Legal principle

Where a disputed levy rests on interpretation of an exemption notification, the importers acted under departmental instructions and approvals with full disclosure, the extended period of limitation under Section 28(4) cannot be invoked absent suppression or malafide, and a demand confined to the extended period must fail without examining the merits.

Court decision

The Tribunal set aside the impugned order confirming the duty demand, confiscation and penalties, holding that the entire demand fell within the extended period of limitation which could not be invoked for the period April 2012 to July 2013, and declined to examine the merits. The appellants' appeals were allowed and Revenue's appeal under Section 114A was dismissed.

Facts

M/s Emerson Process Management (India) Pvt. Ltd. imported raw materials through a unit in the Arshiya International Ltd Free Trade Warehousing Zone (FTWZ) for manufacture of process management equipment (transmitters, analyser systems, process control systems) at its Navi Mumbai factory, and claimed exemption from Special Additional Duty (SAD) under Notification No. 45/2005-Customs dated 16.05.2005 on clearances from the FTWZ to the DTA on stock transfer basis, furnishing undertakings that VAT/CST would be paid on final products. Based on DGCEI intelligence, the department issued SCN dated 28.05.2015 demanding SAD of Rs. 1,79,95,057/- with interest under Section 28(4) of the Customs Act, 1962 by invoking the extended period, for the period 07.04.2012 to 31.07.2013, proposing confiscation under Section 111(o) and penalties under Sections 112, 114A and 114AA. The Principal Commissioner confirmed all proposals; Revenue separately appealed seeking mandatory penalty equal to duty under Section 114A.

Key provisions

• Section 114A, Customs Act, 1962 — Penalty for short-levy or non-levy of duty in certain cases
• Section 3(5), Customs Tariff Act, 1975 — Levy of additional duty equal to excise duty, sales tax, local taxes and other charges
• Section 25(1), Customs Act, 1962 — Power to grant exemption from duty
• Section 28, Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded