A landmark ruling by the Customs Appellate Tribunal has reaffirmed that the limitation period for demanding differential customs duty is absolute and cannot be circumvented by allegations of misclassification, even where intent to evade duty is suspected. The decision underscores that procedural compliance with statutory timelines is non-negotiable, regardless of the nature of the alleged transgression.
Background & Facts
The Dispute
The appellant, Nagarjuna Hospital Ltd., imported a True Beam Linear Accelerator and associated medical equipment from abroad in two Bills of Entry dated 18.03.2016. The goods were declared under Tariff Heading 9022 9030, qualifying for duty exemption under Customs Notifications 012/2012 and 021/2012. The Revenue later contended that the correct classification should have been under CTH 9022 1490, which did not attract the exemption, resulting in a differential duty demand of Rs. 1.57 crore.
Procedural History
- 18.03.2016: Goods imported under two Bills of Entry, declared under CTH 9022 9030.
- 30.03.2016: First check conducted by Customs; catalogs and documents examined.
- 08.05.2016: Goods assessed and cleared after payment of duty as declared.
- 26.09.2017: Show Cause Notice (SCN) issued, over 16 months after clearance.
- 17.10.2018: Commissioner confirmed reclassification, demanded differential duty, imposed penalty, and ordered confiscation.
- 2019: Appeal filed before the Customs Appellate Tribunal.
Relief Sought
The appellant sought setting aside of the impugned order on grounds that the SCN was issued beyond the one-year limitation period under Section 28(1) of the Customs Act, 1962, and that the classification dispute was bona fide, not amounting to fraud or suppression.
The Legal Issue
The central question was whether a Show Cause Notice issued more than one year after clearance of goods is time-barred under Section 28(1) of the Customs Act, even when the Revenue alleges deliberate misclassification to evade duty.
Arguments Presented
For the Appellant
The appellant’s counsel relied on Dr. Rai Memorial Cancer Institute and MIOT Hospitals Pvt. Ltd., both decided by coordinate benches of the Tribunal, which held that SCN issued beyond one year from clearance is time-barred. It was argued that the classification was a genuine interpretative dispute, not fraud. The importer had sought first-check appraisal, disclosed all documents, and acted in good faith. The Revenue’s reliance on Section 124 was impermissible since the SCN was issued under Section 28(4), and no corrigendum was issued to amend the basis of demand.
For the Respondent
The Revenue contended that the importer’s conduct - splitting shipments, ignoring supplier’s invoice classification, and exploiting a loophole in AERB licensing - demonstrated deliberate deception. It cited Commissioner of Customs, Kandla v. Essar Oil Ltd. and multiple High Court judgments to argue that Section 124 is not bound by strict timelines and that Section 28(4) permits extended periods for fraud. It further argued that the appellant, being a medical professional, had superior knowledge and thus acted with fraudulent intent.
The Court's Analysis
The Tribunal began by affirming the primacy of limitation periods under Section 28. It cited Commissioner of Customs, Mumbai v. B.V. Jewels and Commissioner Customs v. Monsanto Manufacturer, holding that once a demand is found time-barred, the Tribunal has no jurisdiction to examine the merits of classification or intent. The Court emphasized that Section 28(1) imposes a clear one-year limitation for regular cases, and the SCN issued on 26.09.2017 - over 16 months after clearance on 08.05.2016 - was manifestly time-barred.
"Once it is held that the demand is time barred, there would be no occasion for the Tribunal to enquire into the merits of the issues raised by the Revenue."
The Tribunal rejected the Revenue’s attempt to invoke Section 124 as a backdoor to circumvent limitation. It held that the SCN explicitly invoked Section 28(4), and the Revenue could not, at the appellate stage, shift its legal basis without issuing a corrigendum. The Supreme Court’s ruling in Ballarpur Industries was applied: the SCN is the foundation of the case, and new legal grounds cannot be introduced later.
Regarding intent, the Tribunal found no evidence of fraud. The importer’s decision to seek first-check appraisal and declare a different classification than the supplier’s invoice was not proof of deceit. The officers had physically examined the goods and accepted the classification. To impute fraudulent intent based on the importer’s profession or the supplier’s invoice was speculative. The Court held that strong suspicion cannot substitute legal proof, citing State of Kerala v. M.K. Mathew.
The Tribunal further noted that the classification dispute was not novel - two prior coordinate benches had reached similar conclusions on identical equipment. This reinforced the bona fide nature of the dispute.
The Verdict
The appellant won. The Tribunal held that the SCN was issued beyond the limitation period under Section 28(1) and was therefore time-barred. The impugned order was set aside, and the demand for differential duty, interest, penalty, and confiscation were quashed. The Tribunal declined to examine the classification merits, as the limitation issue was decisive.
What This Means For Similar Cases
Limitation Is Absolute, Even in Alleged Fraud Cases
- Practitioners must challenge SCNs issued beyond one year from clearance under Section 28(1), regardless of allegations of misdeclaration.
- Revenue cannot rely on Section 124 to bypass limitation if the SCN was issued under Section 28.
- Courts and Tribunals will not permit legal substitution of grounds post-SCN.
Classification Disputes Are Not Automatically Fraud
- Merely declaring a different tariff heading than the supplier’s invoice does not constitute fraud.
- Seeking first-check appraisal is a legitimate, good-faith practice and cannot be construed as deception.
- Professional status of the importer (e.g., doctor, engineer) does not create a presumption of fraudulent intent.
Precedent Binding on Coordinate Benches
- Coordinate bench decisions on identical equipment (e.g., Dr. Rai Memorial, MIOT Hospitals) are binding unless overruled by a larger bench.
- Practitioners should cite such precedents to argue for dismissal of time-barred notices.
- Revenue must ensure SCN clearly states legal basis - vague or shifting grounds will invalidate proceedings.
