Holding

The proviso to Section 28 cannot be invoked unless the show‑cause notice specifically alleges wilful misstatement, suppression of facts or collusion, and since it did not, the extended five‑year limitation period is inapplicable.

Summary

The appellants, contractors for ONGC, carried out offshore oil operations and moved goods between ONGC's rigs and the shore without payment of customs duty under a customs exemption. After ONGC shifted operations to Nhava Base, the Customs Department issued show‑cause notices alleging unauthorized loading, unloading and storage of goods and invoked the proviso to Section 28 of the Customs Act to extend the limitation period from six months to five years for recovering duty and imposing penalties. The appellants contended that the Department was fully aware of ONGC's operations and that the notices did not specifically allege any wilful misstatement, suppression of facts or collusion, which are required to invoke the extended period. The Supreme Court held that the proviso to Section 28 can be invoked only when the show‑cause notice puts the assessee on notice of such wilful wrongdoing, which was absent here, and that the Department’s knowledge of the operations precluded a finding of wilful suppression. Consequently, the demand for duty and penalty for the period beyond six months preceding the notice was barred, while the duty for the immediate six‑month period was allowed to be paid and the associated penalty waived. The appeals were allowed in part.

Issues considered

The proviso to Section 28 of the Customs Act may be invoked only if the show‑cause notice specifically alleges wilful misstatement, suppression of facts or collusion.
Whether the Customs Department’s knowledge of ONGC’s operations at Nhava Base negates a finding of wilful suppression of facts by the appellants.
Whether duty and penalty can be levied for periods beyond the six‑month limitation when the proviso is not validly invoked.

Legislation cited

Central Excise Acts. 11-A
Customs Act, 1962s. 28

Subjects

Customs dutySection 28Wilful misstatementSuppression of factsShow cause noticeLimitation periodPenaltyOffshore oil operationsONGC

Judgment

A ABAN LOYD CHILES OFFSHORE LIMITED AND ORS.
v.
COMMISSIONER OF CUSTOMS, MAHARASHTRA

AUGUST 7, 2006

B [ASHOK BHAN AND MARKANDEY KATJU JJ.]

Customs Act' 1962.

Section 28---Proviso-lnvoking of-ExLension ofthe period oflimitation-
C Held, assessee has lo put lo notice poinling out :,pecifically 1he instances lo
wilful misstalement and suppression of facts.

Appellants were contractors acting for and behalf of ONGC for the
exploration and exploitation of oil and natural gas, etc. The contractors
D carried on offshore operations with their oil rigs as per the directions of
ONGC. Between 1970 and 1987, ONGC carried on its operations from
its facilities at 12, Victoria docks. Having been permitted by the Customs
department goods were allowed to be transferred to the rigs and back to
the shore without payment of the customs duty. In 1987, ONGC shifted
its offshore operations to Nhava base. Under separate contracts entered
E into with ONGC, the appellants continued to carry out the offshore
operations. Three show cause notices were issued to the appellants
proposing to recover the escaped customs duty and levy penalty for
unauthorised loading and unloadings, storage and return of the goods
removed from Nhava .base. Further extended period of limitation in terms
F of proviso to section 28 of the customs Act 1956 was invoked. Following
it, further show cause notices were issued by which appellants' ship stores
were sought to be confiscated and the customs duty and penalty sought
to be levied. Commissioner of Customs confirmed the demand. Tribunal
accepted the appeals impugning the order by which goods were being
confiscated but appeals against other orders were dismissed.
G
It was contended by the appellant that demand of the duty and the
penalty was not justified as the department was aware all through that
Nhava base was being used by the ONGC for supply and receipt of the
goods. That apart, the show cause notices did not contain any averment
specifically pointing out which of the various omissions and commissions
Ii 290
ABAN LOYD CHILES OFFSHORE LID. 1·. COMMR. OF CUSTOMS. MAHARASHTRA 29 J

had been committed to invoke the extended period of limitation. In other A
words, no act of wilful misstatement or suppression of facts on the part
of the appellant was averred. Appellants expressed their preparedness to
pay the duty for the last six months immediately prior to the issuance of
the show cause notice.

