INVOCATION OF EXTENDED PERIOD OF LIMTIATION UNDER CUSTOMS ACT, 1962

[Mr. M. GOVINDARAJAN]

Section 28 of the Customs Act, 1962 provides the procedure for recovery of duty not levied or not paid or short levied or short paid or erroneously refunded.  Section 28(1) provides that where any duty has not been levied or not paid or has been short-levied or erroneously refunded, or  any interest payable has not been paid, part-paid or erroneously refunded, for any reason other than  the reasons of collusion or any willful mis-statement or suppression of fact the proper officer shall, within one year (before 14^th  May 2016)  from the relevant date, serve notice on the person chargeable with the duty or interest which has not been so levied or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.

Section 28(4) of the Act provides that where any duty has not been levied or not paid  or erroneously refunded, or interest payable has not been paid, part-paid or erroneously refunded, by reason of,-   

• collusion; or
• any willful mis-statement; or
• suppression of facts,

by the importer or the exporter or the agent or employee of the importer or exporter, the proper officer shall, within five years from the relevant date, serve notice on the person chargeable with duty or interest which has not been or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.

From the above provisions it can be inferred that the normal period of limitation for issuing a show cause notice is one year (now two years) from the relevant date.  If the non levy or non-payment is due to the reason of collusion, fraud, suppression of fact etc. the department can invoke the extended period of limitation and the Department can issue show cause notice up to five years from the relevant date.  The said reason is applicable only if there is an intention on the part of the assessee to evade payment of duty.

In THE PRINCIPAL COMMISSIONER OF CUSTOMS (IMPORT) AIR CARGO COMPLEX, ANDHERI, SAHAR, MUMBAI VERSUS M/S. SIGNET CHEMICALS PVT. LTD. - 2022 (9) TMI 1014 - BOMBAY HIGH COURT, the respondent is an importer.  The respondent imported the goods ‘Neutral Pellets’ during the March 2012 to February 2015.  The respondent classified the said goods under Customs Tariff Heading CTH 1702 90 90.    The Department issued a show cause notice to the respondent in which it was alleged that the classification done by the respondent is wrong and the correct classification is CTH 1701 99 90.  Therefore the show cause notice directed the respondent to pay Rs.1.45 crores being the differential duty under Section 28 of the Customs Act.  The Commissioner of Customs, Mumbai confirmed the demand with interest on adjudication and also imposed penalty of an equal amount under Sections and 114A of the Customs Act. 

The respondent challenged the order of Commissioner before the Tribunal in two appeals – 89829 of 2018 and 85493 of 2018.  In respect of appeal No. 89829 of 2018 the Tribunal confirmed that the imported goods fell under CTH 1701 99 90 and also confirmed the demand made by the Commissioner of Customs and also the interest for the said period.  However it set aside the penalty imposed on the respondent.

The respondent in Appeal No.85493 of 2018 claimed the demand confirmed by the Commission is time barred.  The Tribunal allowed this appeal and set aside the demand.  But in the previous appeal it confirmed the demand of Commissioner.  The Department contended that in the self assessment, it is the burden of the assessee to classify and discharge the duty properly.  There is failure of classifying the product under correct sub heading amounts to mis-declaration.  Therefore the extended period of limitation can be invoked. The Tribunal held that the appellant during the period from March 2012 to February 2015 filed Bills of Entry declaring their product under CTH 1702 90 90.  The products were physically examined by the Department.  The Department called for the literature on the composition, process of manufacture etc to complete the assessment.  At no point of time the description of the goods was misstated or misdeclared or any facts relating to the said product was suppressed from the department.   The appellant classified the product according to their best understanding and the department was well aware of the said classification and assessments were completed accordingly.  The Tribunal set aside the demand since the same was barred by limitation.

Being aggrieved against the order of Tribunal, the Department filed the present appeal before the High Court.  The Department submitted the following before High Court-

• The order of the Tribunal was erroneous and perverse in law and therefore not sustainable.
• The goods imported by the respondent had been willfully misstated and misclassified with the intention to evade payment of higher rate of duty.
• There shall not be any ambiguity in classification of goods imported by any importer.
• The imported goods of the respondents fall under CTH 1701 and not 1702. 
• In self assessment the correctness of the information given in the Bill of Entry has to be certified by the importer, wherein the respondent had willfully filled up incorrect details by mis-declaring the goods to be falling under a wrong tariff head. 

