Customs Dept. Can’t Invoke Section 28AAA Without DGFT First Initiating License Cancellation: CESTAT

The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that jurisdiction under section 28AAA of the Customs Act could have been invoked without the Directorate General of Foreign Trade (DGFT) having initiated the process for cancellation of the license.

The bench of Justice Dilip Gupta (President) and P. V. Subba Rao (Technical Member) has observed that Section 28AAA has been inserted in the Customs Act through Section 122 of the Finance Act, 2012 to provide for recovery of duties from the person to whom an instrument such as credit duty scrips was issued where such instrument of law, action for recovery of duty can be initiated under the said provision. Field formations are advised to issue demands as soon as DGFT/concerned regional Authority initiates action for cancellation of an instrument but the matter may be decided only after the instrument has been cancelled by DGFT.

The appellant/assessee is engaged in the manufacture and export of Ready Made Garments. It entered into contracts for supplying Ready Made Garments with Lagoon Trading LLC, Lagcy Trading LLC, and Royal Readymade Garments based in U.A.E.

To encourage exports to remote markets, the Government introduced the Focus Market Scheme5, designed to offset higher freight costs borne by buyers. Under the FMS, exporters often offer reduced prices to customers in designated countries like Panama. This approach ensures competitiveness by partially absorbing the elevated freight costs, aligning with the objectives of the FMS.

As per the contracts, the appellant was required to supply the goods on the prices stated in the agreement on FOB terms and to a place notified by the buyer. In terms of the contract, Concorde Shipping & Logistics India was solely responsible for undertaking shipping as per the instructions of the buyer.

According to the appellant, the buyer used to instruct the appellant telephonically to export the goods to a particular country which was “Panama‟ in this case and accordingly, the appellant would send the goods along with the export documents, such as commercial invoice and packing list to the Customs House Agent for customs clearance for making exports to Panama who sent the exporter copy of the Shipping Bills to the appellant. The TR-1 and TR-2 copy of Shipping Bills were forwarded to the Freight Forwarder.

The appellant contended that since the contract between the appellant and the buyer was on FOB basis, as soon as the Let Export Order was issued, title in the Goods passed to the buyer and the appellant would no longer be the owner of the Goods. The Freight Forwarder, being the representative of the buyer, was responsible for arranging the Shipping Lines and getting the Goods ultimately exported. The appellant claims that it was, therefore, not responsible for the movement of Goods thereafter and was also unaware of any communication between the buyer and Freight Forwarder.

A show cause notice dated September 09, 2017 was issued inter alia proposing to demand ineligible benefit availed under the FMS equivalent to Rs. 1,58,44,432/- under section 28AAA of the Customs Act with interest. It also proposed to impose penalties under sections 114AA and 114 (iii) of the Customs Act on the appellant.

The adjudicating authority passed the order Holding the Goods liable for confiscation under section 113(d), (g) and (i) of the Customs Act, but refrained from imposing any redemption fine; confirmed recovery with applicable interest. The adjudicating authority dropped the demand of Duty Drawback. The adjudicating authority imposed the penalty on the appellant under sections 114AA and 114(iii) of the Customs Act.

The appellant submitted that the show cause notice issued under section 28AAA of the Customs Act is without jurisdiction. This is for the reason that a demand under this section can be made only after the Directorate General of Foreign Trade, which is the concerned regional authority, initiates action for cancellation of the instrument but adjudication can take place only after the instrument has been cancelled by DGFT.

The department contended that the DGFT has informed the concerned Commissionerate that they are in the process of taking action on the instrument though the license has not been cancelled as yet. Even otherwise, section 28AAA of the Customs Act would be applicable as the instrument was obtained by means of collusion or willful statement or suppression of facts.

The tribunal held that the order passed was without jurisdiction as the DGFT has neither cancelled the instrument nor even initiated proceedings for cancellation of the instrument.

Case Details

Case Title: M/s Colour Cottex Pvt. Ltd. Versus Commissioner of Customs (Export)

Case No.: Customs Appeal No. 55760 Of 2023

Date: 04.06.2025

Counsel For Appellant: Naveen Bindal

Counsel For Respondent: Rakesh Kumar

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