Showcause notice only a demand notice and not an adjudicating order

Rajagopalan answers readers' SME queries related to GST, export and import matters

We have received a show-cause notice (SCN) alleging willful mis-declaration with intent to evade duty, in a matter of classification. The SCN demands differential duty, interest and penalties. The amount involved is very small compared to our turnover. We intend to pay the duty and interest demanded and 15 per cent of the duty amount as penalty in accordance with Section 28(5) of the Customs Act, 1962 and get the matter closed. Our only worry is whether payment of penalty will bar us from claiming benefits or facilitations that require us to declare that we have not been penalised under, besides other legislations, the Customs Act, 1962. Please advice.

SCN is only a demand notice and not an adjudicating order penalising you. So, if you pay the penalty in accordance with the said Section 28(5) and if the matter is dropped in accordance with Section 28(6)(i) of the Customs Act, 1962, you can very well give declarations that you have not been penalised.

We have a license under Section 65 of the Customs Act, 1962 to manufacture in a bonded warehouse. We have imported only the capital goods under the duty deferment scheme. We procure all the inputs required for manufacture from indigenous sources and we sell all our finished products within India. Are we required to maintain records of such local inputs and submit returns even in such cases or are we required to maintain records of only the inputs imported without duty payment and brought into the warehouse under the Manufacture and Other Operations   in Warehouse (No.2) Regulations, 2019 (MOOWR)?

Regulation 17 of MOOWR says that ‘a licensee shall maintain detailed records of the receipt, handling, storing, and removal of any goods into or from the warehouse, as the case may be, and produce the same to the bond officer, as and when required’. So, you have to maintain records of any goods, whether imported or indigenous, that enter the bonded warehouse and any goods removed from the warehouse, whether for exports or otherwise and submit due returns.

We refer to Para C.13(i) of the RBI Master Direction no.16/2015-16 dated January 1, 2016 (as amended) on Export of Goods and Services. It says that the AD Category – I banks may consider the applications received from exporters and grant permission for opening/hiring warehouses abroad subject to the condition that applicant’s export outstanding does not exceed 5 percent of exports made during the previous financial year. This condition looks quite unrealistic given that RBI allows an initial period of 9 months to realise the export proceeds, our exports keep growing each year and 5 per cent represents less than 15 days time to realise the export proceeds. Please give me some advice.

I agree with you.  In my opinion, the limit of 5 per cent outstanding should apply to export bills pending realisation beyond the period allowed by RBI and the periods of extensions granted by banks, to realise the export proceeds. That makes more sense. The present dispensation makes no sense.


Business Standard invites readers' SME queries related to GST, export and import matters. You can write to us at smechat@bsmail.in