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Customs - Revenue loses Rs 9.2 Cr case due to half baked investigation and poorly drafted SCN - CESTAT sets aside Commissioner\'s order confirming duty demand and penalties

By TIOL News Service

BANGALORE, NOV 12, 2009: THERE were innumerable instances where Revenue lost cases due to half baked efforts put in investigation and shoddy drafting of show cause notices. Many a time investigating officers stumble upon a fantastic case which clearly points to evasion of duties but could not salvage any of it due to shoddy work in piecing together the information and bringing out the various aspects in the show cause notice and also fail to identify the parties to the show cause notice.

Here is one such case where there is every pointer to evasion of customs duties but failed miserably for the aforementioned reasons. Briefly stated, the facts of the case are as follows:

The appellant was registered with the jurisdictional central excise authorities under IGCRDMEG Rules, 1996 for import of crude sunflower oil and crude soya bean oil at concessional rate of customs duties for manufacture and processing of edible refined oils to be cleared along with by-products like soap stock, oil foot & dregs on payment of excise duties.

They imported 4172 MTs of crude sunflower oil and 3086 MTs of crude soya bean oil and warehoused the same. Subsequently ex-bond bills of entry were filed for clearance from warehouse to their factory at Bangalore by paying concessional rates of duties. Several bonds were executed with the jurisdictional central excise Deputy Commissioner in terms of IGCRDMEG Rules, 1996 for the purpose.

A show cause notice was issued by the jurisdictional Commissioner for alleged violation of the relevant conditional notifications and IGCRDMEG Rules, 1996, demanding duty foregone amounting to Rs. 3.97 crores and proposed to impose mandatory penalty on the appellant-company and personal penalties on the executives of the assessee-company. Extended period was also invoked under the provisions of proviso to Section 28 of the Customs Act, 1962. The duty demand was confirmed by the Commissioner with imposition of penalties.

In the appeal filed before CESTAT, the appellants assailed this order on that the officer had no jurisdiction to issue the show cause notice. The appellants also contended that there is no suppression or mis-declaration as alleged in the notice since the entire documentation was verified by the jurisdictional authorities and bonds were cancelled in pursuance of this verification.

It was submitted that there is substantial compliance of the condition prescribed in the notification with regard to receipt and consumption of goods though not in the factory premises of the appellant and the finding of Commissioner that crude oil was sold to the refineries in the guise of clearance of goods for job work is beyond the scope of show cause notice. Cross-examination of crucial witnesses were not facilitated by the Commissioner which violated the principles of natural justice. Cross-examination of departmental officers who verified the receipt and consumption of goods and cancellation of bond did not reveal any violations as alleged in the show cause notices.

Special counsel appearing for the Revenue supported the findings of the Commissioner and alleged that non-cooperation of appellants constrained investigations. Documentation maintained by appellants for movement of goods from port to factory, factory to refinery and back and sales tax documentation is a mere fašade and clearly reveals fraudulent activities undertaken by the appellants in violation of the conditional exemption notifications as it is clearly evident that the imported goods were sent directly to the refineries who sold them in the open market after processing without sending them back to the appellants. It was contended that even if it is assumed that the goods were sent for job work, in terms of notifications 214/86-CE and 83/94-CE it is mandatory for job worker to send the processed goods back to the raw material supplier. Moreover, there is no permission sought from the jurisdictional Commissioner to clear the processed goods directly from the job workers premises.

After hearing the detailed arguments put forth by the counsels for both the parties, CESTAT observed that the jurisdictional officers have verified and certified the receipt and consumption of goods and cancelled the bonds accordingly. Further for alleged violations by appellants in the year 2000, show cause notice was issued in the year 2005 invoking extended period under proviso to Section 28 of the Customs Act, 1962 by alleging suppression and mis-declaration of facts. CESTAT observed that if the discrepancies highlighted in the documentation related to movement of goods and records maintained at the factory/transporters/job workers are juxtaposed with the verification and certification by the jurisdictional officers, there is prima facie indication that there is collusion between the appellants and the jurisdictional officers.

Since the ground for invoking extended period did not specify collusion and the notices are not issued to departmental officers for their alleged complicity in the entire episode, CESTAT held that the show cause notice was defective and not maintainable. With the result the impugned order emanating from the defective show cause notice was set aside and the appeals of the appellants were allowed.

On the face of it, it appears that the CESTAT was very much convinced that there is a clear evasion of duties due to alleged collusion of officers and the appellant-company, but that itself will not save the day for Revenue if the show cause notice is completely misdirected in not invoking the appropriate provision of law and also the notice is not issued to all the actors who are party to the alleged violations.

Such a show cause notice which violates the fundamental principles of jurisprudence is bound to fail judicial scrutiny. Unfortunately, in the instant case exhibition of poor drafting skills by the departmental officers in piecing together relevant information obtained from the investigation resulted in a huge loss of revenue to the exchequer.

(See 2009-TIOL-1839-CESTAT-BANG in 'Customs')


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