Legal principle

Where the Central Government, in exercise of powers under section 28A of the Customs Act, 1962, directs that duty on goods covered by a generally prevalent practice of non-levy shall not be required to be paid for the specified period, pending recovery proceedings, interest and penalties under the Act cannot be sustained.

Court decision

The Tribunal set aside the impugned order in its entirety, holding that the impugned goods were entitled to be relieved of duty liability, and allowed the appeal in favour of Samarth Diamonds, thereby extinguishing the duty demand, interest and both penalties.

Facts

M/s Samarth Diamonds imported twelve consignments of 'rough diamonds sawn' valued at ₹27,21,11,098, classifiable under tariff item 7102 3100 of the First Schedule to the Customs Tariff Act, 1975, and cleared them without duty claiming the benefit of notification no. 50/2017-Cus dated 30 June 2017, which exempted 'Rough diamonds (industrial or non-industrial)' under S.No. 345 of Chapter 71. The customs authorities were not convinced that 'sawn diamonds' were still 'rough diamonds' and adjudicated (Order-in-Original dated 13 August 2024) a duty demand of ₹2,31,85,567 under section 28 of the Customs Act, 1962, with interest under section 28AA, an equal penalty under section 114A and a further penalty under section 114AA. Subsequently, the Central Government issued notification no. 70/2024-Cus (NT) dated 23 October 2024 under section 28A, directing that duty on such goods for the period 1 July 2017 to 1 February 2022, but for the generally prevalent practice of non-levy, shall not be required to be paid.

Key provisions

• Section 28A, Customs Act, 1962 —  Power not to recover duties not levied or short-levied as a result of general practice
• Section 28AA, Customs Act, 1962 — Interest on delayed payment of duty
• Section 114AA, Customs Act, 1962 — Penalty for use of false and incorrect material
• Section 114A, Customs Act, 1962 — Penalty for short-levy or non-levy of duty in certain cases
• Section 28, Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded