Holding

When the Commissioner finds no collusion, wilful misstatement or suppression of facts, the extended limitation period under section 28(1) proviso cannot be invoked and consequently penalty under section 114A cannot be imposed; the demand and penalty are barred by limitation.

Summary

The Commissioner of Customs, Mumbai issued a show‑cause notice demanding customs duty and penalty from M.M.K. Jewellers for a shortage of duty‑free gold detected during a stock‑taking in 1995. The respondent argued that the shortage was due to permissible manufacturing wastage, that the gold existed as dust/slurry, and that the notice was time‑barred. The Commissioner found no collusion, wilful misstatement or suppression of facts, and therefore held that the extended five‑year limitation under the proviso to section 28(1) could not be invoked, nor could penalty under section 114A be imposed. The Supreme Court affirmed this view, stating that without a finding of misdeclaration the duty cannot be levied and the penalty cannot stand. Consequently, the demand and penalty were dismissed as barred by limitation.

Issues considered

Whether the extended period of limitation under the proviso to section 28(1) of the Customs Act can be invoked when there is no collusion, wilful misstatement or suppression of facts.
Whether penalty under section 114A of the Customs Act can be imposed when the duty itself cannot be demanded.
Whether the demand for customs duty and penalty is barred by limitation in the present facts.
Whether excess manufacturing wastage of gold can be treated as a short‑levy liable to duty.

Legislation cited

Customs Act, 1962s. 111, s. 112, s. 114A, s. 28, s. 28(1) proviso, s. 28(2), s. 28(3), s. 28AB

Subjects

Customs dutyLimitation periodSection 114AGold wastagePenaltyCollusionMisdeclarationSEEPZBonded goods

Judgment

)
' [2008] 4 S.C.R. 661

- .. COMMISSIONER OF CUSTOMS, MUMBAI
V.
M.M.K. JEWELLERS & ANR.
A

(Civil Appeal No. 813-814 of 2004)
MARCH 11, 2008
B
(ASHOK BHAN AND DALVEER BHANDARI, JJ.)

Customs Act, 1962:
~ ""
s. 28(1), proviso, and s.114-A - Notice for payment of
c
duty and penalty - Invoking of extended period of limitation -
Shortage of duty free gold detected with assessees on
11.11.1995-Assessees'standthat shortage was due to excess
manufacturing wastage loss and the gold was available in form
of dust/slurry - Further, notice dated 13. 11. 1997 related to
imports from 1992-1993 - HELD: In view of the finding by D
Commissioner of Customs that assessees were not guilty of
. """(
collusion or misstatement or suppression of facts, duty cannot
be imposed by invoking extended period of limitation - Nor
can imposition of penalty u/s 114-A be sustained.
The respondent in C.A. No. 813-814 of 2004 was E
engaged in manufacturing plain/studded/unstudded gold
/
jewellery in Santacruz Electronics Export Processing
Zone from directly imported gold procured from Minerals
and Metal Trading Corporation in terms of Notification No.
f, 196/87-Cus dated 5.5.1987 as amended by Notification No. F
·-< 155/92-Cus dated 30.3.1992 and 177/94-Cus dated
21.10.1994. On 11.11.1995 the officers of Customs
Preventive Commisionerate inspected the premises of the
respondent and detected a shortage of 6410.885 grams
of duty free gold worth Rs.28,72,076.48. The respondent G
was also found not to have been maintaining the Wastage
Account Register as required under the Public Notice No.
211988 issued by Commissioner of Customs concerned.
The respondent was stated to have violated the relevant
661 H
\ )

662 SUPREME COURT REPORTS [~008] 4 S.C.R.

A Customs Notifications and made itself liable for an or:der
of confiscation u/s 111 (o) of the Customs Act, 1962. A show
cause notice dated 13.11.1997 was issued u/s 28 of the
Act calling upon the respondent to pay Rs. 20,82,225.45
as customs duty at the rate of 50%(BCD) plus 15% CVD
B on the shortage of 6410.885 grams of gold, as also to pay
the penalty u/s 112(a) and (b) ands. 114A of the Customs
Act. The stand of the respondent was that the excess
manufacturing wastage/loss took place in manufacture
of jewellery and the same was available in the form of dust/
C slurry and the gold was recoverable by refining the same.
It was also contended that the show cause notice dated
13.11.1997 related to imports from 1992-1993 and,
therefore, was time barred. The Commissioner of
Customs confirmed the demand except as regards
penalty u/s.114A of the Act, as in his opinion, no case of
0
collusion, willful misstatement or suppression of facts was
brought out in the show cause notice. But the appeal of
the respondent was allowed by the Customs Excise and
Gold (Control) Appellate Tribunal. Aggrieved, the Revenue
filed the instant appeals. The other appeals also arose on
E the identical facts.
It was contended for the respondent that in view of
the findings of the Commissioner of Customs that there
was no suppression or mis-declaration on the part of the
F respondent, the order confirming the duty beyond the
period of six months from the relevant date was· not
sustainable in law.
Dismissing the appeals, the Court
G HELD: 1.1Section114A of the Customs Act, 1962
can be invoked for imposition of equivalent amount of duty
as penalty in cases where the short levy or non-levy has
occurred due to mis-declaration or suppression of facts
on the part of the assessee-importer. Section 114A is a
mirror-image of the proviso to section 28 of the Customs
H
-
)
'
GOMMISSIONER OF CUSTOMS, MUMBAI v. M.M.K. 663
JEWELLERS & ANR.

