By TIOL News Service

NEW DELHI, MAR 01, 2017: THE facts are that the assessee was issued a Show Cause Notice on 27th September 2004, to show cause as to why the goods (declared as "IS 1000 Fibre-Optic Endoscope Surgical System"), assessed provisionally, should not be finally assessed at the normal rate of customs duty @ 25% + 16% + 4% (effective 50.8%) by denying the benefit of claimed Customs Notification No.21/2002-S.No.363(A) and the differential duty amounting to Rs.3,47,63,531/- should not be recovered along with interest and as to why the subject goods, i.e. "da Vinci Surgical System" should not be confiscated for mis-declaration of description and why penal action should not be taken u/s 112(a)/114A of the CA, 1962.

The demand was confirmed and penalty of like amount was imposed by the AA. Penalties were also imposed on the indenting agent and the CHA.

Before the CESTAT, while conceding the demand of duty and confiscation of goods [in view of issue being settled in Care Foundation - 2014-TIOL-537-HC-DEL-CUS], the assessee argued that no interest u/s 28AB was recoverable because the demand was not raised/confirmed u/s 28 or for that matter the fact that provision for interest liability was inserted in the statute w.e.f 13.07.2006 u/s 18 which provides for finalization of the provisional assessment.

The CESTAT set aside the demand of interest against the appellant and the penalty imposed u/s 114A.

It is in these circumstances that the Revenue has appealed to the High court.

The counsel for the Revenue submitted - that in the present case, Section 112 (a) of the Act was invoked in the Show Cause Notice; that if CESTAT was of view that penalty under Section 114A of the Customs Act, 1962 was not leviable then penalty Section 112 (a) of the Act should have been revived; that penalty was leviable under Section 114A/112(a) of the Customs Act, 1962 and the same was confirmed by the adjudicating authority under Section 114A of the Act as they were found engaged in importation of goods by misclassification/mis-declaration with the intention to evade customs duty.

The High Court observed -

++ It is evident from perusal of para 47 of the Show Cause Notice that the Show Cause Notice was for the finalisation of assessment of Bill of Entry dated 28.10.2002 which had been assessed provisionally. The Show Cause Notice does not mention Section 28 of the Customs Act, 1962 even in passing. The Show Cause Notice also does not mention as to under what provisions of law, the interest was sought to be recovered although the impugned order confirms interest under provisions of Section 28AB ibid. Perusal of Section 28AB ibid as it existed during the relevant period leaves no scope for ambiguity that the interest thereunder is chargeable only when the demand has been confirmed under provisions of section 28 ibid . Even if it is considered that the demand arises out of finalisation of provisional assessment in terms of Section 18 ibid, it has been settled by judicial pronouncements that no interest is recoverable on finalisation of provisional assessments made prior to 13.07.2006, when the provision for interest liability were introduced in Section 18 ibid by inserting Section 18 (3), even if the finalisation of assessment took place after 13.07.2006. [Goyal Traders - 2011-TIOL-568-HC-AHM-CUS refers]

++ The wording of Section 114A ibid makes it expressly clear that penalty under that Section is attracted when liability to pay duty or interest is determined under Section 28 ibid. Thus, in the facts and circumstances of the present case, penalty under the section 114A ibid is simply not attracted.

++ The Show Cause Notice invoked both sections 114A and 112. The Order-in-Original imposed a differential duty of Rs.3,47,63,531/-. That duty amount has not been contested. Given that both the penal provisions were invoked, the question of deleting penalty could not have arisen.

++ As is noticed, the precondition to impose penalty is the determination, after Show Cause Notice that non-levy or short levy of customs duty was the result of mis-declaration. The Show Cause Notice was issued under the extended period, on account of the Revenue's contention that there was willful mis-declaration. The findings of the Commissioner clearly established the nature of the mis-declaration, i.e. that instead of describing the products accurately, i.e. as da Vinci Surgical System it was described as an endoscopic surgical system.

++ In these given circumstances and having regard to the clear terms of the Show Cause Notice, this court is of the opinion that the CESTAT could not have set aside the penalty, which is mandatory. What the Revenue could not have done (and in fairness, did not) was to impose penalty in addition, under Section 112 (a); this is because of fifth proviso to Section 114A which stipulates that "Provided also that where any penalty has been levied under this section, no penalty shall be levied under section 112 or section 114."

++ In the present case, however the Show Cause Notice mentioned both provisions, which are clear. Moreover, the nature of the facts was made known with clarity in the Show Cause Notice.

++ In view of the above discussion, the impugned order of CESTAT is set aside; the question of law is answered in favour of the Revenue and against the assessee/respondent. The order of the Commissioner is accordingly restored.

The Revenue appeal was allowed.

(See 2017-TIOL-400-HC-DEL-CUS)