The Customs Appellate Tribunal has delivered a pivotal clarification on the timing and jurisdiction for raising duty demands under the Customs Act, 1962. In a decisive ruling, it held that Section 28 cannot be invoked to recover short-paid or unlevied duties when goods have been cleared on provisional assessment, effectively invalidating penalties and confiscations predicated on premature notices. This judgment reinforces procedural safeguards for importers and redefines the boundaries of revenue authority in customs adjudication.
Background & Facts
The Dispute
M/s. Ankit Impex and M/s. SBB International, both Delhi-based importers, declared imported goods as 'Recycled LDPE Granules' under CTI 39019090 and availed exemption benefits under Customs Notification No. 21/2002, paying duty at 5% Basic Customs Duty plus cesses. The Directorate of Revenue Intelligence (DRI) suspected undervaluation based on intelligence and conducted searches at the premises of the proprietors. During these searches, actual invoices dated 07.07.2009 were seized, allegedly showing higher transaction values than those declared in the Bills of Entry. The Revenue alleged that the importers submitted fabricated invoices to evade higher duties.
Procedural History
- 2009: Goods imported under provisional assessment pending test reports
- 2013: Show Cause Notice (SCN) issued under Section 28(4) proposing revaluation, differential duty, confiscation, and penalties under Sections 111(m), 112(a), 114A, and 114AA
- 2023: Adjudicating Authority upheld the SCN, rejecting declared values and applying Rule 9 of Customs Valuation Rules, 2007 to double the value
- 2024: Commissioner (Appeals) affirmed the order, despite acknowledging that key documents were not provided to the appellants
- 2025: Appeals filed before the Customs Appellate Tribunal
Relief Sought
The appellants sought quashing of the SCN, reversal of the demand, refund of appropriated deposits, and setting aside of penalties and confiscation orders, arguing that Section 28 was inapplicable due to the provisional nature of the assessment.
The Legal Issue
The central question was whether Section 28 of the Customs Act, 1962 permits the issuance of a Show Cause Notice and the imposition of duty demands, penalties, and confiscation when the assessment of imported goods remains provisional and has not been finalized.
Arguments Presented
For the Appellant
The appellants contended that Section 28 is a post-assessment remedy meant to correct errors or fraud only after final assessment. They relied on Canon India Pvt. Ltd. v. Commissioner of Customs, AS Syndicate (Warehousing) P. Ltd. v. Commissioner of Customs, and Jaju Petrochemical Pvt. Ltd. v. Commissioner of Customs to argue that the power to recover duty under Section 28 arises only after final assessment. They emphasized that provisional clearance under Section 18(1) means the duty liability is not yet determined, and therefore, no default or short-payment can be alleged. The Adjudicating Authority’s assertion that documents were provided was factually incorrect, violating principles of natural justice.
For the Respondent
The Revenue argued that the recovery of actual invoices constituted clear evidence of fraud and undervaluation, justifying invocation of Section 28 regardless of provisional clearance. It contended that the nature of the fraud was evident and that the procedural delay in finalizing assessment should not shield importers from liability. It cited prior decisions allowing Section 28 proceedings even during provisional assessments, but failed to distinguish them from binding precedents from higher courts.
The Court's Analysis
The Tribunal conducted a rigorous analysis of statutory language and binding precedents. It emphasized that Section 28 is not an independent enforcement tool but a mechanism for reviewing a final assessment. The Court quoted Canon India Pvt. Ltd.: "The nature of the power to recover the duty, not paid or short paid after the goods have been assessed and cleared for import, is broadly a power to review the earlier decision of assessment. Such a power is not inherent in any authority. Indeed, it has been conferred by Section 28..."
The Tribunal further cited AS Syndicate and Jaju Petrochemical, where High Courts held that issuing a Section 28 notice before final assessment is "bad in law" because the duty liability remains uncertain. The Court observed: "The question of refund does not arise at all. Therefore, a failure contemplated under Section 28... not happening, the authorities should not have invoked Section 124."
The Tribunal rejected the Revenue’s argument that substance should override form, noting that the SCN explicitly invoked Section 28 and sought confiscation and penalties - remedies that presuppose a final duty determination. It also found the Adjudicating Authority’s claim that documents were provided to be contradicted by its own letter dated 05.08.2019, which admitted non-availability of documents. This violated the principle of fair hearing under natural justice.
The Tribunal concluded that the entire enforcement chain - demand, appropriation, penalty, and confiscation - was rooted in a jurisdictionally invalid notice. Without a valid Section 28 notice, none of the consequential actions could stand.
The Verdict
The appellants prevailed. The Tribunal held that Section 28 of the Customs Act, 1962 cannot be invoked to raise demands, impose penalties, or confiscate goods when the assessment is provisional. All demands, penalties, confiscation orders, and appropriation of deposits were set aside. The appeals were allowed, and consequential reliefs were granted as per law.
What This Means For Similar Cases
Final Assessment Is a Prerequisite for Section 28 Proceedings
- Practitioners must challenge any SCN under Section 28 issued before final assessment as jurisdictionally void
- Revenue authorities cannot rely on suspicion or preliminary findings to trigger recovery proceedings
- Importers should insist on final assessment before responding to any duty demand under Section 28
Provisional Clearance Does Not Waive Procedural Rights
- Clearance under Section 18(1) is not an admission of liability but a procedural accommodation
- The burden remains on the Revenue to prove fraud after final assessment, not before
- Any attempt to link provisional clearance with immediate penalties is legally unsustainable
Natural Justice Requires Document Disclosure
- Adjudicating Authorities must provide all relied-upon documents at the time of SCN issuance
- Claims that documents were "already provided" must be substantiated with proof of delivery
- Failure to disclose documents invalidates the entire adjudication process, regardless of the strength of the Revenue’s case