; .,. Act. [para 27] [677-G] A

1.2 In the instant matters, the appellant cannot invoke
the extended period of limitation in view of the
Commissioner's categoric findings that no case of
collusion, wilful mis-statement or suppression of facts has
B
been brought out in the show cause notice so as to invoke
the provisions of section 114A of the Customs Act, 1962.
The legal position is clear and crystallized by a series of
t ..,.
judgments that in case where the assessee is not guilty
of suppression of facts, collusion or wilful misstatement
of facts, the extended period of limitation cannot be
c
invoked under the proviso to section 28(1) of the Customs
Act, 1962. In this view of the matter, the instant appeals
are dismissed on the ground of limitation. [para 41, 46
and 47] [684-8; 685-8-C]
D
1.3 Penalty under Section 114A is imposable only
when the demand is confirmed under the proviso to
·~ section 28(1) of the Act. In view of the clear findings of the.
Commissioner that the respondent-assessees are not
guilty of suppression of facts or collusion or misstatement, E
duty cannot be imposed by invoking the extended period
of limitation. When the duty itself cannot be imposed, no
order of imposing the penalty under section 114A of the
Act can be sustained. [para 42] [684-C-D]
,. P & B Pharmaceuticals (P) Ltd. v. Collector of Central F
~
Excise (2003) 3 SCC 599; EGE Industries Ltd. v.
Commissioner of Central Excise, New Delhi (2004) 13 SCC
719; and Nizam Sugar Factory v Collector of Central Excise,
A.P. (2006) 11 scc·573 - relied on.
G
1.4 The demand and penalty raised against the
respondents, if any, are dropped. [para 48] [685-D-E]
'""--.(
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
----N 813-814of2004.
H
\ )

664 SUPREME COURT REPORTS [2008] 4 S.C.R.

A From the Judgment and Order dated 20.6.2003 of the
.... '\,
Custom Excise and Gold (Control) Appellate Tribunal in final
order No. Cll/1514-1515 In Common Final Order No. Cll/1514-
30/WZB/2003 at Mumbai in A.No. C/1146/2001 MUM & C/1142/
2001 - MUM
B
WITH

Civil Appeal Nos. 822-824, 818-820, 815-817, 825-827,
1537-1539, 4641of2004 and Civil Appeal No. 7274 of2005) ..... 1

Aman Ahluwalia, Binu Tamta and B. Krishna Prasad for
c the Appellant.
V. Lakshmilumaran, Monish Panda, Rajesh Kumar, Manish
Singhvi and P.V. Yogeswaran for the Respondents.
The Judgment of the Court was delivered by
D
DALVEER BHANDARI, J. 1. The questions of law
involved in all these appeals are identical, therefore, we propose
to dispose of these appeals by this common judgment. For the r- ~
sake of convenience, the facts of Civil Appeal Nos. 813-814 of
E 2004 are recapitulated as under:
2. The respondent Mis M.M.K. Jewellers is a unit in
Santacruz Electronics Export Processing Zone, engaged in the
manufacturing of plain/studded/unstudded gold jewellery for
export from directly imported gold or from the gold procured
F from MMTC in terms of Notification No. 196/87-Cus dated
5.5.1987 which was further amended by Notification No. 155/ ~ "
92-Cus dated 30.3.1992 and Notification No. 177/94-Cus dated
21.10.1994. The said notification, inter alia, permitted graded
percentage of gold wastage or loss depending on the value
.G addition achieved, on the jewellery of the description specified
therein, and provided that scrap, dust or sweepings may be
forwarded to the Government Mint by the importer for conversion
into standard gold bars and returned to the said zone in .,....,..
acco1 dance with the procedure specified by the Commissioner
H of Customs in this regard. Amongst other conditions, the said "L-
\J
COMMISSIONER OF CUSTOMS, MUMBAI v. M.M.K. 665
JEWELLERS & ANR. [DALVEER BHANDARI, J.]

./' ";- notification required that the importer shall maintain a proper A
account of import, consumption and utilization of the goods and
of exports made by him. Public Notice No.2/1988 dated
28.7.1988 issued by the Commissioner of Customs, Airport in
terms of the abovesaid notification required the units in SEEPZ
to maintain registers as per proforma annexed thereto. B

. ....
--
3. On 11.11.1995, acting on information that the Gem &
Jewellery Units in SEEPZ have been misusing the facility by

. showing excess manufacturing wastage or loss than permissible
under the above mentioned notification, causing shortage in
physical stock, claiming it to be lying· in the form of dust, the c
Officers of the Mumbai Customs Preventive Commissionerate
visited the premises of the said unit and verified the records
from the period of inception of the unit and took the physical
stock of gold followed by detailed investigations which resulted
in the detection of a shortage of 6410.885 grams of gold, valued D
at Rs.28,72,076.48. The respondent unit was found to have not
~~ been maintaining the Wastage Account Register prescribed vide
Public Notice No. 2/88 dated 28.7.1988.
4. During the investigation, the respondent unit claimed
that the excess manufacturing wastage/loss took place in the E
production of jewellery and the same was available in the form
of dust/slurry and the gold was recoverable by refining the same
and the claim of loss made at the time of export was
approximation.
f F
~ 5. The EXIM Policy (1992-97) in para 90 prescribes the
admissibility of gold wastage or manufacturing loss as specified
in para 147 of the Hand Book Procedures and the Table-I thereto
whereby the actual wastage or loss is admissible only "upto"
the extent prescribed and as according to the said Customs
G
Notification issued in this behalf.
6. The wastage norms specified in para 147 of the 'Hand
~
Book of Procedures' in respect of mounting and findings are
..
_ applicable only in cases where the mountings and findings have
been manufactured from imported gold and exported as such H
\ I

666 SUPREME COURT REPORTS [2008] 4 S.C.R.

A and no wastage is admissible if the mountings and findings are -'(
\.
imported as they are used as such in jewellery which is then
exported in terms of the explanation given below in the 'Table'
to clause 1O of Notification No. 177/94 and as clarified by the
Ministry of Finance vide letter F.No.305/91/94FTT dated
B 11.10.1994.
7. No further loss is permitted on the repairs of the imported
products as the claim of loss is admitted at the time of an initial
export of the products.
""" ..
lo,
c 8. From the above, it appears that the respondent has failed
to maintain the 'Wastage Account Register' for the purpose of
monitoring the actual manufacturing wastage or loss but claimed
the maximum wastage/loss of claim as mentioned above was
made farce and thus they violated the conditions of the aforesaid
notification and Public Notice No. 2/88 of 28.7.1988.
D
9. It also appears that the respondent has failed to export/
account for 6410.885 grams of gold valued at Rs.28, 72,076.48
~-
claiming it to be lying in dust and claiming protection under sub-
proviso to condition.
E
10. It, therefore, appears that the aforesaid duty free gold
weighing 6410.885 grams and valued at Rs.28, 72,076.48 were
neither exported nor were available in the physical stock and
thereby violating the conditions of the aforesaid Customs
Notification and, consequently, appear to have rendered
F themselves liable for confiscation under section 111 (o) of the
Customs Act, 1962. "
..,...

