Initiating Proceedings For Recovery Of Duty Under Customs Act After 'Inordinate Delay' Of 26 Yrs Is Unreasonable: Bombay High Court

A division bench of Justice M. S. Sonak and Justice Jitendra Jain were considering Mahindra and Mahindra Ltd's (petitioner) challenge to the notice issued by the Office of Commissioner of Customs (Export) on December 15, 2022, seeking to recover duty foregone under Section 143 of the Customs Act, 1962.

Section 143 of the Customs Act, which deals with the powers of customs officials to allow import or export of goods on the execution of bonds, does not provide any time limit for recovery of duty foregone.

The petitioner argued that notice was issued to recover the duty for the non submission of the Export Obligation Discharge Certificate dated September 23, 1996. The notice was thus issued after almost 26 years after the non submission of the certificate.

The bench in its order said, "Admittedly, there is no dispute that no time limit is provided under Section 143 of the Customs Act for recovery of duty foregone. However, it is a settled position that where the Act is silent on the limitation, the proceedings have to be initiated within a reasonable period, and the said reasonable period has to be ascertained based on a holistic reading of the Scheme of the Act. In the instant case, admittedly, the impugned notice is issued for non-submission of Export Obligation Discharge Certificate dated 23 September 1996, after almost 26 years. In our view, on a reading of the Customs Act, the reasonable period for initiating any proceedings for recovery of dues can certainly not be 26 years, even where a bond may have been executed". 

The Court agreed with the petitioner's reliance on  Union of India vs. Citi Bank (2022 LiveLaw (SC) 704), where the Supreme Court observed that the authorities are required to initiate proceedings within a reasonable period when no such period has been provided in the Statute. In this case, the Apex Court quashed a show cause notice issued under FERA almost a decade after the transaction date, on grounds of delay in initiating the proceedings.

It further referred to Section 28 of the Customs Act, where the time limit for notice for payment of duties or interest in cases of suppression or fraud is 5 years. This period, the court said, gives a clue and could, therefore, provide guidance in determining a reasonable time when the legislature offers no specific time limit.

Referring to this provision, the Court noted that in the present case, there were no allegations of any fraud or suppression and hence seeking recovery after 26 years cannot be said to be reasonable. 

“Therefore, there is nothing reasonable in seeking to make recoveries after 26 years. Not even an attempt is made to explain this inordinate delay” it said. The court also referred to a division bench's decision in Coventry Estates Pvt. Ltd. Vs. The Joint Commissioner, CGST and Central Excise & Anr. (2023) has analyzed this issue of delayed adjudication and quashed the notices where the adjudication was proposed after a gross delay. 

In view of the Supreme Court and division bench judgments, the high court set aside the December 15, 2022 notice. 

Case title: Mahindra and Mahindra Ltd. vs. Union of India & ors. (Writ Petition No.4339 of 2024)

Citation: 2024 LiveLaw (Bom) 613