Notice u/s 28(6) of Customs Act Mandatory when Officer Finds Short Payment of Duty or Penalty: CESTAT sets aside order against L&T [Read Order]

The Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has ruled that issuance of a notice under Section 28(6) of the Customs Act, 1962 is mandatory when the proper officer finds short payment of duty or penalty after an assessee has made a payment under Section 28(5).

M/s Larsen & Toubro Ltd. (L&T), which had imported used machinery from Dubai and was accused of suppressing freight and other charges in its import declarations. The customs department alleged that L&T had understated freight charges in the bills of entry and issued a show cause notice proposing re-determination of value under Rule 9 read with Rule 10 of the Customs Valuation Rules, 2007, and Section 14 of the Act.

The notice also sought recovery of differential duty, interest, and imposition of penalties under Sections 112(a), 114A, and 114AA. L&T contested the demand, asserting that it had already paid duty on freight, overhead, and yard charges, and that since it had made a voluntary payment under Section 28(5), the proceedings could not continue unless a notice was issued under Section 28(6).

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The adjudicating authority, however, confirmed the demand and attempted to justify the non-issuance of notice by claiming that the company’s self-assessed duty calculation was “against the spirit of Section 28(5).”

On appeal, the Tribunal observed that “Section 28 (6) specifically mandates the issuance of notice, if the proper officer is of the opinion that there is any short payment of duty or penalty or variation in the payment and it is not an empty formality. The non-issuance of mandatory notice by the Revenue has only rendered the above provision otiose and hence, the very purpose of the said provision is rendered futile.”

The Tribunal further held that the department’s failure to issue such a notice rendered the proceedings invalid.

CESTAT also noted that the adjudicating authority himself admitted that the differences were not purely factual but interpretational, weakening the department’s claim of suppression or intent to evade duty.

Moreover, the show cause notice covered bills of entry dating back to 2012, while being issued only in 2014, beyond the normal limitation period without substantiating the grounds for invoking the extended period under the proviso to Section 28.

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Accordingly, the bench of M. Ajit Kumar (Technical member) and P. Dinesha (Judicial member) held that the Revenue failed to establish both the mandatory requirement under Section 28(6) and the justification for invoking the extended limitation, rendering the demand unsustainable.

Therefore, the impugned order was set aside, and L&T’s appeal was allowed with consequential benefits. The departmental appeal was dismissed as infructuous since the main order itself was annulled.

P.R. Renganath, Advocate appeared for the Appellant/Importer and Sanjay Kakkar, Authorized Representative appeared for the Revenue.

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