Delhi High Court on Adjustment of Voluntary Customs Duty Deposit Beyond Section 28 Limitation

Background and Outcome

In Ridhi Sidhi Overseas Vs Principal Commissioner of Customs & Ors. (Delhi High Court), the Delhi High Court examined whether the Customs, Central Excise and Service Tax Settlement Commission could appropriate a voluntarily deposited amount towards differential customs duty relatable to imports that were beyond the extended limitation period prescribed in Section 28 of the Customs Act, 1962.

The assessee had voluntarily paid Rs.85,00,000/- during investigation. The Settlement Commission appropriated Rs.70,20,348/- out of this towards differential duty on imports that fell outside the five-year period under Section 28, relying on admissions made by the proprietor, Shri Navin Singh, and his recorded request on adjustment of the voluntary deposit. The remaining amount was adjusted against duty within the limitation period.

The assessee filed a writ petition under Article 226 of the Constitution of India, contending that such appropriation effectively allowed recovery of a time-barred demand. The Delhi High Court rejected this contention and dismissed the writ petition, holding that:

  • The case involved appropriation of an amount already voluntarily deposited, not raising or enforcing a fresh demand under Section 28.
  • There was no jurisdictional error, no violation of natural justice, and no manifest error of law in the Settlement Commission’s order.
  • The Court’s conclusion was expressly confined to this specific factual matrix and was not to be read as modifying, expanding, or diluting the limitation regime under Section 28.

Factual Matrix Considered by the Court

Investigation and Allegations

  • The Directorate of Revenue Intelligence, Mumbai Zonal Unit (DRI), investigated alleged under-invoicing and misdeclaration of transaction value and Retail Sale Price (RSP) in relation to imports of confectionery products from M/s Seville Products Ltd., Dubai.
  • The intelligence suggested that certain importers of confectionery, including wafers, cookies and toffees, were:
    • Declaring values lower than the actual transaction values at the time of customs clearance, and
    • Remitting the differential amounts to foreign suppliers through non-banking channels.

Role of the Petitioner

  • The assessee, Ridhi Sidhi Overseas, is a proprietary concern of Shri Navin Singh.
  • Between 2008-09 and 2010-11, the assessee imported 21 consignments of assorted confectionery items from M/s Seville Products Ltd. through:
    • Nhava Sheva,
    • ICD Tughlakabad (ICD TKD), and
    • Chennai.

Searches and Documents Recovered

  • Searches were conducted at:
    • The premises of Shri Prakash Menon, described as the Indian representative of M/s Seville Products Ltd. – on 18.10.2013; and
    • The assessee’s premises – on 10.02.2014.
  • The search yielded:
    • Invoices issued by M/s Seville Products Ltd. to the assessee, and
    • Statements of Account maintained by the overseas supplier in respect of the assessee.
  • The values indicated in these documents were higher than those declared before the Customs authorities, indicating under-valuation.

Statements of the Proprietor

  • Statements of Shri Navin Singh were recorded on 11.02.2014 and 26.06.2015.
  • As noted by the Settlement Commission:
    • He accepted that the actual transaction values were those reflected in the overseas invoices and Statements of Account.
    • He admitted that the difference between actual and declared values was settled through Shri Sumit Khandelwal and/or Shri Manoj Dugar.
    • He acknowledged misdeclaration of the RSP for the 21 Bills of Entry.
  • The differential customs duty liability in respect of these imports was quantified at Rs.1,15,88,712/-.

Quantification of Duty and Period-wise Break-up

The Settlement Commission recorded the duty computation as follows:

  • Total differential duty: Rs.1,15,88,712/- on 21 Bills of Entry.
  • Within 5 years (extended period under Section 28):
    • Duty: Rs.45,68,364/-.
  • Beyond 5 years:
    • Duty: Rs.70,20,348/-.

This break-up between within-limitation and beyond-limitation periods is central to the controversy.

Voluntary Deposit and Proposed Adjustment

Voluntary Deposit During Investigation

  • During investigation, the assessee voluntarily deposited a total of Rs.85,00,000/-.
  • According to the Settlement Commission’s findings:
    • In his statement dated 26.06.2015, Shri Navin Singh:
      • Admitted the entire differential duty of Rs.1,15,88,712/-, and
      • Stated that the deposit of Rs.85,00,000/- should be adjusted towards differential duty for 2008-09 to 2010-11.
      • Indicated that the balance amount would be paid later (which was not ultimately paid).