PRINCIPLES OF NATURAL JUSTICE TO BE FOLLOWED WHILE FINALIZING PROVISIONALLY ASSESSED BILLS OF ENTRY

[Mr. M. GOVINDARAJAN]

The Principles of Natural Justice require to give notice to the assessee, to give him reasonable opportunity of being heard and passing speaking order in case of taxation issues.  The Bills of Entry may be assessed provisionally if proper documents could not be submitted before the Authorities.  Under Section 18 of the Customs Act the provisional assessment will be made final and the duty if any is payable is to be paid by the importer.

There is no provision in Section 18 of the Act to adopt the principles of Natural Justice while finalizing the provisional assessment.  The Bombay High Court in ‘Zuari Agro Chemicals Limited V. Union of India’ – 2014 (2) TMI 552 - BOMBAY HIGH COURT the High Court prescribed the procedures to be adopted while finalizing the provisional assessment.  The High Court held that even if the statute does not specifically provide that the Bills of Entry being finalized should be preceded by issue of notice, grant of personal hearing and a speaking order in case the contention of the importer is not accepted, yet the principles of Natural Justice have to be read into the Stature.  It is only when a party is given an opportunity to point out its case against the proposed variation that mistakes in making the assessments could be prevented as the importer may have a complete answers to the objections of the revenue.   Similarly, if the authority is unable to accept the response of the importer then the reasons for the same can be reflected in the speaking order.  The above process in finalizing the assessment of bills of entry only ensures that no arbitrary orders are passed.   Therefore, while finalizing the bill of entry for the purpose of assessment, it would be incumbent on the Assessing Officer to inform the  importer what variation he proposes to make to the bills of entry as filed by the importer and the reasons for the same.  This would give an opportunity to the importer to explain why the proposed variation in the Bill of Entry is uncalled for.   If the explanation of the importer is accepted then the Bill of Entry would be assessed in accordance with the claim made by the importer or even if not accepted, the authority would be required to give reasons in support of its conclusion.  This would undoubtedly curtain unwarranted litigation.  The above process of natural justice is only in compliance with elementary principles of Rule of law.  The above process may not be elaborate but meet the essence of fair play so that no person is left with a feeling of being a target of arbitrary and unfair behavior on the part of the authorities.

In ‘HDFC Bank Limited V. Union of India’ – 2008 (7) TMI 602 - KERALA HIGH COURT the Kerala High Court held that where an assessee objects to the assessment being made contrary to his claim, the Assessing Officer is obliged to issue a speaking order in terms of Section 17(5) of the Customs Act.  It is only on passing of the speaking order that the period for filing appeal under Section 128 of the Act commences.

The Supreme Court, in ‘Asst. Commissioner, Commercial Tax Department V. Shukla & Brothers, Bombay’- 2010 (4) TMI 139 - SUPREME COURT OF INDIA has  observed that reasons are the soul of orders.   Non recording of reasons could lead to duel infirmities, firstly it may cause prejudice to the affected party and secondly more particularly, hamper the proper administration of justice.   These principles are not only applicable to administrative or executive actions but they apply with equal force and, in fact, with a greater degree of precision to judicial pronouncements.

In ‘Zuari Agro Chemicals Limited’ (supra) the petitioner imported Murate of Potash during the period 2006 to 2008 under two bills of entry declaring the value and claimed benefit of certain exemption notification.   However the petitioner could not able to submit documents in original to support its imports, the said bills of entry were assessed under Section 18(1) of the Customs Act.  The petitioners submitted the documents in original in respect of the above bills of entry and requested the Authority to finalize the assessment of the said bills of entry.   All of a sudden on 22.05.2011 the petitioners received three communications from the Assistant Commissioner informing that the bills of entry were finally assessed during December 2010.  The Bills of entry have been finally assessed enhancing the value of the imported potash as well as the exemption claimed by the petitioners has not been allowed.   The petitioners were directed to pay the differential duty of ₹ 17.51 crores along with interest.

The petitioners on 25.05.2011 requested the Authority to withdraw the demand notices as they objected the finalization of the said bills of entry.   No action has been taken in this regard by the Department.   On 18.11.2013 the Department issued demand notices to pay the said amount.  The petitioners on 19.11.2013 requested the Department to give personal hearing.  On 04.12.2013 the petitioners were orally directed by the Officers to pay the amount, otherwise the recovery proceedings would be initiated against the petitioners.

The petitioners filed a writ petition before the High Court challenging the final assessment of the Revenue.  The following issues were framed for the consideration of the High Court:

• Whether an endorsement made on the bills of entry on finalization of provisionally assessed bills of entry on a basis different from that claimed by the importer would require the following the principles of natural justice and including a speaking order justifying the variation made on the bill of entry?
• Whether a speaking order justifying the variation made on the bills of entry at the time of finalization to the prejudice to the importer is a sine qua non to enable a filing of an appeal under the Customs Act, 1962?

