Case Law Details
Larsen & Toubro Ltd. Vs Commissioner of Customs (CESTAT Chennai)
In Larsen & Toubro Ltd. vs Commissioner of Customs (CESTAT Chennai, Order pronounced on November 3, 2025), the Tribunal examined the legality of a demand raised under Section 28 of the Customs Act, 1962, against the importer, Larsen & Toubro Ltd. (“L&T”), for alleged suppression of freight and other charges relating to the import of used machinery from Sharaf Foundations, Dubai. The impugned order, No. 35511/2015 dated February 27, 2015, had confirmed the demand for differential duty, interest, confiscation, and penalties.
The case originated from a common Show Cause Notice (SCN) dated October 8, 2014, which alleged that L&T had not correctly declared freight and associated charges in import documents, showing instead that such charges were paid by the overseas supplier. The Department, invoking Rules 9 and 10 of the Customs Valuation Rules, 2007, read with Section 14 of the Customs Act, sought to reassess the declared value and recover the differential duty under Section 28, along with applicable penalties under Sections 112(a), 114A, and 114AA. L&T filed a detailed reply, contending that there was no suppression of material facts and that all duties, including freight, overhead expenses, and yard charges, had been duly paid.
The company argued that it had complied with the provisions of Section 28(5) of the Customs Act, which provides that once the importer accepts liability and pays duty voluntarily, proceedings under the SCN should be concluded. L&T further contended that if the proper officer disagreed with their computation of duty, the statute required issuance of a notice under Section 28(6). Since no such notice had been issued as of January 19, 2015, the proceedings, according to the appellant, stood concluded under law.
The Adjudicating Authority, however, rejected this contention and confirmed the demand, observing that the duty amount calculated by L&T differed from the valuation rules and hence was “against the spirit of Section 28(5).” The officer maintained that the importer’s calculations were neither truthful nor just, but did not issue a notice under Section 28(6).
The Tribunal observed that Section 28(6) makes issuance of a notice mandatory when the proper officer believes there is any short payment of duty or penalty. The failure to issue such a notice, according to CESTAT, rendered the proceedings invalid, as this requirement is not a mere formality but a statutory safeguard. It was further noted that the Adjudicating Authority’s own observations in paragraph 21 of the order indicated that the dispute involved interpretational issues rather than factual suppression, which undermined the allegation of intent to evade duty.
Upon examining the Show Cause Notice, the Tribunal noted that the last Bill of Entry was dated April 26, 2012, while the SCN was issued on October 8, 2014 — clearly beyond the normal limitation period. The only allegation of suppression stemmed from non-compliance with CBEC Circulars No. 42/2005-Customs and 29/2010-Customs, which categorized certain importers as highly compliant. The Tribunal found that although the Department claimed misdeclaration, it had not established any intent to evade duty — a necessary condition for invoking the extended limitation period under Section 28.
CESTAT held that the Revenue failed to justify both the non-issuance of the mandatory notice under Section 28(6) and the invocation of the extended period of limitation. These procedural lapses, according to the Tribunal, were sufficient grounds to invalidate the demand. The impugned order dated February 27, 2015, was thus set aside, and the appeal filed by L&T was allowed with consequential relief as per law.
The Tribunal also considered a connected departmental appeal (No. C/41152/2015) filed by the Revenue, which challenged certain findings in the same order. Since the main order itself was set aside on limitation grounds, the Tribunal held that the Revenue’s appeal automatically merged with the impugned order and required no separate adjudication. Consequently, the departmental appeal and the cross-objections filed by L&T (C/Cross/40817/2015) were disposed of.
In conclusion, the CESTAT Chennai held that issuance of a notice under Section 28(6) is mandatory when a proper officer concludes there has been a short payment of duty or penalty. The absence of such notice invalidates the demand proceedings, especially when allegations of suppression are not supported by evidence of intent to evade duty. Accordingly, the Tribunal set aside the impugned order and allowed the appeal in favor of Larsen & Toubro Ltd.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Heard Shri P.R. Renganath, Ld. Advocate for the Appellant/Importer and Shri Sanjay Kakkar, ld. Deputy Commissioner for the Respondent/Revenue.
