The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that proceedings initiated under the Customs Act are void if the show cause notice (SCN) is issued beyond the prescribed statutory time limit, quashing penalties imposed on stainless steel exporters for alleged overvaluation in export drawback claims.
Mr. Manish Kumar Jain, the appellant, proprietor of Parmar Exports, and Mr. R.V. Shanmugam, proprietor of Ayyappan Industries, were appellants in the case. Both were engaged in the export of stainless steel articles and faced penalties of Rs. 50,00,000 and Rs. 25,00,000 respectively, imposed by the Commissioner of Customs (Preventive), Tiruchirappalli, under Section 114(iii) of the Customs Act, 1962. The penalties arose from an Order-in-Original dated March 25, 2019, based on alleged misdeclarations in 39 shipping bills filed in June 2005.
The Directorate General of Central Excise Intelligence (DGCEI) had initiated investigations in 2005 alleging that the appellants and other exporters submitted falsified documents and attempted to overvalue goods in order to fraudulently claim duty drawback. It was undisputed that no actual drawback was claimed or disbursed, as confirmed by a letter from the Deputy Commissioner of Customs at ICD Irugur.
The show cause notice was issued only on September 29, 2011, over six years after the exports were made. The appellants’ counsel argued that the notice was barred by limitation, relying on several precedents including Usha Stud & Agricultural Farms Pvt. Ltd. and Western India Marine Corporation v. Union of India. They also pointed out that adjudication itself occurred after another eight-year delay, violating principles of natural justice and procedural fairness.
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The department’s counsel that there was substantial evidence of fabricated shipping bills and misdeclaration of value, citing overseas inquiries showing discrepancies in declared export values versus foreign import values. They further alleged that Mr. Jain orchestrated the preparation of a second set of inflated documents and attempted to reconstruct missing shipping bills post-export.
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The single-member bench comprising Vasa Seshagiri Rao (Technical Member), observed that the SCN was issued well beyond the maximum period of five years permitted under the Customs Act for such proceedings, and that the delay in adjudication compounded the procedural lapse. The tribunal relied on rulings such as Shri Rakesh Kumar Mangala v. Commissioner of Customs and Shri Balaji Enterprises v. Additional Director General, which held that excessive delay renders SCNs and subsequent orders unenforceable.
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The tribunal also found no evidence of actual duty drawback claims, no sanctioned payments, and insufficient proof of document fabrication at the time of export. It held that the alleged violations, even if assumed, were not actionable due to time-bar and evidentiary shortcomings.
The tribunal quashed the original order, set aside the penalties imposed on both appellants, and allowed the appeals in full, granting consequential relief as per law.
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