DFIA Customs Demand Time-Barred Without Intent to Evade Duty: CESTAT Delhi

4. It further transpires from the records that the officers of Directorate of Revenue Intelligence⁴ searched the premises of the appellant and resumed documents pertaining to the four consignments and seized an amount of Rs. 1,16,12,266/-. A statement of the appellant was also recorded under section 108 of the Customs Act.

5. Thereafter, a show cause notice dated 14.12.2010 was issued to the appellant proposing to deny the benefit of the Notification and demanding customs duty of Rs. 1,16,12,266/- after invoking the extended period of limitation under the proviso to section 28 (1) of the Customs Act.

6. As the main submission advanced by Shri Piyush Kumar learned counsel for the appellant assisted by Shri Sharad Chand Srivastava and Ms. Gunjan Tanwar is that the extended period of limitation contemplated under the proviso to section 28 (1) of the Customs Act could not have been invoked, it will be appropriate to refer to the relevant portion of the show cause notice dated 14.12.2010 that deals with this issue and it is as follows :-

“Since the party imported the goods without paying due customs duty under DFIA Scheme for which he was not entitled, as he fraudulently availed the benefit by suppressing the actual facts, so the party was liable to pay the due customs duty of Rs. 1,16,12,266/- under section 28 (1) of the customs Act, 1964, along with applicable interest under section 28AB of the customs Act, 1962. Also the act of suppression of facts in fraudulent manner of the party to willfully evade the customs duty renders them liable fo0r penal action under section 114A and 114AA of the Customs Act, 1962”.

7. The appellant filed a detailed reply to the show cause notice not only stating that the allegations made in the show cause notice that the appellant had not complied with the conditions of the Notification were not correct, the appellant also pointed out that the extended period of limitation could not have been invoked under the proviso to section 28 (1) of the Customs Act. The relevant portion of the reply filed by the appellant is reproduced below:-

“The demand is time barred

5.1 Noticee submits that all the goods covered vide instant four bills of entry were duly examined under first check by customs officer, samples were drawn and sent for testing by Textile Committee (Ministry of Textiles, Govt. of India), Naraina Industrial State, New Delhi. After duly satisfying themselves from the examination reports and test reports as well, customs officers in their own wisdom assessed the bills of entry extending the benefit of Exemption Notification ibid. Annexed hereto are the copies of examination reports marked as Annexure – 3 (colly). Thus, all the facts as to the nature of goods before passing out of customs charge, were open and known to the Department. Nothing remained out of sight. Hon’ble Supreme Court in the matter of Pushpam Pharmaceuticals Company versus Collector of C. Ex., Bombay⁵ has held that where facts were known, extended period of five years is not applicable. Also, in the matter of Commissioner of Customs (Export – I) Mumbai versus M/s Morde Foods Pvt. Ltd., Customs Misc. Application No. 86570 of 2018 in Customs Appeal No. 87944 of 2017 etc. Hon’ble Mumbai Bench of Tribunal in its final order A/85343-85373/2020, A/85374/2020 dated 26.02.2020 has held that “we, hold that the contention of Revenue is correct on merits. However, we find that the goods as well as licences have been presented by various importers, before Customs authorities. Proper officers have gone through the licences and after satisfying themselves extended the benefit of exemption contained in respective notifications citing the decision of the Tribunal in the case of Kushalchand & Co. Therefore, no elements of suppression of fact, mis-statement, misrepresentation etc. which necessitate invocation of extended period are present in the circumstances of the cases on the part of various importers. Therefore, though it was open to the department to revise the assessments, the same should have been done in the normal period. It is not free for the department to invoke extended period”. (para 17 of the order refers)

5.2 That however, Notice was issued after two years of clearance of the goods invoking extended period of limitation of five years under proviso to section 28 (1) of Customs Act, 1962 while the same should have been issued, if needed, within six months from the clearance of the goods as envisaged under section 28 (1) (b) of the Act .It is settled that extended period of limitation of five years cannot be invoked when facts were known to the department. In the conspectus of aforesaid, the instant show cause notice is time barred and therefore the same cannot be countenanced.

