Introduction:

In the case of M/S Ismartu India Pvt. Ltd. v. Union Of India And Others (W.P.(C) 15199/2023), the Delhi High Court ruled that a notice issued under Section 28(4) of the Customs Act, 1962 following a prior notice under Section 28(1) constituted a change of opinion and was, therefore, unsustainable. The division bench comprising Justices Yashwant Varma and Harish Vaidyanathan Shankar clarified that the two provisions operate in distinct circumstances and cannot be interchangeably used. The dispute arose when Ismartu India, an electronics and mobile device manufacturing firm, was served with a show cause notice (SCN) under Section 28(4) of the Customs Act after already receiving an SCN under Section 28(1). Section 28 governs the recovery of duties that were either not levied, short-levied, or erroneously refunded. Section 28(1) applies in cases where no collusion, wilful misstatement, or suppression is found, whereas Section 28(4) is invoked when such elements are present. Ismartu India challenged the subsequent SCN under Section 28(4), arguing that it was based on the same facts and thus amounted to an arbitrary shift in the legal basis for the charge. The court quashed the impugned SCN, emphasizing that the same officer, dealing with nearly identical facts, could not justify issuing two different SCNs under separate provisions of the law.

Arguments of Both Sides:

The petitioner, M/S Ismartu India Pvt. Ltd., represented by Senior Advocate Mr. Tarun Gulati along with Mr. Tarun Jain, Ms. Kritika Tuteja, Mr. Devansh Garg, and Ms. Sheena Tyagi, argued that the second SCN under Section 28(4) was an illegal change of opinion. They contended that Section 28(1) and Section 28(4) serve different purposes and are not interchangeable. Since the first SCN was already issued under Section 28(1), any subsequent notice under Section 28(4) lacked legal basis. The petitioner further argued that the impugned SCN did not meet the statutory requirements of Section 28(4), as it lacked any clear allegations of collusion, deliberate misrepresentation, or concealment of information—key elements for invoking this provision. They also emphasized that the factual basis of both SCNs was nearly identical, relying on the same reports from the same Chartered Engineer, thereby making the subsequent notice redundant. Ismartu India claimed that issuing a second SCN under Section 28(4) after a Section 28(1) SCN on the same facts was an afterthought, violating principles of natural justice.

The Respondent, Union of India, represented by Standing Counsel Mr. Gibran Naushad and Advocate Mr. Harsh Singhal, defended the issuance of the second SCN under Section 28(4). They relied on a 2019 Notification that allows for the issuance of supplementary notices under certain circumstances when an SCN has already been issued under Sections 28 or 124 of the Customs Act, 1962. The Department contended that the subsequent notice was not a change of opinion but rather an additional step based on further examination of the facts, enabling proper recovery of duties. They asserted that the law does not prevent the issuance of a supplementary notice if new dimensions of the case emerge. The Respondent also argued that Section 28 provides flexibility in assessment, allowing authorities to take corrective actions when necessary, and that a strict interpretation barring supplementary notices would defeat the purpose of revenue collection under the Act.

Court’s Judgment:

The Delhi High Court, after evaluating the submissions, ruled in favor of the petitioner and quashed the impugned SCN issued under Section 28(4). The court held that Section 28(1) and Section 28(4) serve distinct legal purposes and are not interchangeable. It noted that Section 28(4) can only be invoked in cases of collusion, deliberate misrepresentation, or suppression, none of which were substantiated in the impugned notice. The bench rejected the Department’s reliance on the 2019 Notification, stating that a supplementary notice cannot be issued under Section 28(4) after a prior SCN under Section 28(1) for the same set of facts. The court reasoned that since Section 28(1) applies only when there is no suppression or wilful misstatement, a subsequent SCN under Section 28(4) alleging precisely those elements contradicts the initial assessment. The bench observed that both SCNs were based on an almost identical factual matrix, reports from the same Chartered Engineer, and similar conclusions. Given these circumstances, the court agreed with the petitioner that issuing the second notice was an arbitrary change of opinion. The court also emphasized that when the same officer issues two SCNs within six weeks on nearly identical facts but under different legal provisions, it raises serious concerns regarding the legitimacy of the second notice. Consequently, the High Court held that the impugned SCN under Section 28(4) was legally untenable and set it aside.