11. It, therefore, prima facie indicates that the respondent
did or omitted to do an act which act or omission rendered the
abovesaid duty-free gold weighing 6410.885 grams and valued
G
at Rs.28, 72,076.48 liable for confiscation under section 111 of
the Customs Act, 1962 or abetted to do an act or omission of
such an act and dealt with the said gold which they knew or had >-""
reason to believe were liable to confiscation under section 111
of the CustomsAct, 1962 as indicated above and thus rendered """'"
H
\ )
COMMISSIONER OF CUSTOMS, MUMBAI v. M.M.K. 667
JEWELLERS & ANR. [DALVEER BHANDARI, J.]

themselves liable for penal action under clauses (a) and (b) A
respectively of section 112 of the Customs Act, 1962 and also
the mandatory penalty under section 114A of the said Act.
12. Now, therefore, the respondent was called upon to pay
Rs.20,82,255.45 as customs duty at the rate of 50% (BCD) +
:j 15% CVD (as applicable on 11.11.1995) on the aforesaid B
shortage of gold weighing 6410.885 grams valued at
Rs.28,72,076.48 as specified above under section 28 of the
Customs Act, 1962 and in terms of the Bond executed with the
Assistant Commissioner of Customs, SEEPZ and explain in
writing to the Commissioner of Customs (Preventive), New C
Customs House, Ballard Mumbai 400 038, as to why the
aforesaid amount should not be recovered and penalty imposed
under sections 112(a) and (b) and 114A of the Customs Act,
1962.
D
13. On behalf of respondent M.M.K. Jewellers, reply to the
show cause notice was filed by Mr. A.S. Sunder Rajan, Advocate
vide his letter dated 24.2.1998. In the said letter, he contended
that the Officers during the stock taking on 11.11.1995 detected
a shortage of 6410. 885 grams of gold and the gold was
reportedly lying in the form of dust and slurry. He also stated that E
in terms of the general bond, the importer has to maintain a
proper accounting of import, consumption and utilization of the
goods and there is no reference to the wastage and that only
vide Public Notice 20/96 dated 8.11.1996, the requirement of
maintaining of wastage register was prescribed. F
14. The respondent submitted that the present show-cause
notice dated 13.11.1997 relates to import from 1992-1993 and,
therefore, the show-cause notice is time barred. It was also
submitted on behalf of the respondent that non-accounting of G
gold or the wastage thereof does not amount to violation of any
provisions of the Customs Act, 1962 or the conditions of
Customs Notification No.177/94 issued on 21.10.1994.
15. The respondent submitted that the proprietor of the
company in his statement informed that the gold is available in H
')
668 SUPREME COURT REPORTS [2008] 4 S.C.R.

A dust and slurry lying in his unit, which is recoverable and the ·~
,:
same has been subsequently recovered and,. therefore, there
is no shortage. In view of this, the invocation of section 111 (o)
and section 112 is not sustainable. It was also submitted that
section 114A of the Customs Act, 1962 was applicable only in
B respect of a case where duty has not been levied or has been
short levied and since the present case relates to accounting of
gold, question of levy or penalty does not arise.
,.., -o\
16. The respondent stated that the unit had recovered a
substantial amount of metal against the shortage of 6410.885
c grams alleged in the show-cause notice. Regarding imposition
of penalty under section 112 of the Customs Act, 1962, it was
stated that the show-cause notice was issued under section 28
of the Customs Act, 1962 for the purpose of recovery of duty
and hence provision of section 112 cannot be invoked. It was
D asserted that the imported gold has been used for the
manufacture of jewellery and that the said section can be invoked
only in case where imported gold has not been utilized in a
manner prescribed in the said notification. The matter of dispute
is only regarding the quantum of wastage and recovery of gold
..,.. .
E therefrom and, therefore, section 111 (o) of the Customs Act,
1962 cannot be invoked and, consequently, section 112(a) or
114A of the Customs Act, 1962 also cannot be invoked. It was
further submitted that the show-cause notice is time barred and
that since the show-cause notice is issued under section 28 of
F the Customs Act, 1962 penalty under section 112 cannot be
~
levied. ~-

17. It was also submitted that section 114A of the Customs
Act, 1962 has no application to the facts of this case as the
said section came into force w.e .f. 28 .9 .1996 and the show-
G cause-notice pertains to an earlier period. It was pointed out
· that section 114A is applicable only in a case where the duty
has been short-levied by reason of collusion, wilful misstatement
or suppression of facts arid since there is no such allegation, ')--
section 114A cannot be invoked.
.::
H
j
' COMMISSIONER OF CUSTOMS, MUMBAI v. M.M.K. 669
JEWELLERS & ANR. [DALVEER BHANDARI, J.]

