The Delhi High Court has ruled that the expiry of the limitation period prescribed under Section 28 of the Customs Act, 1962 does not prevent the appropriation of an amount already deposited voluntarily by an importer towards an admitted customs duty liability.
The Bench of Justice Anil Kshetrapal and Justice Shail Jain observed that a clear distinction must be drawn between the Customs Department initiating a statutory demand after the limitation period and the authorities adjusting an amount which the importer had already deposited voluntarily during an investigation.
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The Court consequently dismissed a writ petition filed by Ridhi Sidhi Overseas challenging a 2018 order passed by the Customs, Central Excise and Service Tax Settlement Commission, Principal Bench, New Delhi.
The dispute arose from an investigation conducted by the Directorate of Revenue Intelligence’s Mumbai Zonal Unit into the alleged undervaluation of confectionery products imported from Seville Products Ltd., Dubai.
According to the investigation, importers of wafers, cookies, toffees and other confectionery items were declaring values lower than the actual transaction values to evade customs duty. The differential amount was allegedly remitted to the overseas supplier through non-banking channels.
Ridhi Sidhi Overseas, a proprietary concern of Navin Singh, imported 21 consignments of assorted confectionery products between 2008-09 and 2010-11 through Nhava Sheva, ICD Tughlakabad and Chennai.
The premises of the overseas supplier’s stated Indian representative and the petitioner were searched during the investigation. Invoices and statements of account allegedly recovered during the searches reflected values higher than those declared before the Customs authorities.
The proprietor’s statements were recorded on February 11, 2014, and June 26, 2015. The Settlement Commission recorded that he admitted that the recovered invoices reflected the actual value of the consignments and that the difference between the actual invoices and the invoices submitted to Customs was paid through intermediaries.
He was also stated to have admitted that the Retail Sale Price of the goods covered by the 21 Bills of Entry had been misdeclared.
The investigation quantified the total differential customs duty at ₹1,15,88,712.
Out of this amount, ₹45,68,364 related to eight Bills of Entry falling within the extended limitation period of five years. The remaining ₹70,20,348 related to 13 Bills of Entry which were more than five years old.
The petitioner deposited ₹85 lakh during the investigation. According to the Settlement Commission, the proprietor admitted the total differential duty liability and requested that the amount deposited during the investigation be adjusted against the duty payable for the period from 2008-09 to 2010-11.
A show-cause notice dated August 21, 2015 proposed the re-determination of the transaction value and RSP of the goods. The notice proposed the recovery of ₹45,68,364 relating to imports falling within five years, along with interest.
It also proposed the appropriation of ₹70,20,348 from the petitioner’s voluntary deposit towards duty relating to imports beyond five years. Confiscation of the imported goods and imposition of penalties were also proposed.
The declared assessable value of the 21 consignments was ₹1,45,07,141. The authorities proposed its re-determination at ₹4,13,81,498 under Section 14 of the Customs Act read with the Customs Valuation Rules, 2007.
The importer subsequently approached the Settlement Commission under Chapter XIV-A of the Customs Act.
In its settlement application, it admitted the differential duty liability of ₹45,68,364 pertaining to imports falling within the five-year period. It also admitted an interest liability quantified at ₹30,73,905 and requested adjustment of these amounts from the ₹85 lakh deposited during the investigation.
However, it disputed the liability of ₹70,20,348 relating to imports beyond five years, contending that its recovery was barred by the limitation period under Section 28.
By its order dated February 26, 2018, the Settlement Commission accepted the duty liability of ₹45,68,364 relating to the period within five years.
Regarding the remaining ₹70,20,348, the Commission held that while the limitation under Section 28 restricted the Department’s power to issue a statutory demand after the prescribed period, it did not prevent an importer from voluntarily paying the duty.
Relying upon the proprietor’s statement, the Commission appropriated ₹70,20,348 out of the ₹85 lakh deposit towards the duty relating to imports beyond five years. The remaining ₹14,79,652 was adjusted towards the admitted duty liability of ₹45,68,364, leaving a balance duty liability of ₹30,88,712.
The jurisdictional commissioners were directed to calculate the applicable interest. Although the goods were held liable to confiscation, no redemption fine was imposed because the goods were neither available nor seized. Penalties were imposed, while conditional immunity from prosecution was granted.
