IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27TH DAY OF NOVEMBER, 2019 BEFORE THE HON’BLE MRS.JUSTICE S.SUJATHA WRIT PETITION No.13810/2018 (T – CUS) BETWEEN:
M/s APPLE INDIA PRIVATE LIMITED, A COMPANY REGISTERED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT 19TH FLOOR, CONCORDE TOWER C, UB CITY, NO.24, VITTAL MALLYA ROAD BENGALURU-560001 REP BY ITS MANAGER TRADE COMPLIANCE, SRI RAGHUNATH LAKSHMANAN ... PETITIONER [BY SRI S.S.NAGANAND, SENIOR COUNSEL FOR SRI SRIRANGA S., ADV.] AND:
1 . UNION OF INDIA DEPARTMENT OF REVENUE MINISTRY OF FINANCE GOVERNMENT OF INDIA NORTH BLOCK, NEW DELHI-110000 THROUGH THE SECRETARY 2 . THE ADDITIONAL COMMISSIONER OF CUSTOMS AIR CARGO COMPLEX MENZIES AVIATION BOBBA CORGO TERMINAL, DEVANAHALLI, BENGALURU-560300 3 . THE PRINCIPAL COMMISSIONER OF CUSTOMS AIR CARGO COMPLEX MENZIES AVIATION BOBBA CORGO TERMINAL, DEVANAHALLI, BENGALURU-560300 …RESPONDENTS [BY SRI JEEVAN J. NEERALAGI, ADV. FOR R-1; SRI K.M.SHIVAYOGISWAMY, ADV. FOR R-2 & R-3.] THIS WRIT PETITION IS FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE SHOW CAUSE NOTICE BEARING C.NO.VIII/10/14/2015 BACC SIIB DATED 27.06.2017 VIDE ANNEXURE-N ISSUED BY R-2.
THIS PETITION HAVING BEEN HEARD AND RESERVED, IS COMING ON FOR PRONOUNCEMENT OF ORDER THIS DAY, THE COURT PASSED THE FOLLOWING:
O R D E R The petitioner has challenged the show cause notice dated 27.06.2017 issued by the 2nd respondent under Section 28 of the Customs Act, 1962.
2. The petitioner is engaged in the business of (a) Import and trading of finished goods such as Mobile Phones, Computers, iPods (i.e., music system), Apple Watch, iPads and accessories and (b) after-sales services for the products mentioned at (a) above. The after-sales services is referred to as “Apple Care” within the Apple world. It is submitted that the petitioner has no facilities to repair the products (other than computers) for its customers in India as an after-sales activity. Even as per the Foreign Trade Policy, the petitioner is not allowed to import refurbished products. As such, the petitioner imported new units to replace the repaired or malfunctioning units. It is contended that the petitioner was paying Additional Duty of Customs (Countervailing Duty) under Section 3 of the Customs Tariff Act, 1975 on the transaction value of the petitioner’s goods imported under the Apple Care brand of services. The Customs Department at the Air Cargo Complex disputed the valuation methodology adopted by the petitioner on the subject goods on the premise that the Retail Sales Price (RSP)/Maximum Retail Price (MRP) has to be applied, not the Transaction Value.
3. It is submitted that on 14.12.2012, a representation was given by the petitioner company to the second respondent to provide an opportunity to put- forth the explanation inasmuch as the countervailing duty paid on the transaction value and not on MRP. On such opportunity provided, the second respondent on consideration of all the information provided by the petitioner regarding adoption of transaction value, issued a letter dated 27.02.2013 inter alia directing the petitioner to pay countervailing duty on all goods of Apple Care [warranty and out of warranty] as per Section 4A of the Act 1994. On further clarification sought by the petitioner, it was communicated that extension up to 30.04.2014 is granted for provisional assessment; there shall be no more extensions; the importer shall take all the steps to clear the warranty goods under Section 4A of the Act wherever the said provisions are applicable. On the request made by the petitioner seeking for final assessment of provisionally assessed goods, the Deputy Commissioner of Customs called for certain documents.