;. ~ 18. The Commissioner of Customs in his order dated A
27.7.2001, after considering the show-cause-notice and the
reply fi!ed by the respondent, observed that on 11 .11 .1995, the
Officers attached to Preventive Commissionerate of Mumbai
Customs conducted the stock taking and verification of records
which resulted in detection of shortage of 6410.885 grams of B
gold, valued at Rs.28,72,076/-. During the investigation, the
respondent unit claimed that the said quantity of gold found short
~~ was recoverable from the dust/slurry lying in the unit. Shri
Mohanlal M. Kedia, Proprietor of the firm in his statement
recorded under section 108 of the Customs Act, 1962 stated c
that the quantity of 6410.885 grams was the loss taken place at
the time of manufacturing and the year-wise excess loss from
1990-91 to 1995-96 was ranging between 1.16% to 3.21 %
whereby the average excess loss for the period was
approxim?tely 1.28%. They also admitted that they did not
D
maintain wastage register. Therefqre, by their own admission
they had been incurring wastage of gold more than the
~~
permissible limit as prescribed in the Notification 196/87-Cus
and 177/94-Cus and also vi de Para 147 of the 'Hand Book of
Procedures' read with Para 90 of the EXIM Policy, 1992-97.
E
19. The Commissioner of Customs found that there was
no dispute regarding computation of shortage. However, the
only claim was that so much gold was recoverable by refining
the dust/slurry lying in the unit. The respondent took the
,;
preliminary objection that the demand of duty under section 28 F
...,. of the Customs Act, 1962 has been made after six months of
the detection of the shortage because the demand has been
made to the extent of duty on the goods which were found to
have been violated.
20. According to the Commissioner of Customs, the gold G
imported into the unit was permitted duty free clearance from
time to time under Notification No.196/87(Custom) till
"'"'-'( 21.10.1994 and thereafter under Notification 177/94(Custom).
Both these notifications have inherent conditions which are to
be complied with by the respondent unit. These conditions inter H
' )
670 SUPREME COURT REPORTS [2008] 4 S.C.R.

A alia permitted certain quantity of manufacturing loss/wastage
on gold and the remaining quantity has to be exported in the
form of jewellery. While computing the shortage during the time
of stocking this fact has been taken into account and it is not
disputed. Therefore, the Commissioner found that the duty on
B such shortage is recoverable and also such non-fulfilment of
the conditions of the Notification and EXIM Policy would render
the goods found short, liable for confiscation under section
111(d) and 111(0) of the Customs Act, 1962 and, consequently,
the Unit would be liable to penal action under section 112(a) of
c the Customs Act, 1962 as it was due to their acts of commission
and/or omission which gave rise to such shortages rendering
the goods found liable for confiscation.
21. The Commissioner of Customs, in his order, has held
that to the extent of maintaining of prescribed register, the
D respondent violated the conditions of the said notifications. The
Commissioner also held that the claim of recovery of gold from
the slurry/dust cannot be adjusted towards the shortage of gold
found during stock checking. The Commissioner held that the
shortage of 6410.885 grams of gold was valued at Rs.28, 72,076/
E - and, therefore, the custom duty of Rs.20,82,225/- as demanded
in the show cause notice was also payable. The Commissioner
of Customs held that the above shortage is violation of the
conditions of the Notification No. 196/87 and 177/94-Cus and
the EXI M Policy and, therefore, 6410.885 grams of gold valued
F at Rs.28, 72,076/-was liable to confiscation under sections
111(d) and 111(0) of the Customs Act, 1962. He, however, held
that these goods are not available for confiscation, therefore,
by virtue of their acts of commission and/or omission, the
respondents have rendered the said goods liable for
G confiscation and rendered themselves liable for penalty under
section 112(a) of the Customs Act, 1962. The Commissioner
of Customs in his order observed that no cause of collusion,
wilful misstatement or suppression of facts has been brought
out in the show cause notice so as to invoke the provisions of
section 114A of the Customs Act, 1962. Therefore, he did not
H
~ , COMMISSIONER OF CUSTOMS, MUMBAI v. M.M.K. 671
JEWELLERS & ANR. [DALVEER BHANDARI, .J.]

- ;
find that it was a fit case for invoking section 114A of the Customs A
Act, 1962 relating to the penalty.
22. The Commissioner of Customs passed the following
order:
"(a) I confirm the demand of duty of Rs.20,82,255/- 8
(Rupees Twenty Lakhs Eighty Two Thousand Two
Hundred Fifty Five only) under Section 28 of Customs
Act, 1962.
; .,..
(b) Though the said 6410.885 gms of gold, valued at
Rs.28, 72,076/- found short is liable for confiscation, c
since the same is not available for confiscation, while
confirming its liability of confiscation under ·section
111(d) and 111(0) of Customs Act, 1962, I am not
ordering confiscation of the said goods.
D
(c) I impose penalty of Rs.2,87,000/- (Rupees Two Lakhs
Eighty Seven Thousand only) on Mis. M.M.K~
Jewellers (M/s. Jewel Exports Pvt. Ltd.) under Section
"~ 112(a) of Customs Act, 1962."
23. The respondent, aggrieved by the said order of the E
Commissioner of Customs, preferred an appeal before the
Customs, Excise and Gold (Control) Appellate Tribunal, West
Regional Bench, Mumbai (for short "the Tribunal").
24. The Tribunal decided· all these 14 identical appeals by
a common judgment dated 19.6.2003. The Tribunal held that F
r
-y
the confirmation of demand of duty by the adjudicating authority
under Section 28 of the Customs Act, 1962 is wrong in law and
facts and the impugned order of the Commissioner of Customs
cannot be sustained. The Tribunal also held that the confirmation
of duty is barred by limitation. The Tribunal observed regarding G
clauses (5) and (8) of the notification that one has to be practical
that when the jewellery is manufactured out of the raw material
and when the gold is converted from primary form to the end
-~ product, there may be certain dust which may fly from the place
. of manufacture or it may even be irrecoverable loss due to the H
\ )
672 SUPREME COURT REPORTS [2008) 4 S.C.R.

