Section 28 of the Customs Act, 1962 provides for recovery of any duty which has not been levied or has been short levied or erroneously refunded or if any interest payable has not been paid, part paid or erroneously refunded provided a notice demanding such duties/interests is issued within the time limit specified in that Section. Where the short levy is by reason of collusion or any willful misstatements or suppression of facts by the Importer the period for issuing the demand notice is five years from the relevant date specified in Section 28.

2. When the short levy is discovered or pointed out by Audit, a notice is served on the importer or the persons chargeable with duty to show cause as to why the amount due should not be recovered from him. Normally a period of 15 days is given to show cause why he should not pay the amount. The basis and the working of the short levy is required to be clearly stated in the Show Cause Notice. Copies of relied upon documents are also be furnished to the noticee, to enable him to represent his case. All such notices are required to be sent by Registered Post or given to the Agent under receipt/acknowledgement after being entered in the less charge demand register maintained in the respective sections of the Custom House.

3. It is important that the demand should be served on the importer within the time limit under section 28 of the Custom Act as otherwise the demand shall become time barred and legally not recoverable. In the case of IAD or CRA objections demands are issued immediately on receipt of the objection wherever it appears that there may be a short levy of duty as indicated in the objection.

4. Demands issued for short levy of duty as a result of audit objection, arising out of assessment etc. are to be finalised within 6 months from the date of issue of the demands and cases which could not be finalised should be reviewed for examining the reasons for delay and adopting suitable remedial measures.

5. Upon receipt of the reply from the Noticee the matter is examined in detail and the Noticee is offered an opportunity of Personal Hearing to explain his case before the adjudicating authority. After the Personal Hearing the adjudicating authority shall examine the material placed before him and shall come to the conclusion after taking into consideration the provisions of Law concerning the issue. Generally, the issues involved are misdeclaration of the description of the goods resulting in wrong classification and levy of lesser duty, misdeclaration of value, quantity and weight having a bearing on duty, calculation error resulting in short levy of duty, non inclusion of certain components of value in the assessable value etc.

6. The adjudicating authority is required to take an independent decision as an quasi-judicial authority and pass appropriate orders either determining the amount of short levy in terms of section 28 (2) of Customs Act or dropping the proceedings where it is found that there is no short levy. In either case an appealable order is to be issued by the adjudicating authority. The duties, fines and penalties imposed, if any, are required to be paid immediately, unless the party files an appeal and obtains a stay from the competent authority.

7. As regards breach of condition of the notification after availing of the exemption thereunder, it has been held by the Apex Court that the obligation under a notification is a continuing one and the Customs authorities are well within their power to recover the duty whenever it comes to their notice that the imported has failed to fulfil the conditions. In such cases the demand can be issued irrespective of the time factor and the amount can be recovered in terms of the provisions of the Customs Act.

8. The confirmed demands are enforced and recoveries effected in accordance with the provisions under Section 142 of Customs Act, 1962. Where it is not possible to recover the amount by adjusting against any money which the department owes to such persons, or by detaining and selling any goods belonging to such persons which are under the control of the Department, action is initiated to recover the Government dues through the District Collector as if it were an arrears of land revenue. Powers are also vested with Customs for attaching/detaining and selling any movable or immovable property belonging to/or under control of such person, and these can also be resorted to.