Less Charge Demand under Customs: Legal Provisions & Procedures

Less Charge Demand under Customs Act, 1962: Legal Provisions & Procedures

1. Introduction:

1.1 The Customs Act, 1962 mandates filing of correct declaration by importers or exporters in respect of imported / export goods with regard to value, description of goods, classification, exemption notifications having bearing on assessment of Customs duty etc. The Customs duty is determined in terms of Section 15 or section 16 of the Customs Act, 1962 in respect of imported or export goods respectively. If the duty paid / levied is found to be less than what is due to be paid to the Government, the importer or exporter is required to pay the short levied / non levied or short paid / non paid amount of duty. In this regard, the Customs Act, 1962 empowers officers to issue a demand cum Show Cause notice for recovery of amount of duty short levied/ non levied from the importer/exporter.

2. Legal provisions:

2.1 Section 28 of the Customs Act, 1962 provides for recovery of any duty which has not been levied or has been short levied or erroneously refunded or if any interest payable has not been paid, part paid or erroneously refunded provided a notice demanding such duties/interests is issued within the time limit specified in that Section.

2.2 Where the short levy is by reason of collusion or any wilful misstatements or suppression of facts by the importer the period for issuing the demand notice is five years from the relevant date specified in Sub-section (4) of Section 28.

2.3 Other notices are to be issued within two years from the relevant date, as provided under Section 28(1).

2.4 In terms of the provisions of Section 28(8), the proper officer shall, after allowing the concerned person an opportunity of being heard and considering the representation, made by such person, determine the amount of duty or interest from such person limited to the amount specified in the notice.

2.5 In terms of the provisions of Section 28(9), such determination of duty or interest under section 28(8) is to be completed within a period of six months and one year from the date of the notice in respect of cases falling under section 28(1) and section 28(4) respectively.

2.6 However, any officer senior in the rank to the proper officer may, having regard to the circumstances which prevented the proper officer from determination of the amount of duty or interest within such time period prescribed under section 28(8), extend the period specified for a further period of six months and one year in respect of cases falling under section 28(1) and section 28(4) respectively.

2.7 Further in terms of the provisions of Section 28BB any inquiry or investigation under this Act, culminating in the issuance of a notice under sub-section (1) or sub-section (4) of section 28 shall be completed by issuing such notice, within a period of two years from the date of initiation of audit, search, seizure or summons, as the case be, or such extended period of further one year.

2.8 In terms of the provisions of Section 110AA, where in pursuance of any proceedings, in accordance with Chapter XIIA or XIII, if an officer of customs has reasons to believe that-

(a) any duty has been short-levied, not levied, short-paid or not paid in a case where assessment has already been made;

(b) any duty has been erroneously refunded;

(c) any drawback has been erroneously allowed; or

(d) any interest has been short-levied, not levied, short-paid or not paid, or erroneously refunded,

then such officer of customs shall, after causing inquiry, investigation, or as the case may be, audit, transfer the relevant documents, along with a report in writing–,

(i) to the proper officer having jurisdiction, as assigned under section 5 in respect of assessment of such duty, or to the officer who allowed such refund or drawback; or

(ii) in case of multiple jurisdictions, to an officer of customs to whom such matter is assigned by the Board, in exercise of the powers conferred under section 5, and thereupon, power exercisable under Section 28, 28AAA or Chapter X, shall be exercised by such proper officer or by an officer to whom the proper officer is subordinate in accordance with sub-section (2) of Section 5.

3. Provisions for voluntary compliance:

3.1 The person chargeable with duty or interest, may pay before service of notice, either on the basis of his own ascertainment of such duty or the duty ascertained by the proper officer, the amount of duty along with the interest payable thereon under Section 28AA or the amount of interest which has not been so paid or part-paid.

3.2 Before issuing notice under section28(1), the proper officer shall hold pre-notice consultation with the persons chargeable to duty or interest except in cases falling under section 28(4) or 28AAA;

3.3 The person who has paid the duty along with the interest or amount of interest under section 28(1)(b) shall inform the proper officer of such payment in writing, who on receipt of such information, shall not serve any notice in respect of the duty or interest so paid or any penalty leviable under the provisions of the Act or the rules made thereunder.

3.4 In terms of the provisions of Section 114A, where duty or interest, as the case may be, as determined under section 28(8) and the interest payable thereon under section 28AA is paid within 30 days from the date of communication of the order of the proper officer determining such duty, the amount of penalty liable to be paid by such person shall be twenty percent of the duty or interest, as the case may be, so determined.