A process of manufacture of the final product. It can be invisible. I

The Tribunal observed that the table of the notification also stated -4 "'-·
the percentage of gold which could be allowed for wastage.
The appeal filed by the respondent was allowed with
consequential relief. I=
B 25. The appellant Commissioner of Customs, Mumbai,
aggrieved by the said judgment of the Tribunal, has preferred
this appeal under section 130E(b) of the Customs Act, 1962.
'"'T' ~
26. Since the respondent has laid serious stress on the
c question of limitation and imposition of penalty therefore, we
deem it appropriate to reproduce the provisions (sections 28
and 114A) dealing with limitation and penalty in the Customs
Act, 1962. Sections 28 and 114A are reproduced as under: .'
"28. Notice for payment of duties, interest, etc.- (1) ~
D When any duty -has not been levied or has been short- Ir-
j
levied or erroneously refunded, or when any i"nterest ~
I
payable has not been paid, part paid or erroneously
refunded, the proper officer may, - ~ "
(a) in the case of any import made by any individual for
E his personal use or by Government or by any
educational, research or charitable institution or
hospital, within one year ;
(b) in any other case, within six months,
F from the relevant date, serve notice on the person
~·
chargeable with the duty or interest which has not been ,,.. '
'
levied or charged or which has been so short-levied or
part paid or to whom the refund has erroneously been
made, requiring him to show cause why he should not pay
G the amount specified in the notice:
Provided that where any duty has not been levied or has
been short-levied or the interest has not been charged or
has been part paid or the duty or interest has been
erroneously refunded by reason of collusion or any wilful
H
)
' COMMISSIONER OF CUSTOMS, MUMBAI v. M.M.K. 673
JEWELLERS & ANR. [DALVEER B.HANDARI, J.]
___, misstatement or suppression of facts by the importer or A
~
,... ~
the exporter or the agent or employee of the importer or
exporter, the provisions of this sub-section shall have effect
as if for the words "one year'' and "six months", the words
"five years" were substituted.
Explanation.-Where the service of the notice is stayed by 8
an order of a court, the period of such stay shall be excluded
in computing the aforesaid period of one year or six months
~ y or five years, as the case may be.
(1A) When any duty has not been levied or has been c
... short-levied or the interest has not been charged or has
been part paid or the duty or interest has been _erroneously
refunded by reason of collusion or any willful misstatement
or suppression of f~cts by the importer or the exporter or
the agent or employee of the importer or exporter, to whom
D
a notice is served under the proviso to sub-section (1) by
the proper officer, may pay duty in full or in part as may be

' ' ~
accepted by him, and the interest payable thereon under
section 28AB and penalty equal to twenty-five per cent.
of the duty specified in the notice or the duty so accepted
___,'
« by such person within thirty days of the receipt of the E
1
notice.

J
(2) The proper officer, after considering the representation,
=If' if any, made by the person on whom notice is served
under sub-section (1 ), shall determine the amount of duty F
... or interest due from such person (not being in excess of
..,.
the amount specified in the notice) and thereupon such
person shall pay the amount so determined.
Provided that if such person has paid the duty in full together
with interest and penalty under sub-section (1A), the G
proceedings in respect of such person and other persons
to whom notice is served under sub-section (1) shall,
..... ~ without prejudice to the provisions of sections 135, 135A
and 140, be deemed to be conclusive as to the matters
stated therein: H
\ I
674 SUPREME COURT REPORTS [2008] 4 S.C.R.

A Provided further that, if such person has paid duty in part,
interest and penalty under sub-section (1A), the proper
officer shall determine the amount of duty or interest not
.. being in excess of the amount partly due from such person.
(2A) Where any notice has been served on a person under
B sub-section ( 1), .the proper officer,-
(i) in case any duty has not been levied or has been
short-levied, or the interest has not been paid or has
been part paid or the duty or interest has been
c erroneously refunded by reason of collusion or any
willful mis-statement or suppression of facts, where
it is possible to do so, shall determine the amount of
such duty or the interest, within a period of one year;
and
D (ii) in any other case, where it is possible to do so, shall
determine the amount of duty which has not been
levied or has been short-levied or erroneously
refunded or the interest payable which has not been )-. f '

paid, part paid or erroneously refunded, within a
E period of six months, ·
from the date of service of the notice on the person under
sub-section (1).
(28) Where any duty has not been levied or has been .,
I.

F short-levied or erroneously refunded, or any interest
payable has not been paid, part paid or erroneously ·•/
y \,,.
refunded, the person, chargeable with the duty or the
interest, may pay the amount of duty or interest before
service of notice on him under sub-section (1) in respect
of the duty or the interest, as the case may be, and inform
G
the proper officer of such payment in writing, who, on
receipt of such information, shall not serve any notice under
sub-section (1) in respect of the duty or the interest so
paid: )--->" '

H Provided that the proper officer may determine the amount
l J
COMMISSIONER OF CUSTOMS, MUMBAI v. M.M.K. 675
JEWELLERS & ANR. [DALVEER BHANDARI, J.]
. ~
of short-:payment of duty or interest, if any, which in his A
opinion has not been paid by such person and, then, the
proper officer shall proceed to recover such amount in the
manner specified in this section, and the period of "one
year'' or "six months" as the case may be, referred to in
sub-section (1) shall be counted from the date of receipt B
of such information of payment.
• y Explanation 1.-Nothing contained in this sub-section shall
apply in a case where the duty was not levied or was not
paid or the interest was not paid or was part paid or the
duty or interest was erroneously refunded by reason of c
collusion or any willful mis-statement or suppression of
facts by the importer or the exporter or the agent or
employee of the importer or exporter.
Explanation 2.-For the removal of doubts, it is hereby
D
declared that the interest under section 28AB shall be
~ ~ payable on the amount paid by the person under this sub-
section and also on the amount of short-payment of duty,
if any, as may be determined by the proper officer, but for
this sub-section.
E
(2C) The provisions of sub-section (28) shall not apply to
' any case where the duty or the interest had become payable
' or ought to have been paid before the date on which the
Finance Bill, 2001 receives the assent of the President.
1'
.. (3) For the purposes of sub-section (1), the expression
"relevant date" means,-
F