Before the High Court, the petitioner argued that the Settlement Commission could not appropriate ₹70,20,348 towards a liability relating to imports beyond the five-year limitation period.
It contended that the direction effectively permitted the recovery of a time-barred demand. The petitioner maintained that it had approached the Settlement Commission only for the settlement of the admitted liability of ₹45,68,364 and the applicable interest.
The Customs Department, however, argued that the petitioner was mixing up two distinct issues: the Department’s statutory power to issue a demand under Section 28 and the treatment of money already deposited voluntarily by the importer.
The Department submitted that no fresh statutory demand had been raised for the period beyond five years. It pointed out that the petitioner’s proprietor had specifically stated that the ₹85 lakh deposit should be adjusted towards the differential duty for the entire period from 2008-09 to 2010-11.
It was further submitted that the proprietor’s statements had never been retracted. The Department also highlighted that the petitioner had not filed a rejoinder to its counter-affidavit or produced the relevant statements before the High Court.
The High Court held that the distinction between the statutory demand mechanism and the treatment of an amount already deposited voluntarily was central to the dispute.
The issue before the Court was not whether the Department could initiate fresh proceedings after the expiry of limitation to recover ₹70,20,348. Instead, the issue was whether the Settlement Commission could consider the voluntary deposit and direct its appropriation during settlement proceedings initiated by the importer itself.
The Court noted that the Settlement Commission had specifically recorded the proprietor’s statement admitting a total differential duty liability of ₹1,15,88,712 and requesting adjustment of the ₹85 lakh deposit towards the duty payable for 2008-09 to 2010-11.
There was no material before the High Court to displace this factual finding. The petitioner had neither produced the relevant statements nor demonstrated that the statement dated June 26, 2015, had subsequently been retracted.
The Court also noted that the petitioner did not file a rejoinder disputing the specific averments made by the Customs Department in its counter-affidavit.
Accordingly, this was not a case in which the Revenue had unilaterally recovered a time-barred demand after the expiry of the period prescribed under Section 28. The amount had already been deposited voluntarily, and the Settlement Commission considered its appropriation based on the importer’s admission and request.
Rejecting the contention that the Settlement Commission had brought a time-barred demand through the “back door”, the High Court observed that the Commission had not issued a fresh demand for ₹70,20,348.
It had instead dealt with an amount already deposited by the importer during the investigation. The Commission appropriated ₹70,20,348 towards the liability relating to imports beyond five years and adjusted the balance of ₹14,79,652 against the admitted liability falling within five years.
The Court acknowledged that the importer had disputed the enforceability of ₹70,20,348 in its settlement application. However, that position did not prevent the Settlement Commission from considering the earlier statement explaining why the ₹85 lakh had been deposited and how it was to be adjusted.
The Court also distinguished the Bombay High Court’s decision in C.J. Shah & Company v. Union of India, relied upon by the petitioner. It noted that the payment in that case was made without prejudice to the assessee’s rights and contentions. The case also involved anti-dumping duty and a separate dispute concerning the origin of imported goods.
In the present matter, by contrast, the Settlement Commission had found that the importer voluntarily deposited the amount and specifically requested its adjustment against the relevant differential duty liability.
The High Court further observed that Section 127J of the Customs Act gives finality to settlement orders under the statutory scheme. While this does not exclude the High Court’s constitutional jurisdiction under Article 226, judicial review cannot be exercised as though the Court were sitting in appeal over the Settlement Commission’s factual findings.
Interference may be warranted where the Commission acts without jurisdiction, violates natural justice, commits a manifest error of law or reaches a conclusion wholly unsupported by the record. No such infirmity was established in the present case, the Court held.
The petitioner’s challenge essentially sought a reconsideration of the factual finding concerning the purpose of the voluntary deposit. The Court declined to undertake such a reappreciation, particularly when the relevant statements had not been produced and the Department’s counter-affidavit remained uncontroverted.
The Bench clarified that its ruling was confined to the particular facts of the case and should not be interpreted as diluting or extending the limitation period prescribed under Section 28 of the Customs Act.
Finding no jurisdictional error, violation of natural justice or manifest error of law in the Settlement Commission’s order, the High Court dismissed the writ petition and the pending application.
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