Respondent, on the other hand, contended that though there is no B
averment in the show cause notice that the appellants were guilty of either
collusion or wilful misstatement or wilful suppression of facts but if show
cause notice is read as a whole it clearly points out that the appellants
were guilty of wilful suppression of facts.

Allowing the appeals in part, the court
c
HELD: 1.1. The proviso to st.ction 28 of customs Act can be invoked
where the payment of duty has escaped by reason of collu~ion or any wilful
misstatement or suppression of facts. The expression 'misstatement or
suppression of facts' being qualified by the word 'wilful', it requires that D
there has to be an intention on the part of the assessee to evade the duty.
1298-E]

1.2. In order to attract the proviso to Section 28 extending the period
of limitation from six months to five years-the show cause notice must
put the assessee to notice, the various omissions or commissions as stated E
in the proviso to have been committed which in the present case the show
cause noticed lacked. Moreover, appellants were working on behalf of the
ONGC and as per its directions and the ONGC had intimated the
department of its operations, the department thus being aware of all these
facts it was not entitled to invoke the proviso to extend the period of
limitation. 1299-E-F; 300-A-B] F
Collector of Central excise v. H.MM Limited, 11995] 3 322, referred
to.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 3584-3588 G
of 2001.

... From the Final Order No. Cl/92-96/WZB/2001 dated 15. 1.200 I of the
Customs, Excise and Gold (Control) Appellate Tribunal, West Zonal Bench
at Mumbai in Appeal Nos. C-1113 to C-1115-R/97-Bom and Appeal Nos. Cl
394 and 395-V/98-Bom.
H
292 SUPREME COURT REPORTS [2006) SUPP. 4 S.C.R.

A Joseph Vellapally, S. Ganesh, Mahesh Agarwal, Rishi Agrawala,
Raghvesh Singh, Amar Dave. D.K. Dass and E.C. Agrawala for the Appellants.

M.M. Paikaday, T.V. Ratnam, Kiran Bhardwaj and B.K. Prasad for the
Respondent.

B The Judgment of the Court was delivered by

BHAN, J. These appeals have been filed by Aban Loyd Chiles Offshore
Limited, Essar Oil Limited and Amarship Management Ltd. against the
common order dated 15.01.2001 passed by the Customs Excise & Gold
(Control) Appellate Tribunal, West Regional Branch at Mumbai (for short
C "the Tribunal") by which the Tribunal has allowed the appeals of the appellants
in part. The appeals are directed against the part of the order which has gone
against the appellants. Revenue has not come up in appeal against the part
of the order which has gone against it.

D FACTS
In the year 1970, Oil and Natural Gas Corporation (ONGC) commenced
offshore operations of exploration and exploitation of oil and natural gas etc.
ONGC entered into contracts with various companies, which were contractors
acting for and on behalf of ONGC for the exploration and exploitation of oil
E and natural gas etc. The contractors carried on offshore operations with their
oil rigs as per the directions and instructions of ONGC. Between 1970 and
1987, ONGC carried on operations from its facilities at 12, Victoria Docks,
Mumbai. The customs department permitted the clearance of goods to and
from 12, Victoria Docks and the oil rigs, without compliance of any customs
formalities and without the payment of duty of customs, i.e., goods were
F permitted to be transferred to the rigs from 12, Victoria Docks and were
permitted to be removed from the rigs to the shore, without payment of
customs duty.

In the year 1987, ONGC shifted its offshore operations from 12, Victoria
G Docks to Nhava Base. This was done because the facilities at 12, Victoria
Docks were not sufficient to meet the increased offshore operations being
carried on by the ONGC. Operations at Nhava Base are large scale operations •
and are carried on from five berths. Large warehousing and other facilities
are also available at Nhava Base.

