In W.P. (C) 6338/2021 -DEL HC- Delhi High Court grants relief to Swatch Group India Pvt Ltd, rules Show Cause Notice issued by DRI had lapsed & cannot be adjudicated
Justice Vibhu Bakhru & Justice Amit Mahajan [16-08-2023]

Read Order: Swatch Group India Pvt Ltd & Ors V. Union of India & Ors

Chahat Varma

New Delhi, September 5, 2023: The High Court of Delhi has recently held that the show cause notice issued by the Directorate of Revenue Intelligence (DRI) to Swatch Group India Pvt. Ltd. had lapsed and could not be adjudicated.

The present case involved Petitioner No. 1 (Swatch Group India Pvt Ltd), an importer and exclusive authorized distributor of Swatch products, which imported luxury watches and accessories from various overseas suppliers. Petitioner No. 2 and 3 were the Country Manager cum Director and Chief Financial Officer, respectively, of Petitioner No. 1. The DRI had received credible information that Petitioner No. 1 was importing Swiss-origin branded watches and engaging in misdeclaration of their retail sale prices (RSP) to evade paying the appropriate customs duty. As a result, certain watches were detained during an investigation and subsequently seized. The DRI's investigation led to the issuance of a show cause notice dated 14.02.2018 and a corrigendum dated 28.02.2018 under Sections 28 and 124 of the Customs Act, 1962. These notices proposed the recovery of customs duty, along with interest and penalties. They also recommended the confiscation of the seized watches under Sections 111(d) and 111(m) of the Customs Act, as well as the imposition of penalties under Sections 112(b). Additionally, penalties were proposed under Sections 112(a), 112(b), and Section 114AA on the officials of Petitioner No. 1.

The bench comprising of Justice Vibhu Bakhru and Justice Amit Mahajan highlighted that show cause notices issued prior to the Finance Act coming into force were supposed to be governed by the unamended Section 28(9) of the Customs Act.

The bench emphasized that in this particular case, the Department had neglected the matter for approximately 17 months, despite the specific mandate of the unamended Section 28(9) of the Customs Act, which required the levy of duty within 12 months from the date of notice issuance.

The bench opined that there was no evidence to indicate that it was impossible for the proper officer to determine the duty amount within the prescribed timeframe. The inclusion of the phrase ‘where it is not possible to do so’ did not grant the Department the authority to delay the determination of the notices indefinitely. The legislature had provided a specific period for the authority to fulfil its obligations. The bench asserted that the officer's failure to complete the adjudication within the mandated timeframe cannot be condoned, as it was detrimental both to the taxpayer and the government's revenue.

Therefore, the division bench concluded that in the absence of any legitimate reason for the officer's inability to determine the duty amount within the stipulated period, the impugned show cause notice could not be adjudicated.