(a) in case where duty is not levied, or interest is not
charged, the date on which the proper officer makes
an order for the clearance of the goods;
G
(b) in a case where duty is provisionally assessed under
.. ~
section 18, the date of adjustment of duty after the
final assessment thereof;
..... (c) in a case where duty or interest has been erroneously
H
\ I

676 SUPREME COURT REPORTS [2008] 4 S.C.R.

A refunded, the date of refund;
(d) in any other case, the date of payment of duty or
interest."
"114A. Penalty for short-levy or non-levy of duty in
B certain cases.-Where the duty has not been levied or
has not been short-levied or the interest has not been
charged or paid or has been part paid or the duty or
interest has been erroneously refunded by reason of
collusion or any willful mis-statement or suppression of
c facts, the person who is liable to pay the duty or interest,
as the case may be, as determined under sub-section (2)
of section 28 shall, also be liable to pay a penalty equal
to the duty or interest so determined:
Provided that where such duty or interest, as the case
D may be, as determined under sub-section (2) of section
28, and the interest payable thereon under Section 28AB,
is paid within thirty days from the date of the
communication of the order of the proper· officer
determining such duty, the amount of penalty liable to be
E paid by such person under this section shall be tWenty-five
percent of the duty or interest, as the case may be, so
determined:
Provided further that the benefit of reduced penalty under
the first proviso st)all be available subject to the condition .,,
F that the amount of penalty so determined has also been yf
paid within the period of thirty days referred to in that
proviso:
Provided also that where the duty or interest determined
to be payable is reduced or increased by ·the
G
c;:;ommissioner (Appeals), the Appellate Tribunal or, as
the case may be, the court, then, for the purposes of this
section, the duty or interest as reduced or increased, as
the case may be, shall be taken into account:

H Provided also that where the duty or interest determined
\ )
COMMISSIONER OF CUSTOMS, MUMBAI v. M.M.K. 677
JEWELLERS &. ANR. [DALVEER BHANDARI, J.]

to be payable is increased by the Commissioner A
(Appeals), the Appellate Tribunal or, as the case may be,·
the court, then, the benefit of reduced penalty under the
first proviso shall be available if the amount of the duty or
the interest so increased, along with the interest payable
thereon under Section 28AB, and twenty-five per cent of B
the consequential increase in penalty have also been paid
within thirty days of the communication of the order by
t "( which such increase in the duty or interest takes effect:
Provided also that where any penalty has been levied
under this section, no penalty shall be levied under Section C
112-or Section 114.
Explanation.-For the removal of doubts, it is hereby
declared that-
(i) the provisions of this section shall also apply to D
cases in which the order determining the duty
or interest under Sub-section (2) of Section 28
relates to notices issued prior to the date on
which the Finance Act, 2000 receives the
assent of the President; E
(ii) any amount paid to the credit of the Central
Government prior to the date of communication
of the order referred to in the first proviso or the
fourth proviso shall be adjusted against the total
amount due from such person." F
27. Section 114A can be invoked for imposition of
equivalent amount of duty as penalty in cases where the short
levy or non-levy has occurred due to mis-declaration or
suppression of facts on the part of the assess-importer. Section G
114A is a mirror-image of proviso to section 28 of the Customs
Act.
28. It has been asserted on behalf of the respondents that·
in view of the findings of the Commissioner of Customs that
there is no suppression or mis-declaration on the part of the H
' )

678 SUPREME COURT REPORTS T2008] 4 S.C.R.

A respondent, consequently, the duty short levied 9r not levied has
to be demanded under section· 28(1) itself and not under the
proviso to section 28(1 ). It was submitted that when there is no
suppression or mis-declaration on the part of the respondent,
the impugned order confirming the duty beyond the period of
B · six months from the relevant date is not sustainable in law.
29. In the counter affidavit, it is incorporated that assuming
that the manufacturing loss is in excess of the specified limits .
mentioned in para 10 of Notification No.177/94'.'Cus, even then
no duty can be demanded on the loss of gold when. there is no
C allegation or evidence that the imported gold has been diverted
for other purposes, other than for the manufacture and export of
gold. The requirement of Notification No. 177/94-Custom stands
satisfied even in such cases.
30. The respondent has also dealt with the distinction
0
between recoverable scrap and irrecoverable loss. In the counter
affidavit, a table has also been given to demonstrate that there
is no shortage as alleged by the appellant.
31. The appellant filed an additional affidavit through Mr.
E Promod Kumar, Superintendent of Customs (Preventive). It is
1'1entioned in the additional affidavit that the import could be
~·
"f'
either direct or through the Minerals and Metal Trading
· Corporation (MMTC). The exemption was subject to certain
conditions, and the importer was to execute a general bond
F undertaking to fulfil the export obligation and the conditions
.,,
y (
. stipulated in the notification. It is mentioned in the additional
affidavit that the allowable percentage of loss varied from the
type of jewellery and the degree of value addition in the jewellery
being manufactured. Thus, there was a graded scale for
G allowabie loss, which was linked to the degree of value addition.
It is also incorporated that on 28. 7 .1988, the Collector of
Customs i.ssued Public Notice specifying interim procedure for
customs clearance at the Gem and Jewellery Complex, SEEPZ.
The Units in the SEEPZ were required to maintain accounts of
H imported raw materials and capital goods, finished goods,
COMMISSIONER OF CUSTOMS, MUMBAI v. M.M.K. 679
JEWELLERS & ANR [DALVEER BHANDARI, J.]
... >-.
rejected goods etc. The units were also expected to maintain A
registers annexed to the Public Notice. Copy of the Register
Format has been annexed·along with the additional affidavit as
Annexures A1, A2.and A3.
32. In the additional affidavit, it is incorporated that on
13.11.1997, a show cause-cum-demand notice was issued to B
the respondent both under section 28 of the Customs Act, 1962
,, Y' and in the terms of the bond executed by the respondent. It has
given the details of how the shortage of gold in the stock was
calculated. Column 1 of the table indicates the year. Column 2
indicates the direct imports made in the relevant year and column c
3 indicates the procurement from MMTC in that year. Column 4
which is titled 11Total Weight", is the sum of columns 2 arid 3 and
it denotes the total quantity imported (either directly or through
MMTC). Column 5 refers to 'Actual Weight of Export' -which is
the quantity of goods actually exported. Column 6 denotes the D
...... ~
claimed wastage which, as per the Handbook, is a deemed
< export. The claim wastage figure in the table is taken from the
wastage claimed and recorded in the export registers. The unit .
had been claiming the maximum permissible wastage, whereas
it should have been claiming only actual wastage upto the E
maximum permissible limit. Column· 7 is the sum of columns 4
and 5 and it denotes the total weight of export. The difference