3.5 Sub-section (5) of Section 28 of the Customs Act, 1962 provides that the importer or the exporter or the agent or employee of the importer or exporter, to whom a notice is served under the Sub­section (4) of Section 28 of the said Act pays the duty in full or in part as may be accepted by him, and the interest payable thereon under Section 28AA of the said Act and penalty equal to 25% of the duty specified in the notice or the duty so accepted by such person within 30 days of the receipt of the notice. In such case –

(i) if such person has paid the duty in full together with interest and penalty, the proceedings in respect of such person and other persons to whom notice is served shall, without prejudice to the provisions of Sections 135, 135A and 140 of the said Act, be deemed to be conclusive as to the matters stated therein.

(ii) However, if the duty with interest and penalty that has been paid falls short of the amount actually payable, then, the proper officer shall proceed to issue the notice as provided for in clause (a) of sub-section (1) in respect of such amount which falls short within two years from the date of receipt of information under sub-section (5) of section 28 of the said Act.

4. Proper officer’ for the ections 17 and 28 of the Customs Act, 1962:

4.1 To address the issue of validity of Show Cause Notices issued by the DRI, which were impacted by the judgement of the Hon’ble Supreme Court in the case of Canon India Private Limited vs Commissioner of Customs, Section 97 of the Finance Act, 2022. Also, certain provisions of the Customs Act have been amended & inserted as mentioned below:

(i) Sub-Section (34) of Section 2 had been amended to specifically state that assignment of functions to an officer of Customs by the Board or the Principal Commissioner/ Commissioner of Customs shall be done under the newly inserted sub-sections (1A) and (1B) of Section 5 of the Customs Act, 1962.

(ii) Section 3 had been amended to specifically include the officers of DRI, Audit and Preventive formation in the class of Officers, so as to remove the ambiguity as regards the class of officers of Customs.

(iii) Sub-section (1A) and (1B) have been inserted in section 5 of the Act to explicitly provide power of assignment of function to officers of Customs by the Board or as the case may be, by the principal Commissioner of Customs or Commissioner of Customs. The amendment has been necessitated to correct the infirmity observed by the Courts in recent judgements that the Act required explicit provisions conferring powers for the assignment of function to officers of Customs as proper officers for the purpose of the Act, besides definition clause (34) in section 2 of the Customs Act.

(iv) Sub-section (4) to section 5 is inserted to delineate the criteria which the Board may adopt while imposing limitations or conditions under sub-section (1) or while assigning functions under sub-section (1A) to the officers of Customs. For instance, one of the limitations/conditions that the Board currently imposes on officers of customs is that they are required to operate within a specified territorial jurisdiction. However, with the launch of faceless assessments and other trade facilitation initiatives wherein, for instance, a need is felt for the development of industry-specific expertise in assessments the Board may need to confine jurisdiction to certain goods or class of goods.

(v) Sub-section (5) to section 5 is inserted to ensure that wherever necessary, for the proper management of work, two or more officers of Customs, can concurrently exercise powers and functions (as in the case of faceless assessment).

(vi) Section 110AA is inserted with a view to affirm the principle that, wherever, an original function duly exercised by an officer of competent jurisdiction, is the subject matter of a subsequent inquiry, investigation, audit or any other specified purpose by any other officer of customs, then, notwithstanding, such inquiry, investigation, audit or any other purpose, the officer, who originally exercised such jurisdiction shall have the sole authority to exercise jurisdiction for further action like reassessment, adjudications, etc. consequent to the completion of such inquiry, investigation, audit or any other purpose.

4.2 In alignment with the above provisions, the Proper Officer for issue of demand has been notified under Section 5(1A) vide notification 26/2022-Customs (N.T.) dated 31.03.2022.

4.3  Cases of single jurisdictions may be adjudicated in terms of the guidelines on monetary limit for adjudication of cases by different grades of Customs Officers. Board has decided that cases where SCNs are issued under section 28 of the Customs Act, 1962, these will be adjudicated as per following norms highlighted in Table 13.1.

Table 13.1: Monetary limit for adjudication of cases by different grades of Customs Officers

4.4 Further, the proper officer for the issuance of single jurisdiction Show Cause Notice and adjudication of cases under the provisions of Rule 16 of the Customs, Central Excise and Service Tax Drawback Rules, 1995 shall be as under:

(i) In case of simple demand of erroneously paid drawback, the present practice of issuing Show Cause Notice and adjudication of case without any limit by Assistant / Deputy Commissioner of Customs shall continue.

(ii) In cases involving collusion, wilful misstatement or suppression of facts etc., the adjudication powers will be as described in Table 13.2.

Table 13.2: Adjudication powers in cases involving collusion, wilful misstatement or suppression of facts etc

4.5 In case of Export Promotion Schemes i.e. Advance Authorization / DFIA / Reward Schemes etc. the adjudication powers shall be as described in Table 13.3.