H Appellants entered into separate contracts with appellants between
ABAN LOYD CHILES OFFSHORE LID. 1•.COMMR. OF CUSTOMS, MAHARASHTRA {BHAN,J.] 293

27.5.1987 to 30.6.1987. The appellants were engaged in exploration and A
exploitation of offshore oil, gas and other related services as contractors for
the ONGC. Pursuant to the contracts the appellants were to carry out offshore
operations for and on behalf of the ONGC. These contracts were extended
from time to time.

An oil rig is a floating vessel which is towed to its required drilling B
location (appointed by ONGC), and then is jacked up on four legs which
rests on the ocean floor. An oil rig, as an integral part thereof, includes
drilling machinery to penetrate and drill into the ocean floor. Appellants
carried drilling operations with its oil rigs beyond 12 miles from India (i.e.
outside the territorial waters of India), on the Continental Shelf. C
The procedure which was being followed as culled out by the Tribunal
in its judgment is as under:

"The background to the notices that were issued to the appellants
resulting into the impugned orders is the same. Each of the appellants D
was engaged in oil exploration in the waters of Bombay. They carried
out exploration under contract with Oil and Natural Gas Commission
(ONGC for short). Their rigs were positioned in areas referred to as
Bombay High, Panna etc. There was considerable movement of goods
between the shore and the rigs. The extensive machinery in the rigs
often requires repair and replacement. It was the practice in the custom E
house to treat the replacement of parts or machinery on the rigs as
shop stores and not to levy duty on them in terms of the provisions
of the Act. Items which required repair or replacement were to be
disposed from the rigs are also brought back from the rigs. on to the
main land. Such activities were carried out by a procedure centralized F
through the ONGC. ONGC was conducting such operations from
shed No. 12 Victoria Docks. The goods which were repaired and
required to be fitted as ship stores were cleared from customs without
payment of duty on transshipment permits and generally escorted by
an officer of the Customs to 12 Victoria Docks. From there the goods
used to be sent by supply boats under the operation of the ONGC to G
the rigs in question. Similarly, these supply boats used to bring from
the rigs unserviceable material or machinery requiring repair or
replacement into the Victoria Docks according to law. For example,
scrap which was to be disposed of on payment of duty, a machinery
part requiring replacement was cleared on machinery passes issued H
294 SUPREME COURT REPORTS [20061 SCPP. 4 S.C.R.

A by the department so as to enable it to be brought back to the rigs for
use. Around July 1988 ONGC decided to shift its operations to Nhava,
some distance away from Bombay Port. The procedure that was being
followed at Nhava base is elaborated in the show cause notice.
Essentially it is this. The contractor's, i.e., the operators of the oil rigs
applied to the Chief Engineer of ONGC for permission to transport
B goods from the base to the rigs or to the base from the rigs. After
obtaining his permission transport of the goods took place. The
transport took place by the supply vessels. The ONGC issued gate
passes on application by the contractor for movement of the goods
from the base to the rigs after their receipt in the base. These gate
c passes indicated the name of the contractor, description of the material
and name of the rig. They also signed by the personnel of the Central
Industrial Security Force at the gate as also by the contractor's
representative."

Customs Department issued show cause notices dated 22.4.1994,
D 12.5.1994 and 12.5.1994 to the appellants wherein it was contended that
there were unauthorized loading, unloading, storage or removal of imported,
indigenous items and scrap from the Nhava Base. There were three annexures
to the show cause notice, i.e., repair and return goods removed from Nhava
Base and not sent back to the rigs; scrap removed from Nhava Base, storage
E and return goods removed from Nhava Base and not returned to the rigs. It
was proposed to recover the escaped customs duty and levy penalty. Further,
the extended period of limitation in terms of proviso to Section 28 of the
Customs Act (for shot "the Act") was invoked. The appellants filed their
replies to the show cause notices.

