2021 (2) TMI 842 - HC - Customs

Applicability of time limitation on demand of Customs Duty - invocation of extended period of limitation when there is no suppression of facts - Jurisdiction to levy of penalty u/s 112 of CA - invocation of section 112 for the first time - HELD THAT - The demand of duty for violating the post importation condition of an exemption notification is not confined to any period of limitation and hence there is no relevancy in the argument of the Appellants that they did not suppress any material facts. Just because the Tribunal has wrongly interpreted the order passed in the BOMBAY HOSPITAL TRUST VERSUS COMMISSIONER OF CUSTOMS, SAHAR, MUMBAI 2005 (10) TMI 112 - CESTAT, MUMBAI Case or the Revenue was indifferent to such wrong interpretation and the resultant effect, this Court can not make an unnecessary exercise by analyzing the fact whether or not there was or any suppression of facts in the context of Sec. 28(4). Sec.28(4) refers only about those cases for which limitation is applicable but because of certain aggravating circumstances like suppression of facts, the limitation gets extended to 5 years - Even if the point on suppression of fact is analysed for the sake of completion, the records would show that the First Appellant had sold the Mulberry Raw Silk imported on Exemption Certificate, in the local market through the second and third appellants. After Inspection the First Appellant remitted ₹ 17,00,000/- under challan dated 03.02.1999 and 17.02.1999 towards the appropriation of the duty liability. Knowing fully well about the export obligations on Exemption Certificate and having violated it , the First Appellant had sold them in the local market through the Appellants 2 and 3. The mere delay on the part of the Authorities to detect the violation of export obligation and issue show cause can not be construed as a permissive violation - The Suppression of Facts and materials is very much visible from the conduct and the pattern in which the Appellants caused the disappearance of the raw materials. Had the Tribunal rightly interpreted the the dictum laid down in Bombay Hospital Trust case on the point of limitation for cases falling under post import obligations, it would not have occasioned the Appellants to make a claim on the point of limitation by referring to sec. 28(4) of the Act. Hence the claim of the Appellants on the point of limitation does not deserve merit. Imposition of the penalty under Section 112 against the first Appellant has never been contemplated in the show cause notice and that it has been ordered for the first time by the Tribunal - HELD THAT - The First Appellant imported the Mulberry Raw Silk on Exemption Certificate under DEEC Scheme, since the exemption of customs duty given vide the notification Nos. 203/1992 and 204/1992. The post import condition as prescribed in the above documents was not complied by the first appellant - During the inspection also the unused raw materials were not found to be available for confiscation. If the post import conditions of Exemption Certificate are not complied, the character of the goods which have been imported duty free revert back to goods duty bound prohibited goods and hence they are liable to be confiscated. The penalty for importation of goods by breaching the conditions prescribed under Section 112. The various clauses of Section 112 set out the method in which the penality should be quantified. In the show cause notice dated 10.03.1993 issued to the Appellants, in para 17 it has been mentioned that the Fourth Appellant failed to utilize the raw materials as per the terms of the conditions of the Advance Licence and the Customs Notification and he has disposed off the said raw materials through Appellants 2 and 3 in contravention of the provisions of the said notifications and hence he is liable to be imposed with penalty under Section 112(a)(ii) of the Customs Act 1962. Since both sec.114-A and the amendment to sec.112(b)(ii) were in not in force during the relevant period, the order of the Tribunal modifying the penality by using the discretion vested under sec.112 (prior to amendment) is correct only. In fact the modification has put the Appellants in a more advantageous situation and it was not prejudicial to their interest. The Appellants did not suffer any new penality other than the one mentioned in the show cause despite a right provision which was in force at the relevant point of time was employed by the Tribunal. The process for imposing penality under sec. 112 has been initiated (though a more stringent provision is mentioned in the concluding portion of the show cause) from the time when show cause was issued and the Appellants have also been given with the opportunity to defend themselves - Hence the Appellant cannot claim that the order of the Tribunal which modified and reduced the penality under sec. 112 is altogether a new one or that they were not given with any opportunity of hearing. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Whether the demand for the period 17.03.1994 to 04.10.1995 is barred by limitation under Section 28 of the Customs Act.
2. Whether the extended period of limitation can be invoked for demanding duty during the said period.
3. Whether the imposition of penalty under Section 112 against the appellants is sustainable when the Tribunal has no power to impose such penalty for the first time.

Detailed Analysis:

Issue 1: Limitation under Section 28 of the Customs Act
The Appellant argued that the demand for the period 17.03.1994 to 04.10.1995 is barred by limitation under Section 28 of the Customs Act. The Tribunal accepted that the period of limitation in respect of Bill of Entry cleared during the period from 12.04.1993 to 28.02.1994 had expired and dropped the demand of duty for ?48,03,968/-. However, the Tribunal held that the rest of the demand of duty of ?34,96,777/- was upheld. The Tribunal relied on the decision in the Bombay Hospital Trust case, which held that the period of limitation does not apply to demands arising from the failure to fulfill post-importation conditions. The High Court agreed with this interpretation, stating that the demand for the violation of post-importation conditions is not confined to any period of limitation. Thus, the claim of the Appellants on the point of limitation does not deserve merit.

Issue 2: Extended Period of Limitation
The Appellant contended that the extended period of limitation is not applicable as there was no suppression of facts. The Tribunal observed that the violation of post-import conditions is a continuing obligation, and thus, the period of limitation does not commence from the date of issue of the show cause notice. The High Court concurred, stating that the demand of duty for violating the post-importation condition is not confined to any period of limitation, and hence, there is no relevancy in the argument of the Appellants that they did not suppress any material facts. The High Court noted that the suppression of facts and materials is visible from the conduct and the pattern in which the Appellants caused the disappearance of the raw materials. Thus, the extended period of limitation is applicable, and the Questions of law 1 and 2 are answered against the Appellants.

Issue 3: Imposition of Penalty under Section 112
The Appellant argued that the imposition of penalty under Section 112 of the Customs Act is without jurisdiction because it was invoked for the first time by the Tribunal. The High Court noted that the power of the Department to initiate duty recovery proceedings for violating the conditions of the import Exemption Certificate has been settled in the decision of the Five Members Bench of the Tribunal in the Bombay Hospital Case. The High Court further observed that Section 114(A) of the Customs Act, which empowers the Department to impose a penalty equal to the duty, was not in force during the impugned period. Hence, the Tribunal modified the imposition of penalty by restricting it to Section 112 (prior to its amendment). The High Court concluded that the modification by the Tribunal was correct and not prejudicial to the Appellants' interest. Thus, the question of law No.3 is also answered against the Appellants.

Conclusion:
The appeal is dismissed, and the High Court upheld the Tribunal's order, confirming the demand of duty and the imposition of penalties while rejecting the appellants' claims on the grounds of limitation and jurisdiction.