GUEST COLUMN

 

NO LIMITATION PERIOD UNDER SECTION 28 AAA

 

By Uma Lohray

Advocate, Lakshmikumaran & Sridharan, Ahmedabad

 

Long-dormant claims have "more cruelty than justice" in them. This statement emphasises upon the importance of limitation period for a party bringing a claim against another. It follows from this that statutes prescribe statutory time limits within which claims must be brought forward. The Customs Act, 1962 [hereinafter “the Act”] envisages this provision under section 28.

 

As per the section 28 of the Act if any duty levied or short-levied or erroneously refunded, or any interest payable has not been paid, part-paid or erroneously refunded, the officer would serve a show cause notice for such amount. When the duty deficiency is for any reason other than the reason of collusion or any wilful mis-statement or suppression of facts, SCN is to be issued within one year from the relevant date. In the case of collusion or any wilful mis-statement or suppression of facts by the importer or the exporter or the agent or employee of the importer or exporter, the enhanced time limit is five years.

 

Section 28 AAA of the Act [inserted vide the Finance Act, 2012 (Act 23 of 2012) dated 28.05.2012] lays down the framework for recovery of duty from a transferor of an instrument i.e. scrip or authorisation or licence or certificate issued under the Foreign Trade (Development & Regulation) Act, 1992 [hereinafter “FTDR Act”] who has obtained it fraudulently i.e. by way of collusion or any wilful mis-statement or suppression of facts and the same is utilized by the transferee. In such a situation, the duty relatable to the said instrument would be deemed to have never been debited / exempted and such duty would be recovered from the person to whom the instrument was issued. This provision was inserted in 2012 to bring the exporter (who has procured scrips fraudulently) at par with the importer. In other words, section 28 allows an action to be initiated against an importer / exporter who is chargeable to duty for recovery of duty short levied, non-levied or erroneously refunded. However, it did not address a situation wherein an exporter who has fraudulently procured the scrips, exports freely exportable goods, thus not being “chargeable to [any] duty”. The new mechanism laid down by section 28 AAA was to cover exporters who have erroneously procured scrips.

 

A perusal of both provisions, section 28 and 28 AAA, makes it evident that both of them had been drafted for recovery of duties fraudulently paid or evaded. While section 28 lays down a strict time limit of five years, section 28 AAA does not. The only reference of section 28 contained in section 28 AAA is with regard to the fact that any action under section 28 AAA would be without prejudice to action initiated under section 28. However, there is no provision in section 28 AAA incorporating the limitation period of five years in case of wilful misrepresentation, collusion or suppression of facts, as given under section 28.

 

In such a situation, the question that arises for consideration is whether there is any period of limitation to initiate action against a person obtaining a scrip / instrument by fraudulent means.  The answer is no. This could give rise to an atrocious situation which will have the following consequences:

 

a)    The benefits accrued under a scrip / instrument can be reversed by the Department and action can be initiated at any time without compliance to any limitation period;

b)    The Department is free to initiate action under section 28 AAA in respect of the same transaction at any given time, even if show cause had been issued earlier in respect of that transaction under section 28 and the same stood settled after litigation. Section 28 provides that action under section 28 AAA is without prejudice to any action under section 28.

 

With this context, it is obvious that under the Customs Act, the importer and exporter are not being treated at par. While duty can be demanded against an importer engaged in collusion, wilful misstatement or suppression of facts within the period of five years, there is no limitation bar to demand duty against an exporter who has procured scrips / instruments by collusion, wilful misstatement or suppression of facts. This situation is not only grossly unfair but also discriminatory. There can be a situation where the question relates to the interpretation of a particular entry in the schedule for Chapter 3, it may be alleged by the Department that by mis-classifying the export goods, the exporter has obtained the scrip of higher value fraudulently. In that case, even a genuine exporter may be slapped with a SCN under section 28AAA without any time bar. 

 

Thus, there is a need to amend section 28 AAA and maximum time limit of five years for issuing SCN needs to be incorporated as provided under section 28 of the Act.

 

Disclaimer: Views expressed are strictly personal. The content of this document are solely for informational purpose, it doesn’t constitute professional advice or recommendation.