..
J 1'
between the total weight of quantity imported (in column 4) and
the total weight of export (in column 7) is the closing balance or
the book balance. This is reflected in column 8. If this book F
balance is found lying with the unit as physical stock, the
shortage would be nil. However, if the physical stock is less than.
the book balance, there will be a corresponding shortage. It may
be noted that the calculation of closing balance or book balance
is based on records maintained by the respondent itself, as per
G
the prescribed registers. Column 9 represents the physical
balance which is found lying with the unit on inspection, to the
....... extent that the figure in column 9 is less than the figure in column
8, there is a shortage and this is reflected in column 10. The
shortage in the case of the respondent was 6410.885 gra~s.
H
680 SUPREME COURT REPORTS [2008) 4 S.C.R.

~ ~

A 33. It is submitted in the affidavit that the total imports and
total exports are calculated (based on records maintained by
the respondent). If there is a gap between quantity imported
and quantity exported, it is the closing balance or book balance.
This is the quantity that the respondent should have as physical
B stock. To the extent .that the actual physical stock is .fess than
the book balance, there is a shortage. This shortage is in excess
of the permissible wastage because such wastage was already ..., ,,
counted as a deemed export. Duty would have to be paid on '
such shortage.
c 34. It must be noted that the shortage detected on
inspection cannot be attributed to any particular year. The
shortage is calculated based on the difference between total
closing balance (for all the years taken collectively since
inception of the unit) and physical balance (which is the physical
D stock lying with the unit at the time of inspection). Thus, a
comparison of closing balance and physical balance can only
~ /
indicate that as of the date of inspection, there had been excess
wastage above and beyond the maximum permissible limit. The
particular date/year in which the shortage occurred is not
E determinable.
35. It is submitted that by not maintaining -any 'Wastage
Account Registers', the respondent suppressed vital information
and thus, there is a clear case for invocation of the extended
period of limitation of five years under the proviso to section -=
F 28(1) of the Customs Act, 1962. With respect to the relevant "f '
date from which the limitation period must commence, it is
stated that section 28(3)(a) does not apply. Section 28(3)(a)
states that the relevant date means "(a) in case where duty is
not levied, or interest not charged, the date on Which the proper
G officer makes an order for the clearance of the goods". It is stated
that the sub-section must be interpreted to pre-suppose thaf
duty was leviable at the time of clearance. In the case of bonded ,._.
goods, duty was not payable at the time of clearance and the
exemption from duty was contemporaneous with the unit
H complying with the conditions of the exemption notification. Only
}

COMMISSIONER OF CUSTOMS, MUMBAI v. M.M.K. 681
JEWELLERS & ANR. [DALVEER BHANDARI, J.]
. ~ on inspection when it was found that the respondent unit had A
shortage in physical stock, that duty became leviable on the
shortage amount. As already indicated, the shortage/excessive
wastage may have occurred in any of the previous years. The
year in which the wastage took place cannot be ascertained
nor can the wastage be linked to specific bills of entry. which B
were cleared. Thus, the date of ~learance of the goods cannot,
in fact, be determined, rendering the application of section
/
y 28(3)(a) an impossibility. Sections 28(3)(b) and 28(3)(c) are
also inapplicable. Section 28(3)(d) states that the relevant date
means "(d) in any other case, the date of payment or duty or c
interest". As per this section, in the present case, since duty is
yet to be paid, there would effectively be no limitation period. In
any event, in the case of bonded goods, the limitation period
would not apply in the same manner as it does to other goods.
Both under section 72(1 )(d) which deals with warehousing bonds ·
D
and section 143(3) which deals with import of goods on
' ·~
execution of bond, there is no time limit for the proper officer to
make a demand in cases where the conditions of the bond have
been violated. In effect, bonded goods stand on a different
footing. The show cause-cum-demand notice was made both
under section 28 and the terms of the bond. In calculating the E
limitation period, regard must be taken to the fact that there are
bonded goods. Even if the provisions of section 28(3) were to
be applied, it is submitted that section 28(3)(d) is the only
... y
provision capable of application and as per that sub-section
there would be no limitation period in cases where duty is yet to F
be paid. Various benches of the Tribunal have passed orders
holding that in the case of bonded goods, the relevant date is
date of payment of duty. Thus, the present show cause-cum-
demand notices were not barred by limitation. It may also be
noted that the rate of duty applied to the goods and the valuation G
of the goods is based on prevalent rates as on the date of the
inspection. In the alternative, therefore, the date of inspection of
- -i stock and detection of shortage may be deemed to be the date
of clearance and the limitation period may be taken to mean
five years from such date. In this case too, the notices are not H
' I