2. These appeals arise out of a common impugned Order-in-Original No.35511/2015 dated 27.02.2015 passed by Commissioner of Customs, Chennai-II. A common Show Cause Notice dated 08.10.2014 was issued to the Appellants/Importer herein and the short point in the SCN is that the 1st Appellant i.e. M/s.Larsen & Toubro Ltd. (M/s.L&T Ltd., for short) have suppressed the actual freight and other charges upon importation of used machinery from M/s.Sharaf Foundations, Dubai. It was thus alleged that the freight and other charges paid to their overseas supplier by M/s.L&T Ltd. had been declared in the import documents to the effect that freight was paid by supplier M/s.Sharaf Foundations, Dubai. The above was followed up with investigation during the course of which, statements of several persons appear to have been recorded. The SCN thus proposed redetermination and reassessment of the declared value by invoking Rule 9 read with Rule 10 of Customs Valuation Rules, 2007 (CVR, 2007, for short), read with Section 14 of the Customs Act, 1962; demand of differential duty under the provisions of Section 28 ibid apart from interest, confiscation and penalties under Section 112 (a), Section 114A and Section 114AA ibid. It appears that the main Appellant/Importer filed a very comprehensive explanation justifying its stand. During the course of hearing in adjudication, it appears that the Appellant/Importer took serious objection to the issuance of notice under Section 28 thereby denying any suppression of material facts with an intent to evade any duty liability; it was also pointed out that they having filed their reply in terms of Section 28(5) ibid, the proceedings initiated under the above SCN should come to an end. In this context, it was also explained that Appellant/Importer had paid duty not only on freight but also with reference to overhead expenses as well as yard charges. In this regard, a worksheet along with written submissions was placed before the Adjudicating Authority. It was thus submitted by the Appellant/Importer in the written submissions that as per Section 28 (5) ibid when an application is filed under the above Section and the officer is not accepting stand of the Appellant/Importer, the officer has to necessarily follow the mandate up Section 28 (6) ibid and as on the date of written submission/date of hearing which is 19.01.2015, when there is no such notice issued under Section 28(6) ibid, the proceedings initiated under the SCN should be treated to have come to an end.
3. The Adjudicating Authority having considered the reply as well as the written explanation filed, however, vide the impugned Order-in-Original No.35511/2015 dated 27.02.2015 proceeded to confirm the proposed demands in the SCN. In so far as the application of Section 28 (5) and 28 (6) are concerned, the officer has only tried to defend his inaction in not issuing the required / mandatory notice under Section 28 (6) despite recording the specific contention in this regard of the Appellant. Relevant observation of the Adjudicating Authority at para-21 of OIO is as under :
“….However, I find that the duty amount calculated by the importer is at variance with the extant valuation rules and hence, I am of the opinion that the importers have not been truthful and just in calculating the differential duty amount which is against the spirit of the Section 28 (5)…. ”
4. Section 28 (6) specifically mandates the issuance of notice, if the proper officer is of the opinion that there is any short payment of duty or penalty or variation in the payment and it is not an empty formality. The non-issuance of mandatory notice by the Revenue has only rendered the above provision otiose and hence, the very purpose of the said provision is rendered futile. Further, in the very same paragraph 21 the officer records that “….The difference is not purely due to calculation variation but because of interpretation issues also….”. This also gives an impression that it is not the factual issue which was involved but it also involved interpretational issues, which means that the allegation of suppression would not stand. The Adjudicating Authority himself is admitting it and hence, the very basis of the allegation of suppression of facts appears to be on a very shaky ground.
5. A perusal of the SCN reveals that several Bills of Entry were filed, as extracted at Table-II below at para 10.6 therein and the last of such Bills of Entry is dated 26.04.2012, for which, a SCN issued [dated 08.10.2014], which is clearly beyond the normal period and the only allegation in the SCN is non-compliance with the Board’s Circular No.42/2005-Customs dated 24.11.2005 as amended by Circular No.29/2010-Customs dated 20.08.2010 by which the importers were considered as highly compliant and that the Appellant/Importer in spite of their status chose to misdeclare the values of the used machinery which, according to the officer, amounted to misdeclaration and suppression; the same, however, is not held to be “with intent to evade duty”. This, according to us, does not automatically lead to the triggering of provisions of Section 28 since Section 28 lays down specific conditions for pressing the said section into service.
6. In view of the above, we are satisfied that Revenue has not been able to establish its case (i) for non-issuance of mandatory notice under Section 28 (6); and (ii) invoking the extended period of limitation, which are sufficient to set aside the demand raised by invoking the larger period of limitation, for which reason the impugned order cannot sustain. The same is, accordingly, is set aside and the Appeals filed by Appellants/Importer are allowed on this ground with consequential benefits, if any , as per law.
7. In the Department Appeal No.C/41152/2015, the Revenue is aggrieved by a part of actual finding in the impugned order, by the Original Authority, but however as we have held that the impugned order itself as unsustainable on limitation, the grievance of the Revenue merges with the impugned order and hence, would not require any independent deliberation by us and the same is treated as disposed. The Cross objections [C/Cross/40817/2015] filed by the Importer also stands disposed of.
(Order pronounced in open court on 03.11.2025)
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