APRIL 13, 2020

By Sonam Yadav, Associate, Lakshmikumaran & Sridharan

IN this era of globalisation, the decrease in the tariff and non-tariff barriers worldwide has witnessed unprecedented increase in import-export across the world. Each import or export is a transaction inviting application of various provisions of fiscal status, such as Customs Act, 1962, Income Tax Act, 1961, GST Laws, etc. Importers or exporters are not the only stakeholders in these transactions and there are many others viz., customs brokers, freight forwarders, carriers, couriers, port operators, etc.

Our fiscal laws are complex, saddled with so many amendments, notifications, procedures, administrative circulars or guidelines.

There are also conflicting positions by the same authorities in different fiscal laws or by different authorities across India. The disputes arising in these fiscal laws are many - they touch upon the classification, rate of duty, importability or exportability, procedural aspects, documents compliance, etc.

This note is aimed to apprise the readers with the dispute resolution process enshrined under the Customs Act, 1962 (hereinafter 'the Act') and provide an overview of the procedure related to appeals before various forums .

ADJUDICATION UNDER THE ACT

A multi-tier appellate mechanism has been specified under the Act for the adjudication of disputes that may arise between the customs authorities and importers/exporters. In the first instance, the adjudication of such a dispute is taken up by the officers of the rank of Principal Commissioner or Commissioner or below. the assessee is aggrieved by an order passed by an officer of rank below Principal Commissioner or Commissioner, the assessee may file an appeal against such order before the appellate authority known as the Commissioner of Customs (Appeals) in terms of Section 128 of the Act. Against the order of Commissioner of Customs (Appeals), appeal lies before the Customs, Excise & Service Tax Appellate Tribunal (hereinafter 'CESTAT') in accordance with Section 129A of the Act.

Where the dispute is adjudicated by an officer of the rank of Principal Commissioner or Commissioner in the first instance, an appeal shall lie to the CESTAT in terms of Section 129A of the Act.

Against the orders of the CESTAT, two streams of appeal are contemplated under the Act. If the issue relates to classification or valuation of goods, the appeal lies to the Supreme Court of India pursuant to Section 130E of the Act. Where a matter involves any other substantial question of law, the appeal lies with the jurisdictional High Court in terms of Section 130 of the Act. The parallel availability of two streams of appeal against the order of CESTAT creates uncertainty. Different views have been adopted by various High Courts in this regard. The Hon'ble High Court of Karnataka in the case of Commissioner Of Customs, Bangalore vs.  Motorola   India  Ltd., [CSTA No. 2/2007 ] had held that if the question involved in the appeal had a direct bearing on the rate of duty payable and value of goods for the purposes of assessment, and if the question relates to entitlement of exemption under a notification, the same has to be decided by the Apex Court in an appeal to be preferred under Section 130E and not by the High Court in an appeal preferred under Section 130 of the Act.

The Hon'ble Supreme Court of India has however overturned the view taken by the High Court in the aforesaid case and has held in the case of Commissioner of Customs, Bangalore-1 vs. M/s Motorola India Ltd., - 2019-TIOL-398-SC-CUS-LB that an appeal against the CESTAT Order, involving violation of the conditions of an exemption notification, would lie before the High Court and not the Supreme Court. The Apex Court thus declined to entertain the appeal and held in Motorola India (supra) that the question involved in the case was neither related to determination of rate of duty, valuation, determination of classification of goods, or coverage under exemption notification nor involved any question of law of general public importance applicable to a class or category of assessees as a whole.

The appellate mechanism for dispute adjudication can be easily understood from the below flowchart:

The table below provides the limitation periods for filing of appeals before various forums:

DISPUTE RESOLUTION UNDER THE ACT

An alternative channel for resolution of a dispute that an assessee may adopt is to approach the Customs, Central Excise and Service Tax Settlement Commission (hereinafter 'Settlement Commission'). It is to be noted that if an assessee approaches the Settlement Commission, the assessee has to provide full and true disclosure of its duty liability. In these proceedings, the assessee is not allowed to dispute the allegations raised by the Department.

