TMI Blog2009 (8) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... es. There was no relief sought for refund of interest paid or for waiver of interest. Commissioner by its order held that the interest which was paid could not be charged and has to be refunded. Held that- Impugned order of the commissioner is liable to set-aside and held that interest was payable. Thus remand back the matter to the Commissioner. - 2540 of 2008, with W.P. No. 1106 /1387 of 2009 - - - Dated:- 29-8-2009 - <?xml:namespace prefix = st2 /> Ferdino I. Rebello and D.G. Karnik, JJ. S/Shri P.S. Jetly with A.S. Rao, R.B. Pardeshi and Suresh Kumar, for the Petitioner. S/Shri V. Sreedharan with Prakash Shah, Sujay Katawala, Jas Sanghavi and Uday Warunjikar, for the Respondent. [Judgment per: Ferdino I. Rebello, J.]. - All these petitions are being disposed off by this common judgment as common questions of law arise. The necessary facts to the extent required in each of the petitions will be set out separately. 2. In Writ Petition No. 2540 of 2008 a show cause notice dated July 20th 2007 came to be served on the petitioners under Section 124 read with Section 28 of the Customs Act, 1962. Demand was for duty under the Customs Act along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he application the assessee has specifically contended that interest is not payable under Section 28AB of the Customs Act as the said Section is not attracted to the facts of the case. In other words in the application itself a contention was raised about the non-liability to pay interest. The Commission by its order held that interest is not payable. It is that part of the order which is the subject matter of challenge before this Court in the petition. 7. The main questions for consideration in these petitions may now be set out. (a) Interest to be payable, must be pursuant to a statutory provision under an enactment. If there is no provision in the enactment for interest under which duty is demanded then in that event no interest would be payable. (b) Section 28 of the Customs Act will not apply to a case where duty was exempt on the date of assessment, but duty became payable due to post importation violation of conditions of an exemption notification. In such a case duty is payable pursuant to Section 125 of the Customs Act. (c) The charging Section for additional duty of customs is Section 3 of the Customs Tariff Act, 1975 and not Section 12 of the Customs Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. Section 127C (5) would be relevant and it reads as under:- "127C(5) After examination of the records and the report of the Commissioner of Customs received under sub-section (3), and the report, if any of the Commissioner (Investigation) of the Settlement Commission under sub-section (4), and after giving an opportunity to the applicant and to the Commissioner of Customs having jurisdiction to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner of Customs and Commissioner (investigation) under sub-section (3) or sub-section (4)." (emphasis supplied). 10. With the above background the scheme of assessment and collection of duty under the Customs Act, 1962 can be considered. It is now settled law that duty is payable only at the point the goods leave the Customs barrier. On impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tedly in all cases there was no payment or short payment of duty. It is secondly contended that under Section 127B(c), once an applicant files an application and admits the duty and interest payable and pays the same and seeks no relief in the matter of refund of interest, even if otherwise it could be so done, then it was beyond the jurisdiction of the Commission in an application for settlement of a case to have directed return of interest paid. Under Section 127F, when an application is moved for settlement before the Settlement Commission by virtue of Section 127F(2), the Settlement Commission shall during the pendency of the application and until an order is passed has exclusive jurisdiction to exercise the powers and perform the functions of any Officer of Customs and Central Excise Office under the Customs Act or the Central Excise Act, 1944, in relation to the case. Under Section 127H as it now stands after the amendment of Finance Act of 2007 there is no power in the Settlement Commission to waive interest. Reference is also made to Section 124 under which the Competent Officer can issue a notice for confiscation. Once an order of confiscation is passed under Section 125, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short levy or wrong levy. Section 28, it is submitted, would not apply to cases, where duty is not levied at the time of clearance in view of correct extension of an exemption notification, but became payable due to subsequent violation of end-use condition of the said notification. In such cases, there is no short levy or non-levy when the assessment was made. For this purpose reliance is placed on Circular dated 6th May, 1965 of the Central Board of Revenue. Such assessment also not is provisional assessment. It is submitted that in so far as exemption notifications are concerned, the importer or exporter has to furnish a bond and considering Section 142(2) and the amount set out in the bond that could be recovered in the manner laid down under Section 142(1) without prejudice to any other mode of recovery. It is then submitted that the provisions of Section 3 and 3A of the Customs Tariff Act are not incorporated in the provisions of Customs Act, 1962. Under the Customs Act the charging Section is Section 