4. It is submitted that the petitioner was shocked to receive a show cause notice dated 27.06.2017 by the second respondent under Section 28 of the Act calling upon the petitioner to show cause as to why:
[i] The goods imported as warranty replacement goods but a small portion of them subsequently sold for out of warranty valued at Rs.8,65,68,087/- should not be confiscated under Section 111[m] of the Customs Act, 1962.
[ii] The differential duty of Rs.9,70,981/- should not be demanded and recovered from them under the provisions of Section 28[4] of the Customs Act, 1962.
[iii] Interest under Section 28AA of the Customs Act, 1961 should not be levied and demanded from them.
[iv] Penalty under Section 112 and 114A of the Customs Act, 1962 should not be imposed on them.
Being aggrieved by the same, the petitioner is before this Court.
5. Learned Senior Counsel Sri.S.S.Naganand, representing the learned counsel for the petitioner would submit that the impugned show cause notice suffers from the vice of arbitrariness and lacks jurisdiction. The existence of an alternative remedy is not a bar to invoke the writ jurisdiction, as the impugned show cause notice has been issued invoking the extended period of limitation on the basis of unsubstantiated allegation of suppression with an intention to evade payment of customs duty. Limitation being a question of jurisdiction, the writ petition requires to be adjudicated on merits.
6. Learned senior counsel submitted that as per Section 28[1] of the Act, 1962, the extended period of limitation may be invoked only if there is [i] collusion, [ii] any willful mis-statement; [iii] suppression of facts. A mere bald allegation of suppression of facts has been made in the impugned show cause notice without any specific reference to any Act or omission on the part of the petitioner. The executive order dated 27.02.2013 states that all the goods under the Apple Care umbrella of services were to be assessed to customs duty under the RSP Valuation. It was argued that the impugned show cause notice is in complete contradiction to the circular dated 10.03.2017 issued by the Central Board of Excise and Customs.
7. The learned counsel for the revenue has filed statement of objections. It is contended that the writ petition is not maintainable before this court by-passing the efficacious alternative remedy provided under the Act. It was submitted that to meet the principles of natural justice, personal hearing was fixed on 30.1.2018 and the same has been adjourned at the request of the petitioner from time to time. The petitioner without attending before the original authority has rushed to this court.
8. It was argued that only during the queries raised on the petitioner while answering to question No.4 to the statement dated 28.6.2017, the petitioner admitted the fact that in very small percentage of cases, if the damage is not covered under warranty, they support the customer with a replacement item for exchange price. Further to query No.6 it was answered that the petitioner sell their products which is not covered under warranty. These material facts were placed before the original Authority vide their letter 20.6.2017. Till 19.6.2017, in all the correspondence with the department, the petitioner has stated that apple care products have been imported for warranty replacements. The said fact was suppressed by the petitioner with an intent to evade payment of differential duty arising out of such sale and hence the department invoking the extended period has issued the show cause notice.
9. Adverting to the rival submissions made by the learned counsel appearing for the parties, it is evident that the petitioner has invoked the writ jurisdiction without appearing before the statutory Authority. It is well settled law that there is no bar to entertain the writ petition if the impugned notice issued is without jurisdiction. To examine this aspect, it is apt to refer to the judgments referred to by the learned Senior counsel.
10. In the case of Calcutta Discount Co.
Limited Vs. Income Tax Officer, Companies District I, Calcutta and another reported in AIR 1961 S.C. 372 the Hon’ble Apex Court has observed thus:
“Does the duty however extend beyond the full and truthful disclosure of all primary facts ? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else-far less the assessee--to tell the assessing authority what inferences-whether of facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts.”
This judgment was rendered in the context of interpreting the phrase “Reason to believe” under Section 34 of the Indian Income Tax Act, 1922.
