufacturing televisions without having the facilities to do so, amounting to wilful misstatement and suppression of facts. Therefore, the demand under section 28(4) was justified.

Issue 6: Penalty under Section 114AA

The Court noted that section 114AA applies to false declarations in both imports and exports. However, since no factual mis-declaration was made in the Bills of Entry, the penalty under section 114AA was set aside.

Issue 7: Penalty under Section 114A

The Court found that the demand was not raised under section 28(1) but under the proviso to section 28(1), which justified the imposition of a penalty under section 114A.

Issue 8: Notification No. 18/2011

The Court remanded the issue to the Commissioner to verify if the goods were exempted from sales tax or VAT by the State Government, affecting the applicability of Notification No. 45/2005-Cus.

Issue 9: Duty Demand from Prestige

The Court held that Prestige, having filed the Bills of Entry, paid the duty, and cleared the goods, was responsible for any short payment of duty. The demand was correctly made on Prestige.

Issue 10: Notification No. 12/2012-Cus

The Court clarified that the exemption from basic customs duty was subject to the condition of using the goods for manufacture, which was not fulfilled by Prestige. Therefore, the demand for basic customs duty was upheld.

3. SIGNIFICANT HOLDINGS

The Court established that:

- SEZ is treated as outside the customs territory of India only for authorized operations. For unauthorized operations, SEZ is treated as a customs port.

- The Commissioner of Customs has jurisdiction to demand duty on goods cleared from SEZ to DTA.

- Misstatement or suppression of facts justifies invoking the extended period of limitation under section 28(4).

- The exemption from basic customs duty under Notification No. 12/2012-Cus is conditional upon the use of goods for manufacturing, which was not met by Prestige.

- Penalty under section 114AA was set aside due to lack of factual mis-declaration.

- The demand of duty and penalty under section 114A were upheld, subject to re-examination of SAD exemption.

The judgment remanded the issue of SAD exemption to the Commissioner for verification of sales tax or VAT exemption by the State Government and directed the recomputation of duty and penalty accordingly.