Is Penalty Imposable For The Escape of Duty U/S 28(1) of C.A.1962 ?

Whether or not, penalty is imposable for the escape of duty U/S 28(1) of Customs Act, 1962 needs to be analysed in the light of provisions in place. Its not something that could be answered in Y/N way of responding. Imposition or, exemption has to guided by the complete approach on the issue. For the sake of further clarity lets dive into breakdown of the aspects:

Section 28(1) of the Act reads as under

Where any (duty has not been levied or not paid or has been short levied or short paid ) or erroneously refunded or any interest payable has not been paid , part paid or erroneously refunded , for any reason other than the reasons of collusion, or any willful mis-statement or suppression of facts

• the proper officer shall within two years from the relevant date, serve notice on the person chargeable with the duty or interest which has not been so levied (or paid) or which has been short levied or short paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:

Provided that before issuing notice, the proper office shall hold pre-consultation with the person chargeable with  duty or interest in such manner as may be prescribed ;

• the person chargeable with duty or interest, may pay, before service of notice under clause on the basis of –
• his own ascertainment of such duty; or
• the duty ascertained by the proper officer,

the amount of duty along with interest payable thereon under section 28AA or the amount of interest which has not been paid or part paid ;

(Provided that the proper officer shall not serve such show cause notice ,where the amount involved is less than rupees one hundred)

(2)  The person who has paid the duty along with interest or amount of interest under clause (b) of sub-section (i) shall inform the proper officer of such payment in writing, who on receipt of such information shall not serve any notice under clause (a) of that sub-section in respect of duty or interest or interest so paid or any penalty leviable under the provisions of this Act or the rules made thereunder in respect of such duty or interest;

(Provided that where notice under clause (a) of sub-section (1) has been served and the proper officer is of the opinion that the amount of duty along with interest payable thereon under section  28AA or the amount of interest , as the case may be , as specified in the notice has been paid in full within thirty days from the date of receipt of the notice, no penalty shall be levied and the proceedings against the such  person or other person to whom the said notice is served under clause(a) of sub-section (1) shall be deemed to be concluded.

(3) Where the proper officer is of the opinion that the amount paid under clause (b) of sub section(1) falls short of the amount actually payable , then he shall proceed to issue notice as provided for in clause (a) of that sub-section in respect of such amount which falls of short of the amount actually payable in the manner specified under that sub-section and the period of two years shall be computed from the date of receipt of information under sub-section(2).

Bare perusal of the sub-section indicates that in two situations notice is not required to be served;

• firstly where the amount involved is less than rupees one hundred and
• secondly where  before service of notice,  duty and interest or interest either by own ascertainment or by the ascertainment  of  proper officer is paid and department is made aware of this fact.

When the dispute comes to end

Lis between importer/exporter and department also comes to end when upon receipt of notice regarding short levy/non levy of duty and interest or interest it is paid within 30 days of receipt of the notice. This brings the proceedings to halt.

When Recovery will be Continued

But in two cases, proceedings of recovery will be continued when the duty and interest  or interest is paid after expiry of 30 days period or the amount payable falls short of the actual amount to be paid. In such cases, penalty which is the topic of discussion of this write up is also imposable.

In other words, when dispute is not settled as provided in the Act,  it attracts penalty by determination of notice.

Penalty Under Which Provisions ?

Now the difficulty arises regarding imposition of penalty under relevant provisions of the Act. As it is widely understood that corresponding penalty for the act of commission and omission under section 28 is provided under section 114A, but careful reading of the same brings out that it is applicable in certain cases as discernible from the reading of opening words of section. This penal provisions is applicable in cases of fraud precisely in the cases of collusion or willful misstatement or suppression of facts. These three words are the main ingredients of fraud. In such scenario, it is not legally correct to apply section 114A for the inadvertence escape of duty under section 28(1) .Penalty under section 28(4) talks about deliberate or fraudulent escape of duty. Such deliberate fraudulent escape is attracts penalty under the vires of  Section 114A.

Section 114A reads as under;

Section 114A in the Customs Act, 1962

Section 114A- Penalty for short-levy or non-levy of duty in certain cases.—Where the duty has not been levied or has not been short-levied or the interest has not been charged or paid or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts, the person who is liable to pay the duty or interest, as the case may be, as determined under sub-section (8) of section 28 shall, also be liable to pay a penalty equal to the duty or interest so determined:

Provided that where such duty or interest, as the case may be, as determined under sub-section (8) of section 28, and the interest payable thereon under section 28AA, is paid within thirty days from the date of the communication of the order of the proper officer determining such duty, the amount of penalty liable to be paid by such person under this section shall be twenty-five per cent. of the duty or interest, as the case may be, so determined:

 Provided further that the benefit of reduced penalty under the first proviso shall be available subject to the condition that the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso:

Provided also that where the duty or interest determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the duty or interest as reduced or increased, as the case may be, shall be taken into account:

 Provided also that where the duty or interest determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available if the amount of the duty or the interest so increased, along with the interest payable thereon under section 28AA, and twenty-five per cent. of the consequential increase in penalty have also been paid within thirty days of the communication of the order by which such increase in the duty or interest takes effect:

 Provided also that where any penalty has been levied under this section, no penalty shall be levied under section 112 or section 114.

