Finalization of Provisional Assessment after 5 Years Invalid: CESTAT Quashes Differential Duty Demand issued Without S. 28 SCN [Read Order]

The Chandigarh bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside a differential duty demand and ruled that the finalization of a provisional assessment cannot be made after an inordinate and unreasonable delay of over five years, particularly when no separate Show Cause Notice (SCN) was issued under Section 28 of theCustoms Act, 1962.

S K Petrochem (appellants) filed an appeal against an order dated March 28, 2019, passed by the Commissioner of Customs. The dispute arose from the appellant's import of consignments of 'Rubber Processing Oil' (RPO) between September 2011 and September 2012, which were provisionally assessed under Section 18(1)(b) of the Customs Act, 1962.

Test reports subsequently received from the Punjab Test House and CRCL, New Delhi, indicated that the aromatic compounds in the goods exceeded 50%, leading the Revenue to believe the correct classification should be CTH 27079900.

Based on this, a Show Cause Notice was issued on February 24, 2016 (with a corrigendum dated October 13, 2016) to finalize the provisional assessments. The Order in Original, issued on December 29, 2017, confirmed a differential duty of ₹45 Lakhs, which was later upheld by the Commissioner (Appeals).

The appellants mainly contested the legality of the finalization and the subsequent demand on the grounds of the finalization of assessment was time-barred, having been done after five years from the date of provisional assessment.

The appellant also contended that the demand confirmed under Section 28 was illegal because it was done without issuing a Show Cause Notice after the finalization of the assessment.

The bench comprising S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member), observed that Section 18 of the Customs Act does not explicitly prescribe a time limit for finalization.

The tribunal observed that this did not grant authorities "licence to finalise the assessments at their sweet will". It noted that the CBEC Customs Manual instructs that provisional assessments should be finalized expeditiously, well within six months. The Tribunal observed the delay of 5-6 years to be "inordinate" and unacceptable.

The Tribunal held that if a demand cannot be issued after five years, provisional assessments, too, cannot be finalized beyond that period without valid reasons, as the authorities must act within the overall time frame of the statute.

Relying on the Supreme Court's landmark ruling in ITC Ltd, the tribunal observed that the finalization of provisional assessment is a sine qua non (an essential prerequisite) for the issuance of a notice under Section 28 (which is pari materia to Section 11A of the CentralExcise Act).

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The Tribunal observed that the 'relevant date' for limitation under Section 28, in the case of a provisional assessment, is the date of adjustment of duty after the final assessment. Therefore, without a formal order finalizing the provisional assessment, the revenue could not confirm a demand under Section 28, especially without issuing a Show Cause Notice.

The Tribunal held that the differential duty demand was not maintainable and concluded that the proceedings violated the law due to the inordinate delay and the failure to adhere to the statutory procedures for demand recovery. The impugned order confirming the duty demand was set aside. The appeal was allowed.

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