Introduction
The purpose of establishment of the concept of customs is to generate revenue whenever a good is being imported into India. The moment the good reaches customs water of India or through air it will suffer customs duty. The objective of customs duty is to protect the domestic industry from that of aggressive foreign competition. Another reason for customs duty is for the purpose of generating revenue for the government[1].
Recovery is a concept under customs through which any duty, which has not been levied, short levied, or erroneously refunded, can be recovered as per the provisions of section 28 and 28AAA of the Customs Act. There are two parts in Section 28, one, duty short paid or short levied or erroneously refunded for reasons other than collusion or any willful misstatement or suppression of facts, in which case the limitation is two years; on the other hand, duty that has been short paid or short levied or erroneously refunded for reasons of collusion or any willful misstatement or suppression of facts, in which case the limitation is five years[2].
Section 28AAA is on the same concept of recovery, but it only applies to cases where a benefit has been availed under a scheme such as under Foreign Trade (Development and Regulation) Act, 1992, and the duty so short paid or short levied or erroneously refunded must be through collusion or willful misstatement or suppression of facts[3].
Section 28 of the Customs Act, 1962
It articulates the concept of recovery by the Customs department from any person who has imported or exported any good, for which the duty levied is short levied, or short paid or erroneously refunded, for reasons other than that of collusion or willful misstatement or suppression of facts. The proper officer has a time limit of up to two years so as to issue show cause notice to the person and ask for recovery of the amount along with interest.
Another part under section 28 is that about amount or interest that is short paid or short levied or erroneously refunded through way of collusion or willful misstatement or suppression of facts.
Section 28AAA of the Customs Act, 1962
Objective of the section
The Notes on Clauses for the Finance Bill 2012 provides the reason for insertion of section 28AAA as:
“provide for recovery of duties in certain cases relatable to utilization of instruments, such as duty credit scrips issued under the Foreign Trade (Development and Regulation) Act, 1992 where the instrument was obtained by means of collusion or willful misstatement or suppression of facts made by the person to whom it was issued or his agent or employee, and was utilized by another person who acquired it from the original holder, then the duties, relatable to the utilization, shall be recovered from the person to whom the instrument had been issued”[4].
The only difference between section 28 and 28AAA is that recovery is for all cases under 28 and in 28AAA recovery is for the cases only where the obtaining of a license under a fiscal benefit scheme is through illegal means such as collusion or willful misstatement or suppression of facts and the person has also availed the benefit under the fiscal scheme.
Recover under 28AAA puts forward certain conditions as prerequisites to initiate proceedings for recovery:
1. That the appropriate authority must have issued the license to the exporter under a fiscal benefit scheme.
2. That the exporter must have obtained the fiscal benefit license from the appropriate licensing authority through collusion or willful misstatement or suppression of facts.
3. And the fiscal benefit has been utilized by a person other than the person who obtained the license.
Issues:
There are three concerns to take note of under this section:
1. Since this section creates a prerequisite that this section will be applicable only in cases where fiscal benefits haven been obtained through an instrument (such as a license) from the appropriate licensing authority, whether customs officer has the powers to initiate recovery proceedings? Will it not overlap with the powers of the appropriate statute of the licensing authority which issues such license?
2. Who is the proper customs officer to initiate proceedings for recovery?
3. What is the limitation period to initiate such a recovery proceeding under 28AAA?
Issues 1:
A plain reading of the section 28AAA of the Customs Act, 1962 provides a perspective that the customs officer has the power to recover the amount that the transferee has utilized using an instrument, such as a duty credit, which was obtained by the transferor by suppression of facts or willful misstatement or collusion.
The section states that once it is found that the instrument was obtained from the appropriate licensing authority on the above grounds, then the customs officer can initiate proceedings by issuing an SCN and imposing of penalty and interest.
Now, it is to be noted that this section does not provide any time period within which the proper officer can initiate proceedings. Further on the section also does not provide for a non-obstante clause for the purpose of jurisdiction.
An inference that can be drawn to the section is that there have to be the presence of any of the grounds above stated so as to initiate a proceeding for recovery.
The grounds above can only be proven by the licensing authority which granted the issue of such license or scrip to the person. Therefore, there is a condition that only when the issue of the instrument is found to be obtained through illegal means, can recovery proceedings be initiated.
But for the purpose of proving that the instrument was obtained through illegal means, only the licensing authority has the power to suspend or cancel the instrument.
In the case of any scheme under the Foreign Trade Policy, only the Director General or a subordinate under the Director General of the Directorate General of Foreign Trade, under the Foreign Trade (Development Regulation) Act under sections 9 & 10 have the power to suspend or cancel the instrument.
The grounds above can only be proven by the licensing authority which granted the issue of such license or scrip to the person. Therefore, there is a condition that only when the issue of the instrument is found to be obtained through illegal means, can recovery proceedings be initiated.
Which will impliedly mean that the only after initiation of proceeding of suspension or cancellation or suspension or cancellation of the said instrument by the appropriate licensing authority can the Customs officer initiate proceedings for recovery under section 28AAA.
In the case of Jeena & Co. v. Union of India, the Madras HC in its judgment dated 29th November, 2019, held that only after the Licensing Authority has initiated proceedings or have cancelled the license issued to the assessee under a scheme, can the customs authority initiate proceedings for recovery under section 28AAA of the Customs Act.
Therefore, though the legislation has categorically differentiated the role of licensing authority and the revenue authority, in practice, a fiction is created by the proper officer under Customs Act to initiate the proceedings ab initio and assumes the role of licensing authority. Hence, there is a man made fictional jurisdictional overlap between section 28AAA and FTDR Act.