F Customs Department issued two further show cause notices dated
15.2.1994 and 18.2.1994 to the two of the appellants, i.e. Aban Loyd Chiles
Offshore Limited and Essar Oil Limited by which the appellants ship stores
were sought to be confiscated and customs duty and penalty sought to be
levied. These two appellants filed their replies to these show cause notices as
well.
G
One of the points taken in replies to the show cause notices was that
the Department was aware all through that Nhava Base was being used by the
ONGC for supply of goods to the rigs and then receive the goods from the
rigs, and therefore, neither the demand for duty nor the levy of penalty was
H justified. Similarly, it was contended that the goods could not be confiscated
ABAN LOYD CHILES OFFSHORE LTD. 1•.COMMR. OF CUSTOMS, MAHARASHTRA [BHAN, J.] 295
as the Department was all through aware that Nhava Base was being used for A
loading and unloading of goods for being taken to the rigs and were being
received from the rigs to the main land. It was also pointed out that in the
present case the show cause notices did not contain an averment pointing out
specifically as to which of the various omissions or commissions had been
committed by the appellants to invoke the extended period of limitation thus B
depriving the appellants to meet the case of the Department. It was further
contended that the show cause notice did not contain the averment that the
duty had escaped or short levied or not charged because of any willful
misstatement or suppression of facts on the part of the appellants.

Appellants were given personal hearing and they filed their written C
submissions as well.

The Commissioner of Customs by his order dated 29.9.1997 confirmed
the demand as per show cause notices and rejected the contention raised on
behalfof the appellants. Demand of duty of Rs. I 0,16,35,914/- and a penalty
amount of Rs. 50,00,000/- was levied on Essar Oil Limited in respect of D
show cause notice dated 12.5.1994; and levied a demand of duty of Rs.
5,06, 12,412/- and a penalty amount of Rs. 25,00,000/- upon Aban Loyd
Chiles Offshore Limited in respect of show cause notice dated 22.4.1994 and
levied a demand of duty of Rs. 68,66,092/- and a penalty amount of Rs.
4,00,000/- upon Amarship Management Limited in respect of show cause
notice dated 12.5.1994. E
Commissioner of Customs of his Orders dated 28.11.1997 and 27. l.1998
ordered confi~cation of the goods and levied duty of Rs. 4,95,406/- and
penalty of Rs. 25,000/- upon Essar Oil Limited and duty of Rs. 4,69,104/-
and penalty of Rs. 25,000/- upon Aban Loyd Chiles Offshore Limited.
F
Being aggrieved by the aforesaid orders the appellants filed five appeals
before the Tribunal. The Tribunal by the impugned order disposed of all the
aforesaid five appeals by the common order.

Tribunal accepted the two appeals filed by the Essar Oil Limited and G
Aban Loyd Chiles Offshore Limited directed against the order dated 29.9.1997
f
and 28.11. I 997 by which the goods of the appellants were ordered to be
confiscated and duty and penalty levied, by concluded thus:

" .... HC1wever, we have to keep in mind the fact that it is not possible
.... to conclude that the department was unaware of the operations of the H
296 SUPREME COURT REPORTS [2006) SUPP. 4 S.C.R.

A ONGC at Nhava. The counsel for one of the appellants produced the
correspondence between an Additional Collector of Customs and
Nhava Sheva and the ONGC. This shows that the ONGC had intimated
the department of its operations. Further, the department would in
any case have been aware of the general nature of the activities at
Nhava base from the fact that the goods which were imported as ship
B stores were escorted by the preventive officers of the customs. The
notice was issued in 1994, six years after ONGC shifted its operations.
It is difficult for us to conceive that the department would not be
aware for six years that the ONGC was carrying out its operations.
In fact the Commissioner himself records in his order that the
c department was aware of this fact, and fault lies with the ONGC and
the department. In these circumstances we do not think that it would
be appropriate to confirm confiscation or imposition of penalties for
actions the general nature of which the department was aware, and
could have taken steps to regulate."

D The remaining three appeals directed against the order dated 29.9.1997
were dismissed. Tht: orders of Commissioner of Customs were confirmed.