682 SUPREME COURT REPORTS [2008) 4 S.C.R.

A barred by limitation.
36. The respondent contended that the shortage amount
was actually lying with the unit in the form of dust/scrap/slurry, or
had been sent for conversion into gold bars, as per the
prescribed procedure. It is submitted that the dust/scrap/ slurry
B which can be converted into gold bars is included in the
. allowable wastage and not in additibn to it. Wastage is allowed
up to permissible limits. If some of this wastage is lying with the.
unit as dust/scrap/slurry, it may be converted into gold bars and
brought back to the unit. But the provision for conversion of dust/
C scrap/slurry cannot be interpreted in a manner where it allows
for wastage beyond permissible limits. The respondent's
contention . that there is a distinction between recoverable and
invisible loss, finds no support in the applicable notifications
and policies. As the order-in-original has correctly noted, a
D percentage of gold cannot vanish as such and, therefqre, the
allowable loss itself contemplates that the wasted amount is
lying with the unit in some other form. To the extent that it can be
re-converted into gold bars, the notifications make certain
enabling provisions. The respondent has sought to exploit this
E liberty accorded to them by the notification. Further, as stated
earlier, the respondent has not maintained the 'Wastage Account
Registers', which must form the basis of any claim of allowable
loss. In such circumstances, the non-main.tenance of registers
constitutes suppression and creates suspicion about the .
F conduct of the respondent units.
37. In the said affidavit, it is incorporated that the
respondent unit has failed to maintain the requisite records
documenting wastage. Even if the maximum permissible
wastage was allowed to the respondent as a manufa_cturing
G · loss, there is still a shortage in the physical stock. Duty is payable
bn this shortage amount. The goods in question are bonded
goods and this must be borne in mind while computing the
limitation period that the limitation is not applicable to bonded
goods in the same manner as it does to other goods.
H
\ )
COMMISSIONER OF CUSTOMS, MUMBAI v. M.M.K. 683
JEWELLERS & ANR. [DALVEER BHANDARI, J.]

38. We have heard Mr. Gopal Subramanium, the learned A
~ Additional Solicitor General for the appellant and Mr. V.
Lakshmikumaran, the learned Advocate for the respondent at.
length and critically analysed the cases cited by him in support
of his case ..
39. We deem it appropriate to deal with the preliminary B
objection regarding limitation raised by the respondent. The
respondent has drawn our attention to the findings of the
)' Commissioner of Customs in appeal. The relevant portion of
the findings reads as under:
c
"No case of collusion, wilful mis-statement or suppression
of facts has been brought out in the show cause notice."
40. According to the respondent, in this appeal and in all
connected appeals stock checking was carried out on
11.11 .1995 and the show cause notice was issued after two D
years i.e. on 13.11.1997 demanding duty and the penalty from
the respondent. The respondent submitted that the appellant
., ~
cannot take benefit of the extended period of limitation under
the proviso to section 28 of the Customs Act, 1962 in vi~w of
the categoric findings of the Commissioner of Customs. The E
respondent further submitted that the order of the Commissioner
of Customs had acquired finality because no appeal was
preferred against the said order of the Commissioner of
Customs. It was further submitted that the Commissivner of
Customs has specifically given findings against the appellant F
and in favour of the respondent regarding applicability of section
(
114Aofthe Customs Act, 1962. Those findings are reproduced
as under:
"16. I find that section 114A of Customs Act, 1962 has
been invoked in the show cause notice without giving any G
proper reasons thereof. No case of collusion, wilful mis-
statement or suppression of facts has been brought out in
the show cause notice so as to invoke the provisions of
-1 section 114A of the Customs Act, 1962. Therefore, I do
not find that this is a fit case for invoking section 114A of H
\ )

684 SUPREME COURT REPORTS [2008] 4 S.C.R.

A the Customs Act, 1962."
41. The appellant in this appeal and connected appeals
cannot invoke the extended period of limitation in view of the
Commissioner's categoric findings that no case of collusion,
wilful misstatement or suppression of facts has b~en brought
B out in the show cause notice so as to invoke the provisions of
section 114A of the Customs Act, 1962.
42. Penalty under section 114A is imposable only when
the demand is confirmed under the proviso to section 28(1) of
c the Act. In view of the clear findings of the Commissioner that
the respondent.:assessees are not guilty of suppression of facts
or are guilty of collusion or misstatement and, the·refore, duty
cannot be imposed by invoking the extended period of limitation.
When the duty itself cannot be imposed, no order of imposing
the penalty under section 114A of the Customs Act can be
0
sustained. ·
43. Reliance has been placed on P & B Pharmaceuticals
(P) Ltd. v. Collector of Central Excise (2003) 3 SCC 599. In
this case, the question was whether the extended period of
E limitation could be invoked where the Department has earlier
issued show-cause notices in respect of the same subject-
matter. It has been held that in such circumstances, it could not
be said that there was any wilful suppression or misstatement
and that, therefore, the extended period under Section 11-A could
F not be invoked.
44. This case was followed in the subsequent judgment of
this court in ECE Industries Ltd. v. Commissioner of Central
Excise, New Delhi (2004) 13 SCC 719. In this case, this court
again held that as there is no suppression, penalty cannot be
G imposed.
45. This court relied on these judgments in the case of
Nizam Sugar Factory v Collector of Central Excise, A.P.
(2006) 11 sec 573. In this case, this court again reiterated the
H legal position and held that when there is no suppression of
COMMISSIONER OF CUSTOMS, MUMBAI v. M.M.K. 685
JEWELLERS & ANR. [DALVEER BHANDARI, J.]

facts, the department would not be justified in invoking the A
extended period of limitation.
46: In view of the .clear legal position crystallized by a series
of judgments that in case where the assessees are not guilty of
suppression of facts, collusion or wilful misstatement of facts,
therefore, the extended period of limitation cannot be invoked 8
under proviso to section 28(1) of the Customs Act, 1962 in the
instant appeal and the other connected appeals. Consequently,
' y this appeal and other connected appeals filed by the appellant
have to be dismissed being time barred.
c
47. Since this appeal and other connected appeals are
dismissed on the ground of limitation, therefore, we do not deem
it necessary to deal with the other submissions made by the
parties.
48. This appeal and other connected appeals filed by the D
appellant are accordingly disposed of. The demand and penalty
raised against the. respondent in this appeal and against the
other respondents in the connected appeals, if any, are dropped.
In the facts and circumstances of the case, we direct the parties
to bear their own costs. · E
R.P. Appeals dismissed.