High Court Rules Show Cause Notice Cannot Be Sustained Where Classification Issue Is Settled:

The petitioner was engaged in importing and dealing in nuts, bolts, washers, hand tools and allied products which were classified under Chapter Headings including 7318, 8205 and 3926 of the Customs Tariff Act, 1975. The Revenue alleged that the goods were actually scaffolding items falling under Chapter Heading 7308 and that the petitioner had incorrectly declared the quantity, weight and nature of the exported goods.

The dispute arose in connection with exports covered by various shipping bills. The goods covered by certain shipping bills dated January 1 and 2, 2015 were seized by the Directorate of Revenue Intelligence (DRI) after alleged shortages were noticed. The goods were later provisionally released upon execution of a bond for 100% of their FOB value along with security in the form of a bank guarantee. The CESTAT thereafter ordered their release on furnishing the requisite bond.

The petitioner challenged the show cause notice dated December 20, 2016, contending that the classification of the goods had already been examined by the Gujarat High Court in several earlier cases and that similar show cause notices had been quashed.

Referring to Rule 16 of the Drawback Rules and its earlier decision in Pratibha Syntex Limited Vs Union of India & Others Case, the Court observed that although Rule 16 does not expressly prescribe a period of limitation, a reasonable period has to be read into the provision. The Court held that proceedings initiated beyond three years from the date of payment of drawback could not be sustained.

The Court further observed that in the present case, the shipping bills had already been finally assessed and the assessment had attained finality. If the Revenue had any grievance regarding classification, the appropriate course was to challenge the assessment through the statutory appellate mechanism rather than reopen the concluded assessment through a show cause notice.

Accordingly, the Gujarat High Court held that the issue stood covered by its earlier judgments and allowed the writ petition. The impugned show cause notice dated December 20, 2016 was quashed and set aside.