2011 (9) TMI 783 - HC - Customs

The assessee filed a bill of entry dated 21-8-2003 for clearance of 1,70,050 pieces of Melamine spoons classified under Chapter sub-heading 3924.90 with concessional rate of duty under Customs Notification No. 26/2000 - show cause notice is issued in terms of law and passed an order-in-original holding that the assessee is liable for payment of duty, interest and penalty - Apex Court in the case of Metal Forgings v. Union of India reported in (2002 -TMI - 46358 - SUPREME COURT OF INDIA), where it has been held that issue of show cause notice is a mandatory requirement for raising demands and that communications/orders suggestions or advises from the Department cannot be deemed to be a show cause notice, held that the letter issued by the Department cannot be treated as show cause notice and therefore the entire proceedings is vitiated - Decided in favor of the assessee

Summary

Issues:
Validity of proceedings initiated without a proper show cause notice under the Customs Act.

Analysis:
The case involved an appeal by the Revenue challenging a Tribunal's order that the proceedings were invalid as the letter issued did not constitute a proper show cause notice, which is a prerequisite for initiating proceedings under the Customs Act. The assessee had filed a bill of entry for clearance of goods under a concessional rate of duty, but the Deputy Commissioner issued a letter without a show cause notice, holding the assessee liable for duty, interest, and penalty. The assessee contended that a show cause notice is mandatory for confirming demands under Section 28 of the Customs Act. The Commissioner and Tribunal both found that the letter did not meet the requirements of a show cause notice. The Tribunal relied on a Supreme Court judgment stating that communications from the Department cannot be deemed as show cause notices. Consequently, the Tribunal set aside the orders of the lower authorities. The High Court agreed that the letter did not fulfill the show cause notice requirement, rendering the entire proceeding invalid. The appeal by the Revenue was dismissed, and the substantial question of law was decided in favor of the assessee.

The High Court emphasized that the issuance of a proper show cause notice is a fundamental requirement for initiating proceedings under the Customs Act. Citing the Apex Court's judgment, the Court reiterated that any communication from the Department cannot substitute a formal show cause notice. As the letter served on the assessee did not meet the criteria of a show cause notice, the initiation of proceedings without it was deemed unlawful. Consequently, the Tribunal's decision to set aside the impugned orders was upheld by the High Court. The Court found no merit in the Revenue's appeal and dismissed it, ruling in favor of the assessee.

The High Court granted liberty to the Revenue to issue a fresh show cause notice, provided it adheres to the law of limitation. This reservation allowed the Revenue the opportunity to rectify the procedural flaw by issuing a proper show cause notice within the legal constraints. The Court's decision to reserve liberty for issuing a fresh notice ensured that the Revenue could initiate lawful proceedings in compliance with the Customs Act.