11. In Uniworth Textiles Limited Vs.
Commissioner of Central Excise, Raipur reported in (2013)9 SCC 753 the Hon’ble Apex Court has observed as under:
“12. We have heard both sides, Mr. R.P. Bhatt, learned senior counsel, appearing on behalf of the appellant, and Mr. Mukul Gupta, learned senior counsel appearing on behalf of the Revenue. We are not convinced by the reasoning of the Tribunal. The conclusion that mere non-payment of duties is equivalent to collusion or willful misstatement or suppression of facts is, in our opinion, untenable. If that were to be true, we fail to understand which form of non-payment would amount to ordinary default? Construing mere non-payment as any of the three categories contemplated by the proviso would leave no situation for which, a limitation period of six months may apply. In our opinion, the main body of the Section, in fact, contemplates ordinary default in payment of duties and leaves cases of collusion or willful misstatement or suppression of facts, a smaller, specific and more serious niche, to the proviso. Therefore, something more must be shown to construe the acts of the appellant as fit for the applicability of the proviso.
19. Thus, Section 28 of the Act clearly contemplates two situations, viz. inadvertent non- payment and deliberate default. The former is canvassed in the main body of Section 28 of the Act and is met with a limitation period of six months, whereas the latter, finds abode in the proviso to the section and faces a limitation period of five years. For the operation of the proviso, the intention to deliberately default is a mandatory prerequisite.
20. This Court in Aban Loyd Chiles Offshore Limited and Ors. Vs. Commissioner of Customs, observed:-
“20. The proviso to Section 28(1)can be invoked where the payment of duty has escaped by reason of collusion or any willful misstatement or suppression of facts. So far as “misstatement or suppression of facts” are concerned, they are qualified by the word "wilful". The word "wilful" preceding the words "misstatement or suppression of facts" clearly spells out that there has to be an intention on the part of the assessee to evade the duty.”
21. The Revenue contended that of the three categories, the conduct of the appellant falls under the case of “willful misstatement” and pointed to the use of the word “misutilizing” in the following statement found in the order of the Commissioner of Customs, Raipur in furtherance of its claim:
“The noticee procured 742.51 kl of furnace oil valued at Rs. 54,57,357/- without payment of customs duty by misutilizing the facility available to them under Notification No. 53/97-Cus. dt. 3.6.1997”
22. We are not persuaded to agree that this observation by the Commissioner, unfounded on any material fact or evidence, points to a finding of collusion or suppression or misstatement. The use of the word “willful” introduces a mental element and hence, requires looking into the mind of the appellant by gauging its actions, which is an indication of one’s state of mind. Black’s Law Dictionary, Sixth Edition (pp 1599) defines “willful” in the following manner: -
“Willful -. Proceeding from a conscious motion of the will; voluntary; knowingly; deliberate. Intending the result which actually comes to pass… An act or omission is “willfully” done, if done voluntarily and intentionally and with the specific intent to do something the law forbids, or with the specific intent to fail to do something the law requires to be done…”
23. In the present case, from the evidence adduced by the appellant, one will draw an inference of bona fide conduct in favour of the appellant. The appellant laboured under the very doubt which forms the basis of the issue before us and hence, decided to address it to the concerned authority, the Development Commissioner, thus, in a sense offering its activities to assessment. The Development Commissioner answered in favour of the appellant and in its reply, even quoted a letter by the Ministry of Commerce in favour of an exemption the appellant was seeking, which anybody would have found satisfactory. Only on receiving this satisfactory reply did the appellant decide to claim exemption. Even if one were to accept the argument that the Development Commissioner was perhaps not the most suitable repository of the answers to the queries that the appellant laboured under, it does not take away from the bona fide conduct of the appellant. It still reflects the fact that the appellant made efforts in pursuit of adherence to the law rather than its breach.