12 whereas under the Customs Tariff Act it is Section 3. This position in law is settled by the judgment of the Supreme Court in Hyderabad Industries Ltd. v. Union of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise. 14. We may now consider the first and second questions as to whether interest could be demanded, if otherwise it is not payable under an enactment and further whether provision for interest under the Customs Act is not incorporated into the Customs Tariff Act. To understand the issue we may first refer to some of the decisions of the Supreme Court. The judgment of the Constitution Bench of the Supreme Court in J.K. Synthetics Ltd. v. Commercial Taxes Officer , (1994) 4 SCC 276 amongst others was considering the issue, whether in taxing statutes the provision empowering levy of interest forms part of machinery provisions and is substantive law. The Court observed that such cases should be construed applying the normal rule of interpretation so as to effectuate the object and purpose of the statute and should not be construed strictly. Charging provisions including penal provision should be construed strictly. We may gainfully refer to the following observations:- " 9. Before we proceed further we must emphisise that penalty provisions in a statute have to be strictly construed and that is why we have pointed out earlier that the considerations which may weigh w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal v. CIT, Punjab. But it must also be realised that provision by which the authority is empowered to levy and collect interest even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount. (See Bengal NagpurRailway Co. Ltd. v. Ruttanji Ramji, and Union of India v. A.L. Rallia Ram. Our attention was, however, drawn by Mr. Sen to two cases. Even in those cases, C.I.T., A.P. v. M. Chandra Sekhar and Central Provinces Manganese Ore Co. Ltd. v. C.I.T. all that the Court pointed out was that provision for charging interest was, it seems, introduced in order to compensate for the loss occasioned to the Revenue due to delay. But then interest was charged on the strength of a statutory provision, may be its objective was to compensate the Revenue for delay in payment of tax. But regardless of the reason which impelled the legislature to provide for charging interest, the Court must give that meaning to it as is conveyed by the language used and the purpose to be achieved. Therefore, any provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of interest, penalty or fine though levy and collection of interest can be said to be a part of the machinery provisions and not part of the charging provisions. In the absence of any statutory provision, an Authority would be acting without jurisdiction in demanding payment of interest where otherwise no interest is payable. Incidentally, we must note that the remedy which a party is seeking. If in respect of the remedy sought by the party there is no jurisdiction to grant that relief even if interest has been levied without the authority of law a Tribunal of limited jurisdiction more so in a taxing statute cannot exercise an equitable jurisdiction. A similar view has been expressed in Collector of C.Ex. Ahmedabad v. Orient Fabrics Pvt. Ltd. , 2003 (158) E.L.T. 545 (S.C.) where the Court noted that it is well settled principle of law that expropriatory legislation must be strictly construed and must receive strict construction. That a party may apply for refund is another issue. The issue must arise from the application and related to a case with which the party moves the Settlement Commission. If a party disputes that interest is not payable then it can be a part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance (P) Ltd. , 1983 (13) E.L.T. 1562 (S.C.) was considering Section 183 of the Sea Customs Act. The issue before the Court was after having imposed fine under Section 183 of the Sea Customs Act whether an Officer was precluded from levying duty under Section (sic). 19. Examining the scheme of the Act the Court noted that import/export duty is an obligation cast by Section 20 of the Act. It is a tax, not a penalty; it is an innocent levy once the exigible event occurs; it is not a punitive impost for a contravention of the law. Confiscation, penalty and fine provided for under Section 167 (Item 8) and 183 are of the species of punishment for violation of the scheme of prohibition and control. Once this distinction and duality are remembered, the interpretative process simplifies itself. In such cases the Court held that the Respondent there was bound to pay import duty normally leviable. However, has prescribed the provisions as it fell within the penal complex nor was given the option to pay fine in lieu of conviction. The Court observed that in short the obligation under Section 20 is of the liability under Section 183. The order, therefore, was valid. Therefore, it wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormally in a case when import or export of goods is covered by an import free license or notification, the goods are released against a bond for the amount of duty otherwise payable so that the party complies with the conditions of the notification failing which the duty as set out in the bond becomes payable and can be recovered under Section 143 and 143A of the Act. The Notification itself normally provide that in the event of failure to use the goods for the purpose covered by the notification such importer shall pay an amount equal to the difference between the levy on the said imported goods but for the exemption under the Notification