Source: Madras High Court 

Why in News? 

Recently, the Madras High Court in the matter of Nalin Gupta v. Commissioner of Customs has held that the court emphasized that proper procedure is required i.e. response to Show Cause Notice on merits and then any procedural requests like cross-examination can be made. This sequence cannot be bypassed or reversed 

What was the Background of Nalin Gupta v. Commissioner of Customs Case?  

• In the present case, a Show Cause Notice was issued by the Principal Commissioner of Customs, Preventive Commissionerate, Chennai-III on 28th September 2022. 
• The case falls under Section 28(4) of the Customs Act, 1962 (CA), which as per Section 28(9)(b) requires determination of duty or interest within one year from the date of notice. 
• According to the appellant, the limitation period for determining the duty expired on 27^th September 2023. 
• The Customs Department (respondent) contends that the time period was extended up to 27th September 2024 through an Order/Communication dated 7^th May 2024, issued by the Chief Commissioner of Customs, Chennai Customs Zone. 
• The Madras High Court had directed the department to conclude the proceedings in terms of Section 28(9) of the Customs Act, 1962.  
• The assessee has challenged the order passed by the Madras High Court. 

What were the Court’s Observations? 

• The Madras High Court observed that: 
  • Cross-Examination Rights: 
    • The court firmly established that a party cannot demand cross-examination of witnesses in a Show Cause proceeding without first responding to the merits of the notice. 
    • Cross-examination requests without substantive replies should be rejected outright. 
  • Limitation Period and Extensions: 
    • The court clarified the sequential nature of extensions under Section 28(9): 
      • The initial limitation period must first expire (6 months/1 year as applicable).  
      • Only after this expiry can a senior officer consider granting extensions. 
      • Extensions cannot be granted preemptively or during the initial period. 
  • Procedural Sequence: 
    • The court emphasized that proper procedure requires: 
      • First: Response to Show Cause Notice on merits. 
      • Then: Any procedural requests like cross-examination. 
      • This sequence cannot be bypassed or reversed. 
  • Extension Powers: 
    • The court explained that: 
      • Senior officers can grant extensions only after the initial statutory period ends. 
      • For cases under clause (a): Additional 6 months. 
      • For cases under clause (b): Additional 1 year. 
      • These extensions are not automatic but discretionary. 
  • The court noted that if no orders are passed even after the extended period the proceedings automatically conclude, the effect is as if no notice was ever issued. 
  • The appeal became ineffective (infructuous) due to the 7th May 2024 communication validly extended the limitation period. Therefore, the challenge to limitation was premature 
• The Madras High Court dismissed the appeal.  

What is a Show Cause Notice? 

• A Show Cause Notice is a formal communication issued by a court, government agency, or another authoritative body to an individual or entity, asking them to explain or justify their actions, decisions, or behavior.  
• The purpose of a show cause notice is to give the recipient an opportunity to provide a response or clarification regarding specific concerns or alleged violations. 

What is Section 28(9) of the Customs Act, 1962? 

• It states that the proper officer shall determine the amount of duty or interest under sub-section (8). 
  • Within six months from the date of notice, in respect of cases falling under clause (a) of sub- section (1). 
  • Within one year from the date of notice, in respect of cases falling under sub-section (4). 
• Under the first proviso to Section 28(9) of the Customs Act, a senior officer can extend the period specified in clause (b) by one additional year, having regard to circumstances that prevented the proper officer from determining the amount. 
• The second proviso to Section 28(9) states that if the proper officer fails to determine within such extended period, the proceedings shall be deemed concluded as if no notice had been issued. 
• Section 28(9-A) provides exceptions where the limitation period can be paused if: 
  • A similar matter is pending before the Appellate Tribunal, High Court, or Supreme Court. 
  • An interim stay order has been issued. 
  • The Board has issued specific directions to keep the matter pending. 
  • The Settlement Commission has admitted an application. 

No Cross Examination Request Without a Reply in Show Cause Notice 

• Section 124: Issue of show cause notice before confiscation of goods, etc. 
  • As per Section 124(b) of the Customs Act, which deals with- issue of show cause notice before confiscation of goods, etc., Noticee is required to submit his reply as he is bounded by the said provision 
• Section 138B: It states that Relevancy of statements under certain circumstances as: 
  • Subsection (1) states that a statement made and signed by a person before any gazetted officer of customs during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, 
    • When the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the court considers unreasonable. 
    • When the person who made the statement is examined as a witness in the case before the court and the court is of the opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.  
  • The provisions of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a court, as they apply in relation to a proceeding before a court.