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Dated: 16.02.2025

CESTAT Delhi sets aside time-barred customs duty recovery and penalty against nasib exports, clarifies scope of section 124 and limitation under section 28 of the customs act

Background of the Case

The case arose from a Show Cause Notice (SCN) issued on March 29, 2017, alleging that Nasib Exports fraudulently availed export incentives under the Duty Free Replenishment Certificate (DFRC) scheme and misused drawback benefits. The customs authorities sought to recover:

• ₹20,22,228/- as Basic Customs Duty along with interest,
• ₹1,47,743/- as drawback, and
• ₹10,00,000/- as penalty on each appellant for alleged economic fraud.

The appellants challenged the SCN, arguing that it was issued more than 10 years after the investigation began in 2007, which was well beyond the five-year limitation period under Section 28 of the Customs Act.

CESTAT’s Ruling

The Tribunal examined whether the SCN was legally valid and found:

• Time-Barred Demand: Since the SCN sought to recover duty, it should have been issued under Section 28, which prescribes a maximum limitation of five years. However, the SCN was issued under Section 124, which does not apply to duty recovery.
• Wrong Invocation of Section 124: The Tribunal clarified that Section 124 only allows SCNs for confiscation of goods and imposition of penalties, not for duty or drawback recovery.
• Invalid Penalty under Section 114: The Tribunal ruled that penalty under Section 114 can only be imposed if the goods are liable for confiscation under Section 113, which was not proposed in the SCN.
• Drawback Recovery Procedural Issue: The Tribunal noted that drawback recovery proceedings are execution proceedings and cannot alter the assessment of Shipping Bills through fresh adjudication.

Final Decision

CESTAT allowed the appeals, quashed all demands and penalties, and ruled that:

• The SCN was time-barred for duty recovery under Section 28.
• Wrong provisions (Section 124) were invoked for demand recovery, making them legally unsustainable.
• Penalty under Section 114 could not be imposed without confiscation of goods under Section 113.

Key Takeaways

• SCNs for duty recovery must comply with Section 28’s limitation period.
• Customs authorities cannot misuse Section 124 to bypass limitation rules.
• Penalty under Section 114 requires a valid confiscation proposal.
• Drawback recovery is an execution process, not an adjudication.

Conclusion

The CESTAT’s decision is a significant relief for exporters and reinforces the importance of adhering to statutory limitations and proper legal provisions in customs adjudications.

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Source:  CESTAT Delhi

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