The respondent contended that there is no ground for the High Court to intervene with the order of the Tribunal.  The High Court considered the arguments of the parties.  For this purpose the High Court relied on the following judgments of Supreme Court-

• In PUSHPAM PHARMACEUTICALS COMPANY VERSUS COLLECTOR OF C. EX., BOMBAY - 1995 (3) TMI 100 - SUPREME COURT the Supreme Court observed that a perusal of the proviso to Section 11 of the Central Excise Act, 1944 indicates that it has been used in company of such strong words as fraud, collusion or willful default.  In fact it is the mildest expression used in the proviso.  Yet the surroundings in which I has been used it has to be construed strictly.  It does not mean any omission.  The act must be deliberate.  In taxation it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty.  Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.

• In COLLECTOR OF CENTRAL EXCISE VERSUS CHEMPHAR DRUGS & LINIMENTS - 1989 (2) TMI 116 - SUPREME COURT the assessee declared the goods on the basis of their belief of the interpretation of the provisions of the law that the exempted goods were not required to be included and these did not include the value of the exempted goods which they manufactured at the relevant time.  The Tribunal held that the explanation was plausible and also the Department had full knowledge of the facts about the manufacture of all the goods manufactured by the respondent.  The respondent did not include the value of the product other than those falling under Tariff item 14E manufactured by the respondent and this was in the knowledge of the Authorities.  The findings of the Tribunal have not been challenged before Supreme Court or before the Tribunal itself as being based as no evidence.

• In COSMIC DYE CHEMICAL VERSUS COLLECTOR OF CENTRAL EXCISE, BOMBAY - 1994 (9) TMI 86 - SUPREME COURT the Supreme Court held that so far as fraud and collusion are concerned, it is evident that the requisite intent to evade duty is built into these very words.  So far as misstatement or suppression of facts are concerned, they clearly qualified by the word ‘willful’ preceding the words ‘misstatement or suppression of facts’ which means with intent to evade duty.  The next set of words ‘contravention of any of the provisions of this Act or rules’ are again qualified by the immediately following words ‘with intent to evade payment of duty’.  Therefore it is not correct to say that there can be a suppression or mis-statement of fact, which is not willful and yet constitute a permissible ground for the purpose of the proviso to Section 11A.

In this case the appellant contended that the goods were fully exempted from duty in a particular Notification.  Two High Courts had taken a view that the goods were exempt from duty and not includible within the definition of ‘excisable goods’ while two other High Courts had taken a contrary view.  In these circumstances the requisite information was not furnished.  The Supreme Court held that the mis-statement of facts in the declaration filed by the appellant cannot be called as ‘willful’.

• In COLLECTOR OF CENTRAL EXCISE VERSUS H.M.M. LIMITED - 1995 (1) TMI 70 - SUPREME COURT the Supreme Court held that a bona fide belief as the basis for non –declaration in the classification list would not lead to a presumption of fraud, collusion or suppression.  In such cases it cannot be proved that there was the intention to evade payment of duty or that the assessee was guilty of fraud, collusion, misconduct or suppression to attract the proviso to section 11A (1) of the Act.

• In M/S. UNIWORTH TEXTILES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE. RAIPUR - 2013 (1) TMI 616 - SUPREME COURT the Supreme Court held that to invoke the extended period of limitation there ought to be a positive act and not merely a failure to pay duty which is not on account of any fraud, collusion or willful mis-statement or suppression of facts.  The Tribunal in the present case has clearly held that the respondent had been importing the goods under CTH 1702, which the appellant agreed, attracted the same rate of duty as the goods imported and falling under CTH 1704 and held that the department was very well aware of the said classification.  In the past the assessments were made base upon this.  Only because there was a change of view by the department the assessee could not have been said to have either mis-declared or suppressed facts in classifying it goods at the time import under CTH 1702.

The High Court noticed that the assessee had been consistently adopting the classification under the Head 1702 which has not been denied by the Department before the Tribunal.  The assessee did not make any effect to belie the same before the High Court.  The High Court observed that if it had been a case of a deliberate and willful attempt on the part of the assessee to suppress the facts or make any willful mis-statement for purposes of evading the payment of duty then it would have in the past, perhaps claimed the benefits of classifying it under CTH 1701 when it attracted a lower rate of duty or was completely exempt.  The High Court therefore confirmed the order of the Tribunal.