Explanation.—For the removal of doubts, it is hereby declared that—

(i) the provisions of this section shall also apply to cases in which the order determining the duty or interest under sub-section (2) of section 28 relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President*;

(ii) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.]

Recovery mechanism under Section 28(1) of the Act exclusively bars its operation in the case of collusion or willful misstatement or suppression of facts.It does not implies that lawmakers have redundantly inserted the word penalty in sub-section (2) of Section 28.  No express provision of penalty given for the offence  under section 28(1) in the Act likewise given in respect of Section 28(4) under section 114A.

The moot question of this discussion still remains to answer under what provisions of this act, penalty for the breach of section 28(1) can be imposed when there is shortfall of payment of duty or interest or paid after period of thirty days from the receipt of notice. It is unequivocal that penalty is not imposable under section 114A. It means  aid has to be taken of some  other section/provisions .

 Fourth proviso of section 114A creates a mutual exclusion clause for imposition of penalty for non levy or short levy of duty or interest either under section 114A or 112/114 of the Act. It points out  that under section 114A or 112/114 penal liability for deliberate  escape of duty or interest  under section 28(4) can be imposed. It is nothing but following the principle of double jeopardy. This gives slight indication that for violation of one of the sub–section of 28 which operates in cases of fraud, alternatively penalty under Section 112 can be imposed. By this it can be deduced, that penalty for the offence of section 28 can be imposed under section 112 of the Act.

 Therefore, it is relevant to examine whether section  112 which is a penal provision commonly understood to be provided for the  offence for violation of section 111, can be applied for  breach of section 28(1) .

Another wrong notion which has also housed in the mind of Departmental officers that section 112 cannot be applied in the case of Section 28(1) as penalty under section 112 is applied for the seizure and confiscation of live consignment of import consignment. Whereas no such occasion arises under section 28(1) of the Act, as this only deals with the evasion of duty in respect of past consignments.

Before arriving at the conclusion it is  require to examine what constitute the offence under section 28(1). The duty of Customs is self assessed in terms of Section 17(1) of the Act, therefore, there is possibility that duty inadvertently   has been paid at lower side than the duty actually payable, then in such situation aid of Section 28 of the Customs Act is taken, as it provides recovery mechanism for escaped duty.

The section 28(1) speaks of three kind of situations firstly non-levy, secondly short levy and thirdly  erroneous refund . The law is well settled that a Show Cause Notice under section 28 of the Act can be only issued subsequent to clearance of the goods under 47 of the Act. In following situation, usually demands of Customs duties are issued under the vires of  Section 28(1).

1. When declared classification found to be wrong and thereby goods found contrary to declaration;
2. Duty erroneously refunded;
3. Customs duty paid at concessional rate though concession was not available;
4. Goods cleared under exemption notification whose conditions are violated by the importer or exporter;
5. When there is erroneous mis –declaration of material particular viz value quantity etc.

A conclusive take on imposability of penalty for escape of duty U/S 28

In every  situations of section 28(1) elucidated above , there will be mis-declration of value, quantity, classification etc and its invariably attracts  Section 111(l) and 111(m)  , therefore penalty becomes imposable under section 112 of the Act. It will be imprudent to imagine that in case of section 28(1) , section 111 (l) and (m) cannot be invoked. It also implies that Section 28 is not operated in isolation and it takes assistance of section 111 as there would be some sort of mis-declaration/improper importation and duty could not be levied or short levied.

Corollary of improper importation will always called for penal proceedings and in such case application of Section 112 is legally tenable. Under section 111, there is a liability to confiscate the improperly  imported goods even in absence of physical confiscation. Section 28 is merely a tools for recovery of escaped duty which do not prescribe any improper importation clause as given under section 111 of the Act. Then in case for every non-levy or short levy, there would   be some improper importation and clearance thereof which will attract clauses of section 111 of the Act. Therefore, imposition of penalty under section 112 for the breach of 28(1) is justified, as this is also violating the conditions of Section 111, however no redemption fine can be imposed. In other words , it can be said that section 28(1) cannot operate in isolation but interdependent on  clauses of section 111.

This however, gives rise to another question as to why there is no penalty when duty or interest is paid by own ascertainment or determined by the proper officer and do not fall short of actual payable amount and that too paid within 30 days , answer is that  Government intention is to reduce the litigation and also does not intent to punish trade for bonafide default.