Mr. Joseph Vellapally, learned Senior counsel appearing for the
appellants submitted at the outset that the appellants are prepared to pay the
duty for the last six months immediately prior to the issuance of the show
E cause notice, treating the show cause notice to be valid to that extent but
challenge the invocation of the proviso to Section 28 of the Act to extend the
period of limitation. Jn view of this submission, we are disposing of these
appeals only on the point as tc whether the Department could invoke the
extended period of limitation under proviso to Section 28 of the A.ct.
F Mr. Joseph Vellapally, learned Senior counsel appearing for the
appellants, contends that the Tribunal erred in holding that the extended
period of limitation of five years as provided under the proviso to Section 28
of the Act could be invoked in the facts and circumstances of the case. That
the Customs Department at all relevant time was in full and complete
G knowledge of all the activities being carried out by the appellants and ONGC
at Nhava Base and prior thereto by ONGC at 12 Victoria Docks. That there
is no allegation in the show cause notice that the appellants had evaded the
payment of duty either in collusion with the officers of the customs Department
or were guilty of making willful misstatement or for willfully suppressed

H
facts. Relying upon the judgment of this Court in Collector of Central Excise
-
ABAN LOYD CHILES OFFSHORE LTD. 1·.COMMR. OF CUSTOMS, MAHARASHTRA [BHAN, J.] 297
v. H.M.M. Limited.. [1995] Supp 3 sec 322, it was contended that the notice A
must contain an averment pointing out specifically as to which of the various
omissions or commissions had been committed by the noticee so as to invoke
the extended period of limitation. It was submitted that the show cause notice
in the present case did not contain the averment pointing out specifically as
to which of the various omissions or commissions had been committed by the
appellants so as to invoke the extended periud of limitation. It was further B
contended that the extended period of limitation could not be invoked in the
present case as there was nothing more positive than mere inaction or failure
on the part of the appellants. There was no conscious or deliberate withholding
of information on the part of the appellants. It was also contended that Section
11-A of the Central Excise Act is pari materia with the Section 28 of the C
Customs Act.

As against this Shri M.M. Paikanday, learned Senior counsel appearing
for the Department took us through the show cause notice in the case of
Essar Oil Limited (as the show-cause notices in the other cases are similar).
He contended that though there is no averment in the show cause notice that D
the appellants were guilty of either collusion or willful mis-statement or
willful suppression of facts but if show cause notice is read as a whole it
clearly points- out that the appellants were guilty of willful suppression of
facts.

Though it is contended that Section 28 of the Customs Act is pari E
materia with Section 11-A of the Central Excise Act we find that there is
material difference between the two provisions. The word "fraud" and the
words "with intent to evade payment of duty" occurring in the proviso to
,__.
Section 11-A of the Central Excise Act are missing in Section 28(1) of the
Customs Act and the proviso in particular. Section 28 of the Customs Act F
reads as under:

"28. Notice for payment of duties, interest etc.-

(!) When any duty has not been levied or has been short-levied or
erroneously refunded, or when any interest payable has not been G
paid, part paid or erroneously refunded, the proper officer may,-

(a) in the case of any import made by any individual for 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, H·
298 SUPREME COURT REPORTS [2006] SUPP. 4 S.C.R.

A 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 the
amount specified in the notice:

B 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 mis-statement or suppression of facts by the
importer or the exporter or the agent or employee of the importer or
exporter, the provisinns of this sub-section shall have effect as if for
c the words "one year" and "six months", the words "five years" were
substituted.

Explanation.- Where the service of the notice is stayed by an
order ofa com1, the period of such stay shall be excluded in computing
the aforesaid period of one year or six months or five years, as the
D
case may be."

The proviso to Section 28 can be invoked where the payment of duty
has escaped by reason of collusion or any willful mis-statement or suppression
of facts. So far as 'mi-statement or suppression of facts' are concerned, they
E are qualified by the word "'willfol". The word ·'willful" preceding the words
"misstatement or suppression of facts" clearly spells out that there has to be
an intention on the part of the assessee to evade the duty.