24. Further, we are not convinced with the finding of the Tribunal which placed the onus of providing evidence in support of bona fide conduct, by observing that “the appellants had not brought anything on record” to prove their claim of bona fide conduct, on the appellant. It is a cardinal postulate of law that the burden of proving any form of mala fide lies on the shoulders of the one alleging it. This Court observed in Union of India Vs. Ashok Kumar that:
“21……it cannot be overlooked that burden of establishing mala fides is very heavy on the person who alleges it. The allegations of mala fides are often more easily made than proved, and the very seriousness of such allegations demand proof of a high order of credibility.”
25. Moreover, this Court, through a catena of decisions, has held that the proviso to Section 28 of the Act finds application only when specific and explicit averments challenging the fides of the conduct of the assessee are made in the show cause notice, a requirement that the show cause notice in the present case fails to meet. In Aban Loyd Chiles Offshore Limited and Ors. (supra), this Court made the following observations:
“21. This Court while interpreting Section 11-A of the Central Excise Act in Collector of Central Excise v. H.M.M. Ltd. (supra) has observed that in order to attract the proviso to Section 11-A(1) it must be shown that the excise duty escaped by reason of fraud, collusion or willful misstatement of suppression of fact with intent to evade the payment of duty. It has been observed:
‘2...Therefore, in order to attract the proviso to Section 11- A(1) it must be alleged in the show- cause notice that the duty of excise had not been levied or paid by reason of fraud, collusion or willful misstatement or suppression of fact on the part of the assessee or by reason of contravention of any of the provisions of the Act or of the Rules made thereunder with intent to evade payment of duties by such person or his agent. There is no such averment to be found in the show cause notice. There is no averment that the duty of excise had been intentionally evaded or that fraud or collusion had been practiced or that the assessee was guilty of wilful misstatement or suppression of fact. In the absence of any such averments in the show-cause notice it is difficult to understand how the Revenue could sustain the notice under the proviso to Section 11-A(1) of the Act”
22. It was held that the show cause notice must put the assessee to notice which of the various omissions or commissions stated in the proviso is committed to extend the period from six months to five years. That unless the assessee is put to notice the assessee would have no opportunity to meet the case of the Department. It was held:
“2....There is considerable force in this contention. If the department proposes to invoke the proviso to Section 11-A(1) , the show-cause notice must put the assessee to notice which of the various commissions or omissions stated in the proviso is committed to extend the period from six months to 5 years. Unless the assessee is put to notice, the assessee would have no opportunity to meet the case of the department. The defaults enumerated in the proviso to the said sub-section are more than one and if the Excise Department places reliance on the proviso it must be specifically stated in the show-cause notice which is the allegation against the assessee falling within the four corners of the said proviso ”
(Emphasis supplied) 12. In Siemens India Limited Vs. State of Maharashtra and others reported in (2006)12 SCC 33 it is observed thus:
“Although ordinarily a writ court may not exercise its discretionary jurisdiction in entertaining a writ petition questioning a notice to show cause unless the same inter alia appears to have been without jurisdiction as has been held by this Court in some decisions including State of Uttar Pradesh v. Brahm Datt Sharma and Anr. AIR 1987 SC 943, Special Director and Another v. Mohd. Ghulam Ghouse and Another, (2004) 3 SCC 440 and Union of India and Another v. Kunisetty Satyanarayana, 2006 (12) SCALE 262], but the question herein has to be considered from a different angle, viz, when a notice is issued with pre-meditation, a writ petition would be maintainable. In such an event, even if the courts directs the statutory authority to hear the matter afresh, ordinarily such hearing would not yield any fruitful purpose [See K.I. Shephard and Others v. Union of India and Others (1987) 4 SCC 431 : AIR 1988 SC 686]. It is evident in the instant case that the respondent has clearly made up its mind. It explicitly said so both in the counter affidavit as also in its purported show cause notice.
In the said case, indeed a demand was made terming the same as a show-cause notice. The Hon’ble Apex Court has observed that the Statutory Authority has already applied his mind and has formed an opinion as regards the liability or otherwise of the appellant therein.