and the duty the party paid at the time of importation. In so far as the bond is concerned it could be enforced under Section 142(2) of the Act. 23. As submitted on behalf of the Petitioners that by itself does not mean that Section 28 is not attracted. In all cases of non-payment of duty or short levy or erroneous refund where investigation is to be done, Section 28 would be attracted in the absence of any machinery under Section 125 for deciding whether there is any breach. In a case of an import where duty is exempted by a notification, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Settlement Commission would have no jurisdiction to waive the interest. The Court there was considering the provisions of Section 28AA of the Customs Act. Under that provision on duty being ascertained, if not paid, within three months, interest is payable. On the facts of that case though the goods were dutiable in terms of the Notification they were exempt from duty subject to terms and conditions. The goods were released pursuant to a bond and undertaking. The exporter i.e. The Appellant before the Supreme Court did not comply with the conditions of re-export and accordingly a demand was made. The notices were the subject matter before the Settlement Commission and in that context the observations were made. The law, therefore, would be that the Settlement Commission had the power to waive interest only if it is statutory and payable under the Act. 26. Under Section 28AB of the Customs Act, interest becomes payable on duty becoming payable in the set of cases as set out under the said Section, which duty has not been levied or paid or has been short levied or short-paid or erroneously refunded by reasons of collusion or any wilful misstatement or suppression of facts. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach of the provision of the Act is penal in nature or a penalty is imposed by way of additional tax, the constitutional mandate requires a clear authority of law for imposition for the same. There the Court noted that the Act created liability for additional duty for excise, but created no liability for any penalty. The Supreme Court noted the judgment of the Federal Court in Chatturam v. C.I.T. Bihar , 1947 (15) ITR 302 which observed that liability does not depend on assessment. There must be a charging section to create liability. There must be first a liability created by the Act. Second, the Act must provide for assessment. Third, the Act must provide for enforcement of the taxing provisions. The mere fact that there is machinery for assessment, collection and enforcement of tax and penalty in the State Act does not mean that the provision for penalty in the State Act is created as penalty under the Central Act. The meaning of penalty under the Central Act cannot be enlarged by the provisions of machinery of the State Act incorporated for working out of the Central Act. The law on the issue of charge of interest, in our opinion, stands concluded and is no longer res integre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eads as under:- "3A(4) The provisions of the Customs Act, 1962 (52 of 1962), and the Rules 25 and regulations made thereunder, including those relating to refunds and exemptions from duties shall, so far as may be, apply to the duty chargeable under this section as they apply in relation to the duties leviable under that Act." 29. The question, therefore, would be what is the meaning of the expression 'provisions of the Customs Act, 1962 and the Rules and Regulations made thereunder should as far as may be apply to the duty chargeable under this section as they apply in relation to the duties leviable under that Act'. Section 3 of the Customs Tariff Act, 1975 came to be substituted with effect from 1st March, 2005. The relevant provision is Section 3A (4) reads as under:- "The provisions of the Customs Act, 1962 and the Rules and regulations made thereunder, including those relating to refunds and exemptions from duties shall, so far as may be, apply to the duty chargeable under this section as they apply in relation to the duties leviable under that Act." Our attention was also invited to the provisions of Section 9(7A) inserted with effect from 18th April, 2006 which re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of law. In a case, therefore, where duty has been ascertained as due under the Customs Tariff Act, 1975 by the machinery under the provisions of the Customs Act if the provisions of Sections 3 and 3A are read in their proper context, then Section 28 would first be attracted. No interest will be payable under Section 28AB if the predicates of Section 28 are not satisfied. Therefore, in a case of non-payment of duty of the payment or erroneous refund even under the provisions of the Customs Tariff Act, 1975, Section 28 would be attracted and once duty is ascertained under Section 28 interest becomes payable under Section 28AB as the machinery provisions of the Customs Act are incorporated into the Customs Tariff Act and the provision for interest is part of the machinery provisions though at the same time Section 28AB is a substantive provision for payment for interest under the Customs Act. The rule of strict construction must be rejected. Interest is compensatory for failure to pay duty on the date due and payable. Therefore, once duty is determined considering the expression, the provisions of the Customs Act shall as far as may apply Section 28AB would be applicable. The amend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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