S.28(4) Customs Act | Genuine Disagreement With Department Regarding Classification Of Goods Not 'Suppression Of Facts' By Trader: Delhi HC

The expression is relevant in terms of Section 28(4) of the Customs Act, 1962, which provides for the recovery of duty not paid or short paid where elements of collusion, wilful misstatement and suppression are made out in the trader's conduct.

A division bench of Justices Yashwant Varma and Harish Vaidyanathan Shankar observed, “Based on the set of facts as they presented themselves, both parties are entitled to make contesting claims. However, a genuine disagreement, as in the present case, of the classification of the goods cannot possibly be elevated to 'suppression'.”

The Court was dealing with a petition filed by Ismartu India, a firm engaged in electronics and mobile devices manufacturing, challenging the show cause notice issued to it under Section 28(4).

Ismartu argued that it was only importing parts of mobile handsets. It had thus classified its goods under Customs Tariff Heading 85171219.

The Department argued that Ismartu had wrongly classified its goods by suppressing the fact that the said goods are complete mobile sets. It contended that Ismartu had wilfully suppressed vital facts with respect to the description of the impugned goods in the Bills of Entry and thus sought to classify the goods under CTH 85171400 and recover differential duty.

Ismartu however contended that incorrect classification or declaration by it cannot form the basis for a SCN under Section 28(4), as the same would not fulfill the pre-requisites mandated by Section 28(4) regarding any alleged (a) collusion (b) deliberate misrepresentation, or (c) the withholding of crucial information.

The High Court agreed that for the impugned SCN to survive, it would have to independently satisfy the requirements of Section 28(4).

However, from the records, the Court noted that Ismartu had disclosed all the relevant invoices and other important details to the Department in support of the classification of its goods.

The Court further noted that the Department also got the goods examined by a Chartered Engineer for his opinion. The Chartered Engineer gave his opinion and followed it up with a further opinion.

This, the Court said, reflected that there existed ambiguity in the mind of the Department with respect to the correct classification of the goods, which itself negates any 'suppression'. It observed,

“The doubt in respect of the classification of the goods was based on the complete disclosure by the Petitioner of the goods imported by it, meaning thereby, that there was no suppression of the relevant facts. The Respondents have not referred to 'collusion' or 'wilful misstatement of facts' to support the issue of the SCN under Section 28(4). Nonetheless, it is apparent that there is no 'collusion' and there cannot even be a 'wilful misstatement of facts' as all the imported goods with their description were before the Respondent and the entire dispute related to their classification.”

The Court also cautioned the Department against mere incantation of the provisions of the Section without any substance to back it up.

As such, the petition was allowed and the impugned SCN was quashed.

Appearance: Mr. Tarun Gulati, Sr. Adv. with Mr. Tarun Jain, Ms. Kritika Tuteja, Mr. Devansh Garg & Ms. Sheena Tyagi, Advs. for Petitioner; Mr. Gibran Naushad, SCC with Mr. Harsh Singhal, Adv. for Respondent

Case title: M/S Ismartu India Pvt. Ltd. v. Union Of India And Others

Citation: 2025 LiveLaw (Del) 308

Case no.: W.P.(C) 15199/2023

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