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5.4 Without prejudice to above, all the impugned four consignments are of fabrics and at the time of assessment and clearance of the same, department had classified under tariff item 5407 52 89. Notice submits that central excise duty on like items (polyester fabrics) falling under aforesaid tariff heading (54.07) was completely exempted from payment vide Notification No. 30/2004-CE dated 09.07.2004. therefore, though the notification ibid was conditional that “Provided that nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs or capital goods has been taken under the provisions of CENVAT Credit Rules, 2002” yet benefit thereof was available to Noticee in view of Hon’ble Supreme Court decision in the matters of Thermax Pvt. Ltd. versus Collector of Customs⁶, Hyderabad Industries Ltd. versus Union of India⁷ [Constitution Bench] and SRF Ltd. versus Commissioner of Customs, Chennai⁸ etc. In the matter of SRF Ltd. supra Hon’ble Apex Court while allowing the appeal of the party has held that “Denial of exemption was wrong – For additional duty under section 3 of Central Excise Act, 1944 on import, actual manufacture or production of a like article in India was not necessary – For quantification of additional duty, imported article has to be imagined to be manufactured or produced in India and then to see what amount of Excise duty was inevitable thereon”. In the conspectus of aforesaid, additional duty of customs was not leviable upon the impugned fabrics”.

8. The impugned order deals with this issue of invocation of the extended period of limitation in paragraph 70. The said paragraph is reproduced below:-

“70 (a) They submitted that all the goods covered vide instant four bills of entry were duly examined under first check by customs officer, samples were drawn and sent for testing by Textile Committee (Ministry of Textiles, Govt., of India), Naraina Industrial State, New Delhi. After duly satisfying themselves from the examination reports and test reports as well, customs officers in their own wisdom assessed the bills of entry extending the benefit of Exemption Notification ibid. Thus, all the facts as to the nature of goods before passing out of customs charge were open and known to the Department. They contended that it is settled that extended period of limitation of five years cannot be invoked when facts were known to the department. In the conspectus of aforesaid, the instant show cause notice is time barred and therefore the same cannot be countenanced. In support they also placed reliance in the matter of Pushpam Pharmaceuticals Company versus Collector of C. Ex., Bombay9, HMM Limited10.

(b) (i) In this context, I find that while examining under first check, the officer was not aware that the end use of “Polyester Fabric” so imported were manufacture of Jackets; that polyester bonded fabric was different form dyed fabric and that the exported Bed set, Bed linen etc. contained relevant man-made fabrics or 100% polyester dyed and printed fabrics and against those exports, the DFIA licenses were issued.

(ii) The aforesaid were only revealed during investigation undertaken by the DRI. It was in the knowledge of the Noticee who only divulged the truth on interrogation afterwards. The Noticee thus suppressed the material fact from the department and accordingly extended period of limitation is rightly invoked in the present case.

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I find that in the instant case there were no such conflicting decisions. Law was very much clear and the Noticee deliberately suppressed the material fact that polyester bonded fabric was different from dyed fabric and that the exported Bed sheet, Bed linen etc. contained relevant man-made fabrics or 100% polyester dyed and printed fabrics and against those exports, the DFIA licenses were issued.

Accordingly, the case law referred is not applicable here.

(ii) the other cases referred in this regards are also not applicable for the reasons discussed in Para 70 (b) (i) above”.

(emphasis supplied)

9. Learned counsel for the appellant submitted that the show cause notice and the impugned order only refer to suppression of facts, but do not allege or hold that such suppression was with an intent to evade payment of duty and, therefore, the impugned order could not have confirmed the invocation of the extended period of limitation. Elaborating this submission, learned counsel also submitted that the impugned order has not appreciated the reply submitted by the appellant that at the time when the four Bills of Entry were filed, the goods were not only examined, but report of the Textile Committee was also sought for and it is on the basis of such examination and the report of the Textile Committee that it was found that the appellant had adhered to the conditions set out in the Notification. Learned counsel, therefore, contends that in such circumstances it cannot be said that the department was not aware about the goods that were imported by the appellant.

