CESTAT set aside a 23-year-old customs recovery against Hindustan Copper citing no valid show cause notice.

May 7, 2026 : The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a customs recovery demand against state-owned Hindustan Copper Limited after finding that the proceedings were initiated without a legally valid show cause notice and were pursued after an extraordinary delay of nearly 23 years.

In a significant ruling on procedural fairness and natural justice under the Customs Act, 1962, the Tribunal held that the Customs Department could not sustain recovery proceedings that were founded merely on a demand notice and kept dormant for decades before adjudication. The order was passed by CESTAT Judicial Member Ajay Sharma in Customs Appeal No. 85750 of 2022.

The dispute originated from an import transaction dating back to September 1990, when Hindustan Copper Ltd. imported tyres, tubes and flaps. The goods were assessed and customs duties, including Countervailing Duty (CVD) and Special Additional Duty (SAD), were paid before clearance. Subsequently, the company reviewed the assessment and claimed that excess CVD had been charged. A refund application was filed in April 1991, following which customs authorities reassessed the goods and sanctioned a refund of over Rs. 8.42 lakh in March 1994.

The controversy arose after the Central Revenue Audit objected to the reassessment in November 1994. According to the department, concessional duty benefits under Notification No. 41/1989-CE were available only for tyres used in motor vehicles and not for off-the-road vehicles. Based on the audit objection, customs authorities issued a demand notice in December 1995 seeking recovery of the allegedly excess refund amount.

However, the Tribunal noted that after issuing the demand notice, the department took no meaningful action for almost two decades. The first personal hearing notice was issued only in March 2014. Hindustan Copper informed the authorities that most employees associated with the transaction had already retired and the company no longer possessed records relating to the 1990 import. Despite this, the adjudicating authority confirmed the recovery demand in March 2018 along with interest, and the Commissioner (Appeals) upheld the order in December 2021.

CESTAT found multiple legal infirmities in the proceedings. One of the key defects identified by the Tribunal was that the original demand notice sought recovery of approximately Rs. 8 lakh, whereas the adjudicating authority ultimately confirmed a demand exceeding Rs. 8.42 lakh without issuing any amended or supplementary notice. The Tribunal observed that quasi-judicial authorities cannot travel beyond the scope of the notice initiating proceedings.

The Bench stressed that the demand notice defines the jurisdictional limits of adjudication and any confirmation beyond the amount specified in the notice amounts to exercising powers beyond lawful authority. The Tribunal held that “the demand notice is not merely a procedural preamble, it defines the scope of the proceeding and delimits the jurisdiction of the adjudicating authority.”

A major issue before the Tribunal was whether the department could recover an alleged erroneous refund without issuing a formal show cause notice under Section 28 of the Customs Act, 1962. The Revenue argued that the demand notice substantially fulfilled the purpose of a show cause notice because it informed the company about the liability. The Tribunal rejected this contention outright.

Explaining the distinction between a demand notice and a statutory show cause notice, the Tribunal observed that Section 28 makes issuance of a proper show cause notice mandatory before recovery proceedings can be initiated for short levy, non-levy, or erroneous refund. The Bench stated that a valid show cause notice must specifically call upon the noticee to explain why the proposed demand should not be confirmed. According to the Tribunal, this requirement is deeply connected to the principles of natural justice and the constitutional guarantee of fair procedure.

The order further clarified that “a bare demand notice that calls upon a person to deposit a sum of money, without expressly inviting the noticee to show cause against the proposed recovery, cannot, by any interpretive stretch, be treated as a show cause notice.”

Relying on the Supreme Court judgment in Metal Forgings v. Union of India, the Tribunal reiterated that issuance of a proper show cause notice is a mandatory legal requirement and not a mere procedural formality. Since the notice issued in 1995 simply directed payment and did not ask the company to explain why recovery should not be made, the entire adjudication process was held to be legally unsustainable.

The Tribunal also delivered strong observations on administrative delay and its impact on fair adjudication. It described the 23-year delay between the issuance of the demand notice and the final adjudication as “egregious” and said such delay causes severe prejudice to the affected party.

The Bench observed that no business entity can reasonably be expected to preserve records, maintain institutional memory, or produce witnesses relating to routine commercial transactions after nearly a quarter century. It held that the right to a fair hearing necessarily includes the right to timely adjudication.

Referring to the Bombay High Court ruling in Parle International Ltd. v. Union of India, the Tribunal noted that delayed adjudication defeats the very purpose of issuing a notice and renders proceedings fundamentally unjust. It further held that the department’s prolonged inaction effectively amounted to “constructive abandonment” of the case.

Setting aside the orders passed by both the adjudicating authority and the Commissioner (Appeals), CESTAT allowed Hindustan Copper’s appeal with consequential relief. The ruling is likely to have wider implications for tax and customs litigation involving stale demands, delayed adjudication, and procedural lapses by revenue authorities. Legal experts say the judgment reinforces that statutory safeguards under Section 28 of the Customs Act cannot be diluted through administrative shortcuts and that excessive delay in adjudication may itself invalidate proceedings.

Case Reference :M/s. Hindustan Copper Ltd. v. Commissioner of Customs