Provisions relating to settlement are provided under Sections 127A to 127N of the Act. Section 127B of the Act provides that any importer, exporter or any other person may make an application for settlement, in respect to a case relating to him, before adjudication to the Settlement Commission. Therefore, in cases where an order has been passed by the adjudicating authority, an application before the Settlement Commission cannot be made. In such cases, the appeal mechanism provided under the Act has to be followed and the assessee may litigate the matter.

Section 127B further provides that an application for settlement can be made only where a show cause notice (hereinafter 'SCN') has been issued to the assessee; the additional amount of duty involved exceeds Rs. 3 Lakh; and such assessee has paid the additional amount of duty along with interest. Further, once an application is made before the Settlement Commission, the same cannot be withdrawn.

Section 127H of the Act provides that if the Settlement Commission is satisfied that any person who made the application for settlement under Section 127B has co-operated in the proceedings before it and has made a full and true disclosure of his duty liability, it may grant to such person, subject to such conditions as the Settlement Commission may think fit to impose, immunity from prosecution for any offence under the Act. Section 127H also empowers the Settlement Commission to waive penalty and fine either wholly or partially. It is important to note that the Settlement Commission has the power to grant immunity from prosecution to an applicant only from offences notified under the Act. Where the applicant may have allegedly committed offences, which offences are not notified under the Act, the Settlement Commission cannot grant immunity from prosecution for such offences.

CLOSURE OF PROCEEDINGS, WAIVER/REDUCTION OF PENALTY

The assessee also has the option to close a dispute where duty has not been levied or paid or short-levied or short-paid due to reasons not involving any collusion or wilful mis-statement or suppression of facts. In such cases, a dispute can be concluded even before adjudication of the matter by paying duty and interest thereon either before the issuance of SCN or within 30 days from the receipt of SCN in terms of Section 28(1) of the Act. The assessee may make such deposit of duty or interest or both basis his own ascertainment of liability or duty ascertained by the proper officer. On making such deposit, no penalty is imposed on the assessee under the Act and the dispute is deemed concluded. Assessee loses the right to challenge the SCN.

Reduced penalty in cases of alleged collusion, wilful mis-statement or suppression of facts

Section 28(5) of the Act provides for conclusion of a dispute where duty has not been levied or paid or short-levied or short-paid due to reasons of alleged collusion, wilful mis-statement or suppression of facts. In such cases, where the SCN has been issued, the assessee may deposit the duty and interest thereon along with penalty equal to fifteen (15) percent of the duty specified in the SCN within thirty (30) days from the receipt of the SCN. On making such deposit, the dispute is deemed concluded. The assessee loses the right to challenge the SCN. Prosecution, if warranted, may be continued by the Department against the assessee.

Reduced penalty after the Order of Adjudicating Authority

Where an order has been passed against the assessee in cases involving collusion, wilful mis-statement or suppression of facts, Section 114A provides benefit of reduced penalty at twenty-five (25) percent of the duty or interest, as the case may be. To avail this benefit, the assessee chargeable with duty or interest must deposit the duty or interest, as the case may be along with twenty-five percent penalty within thirty (30) days from the date of the communication of the order. In case of co-noticees, the penalty amount stands reduced by 25%, if the co-noticee too deposits the amount within 30 days. However, the assessee still has the right to challenge the order of the adjudicating authority.

CONCLUSION:

The Act not only prescribes the provisions for adjudication of disputes but also lays down the procedure for dispute resolution before the Settlement Commission and efficacious disposal of cases by extending benefits like waiver or reduced penalty in certain cases. The Act, thus, makes available to an assessee, the choice to settle a dispute before its adjudication or immediately after adjudication. It is pertinent to mention that due to the penal nature of the provisions contained in the Act, it becomes extremely important for an importer or exporter to understand and adhere to the procedures laid down for approaching the authorities for any customs related adjudication or dispute resolution, within the statutory timelines stipulated under the Act. Further, it has to be borne in mind that such settlement of cases may have implications for past as also future transactions. Therefore, decision to adopt the alternative approaches provided in the Act must be taken cautiously.

[The views expressed are strictly personal.]