Time-Barred Customs Duty Can Be Adjusted From Voluntary Deposit If Importer Admitted Liability: Delhi High Court

The Delhi High Court has held that although the limitation period under Section 28 of the Customs Act, 1962, bars the Revenue from initiating a fresh demand after the prescribed period, it does not prevent the authorities from appropriating an amount already voluntarily deposited by an importer during investigation towards the admitted customs duty liability.

The Division Bench of Justices Anil Kshetarpal and Shail Jain was dealing with a case arising from a Directorate of Revenue Intelligence (DRI) investigation into alleged under-invoicing and misdeclaration of the transaction value and retail sale price of confectionery items imported by Petitioner from Dubai.

The investigation quantified the differential customs duty at ₹1,15,88,712. Of this, ₹45,68,364 related to imports within five years, while ₹70,20,348 related to imports beyond five years.

During the investigation, Petitioner voluntarily deposited ₹85 lakh.

The DRI subsequently issued a show-cause notice proposing, among other things, recovery of ₹45.68 lakh pertaining to the period within five years and appropriation of ₹70.20 lakh from the ₹85 lakh deposit towards the duty pertaining to imports beyond five years.

Petitioner approached the Settlement Commission. While it admitted the ₹45.68 lakh liability relating to imports within five years, it disputed the ₹70.20 lakh liability on the ground that it related to imports beyond the five-year limitation period under Section 28.

The Settlement Commission nevertheless appropriated ₹70.20 lakh from the voluntary deposit towards the duty relating to the period beyond five years. It appropriated the remaining ₹14.79 lakh towards the admitted liability within five years, leaving a balance duty liability of ₹30.88 lakh.

Before the High Court, Petitioner argued that the Settlement Commission could not permit appropriation of ₹70.20 lakh towards a liability which was beyond the five-year period prescribed under Section 28.

Revenue however submitted that there was a distinction between the Department's statutory power to raise a demand and the treatment of an amount already voluntarily deposited by Petitioner.

The High Court noted that the question before it was not whether the Department could initiate a fresh proceeding after expiry of the limitation period, but whether, in settlement proceedings initiated by Petitioner itself, the Settlement Commission could consider the voluntary deposit already made and direct its appropriation in light of the proprietor's statement.

At the outset, the Court noted that Petitioner's proprietor had admitted the liability, and the purpose for which the amount was to be adjusted had not been retracted.

It then referred to the principle that expiry of limitation ordinarily bars the remedy available to the Revenue, but does not by itself extinguish the underlying right.

The Court rejected the argument that the Settlement Commission had brought a time-barred demand through the “back door”.

It observed that the Commission had not determined the ₹70.20 lakh liability by issuing a fresh demand under Section 28. Rather, it had dealt with an amount already deposited during the investigation and considered its appropriation based on the admission and request recorded in the proprietor's statement.

“The Petitioner itself invoked the jurisdiction of the Settlement Commission under Chapter XIV-A of the Customs Act. The Settlement Commission considered the Petitioner's admission regarding the differential duty within five years, its objection regarding the amount beyond five years, the voluntary deposit of Rs.85,00,000/- and the statements of the proprietor. The conclusion regarding appropriation of the amount was thus reached on the basis of the material before the Settlement Commission,” it said.

At the same time, the Court emphasised that its conclusion should not be understood as diluting or extending the statutory limitation period under Section 28.

“The operative direction concerns appropriation of an amount already voluntarily deposited during investigation,” it said, adding that the case was different from one where the Department seeks to initiate or enforce a statutory demand after expiry of the limitation period.

As such, the Court dismissed the petition.

For Petitioner: Advocates Prabhat Kumar, Karan Kanwal, Pralabh Mathur

For Respondents: Gibran Naushad, SSC, Advocates Suraj Shekhar Singh, Hasan Haider, and Anish Mishra