13. In the case of Uniworth Textiles, supra, the Hon’ble Apex Court was construing whether mere non payment of duty would come within the ambit of three categories contemplated by the proviso for which the extended period under the proviso to section 28 (1) of the Act could be invoked. In the said case the matter was carried before the Appellate Authorities as well as the Tribunal. The Appellate Authorities and the Tribunal indeed had given a finding in the matter. In that context, the Hon’ble Apex Court has observed that in the absence of specific averments find in the show cause notice which is a mandatory requirement for commencement of action under the said proviso, and that nothing on record disclose a willful default on the part of the assessee, invoking the extended period of limitation under the said provision is held to be unjustifiable.
14. In the case of Collector of Central Excise, Indore Vs. Indore Bottling Company, Indore reported in (2003)11 SCC 438, supra, the Hon’ble Apex Court considering the finding of the Tribunal that the assessee had already informed collecting of the said charges in March 1994 as such issuing a show cause notice on 6.6.97 by the department relating to the period from1.3.1994 to 30.11.1996 is not a case to invoke section 11A of the Central Excise Act, 1944.
15. In the case of ACC Limited Vs. Union of India the assessee was before this court challenging the issuance of third show cause notice after the proceedings were adjudicated on more than two occasions. In that context it was held that it is not permissible to reopen the issue, which stands concluded on the spacious ground that the company had made mis-statements, the third show cause notice is based on unsustainable grounds.
16. In the case of Union of India Vs. I.T.C. Limited and another reported in 1985 ECR 2013(Kar), this court after examining the show cause notice extensively, issued by the superintendent recorded that the said authority was trying to get round the order of the appellate collector and to undo the same. Accordingly, the reasoning and conclusion of the learned Judge on this aspect is held to be unexceptionable.
17. In the case of Godrej Food Limited and another Vs. Union of India and others reported in 1993 SCC Online MP 66 the Hon’ble Madhya Pradesh High Court has observed that a mere mechanical repetition of the language of the provision in the show cause notice would not confer jurisdiction on the collector of the Central Excise to issue show cause notice under Section 11A of the Act beyond period of six months taking advantage of the proviso to that section. During the period of notice, no other material was shown to contend that there was any fraud played upon the department. The matter was relating to classification of the product. In the said case the impugned show cause notice was not the first of its kind to start a controversy. On the earlier show cause notice issued, an order has already been passed against the assessee and the Appellate Authority had confirmed the same. The order being passed on the earlier show cause notice and the assessee had approached the Appellate Authority, it was argued that appellate remedy under the Act is not an equally efficacious remedy.
Thus, the aforesaid judgments are held in a different context as discussed above and are not applicable to the facts of the present case.
18. It is true that the extended period of limitation under Section 28[1] of the Act can be invoked only in the following circumstances:
[i] Collusion or [ii] any willful mis-statement or [iii] suppression of facts.
It is the contention of the Revenue that during the period from January 2010 to July 2012, the petitioner has paid the duty on MRP value in respect of warranty replacements but for the period July 2012 to November 2012 customs duty was paid on Transaction Value and were clearing the warranty replacement goods on provisional assessment basis paying customs duty on MRP of the finished goods for the period December 2012 onwards. It is asserted by the petitioner that in respect of the said periods, the petitioner has erroneously valued the products imported for replacements at the maximum retail price at the products sold in retail. These are all vexed questions which requires to be examined by the authorities.
19. Clauses 3.2 and 3.6 of the Circular dated 10.03.2017 issued by the Central Board of Excise and Customs reads thus:
“3.2 Ingredients for extended period: Extended period can be invoked only when there are ingredients necessary to justify the demand for the extended period in a case leading to short payment or non- payment of tax. The onus of establishing that these ingredients are present in a given case is on revenue and these ingredients need to be clearly brought out in the Show Cause Notice alongwith evidence thereof. The active element of intent to evade duty by action or inaction needs to be present for invoking extended period.