10. Shri Mukesh Kumar Shukla, learned authorized representative appearing for the department, however, supported the impugned order and submitted that in the facts and circumstances of the case it cannot be said that the Commissioner was not justified in invoking the extended period of limitation. To support his contention, learned authorized representative referred extensively to paragraph 70 of the impugned order.

11. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.

12. It is not in dispute that on the filing of the Bills of Entries, the proper officer resorted to first check an ordered for examination of the consignment and testing of representative samples drawn from the consignment. It is also not in dispute that the examining officer found the goods to be the same in terms of description, quantity and value. It is also not in dispute that the Textile Committee, to whom the representative sample was sent for testing, found the goods to be as declared in the Bills of Entry. Thereafter, finding that the conditions of the Notification stood satisfied, the goods were cleared and an out of charge order was issued. In such circumstances, it cannot be said that the department was not aware of the goods that were imported by the appellant in the four Bills of Entries.

13. At the relevant point of time, section 28 (1) of the Customs Act stipulated that the show cause notice has to be issued within six months from the relevant date. The proviso to section 28 (1), however, provides that this period of six months could be extended upto 5 years provided the conditions set out therein, including the condition that there was suppression of facts with an intent to evade payment of duty, are satisfied.

14. The show cause notice has invoked the proviso to section 28 (1) of the Customs Act for the reason that it was issued after about 2 years from the relevant date. In terms of the proviso to section 28 (1) of the Customs Act, it was necessary for the show cause notice to not only allege that there was suppression of facts but also allege that such suppression was with an intent to evade payment of duty and also state why there was an intent to evade payment of duty.

15. The Courts have time and again held that mere suppression of fact is not enough and there has to be a deliberate attempt to evade payment of excise duty. The show cause notice must specifically deal with this aspect and the adjudicating authority is also obliged to examine this aspect in the light of the facts stated by the assessee in reply to the show cause notice.

16. The provisions of section 11A (4) of the Central Excise Act, which also deals with the extended period of limitation, came up for interpretation before the Supreme Court in Pushpam Pharmaceuticals Company versus Collector of Central Excise, Bombay¹¹. The Supreme Court observed that section 11A(4) empowers the Department to reopen the proceedings if levy has been short levied or not levied within six months from the relevant date but the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. It is in this context that the Supreme Court observed that the act must be deliberate to escape payment of duty. The relevant observations are:

“2. xxxxxxxx. The Department invoked extended period of limitation of five years as according to it the duty was short levied due to suppression of the fact that if the turnover was clubbed then it exceeded Rupees Five lakhs.

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4. A perusal of the proviso indicates that it has been used in company of such strong works as fraud, collusion or willful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it 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.”

(emphasis supplied)

17. This decision of the Supreme Court in Pushpam Pharmaceuticals was followed by the Supreme Court in Anand Nishikawa Co. Ltd. versus Commissioner of Central Excise, Meerut¹² and the relevant paragraph is as follows:-

“27. Relying on the aforesaid observations of this Court in the case of Pushpam Pharmaceuticals Co. v. CCE we find that “suppression of facts” can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. When facts were known to both the parties, the omission by one to do what he might have done and not that he must have done, would not render it suppression. It is settled law that mere failure to declare does not amount to wilful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made hereinabove that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in the proviso to Section 11-A of the Act. We are, therefore, of the firm opinion that where facts were known to both the parties, as in the instant case, it was 7 (2005) 7 SCC 749 11 E/52953/2018 not open to CEGAT to come to a conclusion that the appellant was guilty of “suppression of facts.”

(emphasis supplied)

18. In Easland Combines, Coimbatore versus Collector of Central Excise, Coimbatore¹³ the Supreme Court observed that for invoking the extended period of limitation, duty should not have been paid because of fraud, collusion, wilful statement, suppression of fact or contravention of any provision. These ingredients postulate a positive act and, therefore, mere failure to pay duty which is not due to fraud, collusion or wilful misstatement or suppression of facts is not sufficient to attract the extended period of limitation.

