Legal principle

An adjudication order that relies on evidence not relied upon in the show cause notice and ignores the assessee's uncontradverted evidence, including re-warehousing certificates, while denying effective cross-examination, cannot stand in law.

Court decision

Appeal No. C/483/2009 was allowed in full, and Appeal No. C/106/2010 was partially allowed: all demands confirmed and penalties imposed were set aside, except the duty on 'deemed exports' claimed to M/s Devyani Processors Ltd, Jethpur and M/s Philtex Prints, Patancheru, which was remanded to the adjudicating authority for fresh consideration and quantification with due opportunity of hearing. The result substantially favours the appellants, with a limited remand against them on re-quantification of the deemed-export demand. (The Managing Director's separate appeal C/484/2009 had already been disposed of as abated on his death on 24.04.2020.)

Facts

M/s Royal Industries Ltd., a 100% Export Oriented Unit, held a warehousing licence under section 58 of the Customs Act and a B-17 bond to import materials (polyester/woollen yarn, acrylic fibre, etc.) and procure indigenous raw materials duty-free under Notification No. 53/1997-Cus for in-bond manufacture and export of garments and fabrics. Customs (Anti-Smuggling, Amritsar) searched its factory and the Managing Director's residence in March 2002, alleging diversion of duty-free goods into the local market and fabrication of records showing exports/deemed exports/job-work without actual movement of goods. Two show cause notices followed — one dated 03.07.2003 by Commissioner of Customs, Amritsar and another dated 28.09.2007 by Commissioner, Central Excise, Ludhiana (after the EOU licence expired) — seeking duty, confiscation of goods and penalties under sections 112(a)/(b) and 114A. Adjudication culminated in Order-in-Original No. 10/LDH/09 (duty of Rs. 7,75,95,025 with interest, confiscation with Rs. 40 lakh fine, penalties on the company and others) and Order-in-Original No. 39/LDH/08 (duty of Rs. 1,47,55,230, Rs. 50 lakh fine in lieu of confiscation, and equal s.114A penalty on the company and the Managing Director).

Key provisions

• Section 28, Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded
• Section 6, Customs Act, 1962 — Entrustment of functions of Board and customs officers on certain other officers
• Section 114A, Customs Act, 1962 — Penalty for short-levy or non-levy of duty in certain cases
• Section 108, Customs Act, 1962 — Power to summon persons to give evidence and produce documents
• Section 4, Customs Act, 1962 — Appointment of officers of customs
• Section 151A, Customs Act, 1962 — Instructions to officers of customs
• Section 2, Customs Act, 1962 — Definitions
• Section 72(1), Customs Act, 1962 — Goods improperly removed from warehouse, etc
• Section 138B(1)(b), Customs Act, 1962 — Relevancy of statements under certain circumstances
• Section 112(a), Customs Act, 1962 — Penalty for improper importation of goods
• Section 3, Customs Act, 1962 — Classes of officers of customs
• Section 5, Customs Act, 1962 — Powers of officers of customs