This Court while interpreting Section l l-A of the Customs Act in
Collector of Central Excise v. HMM ltd. (supra) has observed that in order
F to attract the proviso to Section l l-A (!) it must be shown that the excise
duty escaped by reason of fraud, collusion or willful misstatement of
suppression of fact with intent to evade the payment of duty. It has been
observed:

" ..... Therefore, in order to attract the proviso to Section l l-A( I)
G it must be alleged in the show-cause notice that the duty of excise
had not been levied or paid by reason of fraud, collusion or willful
misstatement or suppression of fact on the part of the assessee or by
reason of contravention of any of the provisions of the Act or of the
Rules made thereunder with intent to evade payment of duties by
such person or his agent. There is no such averment to be found in
H
ABAN LOYD CHILES OFFSHORE LTD. 1· COMMR. OF CUSTOMS, MAHARASHTRA [BHAN, J.] 299
the show cause notice. There is no avennent that the duty of excise A
had been intentionally evaded or that fraud or collusion had been
practiced or that the assessee was guilty of wilful misstatement or
suppression of fact. In the absence of any such averments in the
show-cause notice it is difficult to understand how the Revenue could
sustain the notice under the proviso to Section 11-A( 1) of the Act. " B

It was held that the show cause notice must put the assessee to notice
which of the various omissions or commissions stated in the proviso is
committed to extend the period from six months to five years. That unless the
assessee is put to notice the assessee would have no opportunity to meet the
case of the Department. It was held: C
" ...... There is considerable force in this contention. If the
department proposes to invoke the proviso to Section 11-A(l), the
show-cause notice must put the assessee to notice which of the various
commissions or omissions stated in the proviso is committed to extend
the period from six months to 5 years. Unles:; the assessee is put to D
notice, the assessee would have 110 opportunity to meet the case of
the department. The defaults enumerated in the proviso to the said
sub-section are more than one and if the Excise Department places
reliance on the proviso it must be specifically stated in the show-
cause notice which is the allegation against the assessee falling within
the four comers of the said proviso ...." E
In the present case we find that in the show cause notice 1t ts not
alleged that duty of custom could not been levied or paid by reason of
collusion or willful mis-statement or willful suppression of facts. The appellants .
were not put to notice which of the various omissions or commissions stated
in the proviso were committed by them to extend the period of limitation F
from six months to five years. The appellants having not been put to notice
did not have the 9pportunity to meet the case of the Department.

Tribunal in its order while accepting the appeals filed by Aban Loyd
Chiles Offshore Limited and Essar Oil Limited (two of the appellants) and G
dealing with the point regarding confiscation of goods has held that the
ONGC had intimated the department of its operations from the Nhava Base.
That the Department would in any case have been aware of the general
nature of the activities at Nhava base from the fact that the goods Which were
imported as ship stores were escorted by the preventive officers of the customs.
That Commissioner himself in his order has recorded that the Department H
300 SUPREME COURT REPORTS [2006] SUPP. 4 S.C.R.

A was aware of this fact and fault lies with the ONGC and the Department. If
that be the case, the appellants who were working on behalf of ONGC and
as per its directions cannot be accused of willful suppression of facts. All
these facts were already to the knowledge of the Department. !fall these facts
were to the knowledge of the Department then the Department was not justified
B in invoking the extended period of limitation. Accordingly, it is held that the
Department would not be entitled to invoke the proviso to Section 28 of the
Customs Act and avail of extended period of limitation.

For the reasons stated above, the appeals are partly accepted. The
appellants would be liable to pay the duty for a period of six months prior
C to the date of issuance of the show cause notice and not for the subsequent
period. The demand for the subsequent period is held to be beyond the period
of limitation. Accordingly, the demand of duty and levy of penalty for the
subsequent period is quashed.

Penalty, if any, for the period of six months immediately preceding the
D issuance of notice, for which the assessee has agreed to pay the duty, is also
waived.

The point on merits is left open. Parties will bear their own costs.

B.K. Appeals allowed partly.
E