19. The aforesaid decisions of the Supreme Court were relied upon by the Supreme Court in Uniworth Textiles Ltd. versus Commissioner of Central Excise, Raipur¹⁴ and the relevant portion of the judgment is reproduced below:

“12. We have heard both sides, Mr. R.P. Batt, learned senior counsel, appearing on behalf of the appellant, and Mr. Mukul Gupta, learned senior counsel appearing on behalf of the Revenue. We are not convinced by the reasoning of the Tribunal. The conclusion that mere non-payment of duties is equivalent to collusion or willful misstatement or suppression of facts is, in our opinion, untenable. If that were to be true, we fail to understand which form of nonpayment would amount to ordinary default? Construing mere non-payment as any of the three categories contemplated by the proviso would leave no situation for which, a limitation period of six months may apply. In our opinion, the main body of the Section, in fact, contemplates ordinary default in payment of duties and leaves cases of collusion or wilful misstatement or suppression of facts, a smaller, specific and more serious niche, to the proviso. Therefore, something more must be shown to construe the acts of the appellant as fit for the applicability of the proviso.”

(emphasis supplied)

20. The Supreme Court in Continental Foundation Joint Venture versus Commissioner of Central Excise, Chandigarh¹⁵ also observed in connection with section 11A(4) of the Excise Act, that suppression means failure to disclose full information with intention to evade payment of duty and the observations are as follows:-

“10. The expression “suppression” has been used in the proviso to Section 11A of the Act accompanied by very strong words as “fraud‟ or “collusion” and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a wilful misstatement. The latter implies making of an incorrect statement with knowledge that the statement was not correct.”

(emphasis supplied)

21. It is, therefore, clear that suppression of facts should be deliberate and in taxation laws it can have only one meaning, namely that the correct information was not disclosed deliberately to escape payment of duty.

22. In the instant case, the show cause notice alleges that the appellant suppressed facts regarding benefit of the Notification, but there is no allegation that it was suppressed with an intent to evade payment of duty. The impugned order also merely holds that the appellant suppressed facts and there is no finding that it was done to evade payment of duty. This fact alone is sufficient to hold that the extended period of limitation could not have been invoked in the facts and circumstances of the case.

23. This apart, learned counsel for the appellant is justified in contending that the department was aware of the goods that were imported and, therefore, it cannot even be alleged that there was suppression of facts. This is for the reason that at the time when the Bills of Entry were presented, the proper officer had ordered for first check and the consignments were not only examined but were sent for testing and it is after receipt of the examination report and the test reports that it was found that samples complied with the conditions of the Notification and the DFIA licence. The goods were, therefore, cleared without payment of duty in terms of the Notification. It is, therefore, clear that the appellant had not suppressed material facts.

24. The impugned order however, holds that while examining the goods under the first check, the officer was not aware that the end use of the Polyester Bonded Fabric was to manufacture Jackets.

25. Learned authorized representative appearing for the department has not been able to point out any condition in the DFIA licence that provides that the end use of the product was also required to be ascertained before clearance of the goods. The finding recorded by the Commissioner is clearly perverse.

26. Even the decision of the Supreme Court in Pushpam Pharmaceuticals Company has been completely misinterpreted in the impugned order.

27. In such circumstances, as the invocation of the extended period of limitation is not justified and the entire demand of duty that has been confirmed is for the extended period, the confirmation of duty demanded with penalty and confiscation of goods and cash cannot be sustained. They are, accordingly, set aside and the appeal is allowed.

(Dictated and pronounced in open court.)

Notes:

the appellant

the Customs Act

DFIA

DRI

1995 (78) E.L.T. 401 (S.C.)

1999 (108) E.L.T. 321 (S.C.)

2015 (318) E.L.T. 607 (S.C.)

1995 (78) E.L.T. 401 (S.C.)

1995 (76) E.L.T. 997 (S.C.)

1995 (78) E.L.T. 401 (S.C.)

(2005) 7 SCC 749

(2003) 3 SCC 410

2013 (288) E.L.T. 161 (S.C.)

2007 (216) E.L.T. 177 (S.C.)