Delhi High Court: A petition was filed challenging the show cause notice dated 01-09-2023 issued under Section 28(4) of the Customs Act, 1962, by the respondents against the petitioner. The Division Bench of Yashwant Varma and Harish Vaidyanathan Shankar, JJ., quashed the impugned notice and held that the issuance of a second notice based on the same factual matrix was legally untenable and an abuse of the statutory process emphasizing that a subsequent notice under Section 28(4) could not supplement a prior notice under Section 28(1), as both provisions operate independently.
The petitioner is engaged in the import and sale of mobile phone components. The dispute arose when the respondents issued a show cause notice dated 01-09-2023 under Section 28(4) of the Customs Act, 1962. The notice alleged that the petitioner had misclassified its imported goods, specifically parts of mobile phones, and thereby, evaded customs duty. The respondents contended that the petitioner had suppressed material facts and wrongly classified imported goods under a tariff heading applicable to parts, instead of as complete mobile phones, which attracted a higher duty.
The controversy escalated as the petitioner had already been issued a prior show cause notice dated 25-07-2023 under Section 28(1) of the Act for the same set of goods, based on the same factual matrix. The petitioner argued that issuing a second notice under Section 28(4) was a clear case of “change of opinion” and amounted to an impermissible reassessment without fresh grounds.
Counsel for the petitioner argued that the impugned show cause notice under Section 28(4) was unsustainable in law as it was based on the same factual allegations as the prior notice under Section 28(1), constituting an impermissible “change of opinion.” Section 28(4) requires proof of collusion, willful misstatement, or suppression of facts, none of which were present in this case. The Respondents failed to demonstrate any fraudulent intent on the part of the Petitioner. The classification adopted by the Petitioner for imported mobile phone parts was consistent with industry standards and had been previously accepted in customs assessments. The issuance of two separate notices for the same set of transactions created legal uncertainty and violated principles of fairness.
Counsel for the respondents argued that the subsequent show cause notice under Section 28(4) was justified as it was based on additional findings and a reassessment of classification errors made by the Petitioner. The classification adopted by the Petitioner was incorrect and led to deliberate underpayment of customs duty. The impugned notice was not a “change of opinion” but rather a necessary corrective action based on a fresh and independent investigation.
The Court carefully examined the distinction between Sections 28(1) and 28(4) of the Customs Act. It noted that Section 28(1) applies in cases of short-paid or erroneously refunded duty without any fraudulent intent, whereas Section 28(4) applies only when non-payment of duty results from collusion, willful misstatement, or suppression of facts.
The Court observed that the two Show Cause Notices were nearly identical in content, differing only in the statutory provision invoked and the period covered. The issuance of a subsequent notice under Section 28(4) contradicted the assessment under Section 28(1), rendering it legally untenable. The investigation reports relied upon in both notices were identical, indicating that no fresh grounds existed for invoking Section 28(4). The principle of “change of opinion” applied because the same facts were interpreted differently within a short span by the same authority.
The Court also noted that Section 28 of the Act, by its very nature posits, in a given set of facts and circumstances, the issuance of a SCN either under Section 28(1) or under Section 28(4) of the Act and not under both.” The argument that the Section 28(4) notice was a “supplementary notice” was rejected outright, as Section 28(1) and Section 28(4) operate in separate legal fields and cannot be used interchangeably.
The Court relied on State of U.P. v. Aryaverth Chawal Udyog, (2015) 17 SCC 324, wherein it was held that reassessment cannot be justified based on a mere change in interpretation without new material. In Commr. of Customs v. G.C. Jain, (2011) 12 SCC 713, it was emphasized that an administrative re-evaluation of the same facts does not justify invoking a different provision. These judgments reinforced the principle that a reassessment under a different statutory provision, without fresh evidence, is legally unsustainable.
The Court quashed the impugned show cause notice dated 01-09-2023, ruling that it was issued in violation of established principles of law. It emphasized that Section 28(4) notice 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.
Consequently, the writ petition was allowed, and all pending applications were disposed of in favor of the petitioner.
[Ismartu India Pvt. Ltd. v Union of India, W.P.(C) 15199/2023, decided on 07-03-2025]
Advocates who appeared in this case :
Mr. Tarun Gulati, Sr. Adv. with Mr. Tarun Jain, Ms. Kritika Tuteja, Mr. Devansh Garg & Ms. Sheena Tyagi, Advocates for petitioner
Mr. Gibran Naushad, SCC with Mr. Harsh Singhal, Advocate for respondents