The Impermissibility of Supplementary Notices under Section 28(4) of the Customs Act

 

The Impermissibility of Supplementary Notices under Section 28(4) of the Customs Act
By Abhishek Jat, Advocate

The Delhi High Court recently delivered a significant judgment clarifying the legal boundaries surrounding the issuance of show cause notices (SCNs) under Section 28 of the Customs Act, 1962. The case, Ismartu India Pvt. Ltd. v. Union of India, revolved around the contentious issue of whether a subsequent notice under Section 28(4) could supplement a prior notice issued under Section 28(1) of the Act. The Court’s ruling, delivered by a Division Bench comprising Justices Yashwant Varma and Harish Vaidyanathan Shankar, reaffirmed the distinct legal frameworks governing these provisions and emphasized the impermissibility of using one to supplement the other.

Factual Background

The petitioner, engaged in the import and sale of mobile phone components, was issued a show cause notice dated 25-07-2023 under Section 28(1) of the Customs Act. The notice alleged that the petitioner had misclassified imported goods, specifically mobile phone parts, under a tariff heading applicable to parts rather than complete mobile phones, thereby evading higher customs duties. Subsequently, on 01-09-2023, the respondents issued another show cause notice under Section 28(4) of the Act, based on the same factual matrix.

The petitioner challenged the second notice, arguing that it constituted an impermissible “change of opinion” and amounted to a reassessment without fresh grounds. The respondents, however, contended that the subsequent notice was justified as it was based on additional findings and a reassessment of classification errors.

Legal Issues

The core legal issue before the Court was whether a subsequent notice under Section 28(4) could supplement a prior notice issued under Section 28(1) of the Customs Act. The Court was also required to determine whether the issuance of two notices for the same set of transactions violated principles of fairness and statutory interpretation.

Court’s Analysis

The Court meticulously examined the statutory framework of Section 28, highlighting the distinct legal fields in which Sections 28(1) and 28(4) operate. Section 28(1) applies in cases of short-paid or erroneously refunded duty without any fraudulent intent, while Section 28(4) is invoked only when non-payment of duty results from collusion, willful misstatement, or suppression of facts.

The Court observed that the two notices were nearly identical in content, differing only in the statutory provision invoked and the period covered. The investigation reports relied upon in both notices were also identical, indicating that no fresh grounds existed for invoking Section 28(4). The Court emphasized that the issuance of a subsequent notice under Section 28(4) contradicted the assessment under Section 28(1), rendering it legally untenable.

The principle of “change of opinion” was central to the Court’s reasoning. The same facts had been interpreted differently within a short span by the same authority, which the Court found to be an impermissible reassessment. The argument that the Section 28(4) notice was a “supplementary notice” was rejected outright, as the two provisions operate independently and cannot be used interchangeably.

Judicial Precedents

The Court relied on several judicial precedents to reinforce its decision. In State of U.P. v. Aryaverth Chawal Udyog (2015), the Supreme Court held that reassessment cannot be justified based on a mere change in interpretation without new material. Similarly, in Commr. of Customs v. G.C. Jain (2011), the Court emphasized that an administrative re-evaluation of the same facts does not justify invoking a different provision. These judgments underscored the principle that a reassessment under a different statutory provision, without fresh evidence, is legally unsustainable.

Conclusion

The Delhi High Court quashed the impugned show cause notice dated 01-09-2023, ruling that it was issued in violation of established principles of law. The Court held that Section 28(4) could not supplement a prior Section 28(1) notice, as both provisions serve distinct legal purposes. The issuance of conflicting notices for the same set of transactions led to legal uncertainty and procedural unfairness. The respondents failed to establish any material suppression, collusion, or willful misstatement on the part of the petitioner.

This judgment serves as a critical reminder of the importance of adhering to statutory boundaries and ensuring procedural fairness in tax litigation. It reaffirms that a mere change of opinion, without fresh evidence, cannot justify the invocation of a more stringent provision under the Customs Act.