Table 13.3: Adjudication powers in case of Export Promotion Schemes

4.6 In relation to goods which are liable for confiscation under Chapter XIV of the Customs Act 1962, the adjudication powers for the purposes of adjudging confiscation or penalty shall be as under described in Table 13.4

Table 13.4: Adjudication powers for the purposes of adjudging confiscation or penalty

[Refer Notification No. 50 /2018-Customs (N.T.) dated 8th June 2018]

4.7 However in case of multiple jurisdictions, the following category of cases has been assigned to the officers of Customs for the purpose of issuing Show Cause Notice and adjudication vide Notification No. 28/2022-Customs (N.T.) dated 31^st March, 2022, in respect of cases falling under section 110AA. These are discussed in Table 13.5 below.

Table 13.5: Proper Officer of Customs for issuing Show Cause Notice in case of multiple jurisdictions

4.8 Powers to Chief Commissioners to assign the cases for adjudication of show cause notices within their respective jurisdiction.

For smooth and expeditious disposal of the pending demands for adjudication, the Board has delegated its powers conferred by clause (a) of section 152 of the Customs Act, 1962 (52 of 1962), to the Principal Chief Commissioner or Chief Commissioner of Customs for the purposes of assigning the cases for adjudication of show cause notices issued under the provisions of the said Act or rules, regulations made there under, within his jurisdiction.

[Refer Notification No. 91 /2018-Customs (N.T.) dated 5th November 2018]

5. Demand Show Cause Notice:

5.1 The proper officer shall not serve demand notice, where the amount involved is less than rupees one hundred, in terms of provisions of section 28(1)(b).

5.2 Show Cause Notice for demand of duty or interest under the provisions of Section 28, 28AA or 28AAA of the Customs Act, 1962 can be issued by such proper officer or by an officer to whom the proper officer is subordinate in accordance with sub-section (2) of Section 5, within the time period specified therein or such extended time period.

6. Adjudication proceedings:

6.1 After receipt of the notice, the noticee shall have to submit its reply within the time period specified in the notice.

6.2   Upon receipt of the notice’s reply to a demand notice the matter is examined in detail and the noticee is offered an opportunity of ‘personal hearing’ to explain his case before the adjudicating authority. After the personal hearing, the adjudicating authority, shall examine the material placed before him and the relevant legal provisions and come to a conclusion. Generally, the issues involved are mis-declaration of the description of the goods resulting in wrong classification and levy of lesser duty, misdeclaration of value, quantity and weight having a bearing on duty, calculation error resulting in short levy of duty, non-inclusion of certain components of value in the assessable value etc.

6.3 The adjudicating authority is required to take an independent decision as a quasi-judicial authority and pass appropriate orders either determining the amount of short levy in terms of Section 28(8) of the Customs Act, 1962 or dropping the proceedings where it is found that there is no short levy. In either case an appealable order is to be issued by the adjudicating authority. Such determination of duty/ issuing adjudication orders is to be done within the time period specified under Sub-section 9 of Section 28. The duties, fines and penalties imposed, if any, are required to be paid immediately, unless the party files an appeal and obtains a stay from the competent authority.

6.4 The proper officer may keep the case pending, in case the proper officer is unable to determine the amount of duty or interest under sub-section (8) on account of—-

(a) an appeal in a similar matter of the same person or any other person is pending before the Appellate Tribunal or the High Court or the Supreme Court; or

(b) an interim order of stay has been issued by the Appellate Tribunal or the High Court or the Supreme Court; or

(c) the Board has, in a similar matter, issued specific direction or order to keep such matter pending; or

(d) the Settlement Commissioner has admitted an application made by the person concerned,

Further, the proper officer shall inform the person concerned the reason for non-determination of the amount of duty or interest under sub-section (8) and in such case, the time specified in sub­section (9) shall apply from the date when such reason ceases to exist.

6.5 In case of baggage, the Additional Commissioner or Joint Commissioner shall adjudicate the cases without limit, since such cases are covered by the offences under Chapter XIV of the Customs Act, 1962 and it is necessary to expeditiously dispose such cases in respect of passengers at the airport.

6.6 In other cases, such as short landing, the adjudication power will be the same as provided under the Customs Act, 1962 or the rules/regulations made thereunder.

6.7 As regards breach of condition of a notification after availing of the exemption thereunder, the Apex Court has held that that the obligation under a notification is a continuing one and the Customs authorities are well within their power to recover the duty whenever it comes to their notice that the importer has failed to fulfill the conditions. In such cases the demand can be issued irrespective of the time factor and the amount can be recovered in terms of the provisions of the Customs Act.

6.8 The confirmed demands are enforced and recoveries effected in accordance with the provisions of Section 142 of Customs Act, 1962. Where it is not possible to recover the amount by adjusting against any money which the Department owes to such persons, or by detaining and selling any goods belonging to such persons which are under the control of the Department, action is initiated to recover Government dues through the District Collector as if it were an arrears of land revenue. Powers are also vested with Customs for attaching/detaining and selling movable or immovable property belonging to or under control of such person.

[Refer Circular No.23/2009-Cus, dated 01.09.2009]

Source – Custom Duty Manual 2023