Legal principle

Where an exemption/policy provision is genuinely ambiguous and the importer proceeds on an interpretation later upheld by High Courts, there is no intent to evade duty, and the extended period of limitation under the proviso to Section 28(1) and penalties under Sections 114A and 112 cannot be invoked.

Court decision

The High Court dismissed the Department's appeals under Section 130 and upheld the CESTAT common order in favour of GL and M/s Sree Enterprises. It approved the construction that imports need only be demonstrable as inputs for goods within the same defined product group specified in the Conditions Sheet, not the very exported goods, while noting CESTAT's finding adverse to GL on merits (nexus existed only with iron ore fines under the Engineering Products group, not with bentonite under Chemicals & Allied Products). The court held the extended period under the proviso to Section 28(1) was unavailable for want of intent to evade duty, so the duty demand, interest, confiscation and penalties were rightly set aside in their entirety, and the questions of law were answered against the Department.

Facts

M/s Gimpex Ltd. (GL), an exporter of industrial minerals such as iron ore fines and bentonite, earned duty credit certificates worth Rs.7.08 crores under the Target Plus Scheme for incremental exports in 2004-05, and using TRAs from Chennai Customs imported continuous cast copper rods (a canalised item) valued at Rs.13.53 crores through ICD Hyderabad under High Sea Sale Agreements with MMTC, clearing them duty-free under Notification No.32/2005-Cus dated 08.04.2005 issued under Section 25(1) of the Customs Act. M/s Sree Enterprises similarly imported c.c. copper rods worth Rs.4.92 crores duty-free against TPS licences. After DRI investigation (including statements under Section 108), the Department issued show-cause notices proposing denial of the exemption, duty under the proviso to Section 28(1), interest under Section 28AB, confiscation under Section 111(o), penalty on GL under Section 114A and penalties on other noticees under Section 112, on the ground that the copper rods bore no 'broad nexus' to the goods exported. CESTAT by common order dated 13.06.2012 allowed the assessees' appeals, and the Department appealed to the Telangana High Court under Section 130 of the Customs Act.

Key provisions

• Section 28(1), Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded
• Section 114A, Customs Act, 1962 — Penalty for short-levy or non-levy of duty in certain cases
• Section 112, Customs Act, 1962 — Penalty for improper importation of goods
• Section 108, Customs Act, 1962 — Power to summon persons to give evidence and produce documents
• Section 130, Customs Act, 1962 —  Appeal to High Court
• Section 25(1), Customs Act, 1962 — Power to grant exemption from duty
• Section 111(o), Customs Act, 1962 — Confiscation of improperly imported goods etc
• Section 28AB, Customs Act, 1962 — [Omitted] ****
• Section 5, The Foreign Trade (Development and Regulation) Act, 1992 — Foreign Trade Policy.
• Section 46, Customs Act, 1962 — Entry of goods on importation