The petitioners put forth the following arguments:

• The ex-parte finalization of the said bills of entry and the consequent demand notices and further demand notice are all bad in law as the said bill of entry have been finalized in breach of principle of natural justice;
• The assessable value declared by the petitioner of the potash on the said bills of entry has been enhanced and the claim for exemption notification was also denied without indicating the reasons for the same and hearing the petitioners thereon;
• The assessment order passed on the said bills of entry by mere endorsement be set aside;
• The respondents may be directed to finalize the said bills of entry after following the principles of Natural Justice;
• A mere endorsement of the bills of entry, finalizing the assessment to the prejudice of an assessee is not an appealable order;
• It is only when a speaking order is issued in respect of the said bills of entry finalized, would the assessment on the bills of entry became appealable;
• In the absence of a speaking order, the petitioner is unable to avail of its remedy of appeal;
• The requirement of speaking order is found in Section17(5) of the Act;
• In the circumstances it is obligation of the Assessing Officer to issue a speaking order in support of its finalization of bills of entry when the same is done to the prejudice of the petitioner.

The Revenue submitted the following before the High Court:

• The finally assessed bills of entry were communicated to the petitioner along with the demand notice way back in May 2011;
• The petitioners accepted the same and chose not to file the statutory appeal to the Commissioner of Customs (Appeals) under Section 128 of the Customs Act from the finally assessed  bills of entry;
• The finally assessed bills of entry is now binding upon the petitioner and it must be honored by making the payment as demanded in the demand notice and further demand notice issued to them;
• There is no requirement under the Act to issue a show cause notice, grant personal hearing or pass a speaking order while finalizing provisionally assessed bills of entry;
• The said bills of entry were finally assessed under Section 18 of the Customs Act and there is no obligation therein to issue show cause notice or grant a hearing before doing so;
• The assessment done by the Revenue would by itself be an appealable order without the requirement of a speaking order;
• The requirement of a speaking is found only under Section 17(5) of the Act and it cannot be read into Section 18 of the Act under which the said bills of entry were finally assessed to duty;
• It was open to the petitioner to file an appeal from the said bills of entry on being finally assessed in 2010 without the requirement of a speaking order;
• The petitioner failed to do and this is an attempt to re-open a closed issue.

The High Court observed that in this case the revenue did not dispute that while finalizing the assessment of the Bills of entry the value has been enhanced and the benefit of notification as claimed was not extended without giving any opportunity to the petitioner to explain away the view of the Assessing officer.   The finalization was done merely by making an endorsement on them without disclosing the reasons which led to enhancement of the value of potash from that declared by the petitioners leading to differential duty being payable.  Even after having finalized there is no communication from the officer indicating the reasons for the enhancement of the duty.  In case reasons are given, it is likely that the petitioner may see merit in the same and accept it.   However in the absence of the reasons, the party does not know why its contention was not acceptable.   This alone prevents the authority from exercising unbridled powers in arbitrary manner while finalizing the bills of entry arbitrarily.   The High Court held that the assessment of the said Bills of Entry is in breach of natural justice and bad in law.

The objection of the Revenue that the High Court should not entertain the petition as alternative remedy of an appeal is available under Section 128 of the Act and the petitioner has chosen not to avail it.   The High Court held that appeal under Section 128 of the Act to be an efficacious appeal must be from an order with reasons.   It is for this reason that Section17(5) of the Act itself provides that on a bill of entry being assessed in a manner contrary to the claim of the importer, then within 15 days of making the final assessment of the bill of entry, a speaking order will be issued.   In this case there is a mere endorsement of variation of the said bill of entry and no reasons being mentioned on the said bills of entry itself or by issue of a separate communication containing the reasons for the same an importer would be at a loss to the manner in which the same could be challenged.  In such cases, an appeal to the appellate authority would be futile as it would be impossible for the petitioners to contend why the enhancement of the value done by the Department is unjustified and bad in law nor would it possible for the appellate authority to decide on the merits of the final assessment of the bill of entry.   Therefore there has been failure on the part of the department to carry out its mandatory obligations as provided under Section 17(5) of the Act.

The High Court set aside the final assessments made on the said bills of entry in December 2010 and also set aside the demands made by the Department.  The High Court directed the department to pass a fresh order of finalization of assessment of the said bills of entry after following the principle of natural justice.  In case the petitioner is aggrieved by the final assessment order it would be open to the petitioner to file an appeal to the Commissioner of Customs (Appeals) under Section 128 of the Act.