CESTAT Mumbai Quashes Recovery Against Hindustan Copper Over 23-Year Delay and No Show Cause Notice

The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) on 7 May set aside recovery proceedings against Hindustan Copper Ltd., holding that adjudication conducted nearly 23 years after the demand notice was issued was legally unsustainable and violated principles of natural justice.

Judicial Member Ajay Sharma, allowed the appeal and set aside the Order-in-Appeal passed by the Commissioner of Customs (Appeals), Mumbai. The Tribunal held:

“The department's inaction for approximately twenty-three years is not merely a procedural lapse, it amounts to a constructive abandonment of the proceeding. Having allowed the matter to rest undisturbed for so long, the Revenue cannot be permitted to revive and complete a proceeding that causes grave and irreparable prejudice to the Appellant, whose ability to meet the demand has been fundamentally compromised by the passage of time.”

The case arose from imports of tyres, tubes and flaps in September 1990 by Hindustan Copper Ltd. The company paid Customs duty, including Countervailing Duty (CVD) and Special Additional Duty (SAD), at the time of clearance. It later claimed a refund, stating that excess CVD had been charged.

Customs authorities accepted the claim and sanctioned a refund of Rs. 8.42 lakh in March 1994. The Central Revenue Audit later objected, stating that the concessional notification applied only to tyres for motor vehicles, not off-the-road vehicles. Based on this objection, the Department issued a demand notice in December 1995 to recover the refunded amount.

Before the Tribunal, Hindustan Copper argued that the proceedings were invalid because the Department did not issue a statutory show cause notice under Section 28 of the Customs Act. It also submitted that the demand notice alone could not trigger adjudication and that the long delay caused prejudice, as records and employees from the period were no longer available.

The Revenue argued that the demand notice served the purpose of a show cause notice since it informed the importer about the proposed recovery. It also defended the adjudication despite the delay.

The Tribunal rejected the Revenue's argument and held that a demand notice cannot replace a show cause notice in law. It stated:

"A bare demand notice that calls upon a person to deposit a sum of money, without expressly inviting the noticee to show cause against the proposed recovery, cannot, by any interpretive stretch, be treated as a show cause notice.”

It held that Section 28 of the Customs Act requires a proper show cause notice before any adverse order can be passed. The Bench added that this requirement forms the basis of valid jurisdiction. It also noted that the adjudicating authority confirmed an amount higher than what the original demand notice mentioned, without issuing any fresh or supplementary notice. It held that authorities cannot exceed the scope of the initiating notice.

On delay, the Tribunal described the 23-year gap before adjudication as “egregious” and held that it deprived the importer of a fair opportunity to defend itself. It observed:

“The Order-in-Original was eventually passed on 22.03.2018, approximately twenty-three years after the demand notice. This delay is not merely inordinate; it is, by any standard, egregious. The department appears to have been roused from its somnolence only by the insistence of the audit machinery, and even thereafter, the matter drifted for decades without any discernible urgency.”

It further held that such delay makes it unreasonable to expect a party to preserve records or institutional memory for routine transactions over such a long period and found no violations of both procedural requirements and delay principles.

Accordingly, the CESTAT set aside the order and allowed the appeal with consequential relief.

For Appellant: Ankit Totuka, Advocate

For Respondent: L B D'Costa (AR)