Issue 2:
The proper officer for findings with respect to obtaining license by means of Collusion (or) Willful misstatement (or) Suppression of facts is the DGFT and its officers who are empowered u/s 10 of the FTDR Act. Once the finding u/s 10 of FTDR Act is concluded resulting in cancellation/suspension of the license, the role of Customs Act comes into picture[5].
28AAA and notifications- lean towards the possibility of proper officers to exercise powers under this section to recover the amount up to the amount specified in the instrument.
After Canon India Judgment by the SC, the Finance Act, 2022 cleared the following on proper officers[6]:
– Notification 25 & 28 of 2022– DRI to be proper officer for recover under section 28- section 3, 4[7][8].
– Notification 26 & 28 of 2022 Deputy Commissioner of Customs and Assistant Commissioner of Customs- proper officer for recovery under section 28AAA[9].
It is to be noted that DRI is not a proper officer to issue SCN nor to adjudicate on matters under section 28AAA
Issue 3:
From the perspective of Jeena & Co. v. UOI[10] by the Madras HC, the Customs officer cannot himself initiate proceedings under section 28AAA without the licensing authority initiating proceeding for suspension and cancellation.
But after a reasonable amount of time being elapsed, the DGFT cannot initiate proceedings for suspension or cancellation.
In the case of North Eastern Chemicals Industries Pvt Ltd v. Ashok Paper Mill, the Supreme Court has stated that when in absence of a prescribed reasonable time under a statute, reasonable time would have to be construed as per the facts and circumstances of each case, as under:
– “30.2 In the absence of any particular period of time being prescribed to file an appeal, the same would be governed by the principle of ‘reasonable time’, for which, by virtue of its very nature, no straitjacket formula can be laid down and it is to be determined as per the facts and circumstances of each case. In the present case, having regard to the sequence of events, as taken note of above-the Claimant – Appellants cannot be said to have transgressed the boundaries of reasonable time in filing their appeal before the District Judge.”
Which will in turn, mean that the customs officer cannot initiate recover proceeding under section 28AAA without DGFT initiation on suspension or cancellation, and once reasonable time has elapsed, DGFT cannot initiate for suspension or cancellation and thus customs officer also cannot initiate for recovery.
In the case of North Eastern Chemicals Industries Pvt Ltd v. Ashok Paper Mill[11], the Supreme Court has stated that when in absence of a prescribed reasonable time under a statute, reasonable time would have to be construed as per the facts and circumstances of each case, as under:
– “30.2 In the absence of any particular period of time being prescribed to file an appeal, the same would be governed by the principle of ‘reasonable time’, for which, by virtue of its very nature, no straitjacket formula can be laid down and it is to be determined as per the facts and circumstances of each case. In the present case having regard to the sequence of events, as taken note of above-the Claimant – Appellants cannot be said to have transgressed the boundaries of reasonable time in filing their appeal before the District Judge.”
Or another perspective can be drawn that the reasonable time being 5 years. The 5 years being borrowed from the parent section- 28 of the Customs Act.
But this 5 year time is only mentioned in the Customs Act and no time period is mentioned in the FTDR Act for the suspension or cancellation of license.
An analysis of the Handbook of Procedures applicable from April 2015 to March 2020 published by the Ministry of Commerce and Industry for the purpose of FTDR, shows that for the purpose of Risk Management System and the Handbook of Procedures from the year 2023, provides that the records of the status holder shall be maintained for 2 years from the date of issue of certificate.
But since the maximum period to initiate recovery proceeding is 5 years, it can be presumed that the reasonable time is 5 years for the purpose of suspension or cancellation of the license by the licensing authority and to initiate recovery proceeding under section 28AAA by the Deputy or the Assistant Commissioner of Customs (the proper officer).
In the case of Sansera Engineering v. Deputy Commissioner, Large Tax Payer Unit, Bengaluru, the Supreme Court of India when a subordinate statute or rule does not prescribe a limitation period, the limitation period prescribed under the parent act will be applicable[12].
Conclusion:
There either has to be an amendment or a notification referring to the Madras HC judgment and clearing the jurisdictional conflict between customs officer and licensing authority.
The above will lead to the clearing of the confusion of jurisdictional conflict between customs and DGFT for the purpose of recovery.
The answer to issue 2 is a straightforward one which is that the DRI is not the proper officer under section 28AAA as provided by notifications 26 & 28 of 2022 issued by CBIC.
As to limitation period, the Supreme Court in the Sansera Engineering Ltd., clears the confusion. The limitation period prescribed under parent section will be applicable to the subordinate section i.e., that is under section 28(4) five year has been given as the limitation period for issuing show cause notice, and the same five years will be applicable under section 28AAA as well.
[1] Parthasarathi Shome, CUSTOMS IN INTERNAITONAL RELATIONS: THE INDIAN CONTEXT, World Customs Journal, Vol. 7, No. 1, March 2013
[2] Section 28 Customs Act, 1962
[3] Section 28AAA Customs Act, 1962
[4] Finance Bill, 2012
[5] Section 10 Foreign Trade (Development and Regulation) Act, 1992
[6] Finance Act, 2022
[7] NOTIFICATION NO. 25/2022-CUSTOMS (N.T.) [S.O. 1541(E)/F.NO. 450/72/2021-CUS IV], DATED 31-3-2022
[8] NOTIFICATION NO. 28/2022-CUSTOMS (N.T.) [S.O. 1544(E)/F. NO. 450/72/2021-CUS IV], DATED 31-3-2022
[9] NOTIFICATION NO. 26/2022-CUSTOMS (N.T.) [S.O. 1542(E)/F. NO. 450/72/2021-CUS IV], DATED 31-3-2022
[10] Writ Petition No. 4005 of 2022
[11] 2023 INSC 1059
[12] 2022 INSC 1234
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