3.6 Power to invoke extended period is conditional: Power to issue notice for extended period is restricted by presence of active ingredients which indicate an intent to evade duty as explained above. Indiscriminate use of such restricted powers leads to fruitless adjudications, appeals and reviews, inflates the figures of outstanding demands and above all causes unnecessary harassment of the assesses. Therefore, before invoking extended period, it must be ensured that the necessary and sufficient conditions to invoke extended period exists.”
20. The relevant paragraphs of the Show Cause Notice dated 27.06.2017 impugned are quoted for ready reference:
“7. Whereas, letter dated 03.06.2017 was sent to the importer seeking details of imports of Applecare products i.e., warranty replacement units of IPods, Ipads, Iphones for the period 01.07.2012 to 09.12.2012. As, the importer has not furnished the details even after repeated reminder letters, a summons dated 14.06.2017 was sent under Section 108 of the Customs Act, 1962. The statement of Shri Raghunath Lakshmanan, working as Manager-Trade Compliance with the importer and authorized by the importer appeared before the Superintendent to render statement, which was recorded on 20.06.2017 [enclosed as Annexure-C]. Shri Raghunath Lakshmanan, had inter alia stated that the goods imported in general [referred to as finished goods by him] were imported for retail sale and sold to their distributors for further distribution in the channel, while in the case of Apple Care products [i.e., i-phone, i-pod & i-pad], they were imported to support their customers during the warranty period. However he stated that a very small percentage of cases if found for any reason that the damage is not covered under warranty, they support the customers with a replacement for exchange price.
8. Further, the importer vide their letter dated 20.06.2017 furnished details for the period from 01.07.2012 to 09.12.2012, of the goods imported and sold out of warranty.
9. From the foregoing paras, it appears that the importer has contravened the provisions under Section 14 of the Customs Act, 1962, in as much as, they have not furnished the correct retail sales price [RSP] of the goods as envisaged under these provisions. The said issue of valuation of goods for Warranty replacements and applicability of MRP based assessment is dealt in the case of Bharti Telemedia Limited, Vs Commissioner of Customs [Import] Nava Sheva, vide case law 2016 [331] ELT 138 Tri Mumbai, where is held that where set top boxes brought for warrant and sold as replacement box to subscriber, CVD payable under Section 4A of Central Excise Act. Taking into cognizance the Retail Sale Price declared for clearance of i-phone, i-pod & i- pad, at about the same time, the differential duty liability on account of such incorrect RSP on the goods imported for warranty purpose, but sold out of warranty works out to Rs.9,70,981/- [Rupees Nine Lakhs Seventy Thousand Nine Hundred and Eighty One only], for the period from 01.07.2012 to 09.12.2012, the details of which is enclosed as Annexure-D to this notice.
10. In view of above suppression of facts of RSP, it appears that the customs duty short paid is required to be recovered from them in terms of the provisions contained under Section 28[4] of the Customs Act, 1962 and interest under Section 28AA of the said Act. The goods imported as Warranty replacement goods but a small portion of them subsequently sold for out of warranty as explained in the foregoing paras are liable for confiscation under Section 111 [m] of Customs Act, 1962.”
21. The reference made to the circular instructions issued by the Central Board of Excise and Customs inasmuch as clauses 3.2 and 3.6 no doubt deals with the ingredients for extended period, but on the examination of the show cause notice impugned it cannot be held that such ingredients are not present. In such circumstances, the show cause notice issued to submit a written explanation cannot be held to be ill founded. Writ petition is premature and deserves to be rejected.
I.A.No.1/19 has been filed by the petitioner submitting that the respondent has issued the notice dated 14.10.2019 calling upon the petitioner for personal hearing. The petitioner is at liberty to put forth the reply/explanation before the respondent No.2. The respondent No.2 shall consider the submissions/reply of the petitioner and shall take a decision in accordance with law without being influenced by any of the observations made herein above, after providing reasonable opportunity of hearing to the petitioner. All rights and contentions of the parties are left open.
With the aforesaid observations and directions, writ petition as well as pending I.As stand disposed of.
Sd/- JUDGE Dvr: